October 20, 2000

Are You A Marketing
Victor Or Victim?

E-commerce opens a new world of possibilities for producers...

A leading agribusiness consultant, known for his pragmatic approach to designing business and industry solutions, challenged wheat, feedgrain, rice, and soybean producers at the recent Texas Farm Bureau Commodity Conference in Kerrville to position themselves to become "victors" not "victims" moving forward.

"The victim says `poor me.' The victor says, `I'm sitting on the one thing the whole world needs,' and then goes back and makes a market," said Frank Beurskens, product development director for Iowa-based E-Markets, the leader in agricultural-based e-commerce, serving more than 14,000 agrifood companies, grain elevators, and producers. "Who does Monsanto and Pioneer depend on to make any money at all? They've got to sell to you. The same goes for Cargill, ADM and the packers. Who do they need in order to open up their plant tomorrow? If you have the victim approach, you'll remain a victim forever and the government will keep funneling money in to keep you just above scratch."

Internet offers opportunities

Beurskens said victors are taking advantage of opportunities via the Internet, while those who fail to do so may fall victim to it.

"The Internet is the same in its consequences to the way people, including farmers, do business as the railroad was in the 1880s. If you were a buggy maker, and in comes these railroad tracks in town, two steel ribbons that ran through town put you out of business. The Internet is invisible, running through telephone wires. We're so used to physical stuff. When I ran a grain elevator, I would think of bins, land and crops growing on it. That's where I made the money. With the Internet, it's not so much the product you're raising. It's the decisions that you're making that are going to be worth money now," he said.

In 1995, Beurskens founded AgriBiz.com, an award-winning Web site for news, markets, and research information, which E-Markets recently purchased. Prior to his consulting career, he was co-founder and CEO of one of the nation's leading agricultural brokerage and risk management firms.

E-Markets, Inc. is a hub for agrifood electronic commerce, with its Web site (www.e-markets.com) receiving more than 50,000 visits per day. Since 1996, E-Markets has been connecting buyers and sellers of agricultural products, and provides access to detailed, up-to-the-minute market information through the Internet. E-Markets offers tools that provide customers with the power to improve communication and information flow, to better facilitate price discovery and commerce transactions, and to improve decision-making and risk management.

End-user, producer link up

Beurskens said farmers are on the losing end as long as there is incentive for quantity, not quality. Until now, end users were unable to efficiently locate grain based on attributes specific to their particular needs. Again, the Internet has provided a way to overcome the problem.

"If you're a soybean producer in Texas, how can a tofu producer in Tokyo find you? It's easier to find Cargill. It's been hard, given the technology of the past, but with the Internet, it's possible to link the end user with the producer," said Beurskens.

Beurskens said inefficiencies in the marketplace have made it easy to become a victim.

"Value is blended away on the farm and then throughout the system," Beurskens explained. "In a commodity world, grain starts out with very specific attributes. Composition, protein composition, is a little different from farm-to-farm based on soil, rainfall, latitude in the state. The way a commodity system works is it takes the good stuff in one part of the state and blends it with the bad stuff on the other end. Enough blending, enough times and the result is kind of average."

Some things beyond the control of farmers, like the fact that they have no simple and effective way to manage price risk, contribute to the victim mentality. However, Beurskens said producers are responsible, in part, for some of their own problems.

"Producer fragmentation and independence increases integration pressures. It forces commercial companies to integrate and get big. We've got to work together to compete. Producers need to organize their asset. You may think your asset is dirt. Your asset isn't dirt. Your asset is that you possess the power in the decisions you make on what you do with your dirt," he said.

Ag Guild has negotiating power

As an example of what can be done through cooperation, Beurskens told how he brought together 35 producers, with an average of 150 acres each, in Chicago to form a corporation called Ag Guild, to market corn and soybean crops. He said every producer pledged 10 percent of his/her production to the management of the guild.

"The Ag Guild makes the decisions on over 7,000 acres of production by organizing. I created the largest farm in Illinois, without anyone losing anything. This year, they have 30,000 acres. The Guild went out and contracted with other farmers to fill contracts they discovered for themselves. I just talked to the Guild president and he said DuPont is going back with them in the next few weeks to negotiate contracts for next year," he advised. "The Ag Guild is a structure that says, `I'm going to coordinate.' If I'm a buyer, I do not want to find 35 farmers. I want to find one person to talk to. The Guild created a contact person."

By the same token, Beurskens says Guild members have the power to negotiate better prices by aggregating demand.

"We feel like we're price takers, that we have to take what we're given. If you organize, aggregate your demand, you can do better. Producers can pull together orders on the Internet. If you want to buy a certain variety of seed, you go on the Internet. Say, I want to start a group order buyer for Pioneer 2244. Any producer can come in and add their name. How many bags will they buy? The order stays open for four weeks. The volume gets bigger and bigger. Then you get a quote," he said.

Beurskens said the concept differs from a farmers' cooperative in that it does not require physical assets and a staff.

"In terms of market power, you can create the same structure. The way business is organized depends on the technology available. You can now do what the cooperative did. You build business around the new technology," he explained.

According to Beurskens, businesses organize to coordinate. They exist to guide the flow of work, materials, ideas and money and the form they take is strongly affected by the coordination technologies available. Price, he said, has been the primary coordination mechanism for agriculture: price alone determines what to produce, what genetics to use, how much to plant, what to apply, who to buy from, etc.

Buyers buy solutions

Beurskens said most agriculture is organized very local, but the Internet has changed that.

"If a company is selling RoundUp, what's the difference if I buy from a local supplier or someone 500 miles away, but 30 percent cheaper? You say service is a big issue on some items. E-commerce is starting to contract the service to go with their product," said Beurskens. "The Internet requires a change in how we do business. It makes suppliers start thinking about what business they're in."

Electronic commerce involves clusters of related activities that customers engage in to satisfy a distinct set of needs; activities closely related in the minds of customers (i.e. crop input purchase, production contracting, feeding, hedging, processing, distribution, insurance, operational financing). Sellers sell products, but buyers buy solutions, Beurskens emphasized, adding that every purchase is related to some other activity. Virtual markets seek to link these activities through alliances, improving coordination and industry efficiency.

"At E-Markets, we guarantee payment of any seller and use GE to protect every transaction. You have the risk of doing business on an exchange, to ensure payment. We've been working with trucking firms on the Internet so we can offer one-click trucking. If we find a market in Arkansas and you're in Texas and need to find a trucking firm, with `one click,' we will immediately give you a quote on trucking. We're working with the railroads to get `one click' rail rates anywhere in the U.S.," Beurskens advised.

Start thinking `service'

Beurskens said all agribusiness, down to the farmer, needs to stop thinking about production and start thinking about service. He asked a series of rapid-fire questions to members of the audience.

"Are you selling grain or protein, or gluten strength if you're a wheat producer? How many of you know the bake-out quality of the wheat you produce? How many of you have had baking tests run on your wheat? How do you negotiate or discover a market if you don't know? Whose responsibility is it to know the value of what they produce? That goes back to `victim' or `victor,'" said Beurskens, adding: "I know what my wheat's worth. The Federal Grain Inspection Service will run those tests for you for $150 for 20 samples. That's cheap to know what you've got."

The E-Markets product development director said new tools and exchanges are emerging on the Internet to manage risk, discover value and enhance coordination between producers and end users.

"Access becomes the scarce resource. All the sellers end up working with one big seller representing other sellers. That's the traditional way. By the end of summer, the Chicago Board of Trade will be working with a commodity exchange on the Internet. I believe the pit of trading will soon be gone," Beurskens predicted. "When they introduced electronic trading in Europe, all the volume went to the electronic market. Ag products are all going to trade on the Eurex later this year. Once those contracts trade on the electronic exchange, more and more contracts will potentially be offered. On the downside, like on the mercantile and livestock exchange, we're likely to see ag contracts wither away. Ag contracts on the physical exchanges won't have much volume. There is not much liquidity in ag contracts."

Finally, Beurskens pointed out that GE Credit, the largest trade financing company in the world, does no credit lending in agriculture.

"They're working with us because they would like to offer trade credit to producers. Until now, they've had no network to do it. You're finding new people out there are coming into the industry, but they had no way to find you until now. It's a whole new infrastructure," said Beurskens.

"Remember, you're sitting on the asset the whole world needs," he continued. You just have to manage it. You have more power today than in the history of agriculture. This new technology, the Internet, takes responsibility and initiative on your part. If you don't take it, you'll be a victim. But you have a choice, for the first time in 50 years..."