The way that farmer’s sell grain hasn’t changed much in the past century. Most grain farmers store their crops at the local grain elevator which mixes quality and source. Farmers sell at the cash price offered by the elevator, or lock in a futures price on the grain commodity market. While this system has helped feed a booming population by streamlining the crop supply chain, it has also squeezed farmer’s margins and given wholesale buyers and end-consumers less choice in their food quality and source. A crop marketplace that directly connects farmers and buyers ensures that the quality and source of food is clearly communicated to consumers willing to pay a premium for that quality.
The domestic farming output market is close to $200 billion, and that’s excluding markets such as fishing.
Further, a crop marketplace is not limited to just grain. An agricultural platform can include other types of crops like cotton and soybeans, or products that consumers are already willing to buy at a premium. For example, consumers already pay more for higher quality coffee and meat. And there’s a huge opportunity for the marketplace owners. The domestic farming output market is close to $200 billion, and that’s excluding markets such as fishing.
As consumers increasingly demand to know how their food was sourced and farmed, and its nutritional quality, buyers need to look beyond grain elevators and deal directly with farmers who meet their needs. And farmers who produce high quality food, like high-protein wheat, should earn a premium for that quality.
A crop marketplace, such as Indigo AG’s marketplace for rice, soybeans, corn and cotton, can satisfy the evolving demands of farmers and consumers. But is it viable, and can it work at scale?
Startups like Indigo AG have been proving the business case for a crop marketplace and building the tech necessary to reassure buyers that they’re receiving quality, ethically-sourced food.
To assure consumers of food quality and source, Indigo certifies crops sold on its marketplace. As Indigo describes on its website, its agronomists work side-by-side with farmers to capture crop data, verify it, and make it available to buyers.
This method has attracted some large buyers. In 2017, Grain Craft (the nation’s largest independent flour milling company) agreed to buy 1M bushels of identity-preserved wheat through Indigo at 43 cents per bushel over the commodity price. In 2019, Anheuser-Busch agreed to buy 2.2M bushels of rice that meets specific environmental attributes to reduce water use and nitrogen emissions by 10%.
Indigo AG’s ability to land large contracts with big players in the industry proves that there is a demand for certified crops, and that buyers are willing to pay a premium for a variety of factors. But is this model that relies on on-the-ground agronomists scalable?
For a long time, grain elevators not only stored and sold grain, but they also analyzed grain for quality. Today, services like Farmers Business Network have tapped into the data and mobile revolution to put farm and crop data at farmers’ fingertips. Farmers Business Network (FBN) offers analytic tools that rate seeds, provide benchmarking data for yields and soil, map a farm’s yield response to agronomic inputs, and more. In addition to providing farmers with data about their farms, they also provide market data related to pricing, storage, transportation and marketing options.
Imagine if on-the-farm analytics data was sent directly (and wirelessly) to a crop marketplace. Marketplaces like Indigo wouldn’t need field agronomists to visit farms to collect data. And in fact, FBN also helps farmers find direct buyers by match-making buyers and producers, and has a fledgling members-only marketplace for agricultural inputs and tools like tractors.
As these marketplaces evolve, any farmer could buy a marketplace-approved data tool and submit that data to the marketplace when selling their crops. Advances in wireless technology and data processing have made it easy for farmers to know more about their crops and share that data with multiple marketing channels with the click of a button.
What Indigo and FBN make clear is that farmers and buyers both benefit from a more direct relationship that cuts out the middlemen and empowers farmers with their own data. Of course, even on a marketplace that transaction is facilitated by a third party – the agricultural platform’s owner. But who should own the platform?
A marketplace is a platform, and like all platforms it grows when producers (farmers) and consumers (crop buyers) both find value in the connection facilitated by the platform. Producers won’t join a platform without consumers, and consumers won’t join a platform without producers.
This chicken-and-egg problem is true of all nascent platforms. The good news is that in agriculture both the supply and demand side have large corporations that can bring their existing supply or network of consumers (or both) to jumpstart the platform while also providing the capital to finance the platform’s development.
To identify who is best positioned to support a crop marketplace at scale, we can look to either side of the platform.
A crop marketplace needs buyers
Really big buyers of crops, like giant food processors Cargill, Nestle, Archer Daniels, and Sysco, would greatly benefit from investing in a crop marketplace like Indigo AG. Their relationship with farmers can ensure that enough farmers join the platform to get it off the ground. As farmers join the platform, other buyers will join the marketplace as well (and thereby attract more farmers who attract more buyers, and so on as network effects kick in).
For food processors, owning a marketplace that facilitates direct transactions with farmers lowers their costs, increases supply chain transparency, and allows them to shop for quality among a larger inventory of differentiated crop. Or, conversely, not spend on certain qualities that they don’t need. For example, a flour mill may want large quantities of high-protein wheat for some products, but a brewery has no need for high-protein wheat and can invest in a less protein-dense strain. Currently, grain elevators mix quality, and other crops like soybeans have complicated supply chains. Food processors lower their own costs by streamlining the supply chain, and earn extra revenue by charging a fee to those who wish to benefit from the platform.
A crop marketplace needs farmers
The U.S. has a number of large agricultural cooperatives. Some of them are massive, such as CHS, Dairy Farmers of America, Land O’Lakes, GROWMARK, and Agri Processing Inc. If the crop marketplace seeks to boost farmers’ margins, then any large cooperative is well positioned to build or buy an existing crop marketplace to ensure that farmers are well represented in the platform.
If agricultural cooperatives owned the selling and distribution platform, then they could ensure that their farmers are able to sell their crops at the best price. Currently, the commodity market locks farmers into a one-size-fits-all selling channel that doesn’t let farmers differentiate by product quality or farming method. Farmers who want to invest in more expensive seeds and environmental farming techniques can now find a market willing to pay for that investment.
Of course, nothing prohibits cooperatives and/or food processors from banding together to build a digital infrastructure that benefits them all. Indeed, there are examples of this in other industries. In the mobile phone industry, phone manufacturers banded together in the Open Handset Alliance to build phones that run Android. In the finance industry, banks banded together to create Zelle and digitize money transfers (and compete with Venmo).
The future of business relies on the platform economy. To keep up, long-standing competitors could mutually benefit from banding together to build a digitized, platformized industry.
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