B2B marketplaces are growing in many verticals within B2B distribution. Yet B2B marketplaces in the agriculture industry are the biggest by every metric: they have raised the most capital, transact the most amount of GMV and have a dominant presence on the most continents. Multiple unicorns exist in the US market and the coming years will see these grain trading marketplaces vie for global domination as they expand beyond their home markets.
Many research reports falsely categorize some Chinese or Indian B2B food marketplaces as being in the same bucket as B2B grain trading marketplaces; instead, these are quite different verticals with very different supply chains. This report helps to very clearly lay out the state of B2B grain trading marketplaces – what we are calling B2B Ag marketplaces – and what large incumbents should do as a result.
Grain can go through up to 6 different middlemen before reaching the end-customer, like a food manufacturer. B2B grain marketplaces seek to eliminate the middlemen and pass that margin on to the producer, farmers, buyers, and food manufacturers.
Leading Ag marketplace startups don’t just offer a grain trading platform, they also offer software tools, data analysis and algorithms and value-added services for logistics and purchasing of fertilizer, seeds and other products that farmers use on the farm. All these tools are meant to help the farmer be more successful by enhancing crop productivity and cultivation.
This is a classic platform strategy: provide tools and services for free to get access to the supply, the farmers’ crops. Just like OpenTable started by giving reservation management software away for free to restaurants, then added the marketplace for consumers to book tables later on. Indigo Ag, a “startup” that just raised another $500mm, started out offering microbial products for farmers and software tools. Then, a few years later after gaining traction with farmers, they launched their grain marketplace.
Our research shows that US marketplaces are expanding to countries in South America, like Argentina and Brazil, as well as countries that have a strong agriculture industry, Canada and Australia.
For these marketplaces to operate successfully and hopefully, profitably, they need to provide a lot of other services around the marketplace, like logistics and processing to the grain itself. Much of grain trading also happens internationally which means you need to connect buyers and sellers, and facilitate the transport, across oceans. This means that having a presence and the value added services in both the US and different continents is key to success. This is where large incumbents can play a role both domestically and broad.
Given the scale of these marketplaces as you’ll read in our report, it’s too late to take a purely “build from scratch” approach. Pre-Covid, some of the marketplaces were projecting to be break-even by 2021 after burning through hundreds of millions of dollars in investor capital. Those milestones are likely to be pushed out and this presents an opportunity for incumbents.
There are two paths we see for incumbents:
By investing in one of the leading B2B Ag marketplaces, the incumbent can help provide resources to expand into other geographies and achieve profitably in the US sooner. Eventually, there could also be the opportunity to expand into other commodity product segments. B2B Ag marketplaces are competing against each other, just as much, if not more, than they are competing against the traditional incumbents. For the right partner, they would be willing to put aside their differences so they can achieve dominant scale.
The incumbent would be able to benefit from the startup’s software, could enable their sales people with greater visibility into supply and could create a stickier relationship with farmers. The incumbent would also have a path to take a greater stake in the startup assuming the initial partnership goes well.
If working with one of the leading marketplaces is not in the cards, then acquiring a SaaS startup is the other direction to go. This strategy emulates the same approach that the leading B2B Ag marketplaces used for themselves. Provide a software tool and service to farmers for free or at a heavily subsidized rate, and use that as a mechanism to get greater access to supply. By acquiring a SaaS startup, this software would also benefit the core business of the incumbent while also providing a launching pad to supercharge a marketplace business model. We have included a representative example of different types of SaaS startups in this report – not a holistic overview of the entire SaaS market.
In this report we mapped out prominent ag startups in two different regions, North America and South Asia, and split them into two categories:
Grain Marketplaces that are moving substantial cargos from farmers to companies like Kellog, Cargil, Monsanto and Budweiser.
SaaS Tools are helping farmers measure their level of production, do soil testing, improve their outputs and even manage field tasks and personnel.
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