impact of e-commerce on the structure of agriculture presented by: frank beurskens, director product...
TRANSCRIPT
Impact of E-Commerce on the Structure of Agriculture
Presented by:
Frank Beurskens, Director Product Strategy
E-Markets, Inc.
www.e-markets.com
Econ 135Econ 135September 12, 2000September 12, 2000
The Grid
Technology Infrastructure Evolution:• Transportation Grid
• Energy Grid
• Communication Grid
• Information Grid
Dot.com Economics
Dot.com Economics
Food System Economics
Se
llers
Buyers
Many
Few
Few Many
Crop Inputs31% - $423 billion
Crop Outputs5% - $74 billion
Value Enhanced21% - $285 billion
Retail Food43% - $585 Billion
$1.4 Trillion Marketplace
eCommerce Business Models
Se
llers
Buyers
Many
Few
Few Many
Information Asymmetry
AggregationCollaborationOpportunity
AggregationCollaborationOpportunity
Public Market
Private Market
Nature of the Grain IndustryWhat is the structure of the industry?
•Fragmented production base with consolidated firms on either side•Commodity based with trend toward attribute specific production•Majority of on farm production must be processed•Minimal communication between sectors
Where are the inefficiencies within the chain?•Producers seldom follow the market’s logistical signals (Government subsidization also muffles market signals)•Producers and end users have equal and opposite commodity price risk - price of underlying commodities vary significantly and unpredictably•Producer’s incentive structure assures excess production•Significant transaction costs - logistics, negotiation, search and discovery and document transfer
The Nature of the FirmR. H. Coase 1937
“All change which improves managerial techniques will tend to increase the size of the firm.”
“Inventions which tend to bring factors of production nearer together by lessening spatial distribution tend to increase the size of the firm.”
The Nature of the Firm -R.H. Coase - Economica, n.s., 4 (November 1937)
“All change which improves managerial techniques will tend to increase the size of the firm.”
“Inventions which tend to bring factors of production nearer together by lessening spatial distribution tend to increase the size of the firm.”
The Nature of the Firm -R.H. Coase - Economica, n.s., 4 (November 1937)
Organizations and markets as information processors
“Many of our economic institutions emerged in an era of relatively high communications costs, limited computational capability and related constraints. Information technology has the broad power to reduce coordination, communications and information processing costs.”
Beyond Computation: Information Technology, Organizational Transformation and Business Performance by Erik Brynjolfsson and Lorin M. Hitt http://ebusiness.mit.edu/erik
“Many of our economic institutions emerged in an era of relatively high communications costs, limited computational capability and related constraints. Information technology has the broad power to reduce coordination, communications and information processing costs.”
Beyond Computation: Information Technology, Organizational Transformation and Business Performance by Erik Brynjolfsson and Lorin M. Hitt http://ebusiness.mit.edu/erik
The InternetEnabling Coordination
Business organizations are in essence mechanisms for coordination. 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.” Lubacher and Malone, HBR Sept-Oct 1998 “The Dawn of the E-Lance Economy”
Business organizations are in essence mechanisms for coordination. 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.” Lubacher and Malone, HBR Sept-Oct 1998 “The Dawn of the E-Lance Economy”
Price 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 or sell to, when and where to deliver. Will price be replaced as the coordination mechanism?
Industry ConsortiaAlternative coordination mechanisms?
EFS Network - Electronic Food Service Network, a joint venture of Cargill Inc., Sysco Corp., Tyson Foods Inc. and McDonald's Corp., four companies from different segments of the food-service industry which will operate a business-to-business marketplace for the industry. The consortium includes all segments of the foodservice industry, from food manufacturers and distributors to restaurant chain operators.
Rooster.com - an “electronic shopping mall" for farmers combining Cargill, along with DuPont and Cenex Harvest State
Novopoint.com - a partnership with software giant Ariba for food and beverage manufacturers and their suppliers.
e-STEEL- Global steel trade leaders, Cargill Steel, Duferco, Samsung Corporation and TradeARBED today announced that they are creating an independent global exchange for the international trading of steel on the Internet
MeatandPoultry.com IBP, Cargill, Smithfield, Tyson, Gold Kist, Farmland plan e-commerce system for meat and poultry
LevelSeas.com - Freight market
Horizontal Alliances
Perfect competition limits profitability•Many buyers and sellers•Homogenous product•Minimal return on investment
Producers can break away from perfect competition:
1. Seek out niche markets2. Expand farm size3. Form horizontal alliances with other producers4. Enter vertical alliances with commercial food, marketing, and processing companies
Source: “Understanding Agriculture's Transition into the 21st Century - Challenges, Opportunities, Consequences and Alternatives” David M. Saxowsky and Dr. Marvin R. Duncan North Dakota State University Agricultural Economics Miscellaneous Report No. 181
Internet Business Models - Aggregation
SellerSeller
SellerSeller
SellerSeller
SellerSeller
SellerSeller
SellerSeller
SellerSeller BuyerBuyer
BuyerBuyer
BuyerBuyer
Switching RolesThe Path towards Market Power?
Centralizing Access to Decision-Making:
•Where You Can Find MeWhere You Can Find Me - Access
•What I HaveWhat I Have - Composition / Acres
•What I Can DoWhat I Can Do - Capability
•What I Will BuyWhat I Will Buy - Demand
Switching RolesThe Path towards Market Power
A Producer’s most valuable asset is not the crop... nor the land... But the information they possess about
• what crops / varieties will be planted• what inputs will be purchased - seed, fertilizer,
chemicals, fuel, energy and machinery
• how grain is harvested, stored and handled• where and when the crop is sold and delivered
Value DiscoveryThe Seller’s Responsibility
Research by: A. Kravchenko and D.G. Bullock, Dept.. of Crop Sciences University of Illinois
Conclusion• The Internet represents a new business infrastructure.
• Agriculture will eventually integrate the Internet into the daily business process:– to access news and market information
– to transact business and discover new opportunities
– to connect to the value chain
• But, who will use these e-commerce tools?
Producers - Advisors - Intermediaries - End Users --- Liquidity Stalemate