A couple of years ago I went on a roadtrip across the midwest of the US and found myself at an agricultural co-op, chatting about the future of ag retail. I mustered up the courage to ask a question that had been on my mind, but that I worried would get me kicked out:

“Isn’t there a bit of a conflict of interest in offering advice on product usage, when you also get a commission on selling the product?” 

The answer I got was shocking: they had never thought about it. 

From the outside, this (very common in the USA) dynamic seems incredibly problematic. Others, like the French government, have questioned business models that combine expert advice and the underlying product.  

But, as Shane Thomas pointed out in our ‘Future of Ag Retail’ podcast episode, there are deeper incentives at play: 

“In the context of ag retail, as the cliche goes, it’s a relationship business. But in the sense that it's not a relationship built on a year or two; these retailers want to be able to continually support that farmer for the next 40 years. They actually have a real incentive to make sure that they’re not just pushing product for the sake of pushing product.”

This got us thinking about how the business model of ag retail has, and will, evolve as products and tech get more complex, farms get bigger, and climate volatility increases. 

The line between ag retailer and farmer is blurring 

In a bygone era, a farmer’s “ag retailer” was little more than a clerk behind a counter who rang up supplies or a salesman who took orders for the latest implement. 

Today, that relationship has evolved into a “trusted advisorship,” where ag retailers bundle (or unbundle) the products and services they offer their farmer customers.  Similarly, equipment dealers are not only in the business of hawking machines, but they service them too, and will often be a first stop for trade-ins, upgrades, and even precision ag services. 

The evolving role of the retailer, and the increasing size and complexity of farms, means the line between a farm and their ag retail partners has grown porous. Farmers are sharing more information about their crops, businesses, and decision-making with the companies they buy things from. At the same time, ag retail companies are formally and informally stepping into new roles– from mechanic to agronomist to financial advisor– to defend their value-add and differentiation. 

As this trend accelerates, it becomes less clear how (or if) the economics of the traditional US ag retail model will work. 

At what point does the sale stop paying for the support hours?

In Australian agriculture, independent (i.e., fee for service) advice is much more common (perhaps not surprisingly, given the recent scrutiny that financial services came under for the same business model conflict). In our recent podcast episode about the future of Australian ag retail, Rob Dawes highlighted that he’s already encouraging his farmer clients to pay fees for services when they receive high quality support, because the level of skill they need in their service providers is rising so quickly. This is likely to continue, if not accelerate.

Other responses we’ve seen include farmers bringing services in-house (i.e., hiring full time agronomic staff), or ag equipment companies investing in everything from in-house agronomic support to call centers so they can provide 24/7 support to customers with an increasingly automated fleet. 

There is also the model championed by companies like Farmers Business Network, which has opted to offer low-cost, often generic inputs with the clear tradeoff that no personalized, local service would be included. While many farmers have jumped at the savings opportunity, others have balked (including Australia).

Good agtech support is harder and harder to find

What remains clear is that skilled support is, and will remain, in demand in farm country, because farmers need guidance to get the full benefit of new tools, practices, and technologies. 

How they pay for it, though, will surely evolve as the existing business models of both farmers and ag retailers alike face mounting pressure to evolve. 

‍

Catch up on our future of ag retail podcast mini-series here:

• Transforming the Future of Australian Ag Retail with Rob Dawes
• The Race to Define the Future of Ag Retail with Shane Thomas of Upstream Ag Insights