White Papers

Robert Frost once wrote that good fences make good neighbors. From the farm gate to the dinner plate, we have certainly put up more than our share of fences in agriculture. Electronic commerce, though, will help us rearrange and ultimately tear down many of these fences. And that will have a profound and fundamental impact on the way each and every one of us participates in the agricultural marketplace.

At E-Markets we've invested a lot of time, energy, and money in creating value propositions in electronic commerce in agriculture. We think about of value creation from electronic commerce in agriculture in two ways, those factors that create value through cost reduction and those that create value through increasing revenue.

Traditionally, the focus of electronic commerce has been on value creation through cost reduction. The exciting potential of the Internet is that it can offer not only cost-savings, but it can also increase revenue by creating new ways to serve customers.

Electronic commerce overcomes factors that contribute to costs in our industry -- from managing orders to invoicing to communicating inventory and logistics information. CROPLAN GENETICS, for example, runs its seed orders through an E-Markets application, NetOrder. This totally automated system provides the company's sales force -- spread over a wide geographic area -- vital real-time inventory information. Orders are placed against real time product availability numbers, enabling CROPLAN's sales force to better server customers and manage its product inventory.

Electronic commerce can also eliminate something economists call deadweight loss, which occurs when the price of a product does not reflect its inherent value to a specific customer. An example is a grain processor who pays average price for both above- and below-average quality grain. Electronic commerce affords buyers the opportunity to pay for products based on their specific value to them. And it allows sellers to be paid based upon the inherent value of their product to their customers.

The truly exciting part of electronic commerce applications can create value in agriculture is their impact on revenue. For example, value has been created for E-Markets customers through information and price transparencies that enable producers and others to access markets that they couldn't easily access in the past. For example, grain merchandisers and producers have been able to participate in markets for contracted specialty grains using E-Markets applications.

Electronic commerce potentially enables our industry to shift emphasis from vertical integration to virtual integration. In the past, companies in agriculture have driven greater efficiency through vertical ownership. Electronic commerce potentially stands this concept on its head by providing more control over the supply and sales chains through information technology rather than just ownership. Individuals and organizations can potentially realize the benefits of vertical integration without owning physical assets in the future.

Electronic commerce can also result in the creation of liquidity in new markets. In our experience, new markets are made where practical methods of value-capture are created for buyers and sellers. But how do different participants in the chain ultimately put themselves in a position to capture that value over the long term, in a sustainable fashion? This occurs not only where value capture is created, but also where information and/or an execution vacuum exists and is eliminated where electronic commerce enables new liquidity to be created.

Finally, e-commerce that makes a difference to consumers will have a significant impact in the agricultural marketplace. Rewards will go to companies, brands, producers and supply chains that are able to create new value in consumer products through electronic commerce.

Creating value through deployment of electronic applications in agriculture is no trivial matter in our experience at E-Markets. There are few, if any, pockets of gross inefficiency in the industry. Widespread adoption of electronic commerce applications can also be difficult to achieve. We have proven in the last three years, however, that electronic commerce can create value for businesses in many different parts of the industry if implemented effectively.