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Ag News

Ag Tech Sunday - The Economic Laws of Data and Digital in Agribusiness

  • By: "Prime" Ag News
  • Feb 16, 2020

This article is bought to you by PMG Finance.  

By Shane Thomas

Check out Shane Agronomy website here.

Digital tools and data are continually talked about in every industry, including agriculture and agribusiness. I find in agriculture we talk about data and digital tools in a very singular way, not always seeing the scope of how we can leverage and utilize data to revamp numerous areas of a business at once - whether in farming or in other areas of agriculture. But data and digital tools change game when it comes to using assets, achieving scale, and delivering returns in excess of traditional norms. This is where the economics of data and digital can come into play. The economics of digital assets can have a profound influence on any business; how it operates, how it strategizes, how it scales and more. I have taken some the laws from Bill Schmarzo, who often discusses the economics of data and these laws specifically, and applied agricultural examples and context to each of them to bring them to life for all of us in the industry.

Law #1: Digital Transformation is about innovating business models, not just optimizing business processes. It’s about leveraging superior insights to build new core competencies around customers, products and operational intelligence.

The ability to capture data, analyze it and streamline business decisions and processes has been around for years. Now optimization can be enhanced even further, but this isn’t where the big opportunity lies. It’s in shifting business models and monetizing in ways that weren’t considered before. The most commonly discussed application of this talked about in agriculture today is in outcome based pricing (link Bayer). The leveraging of data and data science to be able to essentially “guarantee” an outcome and capture some of the upside, while having their downside underwritten just to name one example.

Within here are a few data enabled business models:

o Data enabled product offerings eg: Parametric insurance from Farmers Edge

o Market places and exchanges eg: Combyne from FarmLead

o Platforms – connecting 2 or more interdependent groups eg: AgVisorPRO

Or connected devices enabling monetization

o Smart sensors eg: Paying for sensors and/or their insights as a subscription service.

o Smart features such as a predictive maintenance service from equipment companies

o Data enabled products eg: Parametric insurance, outcome based pricing

Law #2: Digital Transformation is about coupling digital technologies with digital assets in order to eliminate time and distance barriers in your business model.

Farming in North America happens fast. The ability to have a quicker feedback loop can be instrumental to having a successful season – whether you are a farmer, retailer or product manufacturer. If you can leverage data to predict occurrences before they occur, what could you do to your business process and how would that change behaviour? What if you could use weather and modelling to predict in season, 9 days in advance, the risk of a specific area for fusarium head blight? What if you could utilize machine learning to assess weather throughout the fall and early winter to better understand the likelihood of fungicide use intensity in the upcoming season? Increased forecast accuracy, decrease warehousing and trucking costs, increased sales and optimization of programming could be achieved. This could be applied to the equipment business as well. The opportunities to flip this paradigm start with digital infrastructure and a pointed effort to begin assessing this data.

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Law #3: Digital Transformation is about creating new digital assets around data, analytics and insights about your customers, products and operations. Digital Transformation is about predicting what’s likely to happen, prescribing actions and learning from the results faster than your competition (predictive intelligence). I mentioned the streamlining of the supply chain briefly above and wont belabor that, but today in farming the majority of our interaction are person to person. This is great and necessary; farm business is still a primarily relationship driven business and will remain driven by relationships for years to come. But if you have an online presence or portal in ag retail for example, there is the ability to capture digital footprints – what were they searching on the site? How long did they stay? Is there a correlation between products? Are there tools to be built online that could support these initiatives eg: programming? If you have an e-business capability can you better understand the pairing of products they searched for? How would this enhance the relationship with the customer? How could you create a better customer experience for your best customers? What would this do for engagement, actions taken and ultimately sales?

Using Home Depot as an example, they have grown significantly online the last number of years with about 8% of their transactions occurring online and 50% of those transactions being picked up in store. That’s >$8billion in online transactions per year! The kicker is over 60% of their sales in total start with a customer searching online! Imagine if they didn’t have a digital store front to engage and inform the customer? The amount of data they are obtaining around customer interests, products connections and future needs has evolved their understanding of customers and capabilities as a retailer.

Now, agriculture is not B2C (business to consumer), it’s B2B (business to business), but I’d argue there is more similarities between typical B2C customers in farming than there is traditional B2B. For example, there typically isn’t layers of management to be involved with misaligned incentive structures that can hinder optimal decisions and outcomes. The farmer is typically the one with the most significant skin in the same ultimately making the purchase decision, just like in a B2C setting.

Conclusion

The power of digital economics scalable and can help drive not only your business, but your customers. Data compounds and gets better at rapid paces. This enables to ability to customize and create new products and experience that create value for businesses in unforseen ways. Embracing data and digital assets and grow your business in ways that aren’t possible in an analogue world.

https://www.shaneagronomy.com/

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