Episode 8: Making e-commerce work for farmers
The economics of the food chain are broken and farmers pay the price. Farmers buy high, sell low, and the empty produce shelves we saw at the turn of the year show that the situation is unsustainable. In February 2023, FutureFarm launched its newest innovation, Collective Deals, a reverse auction for the agtech industry. In the latest podcast episode, FutureFarm CEO Florian Ritzmann dissects the game-changing early findings from their recent research report, and what the data says about farmers’ online buying behaviours in the digital age.
Download the 2023 ‘Making e-commerce work for farmers’ report
Contributors in this episode
Gordon Gillen
Editor
Florian Ritzmann
FutureFarm
Gordon Gillen:
Florian, your background is in price comparison. You've worked with businesses like Compare the Market, Curries and Simplify Digital. How does agriculture compare to these previous experiences?
Florian Ritzmann:
Well, it's actually surprisingly similar but also completely different. So I hope that helps. But let me elaborate a little bit. When we first started building marketplaces, consumer facing marketplaces, that offered price comparison in products like energy or credit cards, loans, insurance - we're going back to the early 2000s - and every product that we looked at at the time had one thing in common, in that, there were a whole host of very entrenched and very defensive incumbents. So, energy is probably the best example. In the early 2000s, there were six suppliers called the Big Six and they took their customers for granted. Price comparison and online tools offered by, Money Supermarket, U-Switch, Compare the Market, all of those businesses that I used to be involved with or competing against offered the kind of price transparency that was lacking and fundamentally changed the entire industry and the way these suppliers interact with their customers for good.
It's not the same place that it was, and there's now many products now where consumers wouldn't even think about buying without comparing first. But it took decades really to break down that entrenched defensiveness of the incumbents and it's the same in agriculture. You've got, perhaps even more so, a range of entrenched and defensive incumbents who take their farmers, I hate to say it, but it's true, for granted and who don't exactly excel in offering price transparency to their customers.
I talked about the suppliers, let's talk about the customers. You're talking about customers who lack transparency and pricing power. It was true then for consumers, it is true now for farmers. It's hard to know whether you're getting a good deal if there's no efficient way of comparing.
So those are the things that I've picked up that are the same. Where it's different, and we'll probably touch on that again later in the conversation, is that the products themselves are of course different. A credit card is not the same as a tonne of fertiliser. It is sold differently. So, the transactions themselves are quite complex versus an energy switch or insurance-buy for your car. Those are pretty straightforward spot buys. I hope that helps that answer, it is slightly long winded.
Gordon:
It does, it certainly does. So why is this happening then? What are the factors? It seems to be, from your answer, that maybe you think that farming is a particularly tricky sector to deal with in terms of pricing power. What is it about farming, in particular, that makes it so?
Florian:
The UK for us is a great market to learn about doing what we do, which is introducing marketplaces to the whole buying process. You actually have quite a high number of farmers. There are about 100,000 farmers in the UK, there's 200,000 holdings and what they all have in common, these holdings, is that they're quite small compared to other more agrarian nations. The average holding is less than 100 hectares and this is important because that feeds into pricing power. A big farm will obviously get better conditions for the products that they're buying than a small farm. And so pricing power is highly relevant because an atomized, distributed base of customers will on average get a worse price for the products that they're looking for than obviously a highly concentrated number of farmers with large holdings who can negotiate directly with the suppliers, as is the case in countries like Australia, South Africa or the United States where, you know, your average holding is much, much larger. So that's, I think, you know why the UK is interesting to us. But also because the problem is so much bigger and our technology is so much more impactful as, as our research shows. I hope that answered your question.
Gordon:
It does, and we'll go on to some research in a minute. In the climate and the context that you've described - the role of a marketplace - How can that help? How can that change things?
Florian:
Well, it's quite straightforward really, that part. I think it's hard to know whether you're getting a good deal for your glyphosate, for your urea, for your seed, unless you are comparing it to something else, unless there's a reference point.
Farmers know this, but they don't have an efficient way of doing this today. It is common knowledge that farmers will ring around a lot of distributors or sources of supply before committing to a price. But how many phone calls can you really make to be absolutely sure that you are getting a good deal for what you are about to buy. And the amounts that we're talking about here are not trivial. On our platform, the average transaction is easily over £2000. Technology is the tool really by which you can go onto any website or App in our case, and see what the price of urea is, what the price of fertiliser is in general, what the price of seed is or chemicals.
And there is nothing like it out there in the marketplace. So just as a tool for providing reference prices, marketplaces are hugely useful. But you know, we obviously want you to go further as a farm, we want you to actually buy from us and here again, what we can add here is transparency and convenience. To replace six phone calls with one tap of a button and you get a whole lot of time back in your day. Plus you get a great deal. That is the benefit of marketplaces, the convenience and the transparency. That simple.
Gordon:
At the start of this year, FutureFarm released Collective Deals, which is its latest innovation in the field, so to speak. On the back of that, you've released a research report which examines the trends in farmer purchasing behaviour. What's the top line on this?
Florian:
Well, I guess before I really answer that, I have to step back a little bit because I need to describe the problem that we're trying to solve here. As I said, in answer to the previous question, marketplaces will bring you transparency, they'll bring you convenience, but for many of these commodities, and this is the bit that we learned over the last two years, is that's not all, if you want to engage farmers and get them to buy. There is a little bit of extra that you need to bring to the table. And that is actually the price. So, what we learned pretty quickly is that spot prices, which is, you know, what we did in our first two years work really well for certain product categories. Fuel will sell well on spot, but look at other categories. Look at things like fertiliser. Urea for example is usually committed to by the farmer at a price 6 to 9 months in advance of it being needed. And that's because it is such an essential product. You have to have it on farm in the Spring. You must be absolutely sure of that otherwise your season might not go so well. So therefore, a spot buy, which is what price comparison marketplaces do, doesn't really work here. It's useful reference information, but it's not necessarily going to move the dial and get farmers to buy. So we had to step back and think - ok, what do we need? And the big sort of breakthrough moment that we had, and this is where our technology came into its own, is we developed this notion of Collective Deals as you just referred to. And Collective Deals is essentially just a fancy term for reverse auction. But again, something that can only be done at scale and efficiently if you've got good technology to do it with.
So what we recognised is that farmers value transparency, they value convenience, but most of all, as all of us, they value a good price. In order to get that good price, we use Collective Deals. What it does is, it aggregates the demand of all of these farmers who need more or less the same products at the same time, Urea being bought in June and Glyphosate and other chemicals being bought in spring. Just to give some examples. Moluscicides being bought in autumn. You know, all of these products, commodities are being bought at the same time by a huge number of people. So, what our technology does is aggregate their demand together. Instead of buying, what you do is you join a deal. You say ok, I need a lorry load, 26 tons of urea and what we'll do is, we'll add your 26 tons to the 1000 tons that are there by all the other farmers who have joined with you.
You don't know each other, you are transacting anonymously on a platform. And so we are bringing all of that demand together and that gives us essentially the ability to go to a supplier panel and say here, supplier A,B,C,D and E give us your best price to deliver that amount to these postcodes on those dates. And that works, it engages the farmer, it engages the supplier and it drives down the price.
We found that on average when we compare, our prices, just in the first 2 months dropped by over 10% compared to other reference prices that we got from other sources, other traditional buying groups in the market.
Gordon:
You've mentioned there, one of the takeaways Future Farm has released just this past week. A research report with, I think it's fair to say, some fairly revelatory findings.
Can you maybe give us a little bit more detail, please, on how collective deals is making an impact?
Florian:
I suppose you could summarise it most effectively by saying it's essentially just jumpstarted engagement across commodity categories that we weren't really able to crack. I mean, as I said earlier, fuel is not an issue. It sells well on the spot market. You know your tank is empty and you are going to buy on the spot.
But what we found as I also tried to explain earlier with the other categories, is that it is simply not the case. Spot prices don't work for a number of reasons. The products are commodities, but the transactions are not commoditized, they're highly bespoke. So where we ended up with this is - what the big takeaway item is: The conversion rate of farmers looking, to farmers buying, jumped 20% in just one month. The amount of farmers joining a Collective Deal took off like a rocket in the first month. Out of our 2300 UK members, we're talking about, about 10% have joined so far. That's a big number you know, when you're thinking about the life of a platform that is merely two years old. It definitely shows that there is a huge appetite for this kind of price finding methodology in the market amongst farmers. And then finally, I think the big takeaway item also was the result.
It's not enough to just join. The proof is in the pudding. If the price comes back and the price isn't good enough, then farmers will do what every consumer will do. They will go back to their original source of supply and they will buy from them.
What we found is that over 50% turned from joiners to buyers and those who didn't buy, didn't necessarily not buy because they could get it cheaper somewhere else, they didn't buy on the platform because the timing wasn't quite right - a common issue actually amongst our farmers is cash flow. It is a big thing that we will probably address in the future iteration of our technology.
So those are the three things. It's, engagement, but it's also the throughput of the deal, throughput that farmers are actually buying. And so on certain categories like fertiliser and chemicals, fertiliser in particular, in just a month our turnover volume in the UK doubled through these deals and we reached, a group of farmers that we hadn't been able to reach at all. And it is similar with chemicals, where within a month, a quarter of platform turnover came from just this type of activity, Collective Deal activity.
I think the final thing that is probably worth pointing out is that it gamifies the consumer experience a little bit, joining a Collective Deal. Farmers are by nature, this is what I've learned, they are by nature gamblers. They have to be. You gamble on the weather every day and you are often, you know, hostage to certain situations that you can't control - the availability of supply, the international grain markets, you name it. Farmers are not in control of that, but giving them this tool of, you know, joining a Collective Deal sort of resonates quite well within the mindset of farmers. Farmers understand Collective Deals instinctively and the whole process is gamified in that, we communicate regularly, we tell farmers how much demand we're building up and we make them feel part of a community here when they're joining a deal and all of that seems to work.
It's hard to put, you know, specific numbers on that part, but I'm pretty sure that's part of the reason why or at least one of the reasons why they join Collective Deals.
Gordon:
Florian, this seems maybe almost like a little bit of an, to use a sporting expression, about an open goal that FutureFarm has converted. Reverse auctions are nothing new. So why is no one else doing this?
Florian:
That is a really interesting question. As I said, at the very outset, first of all, we're dealing with an industry here that is quite entrenched. I think skepticism is sort of always the initial attitude to any kind of change. And there are good reasons for that. I really don't want to sound down on it. So any kind of innovation takes a long time to come to fruition. But maybe it's also, I think down to, you know, let's look at who should be doing this. And the organisations that should be doing this are the traditional buying groups. The likes of, you know, AF Group, Fram Farmers, Woldmarsh. And when we look at those, there's probably two things we can say about that. First of all, their technology stack is not great. They are not, I think, in any position really to do any of that. But maybe also the mindset and attitude isn't exactly there. So it is in the sense that sends an open goal and that there hasn't really been much tech investment in the supply chain at all with this type of innovation. And the incumbents who should be looking at it, either because they're beholden to the industry or because they are technologically backwards haven't touched it. And yeah, you're right. I mean, we're in the middle of building a skyscraper on their front yard and so in that sense, it is so far an open goal. And we're at least 2.5 years ahead in our technology progress from anyone else catching up.
Gordon:
I assume FutureFarm won't be resting on its laurels – What is the future for FutureFarm and indeed for Collective Deals?
Florian:
Yes, a very good question. So let's go back to some of the findings, and I would actually invite every and any listener to just open the report, download it from our website. It's just 10 pages, but it really is worth a read if you're interested in change in agriculture and in efficiency in our food chain.
But what's next is to look at some of these findings. What we found for example, is when credit terms are available on a particular deal, farmers are more likely to convert from lookers to buyers. Obviously, for a startup like us, the credit terms are not the easiest thing to organise, but that is certainly something that we know we must address on the road map. Because if we don't, we know that farmers will turn to suppliers who actually give them a worse price, worse buying conditions, but on the premise of 30 days, 60 days, 90 day credit and that obviously is not what we are about. We want to help all farmers get a good deal no matter how big or how small they are. And in order to do that, credit does become, I think it certainly is a learning from that research, quite important. So we'll be focusing on that. And we'll also be focusing on exporting what we've done here.
What we've built here is British, but it's built to be exported. We are currently pretty close to launching in our first international market with this model. Our platform is essentially licensable abroad and anyone looking to disrupt the supply chain for input buying in their country we want to talk to them because we can put them in the water within a matter of weeks to do exactly that.
So, that is our other focus really, to now replicate the success abroad because we think there is a whole ecosystem here of what we found in the UK. The problems exist, to some extent, in any other country in the world. In no country that we've looked at, with very few exception, is there a focus really on fixing the supply chain as an answer to fixing the economics of agriculture. And that's essentially what our platform is designed to do.
