Brian Buhr is currently an agricultural economist at the University of Minnesota and formerly a retail market manager with E-Markets, an Internet-based agribusiness in Ames, Iowa.
Q What caused the rise of e-commerce companies in agriculture?
A Ag. e-commerce has followed the e-commerce rise in the general economy. E-commerce tends to work well in areas where there are a large number of buyers and sellers, and products are highly differentiable.
For example, Ebay brings together millions of buyers and sellers and any kind of product. These products and individuals would be impossible to find without a vehicle to make them known to the market.
Agricultural e-commerce is betting on the fact that increasingly diverse products, due to biotechnology and the fragmented producer market, will be a good fit for e-commerce as well.
Q What does e-commerce offer pork producers?
A Better, faster, cheaper – that’s the rally cry of e-commerce. The Internet and e-commerce has already made information more accessible and timely. However, the ultimate goal is to improve markets. E-commerce hopes to help people find better prices, faster and more cheaply.
Agriculture’s drawback is that it requires moving bulky physical commodities between multiple stages of a supply chain. You don’t load hogs on a UPS truck and ship them to a packer across the country. Nor can you send them electronically. Therefore, logistics applications – those that manage the physical side of agriculture – will be necessary to provide the potentially huge benefits to producers. Still, producers can already buy pharmaceuticals, fertilizers, feed and grain from electronic markets. It offers a broader supplier selection than local venders.
The biggest downfall isn’t a new one, and that’s "buyer beware". Knowing who is offering information and products and the source’s reliability is an issue as old as commerce itself, but the electronic handshake isn’t quite as firm.
Q What traits should a pork producer look for in successful e-businesses?
A Security Exchange Commission filings of business-to-business e-commerce firms will list the industry as "business services". This tells us exactly what we should expect from a good e-business – excellent service. This includes the following:
Site functionality (navigation ease, loading speed, overall user-friendliness).
Understanding of markets or product offerings. Users need to clearly understand how price is determined, the delivery requirements and any other contract terms that will affect the transaction.
Transaction services. As examples, some sites will arrange for trucking options or credit. Some will offer decision tools that localize price for different shipping locations. Excellent e-commerce sites will make these services available and transparent.
What are the return policies or after-sale service? If the site is operated by the business itself, the electronic transaction is handled like other purchases. For third-party sites you should understand who guarantees services or products.
Privacy and security are an issue. A reputable site should have a clear policy on how it handles confidential client information such as credit card numbers. Anything you provide via the Internet likely goes into a database somewhere. Pay attention to what information is going to whom.
Who is running the site? This has two dimensions. First and most obvious is simply the importance of business relationships. Less obvious is the fact that whatever entity runs the site likely has implications for its motivations.
Q How large is the e-commerce ag market?
A A business-to-business online trade source, Forrester Research, forecasts the United States at $1.5 trillion in goods, and $200 billion for services by 2003. For agriculture and food the estimate is $80 billion. For perspective, in 1998 the National Pork Producers Council estimated the total value of hog and pork sales at $35 billion. So, the market potential is huge and will grow.
Q What role will e-commerce play in the pork market?
A E-commerce’s greatest impact will be in supply-chain management. A typical hog will go through at least four business entities prior to the final consumer. Increasingly, there is a need to pre-identify source-specific attributes of hogs/pork. This is evident in the rise of vertical integration, which attempts to control product attributes and verify information. E-commerce’s ability to assimilate and analyze real-time information regardless of location offers the prospect of electronically tracking products through the supply chain without requiring tight vertical market contracts or integration efforts. This in turn holds potential for a rebirth of agricultural markets.