Ag Chem Around the World: Brave Decisions Required

Over the last weeks we have highlighted some stark problems in today’s ag chem supply chain. It ought to be within UK farming’s power to design a new system which better benefits farmers and consumers.

Alternative models do exist. Today we take a look at four countries which offer some points of inspiration for farms, regulators, and suppliers, to make some brave decisions.

BRAZIL

Market size: Very Large

Farm types: Very large (>100’000Ha), monoculture production

Supply chain structure: Highly competitive, with large penetration of post-patent products.

Point of interest: Manufacturers in Brazil have developed a direct Key Account approach for growers, selling directly and arranging logistics. This makes Brazil one of the most efficient supply markets in the world. It also allows manufacturers a more meaningful and value-adding relationship with their customers as they look to differentiate through services.

FRANCE

Market size: Medium-Large (2.5 times the UK)

Farm types: Relatively small (~75Ha) with a high element of tradition and family farming practice

Supply chain structure: Over the 20th century, the French supply industry has evolved into a set of cooperatives who hold regional monopolies, often integrated with a wide range of agricultural services such as grain marketing and agronomy.

Point of interest: While this in theory allows direct accountability to their members the farms, the reality is that most farms only have one route to buy and sell – removing any pressure of competition on suppliers.

GERMANY

Market size: Medium

Farm types: Medium (comparable to UK) with relatively high levels of collaboration

Supply chain structure: German supply companies have emerged from early 20th century cooperatives to be predominantly private sector held, and encouraged to compete effectively.

Point of interest: The German state has retained a role in agricultural extension services, which has ensured a continued division between the supply of goods and advice. This has led to one of the leanest supply chains in the world, and good penetration of post-patent products.

UNITED STATES

Market size: Very Large

Farm types: Large (~2000Ha), competitive, progressive on technology and risk management

Supply chain structure: Historically highly consolidated and controlled by private sector players, much like the UK

Point of interest: The US is undergoing a transition to greater transparency of price and supply, thanks to improving connectivity and access to information on farm. A new generation of distribution companies is using this to their advantage by providing lean and transparent supply to farms, favouring quality post-patent chemistry. A real game changer for a such a historically controlled market.

A new UK model?

In the UK, private sector distribution and agronomy companies are overlaid onto a myriad of buying cooperatives, while manufacturers spend vast budgets influencing the farmer and trialling products. This duplication of activities is clearly a high cost supply chain solution – there is broad recognition that the UK is ‘over-serviced’, which equals higher prices to farms.

Multiple layers also add complexity and confusion. Resulting in distorted advice and decision making in the field, as commercial or individual incentives compete with the best outcome for the farmer. See our analysis of ag chem prices.

It would take courageous decisions from farmers, regulators, and the supply community to drive structural changes beneficial to the UK. Using our global examples for inspiration, here is our short list of opportunities to focus on:

1. Legally enforce the division of agronomy and product sales to farms

Only by explicit division can UK farmers effectively benchmark their cost of production and drive explicit competition across distribution. This openness of information would lead to a German-like model of competitive pressure on our existing supply chains. Other regulators are making such tough decisions.

2. Move to a direct supply model for large farms

The ongoing UK farm consolidation improves viability of a direct sales and advisory model from manufacturers, like we see in Brazil. This would reduce the unnecessary overhead costs and margins across multiple sellers in the chain. It requires brave decisions from manufacturers.

3. Embrace digital supply chain & farm business systems

Thanks to improved connectivity and progressive farmers, the UK can embrace technology and information systems to reduce time and cost to supply, much like the emerging US model. We can even go a step further through smart use of data: emerging technologies like artificial intelligence will continue improving supply chains well beyond today’s limits. We could also present farmers with transformational market information and decision support systems, enabling them to manage their farms for maximum benefit – be it for the aim of profit or public good.

Not only would this give the UK another exportable asset to its leadership position in modern agriculture, it would importantly bolster the competitiveness and financial sustainability of our growers fighting for survival in these turbulent times.

It requires brave decisions from us all.