Co-ops and Precision Ag: Finding an Advantage in a Changing Environment
The business outlook for many co-operatives offering growers retail, marketing, and agronomic services is one that has changed greatly over the last several years. Co-ops across the country are facing a variety of challenges that threaten their profitability – among them, low commodity prices, increased pressure from larger agribusinesses, and increased competition for growers’ business from increasingly large co-operatives in their areas served.
Finding an advantage in the markets they serve, in this environment of low prices and larger businesses competing for market share, is the challenge many co-ops face today. As mentioned above, this has become more challenging in recent years due to widespread consolidation in many agricultural sectors – from the blockbuster mergers of companies like Monsanto and Bayer, to increasing consolidation among co-ops themselves.
The trend towards consolidation has been a defining factor in the co-operative landscape for a number of years now, and the pressure to scale up operations through M&A isn’t fresh news – the Wall Street Journal described this phenomenon back in 1999. In recent years, however, this trend has continued to gain steam: in 2005, there were roughly 2,900 cooperatives total in the U.S.; in 2015, that number had fallen to below 2,200 (page 76).
Given the challenge for co-ops operating under these conditions, the question for these businesses is: how can they adapt their business strategies to maintain their competitiveness in the markets they serve?
An increased emphasis on services is a way we will see co-ops of all sizes adapt to business pressures they will face in the coming years. We’ve seen the adoption of precision ag offer a way for many co-ops to add value to their offerings directed at growers, and I predict co-ops looking to increase their value-add for their member-customers will increasingly look at ways to roll out precision ag solutions to weather business challenges they are facing.
Particularly among smaller co-operatives, the pressure to offer their growers superior service is of extreme importance – if they can’t be the biggest player in their area, a focus on building a “high-touch, high-service” business model smaller co-ops have increasingly adopted can offer a way to be competitive when leveraging an advantage from their size isn’t possible.
For co-ops of all sizes, and particularly for smaller co-ops, the key concern for offering capital-intensive solutions common to the industry is cost – cost for the co-op to sell and support precision ag solutions, and cost for the growers themselves to implement them on their own farms. Therefore, in order to succeed in implementing these strategies, an emphasis on avoiding “shiny object syndrome” and focusing on providing growers’ a material ROI from these precision ag solutions will be key for co-ops looking to leverage precision ag to adapt to the challenges they face today.