Farming industry rocked by Internet
May 26, 1999
by Mark Frauenfelder
(IDG) -- It's a clear, sunny day in Broadlands, Ill. – a great time for Dennis Riggs to be working the fields. Why, then, is this fourth-generation farmer sitting in front of a computer instead of behind the wheel of his tractor?
"I'm looking at radar maps on the Web," explains the corn and soybean grower. "I'm ready to add anhydrous ammonia, but the ground is still a little wet." So Riggs is studying the latest weather data on AgCast.com to help him decide whether he can wait for the soil to dry a bit more and still have time to apply fertilizer before it rains. "I'm watching two rain fronts. Depending on what happens, my tractor is waiting right outside the back door."
Riggs is an example of what happens when first-wave agriculture gets goosed by third-wave information technology. In the 1950s, farming entered a new phase when mechanical innovations began to drastically reduce the American farm workforce. A population of 10 million farm workers in 1950 shrunk to fewer than 3 million by 1997.
Today, the Internet is about to bring more sweeping changes to U.S. farming – which, while depressed, is still a $250 billion industry. Alongside rows of potatoes, corn, sugar beets, wheat and soybeans, farmers and ag-businesses are sowing seeds of information technology. America's fertile croplands are spiked with moisture probes and nutrient sensors.
Combines are equipped with GPS systems, yield monitors and laptops. Farmers are e-mailing data to companies, which in turn produce multilayered maps that reveal previously hidden relationships between soil chemistry, fertilizer use, irrigation schedules, yield reports and crop health. They're attending online auctions, bidding on everything from used tractors to bull semen. They are as likely to complain about the bugs in Excel – the software – as about how Excel – the company – has changed its method of calculating the lean percentage of hog carcasses.
While you can still find farmers throwing handfuls of dust in the air to see which way the wind is blowing, you'll increasingly find them logged on to their custom portal pages, scanning the digitized skies, as well as applying for loans, checking markets at the Chicago Board of Trade site and locking in prices at the local grain elevator.
"I'm not some guy in overalls with a straw sticking out of my mouth," says Bob Pinkerton of Ventura, Calif., an avocado and lemon grower. "My computer is as valuable as my pickup truck." Pinkerton has become something of an ag-data sponge, spending time online every day to check commodity sites, weather reports, market fluctuations, production trends in other countries and USDA reports. "Everything I do today affects my products three years from now."
One of the most complicated farming operations is cranberry growing. Cranberries grow in irregularly shaped plots of flooded land called bogs. The plants require frequent chemical treatments – up to 10 applications a year – and the bogs must be covered with a layer of sand every few years to ensure proper rooting. Growing up in rural Massachusetts, Kevin Hanron used to play hockey on frozen cranberry bogs around his home. Today he visits those same bogs to sell cranberry farmers CranInfo, a software program he codeveloped.
The idea for the software germinated in April 1997. At that time Hanron was a representative for MapInfo, a company based in Troy, N.Y., that makes software to represent complex visual information, from demographic data to crime statistics. Hanron went to demo MapInfo's products for Ocean Spray. Deborah Beaton, then a research entomologist at Ocean Spray, was impressed by the technology and by Hanron's knowledge. The two decided to team up to develop a desktop software application that would assist cranberry growers at every step.
Beaton's husband, Peter, who owns or operates 40 cranberry bogs, lent his expertise in bog management. He shared everything he knew about how to operate a bog under various climate, soil, berry, weed and pest conditions. The result was a program to produce maps and reports that vary with the conditions. Currently, growers must enter information into CranInfo manually, but Ocean Spray – which buys 80 percent of the U.S. cranberry output every year – has launched a new Web-based reporting system that will automate much of the data entry.
In the past, when growers dropped off truckloads of cranberries at an Ocean Spray receiving station, they'd have to wait several days before getting a report in the mail that contained information about the berries' color and quality, and the amount of leaves and sticks found in the delivery. If the handler's report indicated that a berry load contained a lot of trash vegetation, which reduces the shipment's value, growers could use this information to tweak their harvesting equipment for a cleaner load. But because the harvesting season is very short – only a few weeks in some bogs – the information often arrived too late to be of much use.
Last year, Ocean Spray – which processes 4 million 100-pound barrels of cranberries a year – began using the Web to issue the handler reports an hour after the loads were dropped off. Growers log on, enter a password and download the information into a spreadsheet or into CranInfo. So far, about 100 growers are using the system; between them, they deliver 65 percent of all the berries Ocean Spray receives. Ocean Spray's Brian Wick expects the number of users to reach 150 to 200 during the harvest season this fall.
CranInfo uses Ocean Spray's handler reports, along with other data entered by the grower, to produce maps and reports that indicate yields, keep track of inventory and generate work orders for crop pilots. To date, Beaton and Hanron have sold the program to a half-dozen customers, charging between $2,500 and $20,000 for the software, which is tailored to each grower. They plan to market the program to the approximately 1,000 cranberry growers nationwide, once they know how well the program holds up to this year's harvest. Richard Sgarzi, president of the Black Cat Cranberry Co. in Plymouth, Mass., says CranInfo has "made me redundant, which is wonderful."
As the owners of a 650-acre corn and soybean farm, Nancy and Dale Cather of Wellington, Ohio, can't simply pop over to the savings and loan during lunch. The Cathers are too busy while the sun is out to make it into town at all. That's why they do much of their banking at www.farmcredit.com. Launched in January, Farmcredit.com is a joint effort between AgriBank and its partner, Farm Credit Services, which provides loans, credit and insurance to 120,000 rural residents in 11 Midwestern states.
For more than 80 years, Farm Credit Services has issued loans for farm equipment, land, seeds, chemicals, feed and housing. The new site enables customers to view their account records. Soon it will give them the ability to make payments and transfer money between accounts. Besides banking, farmers can use Farmcredit.com to receive agricultural news, weather forecasts and market data specific to their location and interests.
This summer, Farmcredit.com will launch an online loan-approval system, "so people can apply online and get an answer in minutes," says Lynn Stevens, the director of alternative delivery strategies for the Seventh Farm Credit District. She says Farmcredit.com represents nearly four years of learning, based on feedback from Agribank's earlier Web site, www.mainstreet-usa.com.
Launched in 1996, Mainstreet-usa.com was designed to look like an actual Main Street, with a bank, general store and other typical farm-town businesses. In 1996 only 20 percent of the farmers in the Seventh District owned computers. But by 1998, when 60 percent of the farmers had PCs in their offices and combines, the cutesy virtual village was getting in the way of the real information users were seeking – tax preparation, record keeping, business planning, investment services and retirement planning.
So AgriBank.com scrapped the virtual general store in favor of its new streamlined, customizable site. It also scrapped its virtual cracker barrel, which let farmers hang out and shoot the bull. "Other sites were doing [message forums] better," Stevens explains.
One place that farmers like to congregate for ASCII interaction is Agriculture Online (www.agriculture.com). Here they swap tips about failed hard drives, Netscape crashes and how to e-mail DOS spreadsheet files through Eudora for a Macintosh. They also discuss more serious problems, like "a newborn calf with back legs that won't work."
When it comes to farmers and the Internet, "there are two extremes: They either don't want to touch the machine, or they live and die by it," says Derrick Sharpe, the director of network engineering for AgCast, a company that delivers custom farming information to 4,000 subscribers via the Internet or direct satellite. For $40 a month, AgCast provides continuously updated reports on markets, weather, local cash grain and livestock prices, and market commentary.
Launched in 1997, AgCast has experienced subscriber growth that's "a little lower than predicted," says Sharpe, because many farmers have old computers and rural Net connectivity is "still coming up to speed." A USDA survey conducted in August 1997 found that only 13 percent of the nation's farmers had Net access. That number may be as high as 25 percent to 28 percent today, says Randy Ramundt, director of corporate sales for AgCast – but many of those farmers are logging on via sluggish, crackly rural phone lines. "All the neat things on the Web are time killers because of the limited phone lines," gripes Monticello, Ill., farmer John Robinson.
"Connectivity out in the middle of nowhere is still a major stumbling block," agrees Ramundt. To make matters worse, low commodity prices have socked the agricultural economy. "Computer sales are slow," says Ramundt. Those farmers subscribing to AgCast tend to be "thousand-acre-plus" row-crop farmers who also use precision methods such as GPS and geographical information systems to do their farming.
AgCast was formed in 1996 by three former executives of FarmDayta, the leading farming-information service; FarmDayta remains its chief competitor. Today AgCast employs 21 people in West Des Moines, Iowa, and projects that its revenue this year will be $4.7 million. FarmDayta has 100,000-plus users who pay $70 a month to get a dumb terminal and a direct connection to the company's newsfeed via radio or satellite.
In 1997, AgCast became a division of Data Broadcasting, a $100 million Jackson Hole, Wyo.-based information-services firm. With Data Broadcasting's backing, AgCast's founders think the company can sign up the additional 2,500 subscribers it needs to break even. One way to grow is to go after FarmDayta's subscribers. If AgCast can win over even a fraction of the 10 percent to 15 percent of FarmDayta's users who choose not to renew their subscriptions each year, the company has a chance.
In March 1998, FarmDayta began offering a Web-based service that delivers the same information it transmits to its dedicated terminal subscribers. Called AgDayta, the service has a suite of information channels at prices that start at $20 a month.
Dennis Riggs converted to AgCast before FarmDayta began offering the Web-based service. He says he enjoys the way AgCast lets him fine-tune its service for quick access to specific commodities, local weather, stock quotes, news-wire services and scale hours at local grain elevators. But there was one hitch: To use AgCast, he had to dial into an ISP in Champaign, Ill., which resulted in monthly toll-charge bills of at least $100.
Still, Riggs wasn't about to go back to FarmDayta. Instead, he rented a T1 line and started his own ISP, Sidneyil.net – for Sidney, Ill. – and encouraged the farmers in his area to subscribe. So far, 60 people have signed up for monthly subscriptions starting at $16.95 for 30 hours. The accounts offer speeds of 33.6Kbps – "The highest speed the phone company will support," Riggs sighs.
Riggs also helps customers get set up with their own AgCast subscriptions. In turn, "They help me with drainage tiles or overhauling a tractor. It's like an electronic barn raising," he quips.
The economic situation in farm country is "even worse than the media reports," says Mark Porter, a sales manager for NetSeeds.com, an online seed-corn retailer. Stewart "Jack" Reichenbach runs a small produce and blueberry farm in Wesley, Maine. In addition to using the Net to keep tabs on wholesale produce prices from the Boston Terminal and keep in touch with other farmers, he logs on to learn about his "biggest competitor, Canada, through their government sites, to see what the farmers are getting this year to cut our throats."
With profit margins worn down to the nub, some farmers are going online to purchase equipment, feed, seeds and other supplies. U.S. farmers shell out between $7 billion and $10 billion a year for "crop protection chemicals" – that's bug- and weed-killers, to the rest of us. More than 30 percent of the money ends up in the pockets of distributors. Several companies are attempting to kill the intermediary by auctioning off farm chemicals online, most notably XSChem.com and COW's AgChemical.com.
In February, Fulton Breen quit his job at ag-chemical company RhonePoulenc to start XSChem.com. The site's online auctions are "double-blind," meaning that neither the buyer nor the seller ever finds out the other party's name, or even the state they live in. That way, explains Breen, a supplier who has been selling herbicide for $20 a gallon all year will be able to get rid of excess inventory at $18 a gallon without risking the ire of his higher-paying customers.
When an auction ends, the buyer's payment is automatically deposited into an escrow account. The funds are held until the buyer receives and accepts the product. Shipping is arranged through XSChem, and the only information the seller knows about the buyer is the state where the product is being delivered – information that's needed for chemical-supply licensing purposes. All sales are final, unless the buyer gets a load of chemicals that don't match the description. If that happens, XSChem will arrange the load's return and charge the seller.
The company hosts forward auctions, in which a seller lists an item and potential buyers bid on it, and reverse auctions, in which a buyer posts a request for a product and gives potential sellers the opportunity to offer a price. In both types of auction, XSChem takes a 2 percent commission off the top of all sales, and charges nothing to list goods. Breen says that at any given time, his site lists approximately $1 million worth of chemicals. Most auctions last seven days.
Although auction prices are usually better than what a grower could get from a dealer in his area, there's some doubt that online auctions will make a significant dent in farm chemical sales. Breen says that the biggest challenge XSChem faces is in establishing trust. Sales can involve up to $50,000 worth of chemicals. That's "a walk on the wild side for a lot of people," says Breen. "We have to make sure we transact flawlessly."
Also, some farmers don't want to have to depend on delivery promises from a supplier on the other side of the country during the rush of planting season. They'd rather head straight to the local co-op warehouse to get what they need just when they need it. And because some chemicals require a considerable amount of service, many growers want a distributor who will send a representative into their fields.
On the other hand, chemicals represent some of the costliest purchases a farmer makes. Growers face a harsh decision as commodity prices plummet: Do they keep the money in the community, or preserve their minuscule profit margins by purchasing goods online?
Seeds are an even harder sell online. Unlike herbicides and pesticides, which are standardized across the country, seeds are tailored to the region in which they're sown. "I don't buy seeds online," Riggs states flatly. "There's a lot to be gained from local dealers." Riggs says he studies all the major seed and chemical sites, like Pioneer Hi-Bred's, Monsanto's and Cargill's, for material handling and mixing instructions, but when it comes to making a purchase, Riggs relies on "local intelligence. I want human interaction to help me make the best decision."
That's the kind of thinking that Jerry Harrington, sales public-relations manager at Pioneer Hi-Bred, likes to hear. Pioneer, the nation's largest seed seller, doesn't intend to sell products online, he says. Instead, it offers extensive seed information on its public Web site; its data-rich intranet system can be accessed by Pioneer's network of 3,400 sales representatives scattered across the country.
Selecting seeds has become "more complex," says Harrington. In 1996, Pioneer introduced 27 corn hybrids. In 1998 the number of new hybrids rose to 38, and for the 1999 growing season, Pioneer introduced 60. "A grower can't flick a button on the Internet and order," he says. "They want dealers to go one-on-one with them and analyze their needs for the coming years." Harrington says Pioneer distributors download hybrid data from the company intranet to their laptops and take the data into the growers' fields.
NetSeeds.com, of Urbandale, Iowa, is trying to convince farmers that the discounts it offers – $50 a bag on seed corn delivered, compared to $70 to $75 a bag from dealers – can make up for the lack of hand-holding. Founded in late 1998, NetSeeds is still trying to establish credibility, the kind that comes "with being around a year or two," says Mark Porter, the sales manager. He says large seed companies don't sell online because they don't want to anger their local dealers by undercutting them.
"Cargill has this huge infrastructure they have to deal with," he says. NetSeeds doesn't have to deal with "administration overhead, management layers and a sales and marketing force that drives around in new pickups that cost a lot of money." He says the information on the NetSeeds site is enough to give any farmer the ability to choose the right type of seed. Once farmers learn about NetSeeds' prices and quality, Porter says, they'll forget about buying seeds the old, more expensive way. "The farmer is a very competitive individual," he says.
Desperately seeking soybeans
From combines to cow embryos, farmers can offer and bid online on almost anything they need to run their businesses. A sampling of Web agricultural auctions:
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