This presentation addresses the question; “Instead of just responding to the effects of a changing farm structure, how can the seed supplier anticipate change in production agriculture?”  First, the multiple segments of today’s farmer customers in terms of demographics and buying behavior are explored using the most recently available data and research results.  Then a framework for exploring future perspectives of the farmer marketplace is described (Boehlje, et. al.).  State of the art decision tools are employed to illustrate the framework’s potential in fostering the market understanding and knowledge needed to enhance decision making.

Increasing farm size has been a constant feature of US agriculture since the 1930s.  However, the dynamics of change within production agriculture are becoming more complex in nature.  For decision makers interested in supplying this industry, a key factor is that the number of small farms is increasing as a proportion of all farms while the proportion of total farm acreage controlled by those farms which are relatively large in size is increasing dramatically.  Simultaneously, the motivations and management processes of those who control most of the farms seems to be drifting apart from those of the managers who produce most of the farm output.  In addition, contracting and vertical coordination mechanisms continue to supplant commodity markets as a means of marketing farm output.  Information technologies afford new opportunities to communicate with a considerable portion but not all producers.  The characteristics of non-farm landlords also are diverging over time.

The emerging farm structure for those firms which produce corn, soybeans and sorghum would seem to be one that can be best characterized as one which is fragmenting; breaking apart into detached segments.  This fragmenting structure presents both challenges and opportunities to those supplying inputs to the sector.

A modeling-based framework is advanced in this presentation.  This framework is designed to allow suppliers to anticipate change in their market territories. The framework advanced here has three key components:

·        Trends in farm size demographics; these demographics need to be examined at the level of multi-county territories as the rate and extent of change can vary considerably within a state or across the Midwest.

·        Behaviors of buyer segments in the market.

·        The capability to evaluate the potential effectiveness of market responses as they relate to market share and margin of the firm.

A number of key findings from the modeling activity are identified.  Continuation of recent trends suggests that the market (in terms of acreage controlled) will increasingly be dominated by large scale, price oriented decision makers.  This trend would exert significant pressure on gross margins available to suppliers.  With respect to seed suppliers, increased value within the genetics of the seed could act to offset that pressure.  However, the attributes providing that increased value will have to deliver that value in the actual marketplace.   While the prevailing trend might be towards large scale, price-oriented decision making, significant segments of the market will be controlled by moderate scale units managed by decision makers who don’t have price as a dominant, primary factor.  In other sectors where similar fragmentation has occurred, supplier responses have been to create means to deliver sources of additional value while simultaneously restructuring to reduce costs.  Most importantly, firms have focused on matching their unique offerings to those segments of the market who most desire those attributes to maintain and grow profitability.  A similar set of industry responses can be expected in the corn, soybean, and sorghum seed sector.

Boehlje, Michael, Steve Sonka, and Todd Doehring.  “Farmers of the Future: Market Segmentation and Buying Behavior”.  Paper presented at 2004 IAMA World Food & Agribusiness Symposium. Montreux, Switzerland. June, 2004.