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    Episode 47. 5 Challenges for the Digital Future of Grain Merchandising

    Crop merchandising has been stubbornly analog for decades. Scale tickets, phone calls, and texts are the way business gets done. Inconsistent standards, incomplete information, and lack of visibility into what’s happening have been accepted as the way things work. The good news? Technology can help overcome the major barriers between grain merchandising and an efficient digital future.

     

    TRANSCRIPT

    Rodney: In typical podcast fashion, how about a top five for things that are going to be on people's minds here for 2022? I present to you, the five challenges for the digital future of grain merchandising. Can you tackle that with me?

    Aline: Yes, let's go. Let's do it.

    Rodney: Number one. Digital silos versus data interoperability. It's not a word I say every day, Aline, but we're talking about ... digital silos is, I think, the world that I've lived in my whole life. Where you have a job, especially in the grain business, we have an ERP system where we keep contracts. We might have a CRM system where we think about customers. I'm used to having a hedge position that's unique to my cash position, and having to get those things ... Usually using spreadsheets to figure out how to combine those things together. That interoperability is more about those things just connected automatically. That information where I need it, when I need it. I think that's going to be table stakes here in the coming years of grain merchandising. What do you think?

    Aline: Right. And I think the other nuance of that is, to your example, you have hedging data. It's all the data about your risk management position. Then you have your procurement, your origination book data, then you have your logistics. All those things, they talk to each other in some sense. It's a chain of data and a chain of workflows that immersion needs to coordinate our buyers and farmers in order to move grains around. And the interoperability aspect of this data set, it's how do we approach the technology and how all the databases, the data is structured in a way in which they're not siloed across them, but they are talking to each other, they are influencing each other, they are in some way or form driving each other in order to support some of the decisions that needs to be should be done.

    Rodney: Yeah, that's right. And when you think about merchandising, you just touched on a bunch of things. Transportation, futures, cash position, all these things. They're all so interrelated. Rarely is anybody doing anything inside of a silo, even at a grain merchandising facility where you have a specific guy that does transportation, versus a guy that merchandises grain, versus an originator. All those people are interacting all day long, sharing information, because they're so dependent on each other. And I think the industry's just going to demand that that technology is able to do that out of the box.

    Aline: Correct. Yeah. Correct. And when you think about that way, a little bit of that, it comes because how companies they are is structured. Everything around the life cycle of a merchandising transaction has its own department which is responsible to do something, but they are connected. They make the whole.

    Rodney: That's right.

    Aline: And I think that how the databases and how all the process and the OTEC is structured and thought about was exactly thinking on those departments, hence the siloed view of it. One department do this, and they have their ERPs, their CRMs, their tools to do it. The other department does that, and they connect between each they're through basically meetings, emails, or spreadsheets that are flying from one place to the other, but the data itself, most of the cases they don't even talk to each other. Which is really something that is coming. When you think about now everything interconnected and all this workflows, and you can see the whole end to end process, I think that will also have some impact and changing on how merchants think about and execute their work.

    Rodney: That's right. Yeah. So speaking of thinking about how we think about and execute our work, I think the second challenge we're going to face here is software versus those traditional standards of doing business. So I think software is an efficient word. Everybody understands, hey, software is going to add efficiency to our business. But I don't think it can do that at the expense of the luxuries we've had in the past, such as knowing who's on the other side of that contract, having policies and procedures that have been followed for, in a lot of cases, 50 to 100 years at the elevators they've been working at. Any thoughts on that, Aline?

    Aline: It seems that it's very standardized the way that a farmer to sell a grain to a merchant. But the reality is that there is so much nuance to that, where how it gets done from company to company, it can be, and it is sometimes, completely different. People, they try to normalize and they are trying to follow some standards, some procedures, they have the industry practice, or the industry look for standards, some certain set of data, or they require certain set of information in order to get a transaction. But in the end, how they manage this and how they execute can be quite different.

    Aline: The other aspect of that, when you look to end consumers or choose some food processors, or buyers, because of that lack of standardization and the complexity can be around buying from a farmer, they rely on other people in order to create those standards, and to normalize that process for them. Whereas now, we are going to live in a world, which in my opinion, as we are having technology and stuff, not only automatize process and improves, brings more data, but also put a layer of real standardization on some of the things which could be quite different. We are may going to observe some interactions changing into that process, and how the relationships are built on that as well.

    Rodney: Yeah. I know at the few grain companies that I've worked at, we all had our own set of software solutions. We all had our own set of processes we used with farmers. And even as I was changing farmers from working with me at a previous business to the new business that I came to, for those guys that followed me over, they were met with a whole new set of policies and procedures that they had to get used to, and everybody had to get comfortable with. I think the thing that software is going to struggle with and needs to tackle is people will put up with that as long as they know those existing relationships exist on the other side of it. And that can sometimes get lost in the software. I think that's going to be a challenge for the industry.

    Aline: Correct. Because I also believe that some of the lack of standardization in some of the aspects of how you merchandise also creates the complexities which prevent some other companies to prevent, or other new in iterations, interactions to tricks between farmers and buyers.

    Rodney: That's right. On to challenge number three here is going to be reports versus insights. So you know I'm excited about this one. This is definitely where my passion lies. Everybody's used to being able to run a weekly report or a daily report that is a snapshot in time that tells them about one specific thing in their company. I think going forward here in 2022 and beyond, people are going to demand real time insights out of the tools that they're using. So context for the person using it, live data, I think context is the most important piece here that reports don't typically have. Usually when you run a report, it tells you one piece of the puzzle. I think these insights in the future are going to tell us more about, "Hey, how does this in the world that I'm looking at? And how is it changing in real time as I'm looking at it?" Any thoughts on that?

    Aline: I think we're going to see a next wave of business models and merchandising strategies out of what the technology report insights enable them to do. To your point, I think that when you start to move from a world where you see data as a static historical data point, and then you start to see in a more dynamic way and also predictive, more predictions around some of the consequences, some of the outcomes as the market is unfolding, I think this industry is going to react on that to adapt some of the way that we patronize and how they talk to their customers.

    Aline: I'm a big believer that everything around AI reports and analytics, which is being unfolded right now, is going to be a big driver for change and unlocking new ways to transact, and new ways to relate, where I don't think that we still have a clue on how this is going to unfold. I think that, for example, think about it. Back in the days when you were originator and a merchandiser, when you were negotiating with your customers or your positions, or how much you would buy in that day, you're thinking about what you know from the past, but actually you have very limited information. Have a guess, but not a guess which is based on ... It's more based on the heuristics, more than the statistics.

    Now in my imagine that if you have like data that is really giving you more statistics, or a more reliable way to know that, "Hey, production is going to go down in that county in the next quarter." Or the probability that people are going to eat more carbs than protein in certain countries. That is going to change how my manufacturer works. How does this change, therefore, your origination, how your logistics and the contracts. You have forwards, you have the pricing to set up in order to mitigate against price volatility, but what about also thinking on output volatility. Consumption volatility, of course price adjust that. But what are the new instruments that this can can generate?

    I think there is more to come in that, and I think that one of the biggest challenges for this industry is going to make sense. And honestly, it's also an opportunity, not a challenge in the sense that seeing that through, it can be a huge competitive advantage. And this industry, many people try to seek arbitrage, and where actually this is the true generator of those.

    Rodney: That's right. I think limiting factors. I think a large part of why this isn't done is just sheer processing power that it takes to do this. Probably something about internet bandwidth in the country, as you're on farmer's farms talking to them or whatever. I think we've got a long way to go here, and we'll see significant strides in 2022.

    Takes me to number four. Products versus platforms. So we've talked a lot about these point solutions, oftentimes really quality things built for one purpose, one small piece of the puzzle here, and I know we think about the world as more of a platform solution. So solving problems from end to end. So as we talk about merchandising, understanding that problem and building something that relates all the way from the beginning of the process to the end of that process also helps all the things we've already talked about, such as making sure data's talking to each other, building quality software, and then those insights. So putting all that together into one platform I think is really important. I know you have strong feelings about that. Anything to add?

    Aline: Everyone in this industry is coming to the realization that technology, and how you approach the development of technology, needs to consider that you can connect those businesses, as well as the flows related to that, into one single place. And there is no point in fact, to do some of the activities that is happening today if they're not connected.

    Aline: In addition to that, for example, think about the whole discussion about decarbonization. Where everybody from the agricultural industry now, it is adopting or finding new ways that they can create, or they can adopt or promote carbon credits as one of the products and services in their business. Well, when you think about it, and you think that more and more farmers, they also want to have the capacity to bundle that with their grain contracts, we need solutions that they spin off across this products, as well as those workflows, which are just different than trying to do digitized or transact electronically their grain contracts in the carbons in a separate way.

    Aline: I do believe that the platform approach allows us in order to have a more interconnected way to bring more efficiency and reduce the time and executions. And on top of surfacing unique data, which is the topic that you discussed. And data in this agriculture and industry, it is the oil to the machines. It's the understanding of the data and those interconnections, which is happening across the supply chain, that this industry can capture profit. So platforms to me are the way to go, instead of just single products.

    Rodney: That takes me to number five. Connecting brands, agribusiness, and farmers together. So we see, and the industry sees increasing needs for brands to want to have more control over that supply chain. They want to get it directly, understand where it came from that farmer, how it was raised, everything it went through to get to the table, or the apparel that somebody's putting on their back. I would say this is growing at an increasing rate, in my opinion, and really faster than I ever would've thought even two, three years ago. We're seeing demand for this, and I think that's going to play a huge role in 2022. Any thoughts on that?

    Aline: What is happening is that end consumers, they are increasing their needs. Actually they're increasing their consciousness about the different sources of food. There is also the concern how over the centuries, how the food supply chain grew in order to attend the demand for food. It was forced to become a business of scale and process, which to a certain extent solves a lot of the problems to feed the world, but created others in terms of, okay, how does the supply chain make sure that the processes, the origins of this food is being producing to the best interest and the best quality that end consumers need. How they make sure about that. How they can guarantee that. And the only way that they can guarantee is through data. But not a simple data. It's has to be trustworthy data, which has a providence, which has ways in order to prove.

    When you think about what happened, like for example, knowing if the chickens ... 75% of chickens, they are made of grains. Therefore, ideally we'd like to understand what those birds, they ate. Not only informing into the label of the product, okay, they are organic. But what does it means? And how this was produced, and who was part of that? And I don't think that this industry can deliver that without be interconnected or having technology that supports and allow them. Because the sheer amount of data which is required to attend this, and the time to process, the time to collect, to validate it, especially when grains tat are a handled, they pass through from the farm, to a first hand buyer, then goes to second. Sometimes go to a third. If you want to have all those aspects, you need to have technology that supports and captures all these interactions.

    Aline: The other point to that is also, if you can see who are the farmers that were engaged, or the sources of that, you will actually know more about their practices. How they have produced, if they are engaged, whether they are engaged or not in sustainable practices, and this whole need that it is infectious of a problem for the end consumers. Open up an opportunity for farmers to be capable to monetize, have their data in order to serve that.

    So I do believe that how this industry and how we are approaching through technology, interconnected in a platform is one of the possible ways in order to help farmers, and help this industry to give that information to the supply chain, as well as helping the supply chain to be capable of capturing the value, and monetize from that data which is being shared.

    Rodney: Yeah, Aline, great. I appreciate your time, running through what we believe to be the five challenges of the digital future of grain merchandising. Again, those are digital silos versus data interoperability, software versus those traditional standards, reports versus insights, products versus a platform solution, and in the end, connecting brands, agribusiness, and farmers to create premium products for agriculture.

    So thank you for taking the time to listen to the show, any feedback or comments you have on this, the future of grain merchandising, feel free to send an email at Grainwaves@indigoag.com. Look forward to talking to you again.

     

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