When I arrived in New Zealand 22 years ago, it cost me NZ$20 or more to make a telephone call home. I was one of the first staff in the office to have email access (although you could go a week without receiving a message) and when you logged off on a Friday that was it for the weekend, as there was no smart device to accompany you everywhere. The internet was a quirky collection of amateur pages rather than a channel for global commerce.

Digital innovation has dramatically changed social and professional interaction over the last 20 years. Skype now enables me to video-call home for free, and an hour without an email (day or night) is a luxury. Most people are rarely disconnected from their digital ecosystem and annually shift more of their routine purchasing online. We expect information to be available instantly, we can follow, contribute and shape global discussions and curate our own streamed entertainment. Most companies have recognised digitally connected people are potential consumers of their products and, as a result, digital marketing has evolved from spam emails into a data-driven science.

Acknowledging that every digitally connected citizen on the planet is a potential consumer of the product you grow is a game-changer for the agri-food sector as it challenges traditional thinking around the supply chain. However, the industry globally has been slow to respond to the technology-led disruption reshaping many aspects of our day-to-day lives.

Ian Proudfoot, global head of agribusiness with KPMG.

Historically, a farmer producing milk, meat or fruit had little opportunity to build a direct connection with the ultimate consumer of the products they grew. The consumer relationship was owned by the retailer who provided the bricks-and-mortar assets in which consumer and product were connected. The product was pressed down a chain from grower to processor to distributor to retailer and ultimately to the consumer. The return to the farm gate was whatever was left after the retailer and other supply chain participants had covered their costs and collected their margin.

Risk

The risk and volatility in the traditional lineal supply chain has largely sat with the farmer. Our analysis indicates that farmers usually receive between 10% and 30% of the ultimate retail value of the products that they grow at the farm gate.

We attribute these low returns to the lack of connection between farmer, product and its ultimate consumer. Retailers have intentionally kept products ‘‘naked’’, providing them with the flexibility to source from the supplier offering the lowest price. The consumer has been comfortable to benefit by way of lower food prices.

The last 10 years have presented challenges to the agri-food sector. The sector has been held to account on the environmental and social sustainability of many of its products, on the nutritional quality of the food being supplied, on the ethics of using animals to provide humans with food and on the safety of some products.

A virtual reality headset can put a potential consumer in the middle of a farm anywhere in the world, giving any producer the ability to tell their story in an immersive and compelling manner

On food safety, the industry has not helped itself. The financial incentives to mislabel or tamper with products have increased, while the authorities have been slow to respond to consumer calls to strengthen rules intended to protect them. Melamine-laced milk in China, European horsemeat and numerous campylobacter outbreaks have dramatically eroded the trust that consumers have in the ‘‘naked’’ products that retailers offer them. As a result, consumers have taken the quest for complete and accurate information into their own hands and turned to digital sources to seek products they can trust to be exactly as they are described on packaging.

Consumer behaviour indicates a preparedness to pay premiums for products with verifiable provenance and the attributes that they consider important.

The challenge for producers is actually understanding what needs and expectations customers have of them in different markets around the world, creating the products aligned to these needs before telling the story in a compelling way.

The key skills

The skills needed to collect deep consumer insight, analyse the findings, innovate responsively and then articulate the story through the consumer’s eyes are skillsets that have historically been absent from many agri-food organisations because their place on the supply chain made such capabilities unnecessary.

To my mind, digital disruption is rewriting the rules for an agri-food supply chain. It can no longer be viewed as a lineal chain as the consumer is no longer prepared to confine themselves to the choices a retailer puts in front of them. Every participant in an industry now has the ability to build relationships directly with the consumer and with every other participant in the industry in a web of connections, collaborations and competition that is centred around fulfilling the needs of particular groups of consumers.

If a farmer wants to grow the right product in the right way to meet a consumer need, they need to have a connection with the consumer to fully understand their requirements. However, they also need their seed or genetics supplier to understand the consumer so they supply the right inputs, as well as their processing partner (so the product is processed in the right way), their logistics chain partners (to deliver the product on time in the right condition) and their regulators (so the product can be sold).

In some cases, these relationships need to be physical, but in many cases the relationships can be virtual through a range of digital channels, be that social media, a blockchain or a virtual reality experience.

As the speed of innovation accelerates, the opportunities for farmers, processors, distributors and retailers to disrupt traditional business models multiply. A virtual reality headset can put a potential consumer in the middle of a farm anywhere in the world, giving any producer the ability to tell their story in an immersive and compelling manner, creating the opportunity for them to become a ‘‘local food’’ supplier to the world.

New technology presents every organisation with the potential to unlock step changes in their business if they are open to thinking about their supply chain as a value web. I don’t expect every farmer will change; too many are complacent in their view that there will always be a market for their products. While this may be the case, I believe when innovation makes your traditional product one of 10 choices available to the consumer rather than the only choice (with the new options having been designed to meet specific consumer needs) a complacent farmer will be very lucky to secure the prices that they have traditionally received for their products.

Innovation is never mandatory but being open to change is the most effective way to remain relevant; preserving, and hopefully increasing, the value generated for the products a farming business grows.

  • This article appears in AgriBusiness, an Irish Farmers Journal report in association with KPMG. The report is free with the Irish Farmers Journal edition of 26 May.
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