Year In Review
farmers care most about is their final income. When it comes to
addressing emerging challenges under the new landscape, the
explorations of Bayer provide an excellent example.
The applications and benefits provided by the FieldView
platform were much discussed and will be omitted from here.
But recently, what brought my attention to FieldView again was
Bayer’s introduction of an “outcome-based pricing model”, a
pioneering idea in agriculture.
Currently, this idea remains in the early testing phase. The
model involves Bayer setting an expected yield outcome for a
product or seed, based on a farm's data and history stored on the
company's digital platform, FieldView, as well as its own research
on their products. If a farmer's final yield falls below that expected
value, the company will rebate a certain portion of the product’s
original price, but if the yield instead surpasses the initial set
value, the farmer shares a pre-agreed portion of that additional
income with the company.
Bayer launched this concept in 2018 when it rolled out Seed
Advisor, which uses information typed into the system by farmers
to recommend seed selections. In 2019, Bayer piloted the model
in the US while working in tandem with a handful of corn farmers.
“Bayer’s data science has improved to the point when it can
tailor agronomic recommendations that will greatly boost the
odds of a favorable return on investment (ROI). Rather than
random prices and value relationships, outcome-based pricing
individualizes each field to prescribe the optimum product mix
for the desired outcome. If our recommendations are incorrect,
we will adjust accordingly. If we are wrong, then that is part of
the reconciliation process. As we get better and better with data
science, that becomes less probable,” said Aaron Robinson, Bayer
Crop Science North American Vice President for Business Model
Strategy.
Bayer attempted to cash in on its investment in digital
agriculture by promoting its FieldView digital platform to farmers.
As mentioned above, though companies offer products and
services and farmers have a consistent final goal to improve their
final income, they still each face their respective challenges. These
companies wish to strengthen ties with farmers while farmers wish
to reduce various risks during farming. Bayer’s outcome-based
pricing model represents progress in resolving these puzzles and
is a refreshing approach.
Recently, agribusiness companies have spared no efforts to
get involved in digital agriculture and agtech startups. It is widely
accepted by the industry that the digital agriculture sector will
become the next driver of the agricultural revolution. However, the
jury is still out on when the sector can deliver solid returns. From
the perspective of the user, changes are taking place in the way
that farmers seek agrotechnique support and select products,
therefore, forcing corresponding changes in relevant channels.
Bayer’s outcome-based pricing model piggybacks on the data
of its FieldView platform and incorporates it completely, supporting
agri-input products while attaining a deep understanding of its
own products. With the aim of improving farmers’ income and
mitigating their decision-making pressures, the model customizes
10 Annual Review 2019
a package of solutions and shares risk with farmers.
The introduction of the model can deliver many benefits.
Firstly, it has expanded the use of the FieldView digital platform.
Secondly, it can tackle some data collection issues. Thirdly, it
drives up the sales of a company’s seeds and agrochemical
products. Finally, by sharing both risks and profits with farmers,
it ingrains itself deeply with them, skillfully building a perfect
business linked by strategy, products, services and end users.
This pilot project was questioned by some farmers at first,
with Bayer also saying publicly that they were in the process of
learning about and assessing how the model would operate and
be implemented, as well as the problems that might emerge.
Nonetheless, due to the effects of disruptive technologies and
channel transformation, the enthusiasm of big companies for new
business models is starting to take shape.
A similar business model to Bayer's is the AgriClime risk-
sharing plan of Syngenta. AgriClime is a platform that monitors
climate. In 2018, Syngenta launched AgriClime, which uses
CHIRPS data developed by the University of California, Santa
Barbara. Having monitored the climate of various US states for
over 35 years, CHIRPS data offers accurate climate information
by collecting high-resolution photos transmitted by satellites.
AgriClime collects region-specific historical rainfall data during
sensitive crop periods. If the rainfall fails to meet the need of
crops, the invested fund will be returned to farmers later.
In 2019, Syngenta piloted AgriClime in Australia. Syngenta
shared with participating farmers the risk of low rainfall from
August to October. If they follow Syngenta’s recommendations
and sufficient rainfall does not occur, the firm will refund up to
30% of the money spent on Syngenta’s inputs, such as seeds
and chemicals. The less the rainfall, the more the refund, which
will help farmers offset the risk of low rainfall, giving them more
confidence to invest in plant protection products. Syngenta also
intends to pilot this plan in North America.
As we can see from the practices of Bayer and Syngenta,
the fast-evolving digital agriculture sector is not merely blurring
traditional competition boundaries, but is constantly driving
transformation in business models as well. Companies competing
only in terms of price and sales volume will potentially be replaced
by those ones willing to invest in the success of their customers,
including farmers and partners along the value chain.
There are reasons for optimism
The agribusiness industry is currently in a trough, and relevant
industries are facing a variety of obstacles, while the long-term
influence of disruptive technologies on agriculture and concomitant
innovations remain unclear. Nevertheless, the constantly growing
global population and their demand for food mean that agriculture
has a future to look forward to, and the agribusinesses industry
have a good reason to stay optimistic. Perhaps, in the near future,
agriculture will witness an unprecedented technical revolution,
but before that comes, a lot remains to be done by agricultural
stakeholders.