Wholesale distributors are an important link in the agricultural supply chain. They supply the local and regional farmers and the growers with important products and services that help put food on the world’s tables every day. Their suppliers are chemical companies like BASF, Bayer, DuPont, and Dow, and agricultural science companies like Monsanto, DeKalb. By combining the products from their suppliers with technical expertise and other services that their customers need, they are able to generate a reasonable rate of return on capital in an industry that will be around forever.
The most important products in an agricultural wholesale distributor’s catalog are seeds and fertilizers. These are predictable, high volume products that make up a majority of the sales volume. These products are purchased in bulk from the suppliers and sometimes blended or repackaged prior to storage and delivery. In addition to fertilizer, these wholesalers also provide pesticides, insecticides, and other agrochemicals that growers need to ensure healthy crops. These materials are more specialized and require additional technical expertise to help the growers make the right selection. Availability and delivery timing are critical for these types of products, because an untreated disease can ruin a whole season’s worth of work. Some agricultural wholesalers also provide other materials such as heavy machinery sales and service or tools and supplies.
As is the case in other wholesale distribution segments, private label products are attractive to the wholesaler because they offer a higher margin than their branded counterparts. It is important to consider the impact of offering these, however, because it puts the wholesaler in the position of effectively competing with his supplier. And, distributor / supplier relationships are always a delicate balance anyway.
Services are also an important component of an agricultural wholesaler’s offering. These services can include performing soil testing to come up with the perfect blend of fertilizers and chemicals for a particular client. And, of course, the blending and packaging is also provided as a service. Perhaps the most important service that an agricultural wholesale distributor provides his customers is credit. Many times growers do not possess the necessary cash flow to fund an entire season’s planting, and must wait until the harvest is completed and sold before he can have enough cash on hand to fund operations. Although most wholesale distributors provide credit terms as one of the key value propositions to their customers, the grower’s cash flow curve is extremely polarized.
Some of the pain points that the agricultural wholesale distributors experience are similar to other subsegments. Although they don’t typically carry very many materials (around 4,000 might be a common number), some of these materials are extremely difficult to forecast, as the grower’s demand will many times depend on weather and disease patterns. Combined with the fact that some of these products may have long lead times and expiration dates, inventory management is critical. It is worth noting that many agricultural wholesalers can be technical laggards and even basic SAP for Wholesale Distribution functionality like min/max reorder points and batch management can offer significant improvements on important KPI’s like fill rate and scrapped product.
Other pain points are somewhat unique to the agricultural wholesale distributor. Credit, in particular, is a bit tricky. Growers need to finance large amounts for long periods of time. One agricultural wholesaler reported DSO of over 120 days. And, it is not easy to identify the credit risk of a particular grower as many times they are private companies with little or no information publicly available. Therefore, it is important for the wholesaler to have a good understanding of the historical interactions with customers and be able to identify trends and make sense of the data. A good credit and collections solution is also a must. It is important to note, that credit is such an important part of the business model that agricultural wholesalers frequently explore the extension of their business into banking or pseudo banking services such as credit unions and the like.
As they grow, agricultural wholesalers may look to other services and geographies. Several companies – such as Agrium and Bunge have expanded their services globally. The expansion of services can include purchasing and processing of the harvest and the subsequent wholesaling of the processed grains, oils, and byproducts. Other extensions could be into seed manufacturing, developing seed hybrids, and other genetic research.