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The Commodity Business in Food and Agriculture is Over

September 11, 2017

Editor’s Note: Mike Neal is CEO of DecisionNext, a prescriptive analytics startup for the meat industry. Here he argues that data analytics are bringing about the end of commodity business in food and agriculture.

Mike Neal

Innovations like plant based beef, CRISPR gene editing, and meal kit delivery models have the potential to transform the entire food value chain. Forward thinking agribusiness & food executives are wondering how these trends could change the game, while others are pretending these innovations are overfunded startup fantasies of hoodie wearing hipsters.

But here’s something even the latest of late adopters can’t ignore: the era of the commodity business is over.

Companies that play in commodity markets when buying raw materials or selling finished product have likely adopted innovation around production or manufacturing, but there’s been little to fundamentally transform how these players enter the market.

That’s now changing for one simple reason: the rapid evolution of high powered analytics tools tailored to the food and ag industry’s nuances.

The days of blind commodity decisions are over courtesy of prescriptive analytics. No longer are multi-billion dollar companies reliant upon decades old rules of thumb or the gut instinct of the soon-to-retire trader; smart companies are now combining qualitative human inputs with quantitative models to make even better decisions.

When General Mills makes billion dollar bets on grain markets, wouldn’t sophisticated models to help make the right bet at the right time be helpful? When Tyson Foods makes buy or grow decisions about commodity breast meat, wouldn’t a robust optimization tool be helpful as they quantify the risk of various outcomes? Insert *any* company whose profit is tethered in some way to a commodity market and the answer is the same: yes.

The evolution of leaders in the commodity space has been marked by fundamental, sweeping innovations that advance those who embrace the trend and sweep aside those who didn’t.

In the 1880’s, the companies that won in the commodity business built better alliances than competitors – think oil, grain, and rail alliances courtesy of Jay Gould and Andrew Carnegie.

In the first half of the 1900’s, the companies that won were those that industrialized most efficiently.

In the second half of the 1900’s, the winners did so via scale.

The next round of winners? Those who pry themselves out of a commodity mindset to proactively leverage the power of prescriptive analytics to make smarter, more rational decisions.

Still not convinced the commodity food business is dead?

Here are two more reasons there’s no reason to be a commodity player:

1) There’s *no* reason to be a price taker. Prioritizing your business objectives (taking market share, locking in strategic customers, maximizing profit, maximizing capacity utilization, etc), should change your intention to sell slightly above or below the market price at any given time. Strategic pricing is the first step out of a commodity mindset, and it requires moving towards a smarter, broader look at business objectives across the product portfolio instead of a narrow single transaction view. This is only enabled effectively by rigorous analytics.

2) All commodity players want to differentiate. The new axis for differentiation is sharing deep analytics with customers to increase profitability for both parties. Imagine not using proprietary market analysis to best your customers for the short term win, but sharing it with your customer to build the customer relationship in financially meaningful terms. Kinda has the potential to take customer loyalty to a whole new level, doesn’t it?

The commodity business in food and agriculture is over courtesy of sophisticated analytical models. How will your company embrace this new era?

Respond to Mike’s article by emailing us here.

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