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Change is coming

Market research expert shares trends that will shape the future of agriculture
Story and photos by Chris Villines 11/16/2018


Aimpoint Research President and CEO Brett Sciotto outlined the changing face of U.S. agriculture during his keynote presentation on Oct. 10 at the Agricultural Leadership Forum in Murfreesboro.
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With a who’s who of state agriculture leaders listening, Brett Sciotto, president and CEO of Columbus, Ohio-based Aimpoint Research, had this challenge for attendees of the seventh annual Tennessee Agricultural Leadership Forum:

“I have a really simple mission, and that is to get you thinking about the future,” said Sciotto. “You should be thinking about your organization and asking, “Are we considering the trends that are occurring? Are we thinking about what they mean to us? And are we adapting as an industry to meet the needs of the future?”

During Sciotto’s Oct. 10 presentation, “An Industry in Transition: Key Trends Transforming American Agriculture,” at Embassy Suites in Murfreesboro, the former U.S. Army intelligence officer took the audience of some 130 on a statistical journey based on Aimpoint’s comprehensive ag market research.

And the numbers-based research he shared made it clear — change is coming to the industry.

“The psychology of farmers is changing,” he said. “We know that our business models have to adjust. We know that we are going to have to contend with things that we aren’t comfortable to contend with. Are we prepared to serve the next generations of agriculture? Are we adapting to win?”

Sciotto weaved these statistical findings into his talk, highlighting progressions in different areas that will have a profound impact on American agriculture. He first covered consolidation, which he also called “transformation.”

Looking at Tennessee specifically, he pointed out that since 1960, there has been a 61 percent decrease in the number of farms, and only 7 percent have a gross farm income above $100,000.

“That means the bulk of the agricultural output in this state is coming from large-scale operations,” he said. “But it also means that there are a lot of small farm operators out there who are able to persist even in down markets. It’s the mid-tier farms that are starting to fade away.”

This consolidation trend is also occurring with commodities, Sciotto added.

“One out of every four chickens is a Tyson chicken,” he explained. “We met recently with the leader of a major dairy and he predicted that by 2040 there could only be around 100 dairy operations across the U.S. because consolidation is happening that fast. With beef, 2.5 percent of the feed lots do 85 percent of the business.”

Another chart Sciotto showed illustrated how agricultural cooperatives have also been affected by consolidation, as the number of co-ops has decreased by 41 percent since 1998.

Sciotto believes this rate of consolidation will only continue to speed up.

“U.S. ag debt is at $389 billion, and when you think about that in a historical context, we are at levels matching the crisis of 1980,” he said. “The thing that is allowing us to persist is this debt is propped up by increased value in land and decreased interest rates.”

Next, Sciotto covered the trend of succession planning, which he said is a major factor in whether farms will be controlled by farmers, land trusts, or outside investors.

“The average age of the principal farm operator continues to move up, now at about 57 years old,” he said. “We also know the number of people coming into agriculture is quite low. In general, we need to be aware of who these young farmers are because they are going to be the bulk of the primary operators of the future.”

This new generation, he added, brings a different mindset than their predecessors.

“They have plenty of other options available to them; they don’t have to go back to the farm,” said Sciotto. “The second thing we need to know about them is they are going to be educated — the USDA estimates that 69 percent of people who come back to farm will have [college] degrees. When we do focus groups and ask these young farmers to raise their hand if they intend to run the farm the way their parents or grandparents did, we have never had one person raise their hand.

“They look at things very, very differently. They’re focused on optimization, innovation, and technology. They grew up in an era where they saw people in garages creating companies that turned out to be billion-dollar ventures.”

With the modern-day farmer, Sciotto said there are different personality types emerging in the marketplace:

• Enterprising business owners who function more like a CEO than traditional farmers,

• Independent elites, who are strong, independent decision makers, driven to grow, and don’t necessarily view ag organizations as partners, but rather as advisors,

• Traditionalists, who value relationships and are “holding their own in the middle” instead of growing,

• Leverage lifestylers, who primarily come from urban backgrounds and want to farm but lack the expertise and financial resources, and

• Those who are “bunkered in,” under high pressure, and struggling to hold on.

With the enterprising business owners and independent elites sharing similar traits with the young farmers coming into the business, Sciotto said organizations serving agriculture must become smarter, too.

“We must have a higher business IQ and help them optimize,” he explained. “The days of relationships being enough for the ag supplier to keep a customer are fading.”

Embracing technology is another trend Sciotto said will have a profound impact on agriculture both in the U.S. and worldwide.

“About 25 percent of farmers we’ve surveyed say they use drones, and another 58 percent say they plan to over the next three to five years,” he noted. “Drone technology is here to stay. Retailers in the U.S. and around the world continue to invest in precision ag because they see it as a value add and an opportunity to help farmers add and analyze data.

Even as the number of farmers declines, Sciotto said the connection people have with rural America continues to strengthen. He cites a survey conducted among urban-dwelling people that showed the majority affiliated with a rural, country lifestyle even though none lived near a farm.

“Consumers want that connection, and it’s manifesting itself in the increasing number of agritourism operations,” said Sciotto. “This will only continue to grow and become a huge opportunity enterprise. A lot of farmers and ranchers are seeing it as an opportunity to diversify their revenue stream.”

One example he shared of how agritourism has been a boon is Fair Oaks Farms in Indiana, which welcomed more than 600,000 visitors last year and is building an onsite hotel in expectation of surpassing 1 million visitors in coming years.

When Aimpoint surveyed both established and young farmers about what concerns them most about the current and near-term agricultural climate, Sciotto said four things are at the top of the list: market volatility, government regulations, commodity prices, and labor.

“Labor is a massive pressure point for agriculture right now,” he said.

Sciotto rounded out his presentation with a case study from the non-ag retail sector that dramatically demonstrated what can happen when an organization or industry fails to adapt to changing times. He cited how in only 12 years, Sears had gone from a $28 billion company to recently filing for bankruptcy. All the while, a startup called Amazon tailored its business model to meet consumer demands and grew 5,500 percent in that same period.

“Amazon was the disruptor to the traditional means of doing business,” he said. “The question we have to ask ourselves is ‘Who is our disruptor?’ Do we even see them coming?”

Other sessions at the event, sponsored by Farm Credit Mid-America, CoBank, and the Tennessee Department of Agriculture, included “Farmer-Focused Innovation & Entrepreneurship in a Changing Agricultural Environment” led by Pete Nelson, president and executive director of the AgLaunch Initiative; “Advocacy Leadership: See One, Do One, Teach One” from Lawrence County beef producer Matt Niswander; a Washington update from CoBank’s Brian Cavey; and “Trade Retaliation Mitigation” from USDA Farm Service Agency State Director Dennis Beavers.

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