What is in this article?:
- The plant input supply industry is composed of many diverse segments and companies that supply farmers with seed, nutrients, pesticides, machinery, capital, labor, and many other inputs — all driving change in agriculture.
Threat of Substitutes
While a plant cannot substitute one nutrient for another, changes in seed technology have had and will continue to have significant implications for plant nutrition. That is, the efficacy of alternative nutrient forms and delivery methods may create products that can substitute for each other even though the basic nutrients do not. The development of genetically engineered pest resistant varieties is another example of products that create substitutes for current pest treatments and alternative seed choices. These new substitutes have resulted in a substantive convergence of two previously fairly independent value chains, seed and crop protection, and a large transfer of value from crop protection companies to seed/biotech companies. Those input producers who can create these products or partner with seed producers will have an advantage in marketing and, if successful, gain market share.
Patent expiration does not create a substitute product directly. But generic products are substitutes for the original product and create competition for the original producers, as discussed earlier in the example of Monsanto’s Roundup.
Changes in seed technology that will increase plant populations to 60,000 per acre will have significant implications for plant nutrition. There simply will be more ‘mouths’ to feed per acre. Providing plants the right amount of the primary nutrients—nitrogen, phosphorus, and potassium—as well as secondary nutrients, such as sulphur, and micro nutrients such as zinc, at the right time becomes more critical and a bigger challenge. Retail distributors likely will play a greater role in managing plant nutrition with this more complicated technology. In addition to advances in application technologies, new plant nutrient products may emerge, such as Mosaic’s MicroEssentials line of products which contain nitrogen, phosphate, sulphur and different micronutrients depending on the crop. The increased use of GPS enabled equipment allows farmers to increase seeding density, increase the accuracy of nutrient and chemical placement, and decrease fuel use per acre. These new technologies will have different impacts on different inputs and geographical areas. In some cases, they will increase demand for nutrients. In others, they might increase the crop canopy to eliminate the need for weed spraying. Again, those input suppliers and distributors who respond with these new products and services will have a competitive advantage in the future.
The increasing rate of technological change and its significant interactions among inputs puts a premium on technological adoption as a primary farm management skill. Those suppliers who can educate the buyers on these interactions to take advantage of combined effects will gain significant market share. Suppliers can also benefit from the fact that their knowledge has increasing returns to scale, since informing one operator does not restrain another operator’s usage of the same knowledge. The information dissemination will be facilitated by increasing applications of information technology (I/T) infrastructure. This large investment in I/T resources will be another “economies of scale” issue for input suppliers. Once the I/T system is in place, the owners of the system have a huge incentive to drive as much volume through the system as possible.