Friday, March 29, 2024

PULPIT: Disruption becoming new normal

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It’s sensible to study disruption in agriculture when so many other industries have been disrupted.
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Spotify in music, Amazon in books, TripAdvisor in travel, Uber and Tesla in transport, AirBnB in accommodation, Netlfix in entertainment, LinkedIn in recruitment and Flick in energy are all proof.

Disruptive plays like this will accelerate as new technologies become more affordable and accessible making them the norm rather than the exception.

New Zealand agriculture cannot afford to think it is immune.

My Kellogg project focused on the greatest margin in the value chain: the retail space.

It’s no coincidence that this same space, closest to consumers, is also the one attracting the most disruption from new players often funded by Silicon Valley types who know a bit about disruptive technologies.

When you have the chief executives of Salesforce, Twitter or Disney investing in artisan food brands it’s a signal you need to pay attention.

Something is wrong when the return on assets for producers and processors is so low compared to the same returns a manufacturer or retailer enjoys.

Some might suggest the term value chain is in fact an oxymoron or a chain round their necks.

Harvard Business School professor and disruptive innovation expert Clay Christensen argues disruptive innovation rather than efficient innovation is key to rectifying a value crisis.

Economist John Maynard Keynes said “It is better to be roughly right than precisely wrong,” so here are some of my own predictions:

  • We will come full circle seeing farmers regain marketing control from their larger co-operatives clustering into smaller, craft farming groups that come in underneath in the same way craft beer brands have stolen share from the large breweries, which had to buy them knowing they couldn’t beat them.
  • Every farm will have its own marketing plan realising they can no longer abdicate their marketing responsibility to their processors. Marketing will be respected as much as finance, HR and operations.
  • Processors will continue to struggle because of a decline in stock units coupled with overcapacity. Some will adapt by being more flexible through smaller, individualised toll processing contracts to achieve throughput and maintain infrastructure.
  • These smaller, local, artisan farmer producer groups, along with existing iwi or corporate farmers, will pull resources together to promote their unique brand story fuelled by their distinct specific environmental factors (terroir) while enjoying a direct and unimpeded line of sight to a targeted niche of end consumers.
  • These new consumers will pay a premium for their produce because they value a deep connection to the food they buy and the people and story behind it.
  • This more direct model will create more value through efficiencies from a shorter, more disintermediated value chain.
  • These farmer groups will use established technology and social media to regularly communicate and connect with their customers, creating raving fans. These brand ambassadors will share their experiences online, amplifying product visibility – good and bad
  • Gatekeepers who impede this line of sight will be challenged on the value they are adding. Google Tesco to see the pressures they are under.
  • Scale will come but it will be slow. Like all disruptions it will start small, undetected and underneath the big players before growing into credible, validated models

It’s better to start small and get more for your produce than produce more for less.

We need to kick our commodity volume addiction.

Mike and Sharon Barton at Taupo Beef saw production constraint as an opportunity. Lewis Road Creamery knows brand investment, rather than infrastructure, commands higher value.

Soft is the new hard.

As leadership and management consultant Simon Sinek argues, these customers buy the why rather than the how or what.

Identifying their big why will be key for farming groups to tell compelling and differentiated brand stories to justify higher prices.

Farmigo and Crowd Carnivore are living proof of new, disruptive models where 50-60% of margin is returned to growers versus the standard 20%.

Crowd sourcing and the sharing economy are coming to agriculture.

Despite the common notion that smaller, family-owned farms are a declining species, small will be cool with an increasing distrust of big, industrialised food by a new generation of discerning consumers who have a preference for quality over quantity.

Mintel research from last year backs this up with 43% of Millennials not trusting big food manufacturers.

Smaller, local, craft farming brands focused on their distinct terroir and artisan produce will become the new norm and those farming groups that move first will enjoy the spoils most.

It’s time to disrupt your own model before someone else does.

St John Craner is a recent Kellogg Rural Leadership Programme graduate and planning director of TRACTA, a primary sector marketing specialist. He can be contacted on 021 515 650 or stjohn@tracta.co.nz. His industry report will be available soon through www.kellogg.org.nz.

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