WEFA EXAMINES CHANGING STRUCTURE OF AG RETAIL SECTOR.

As with many sectors of agribusiness, agricultural retailers are facing consolidation. Input suppliers must respond to challenges posed by the changing number and size of farms, regional shifts in crop and livestock production, changes in technology, and environmental regulations. Typically, this has led to fewer, larger retailers. For example, from 1992 to 1998, the number of grain and farm supply cooperatives with assets under $5 million declined by 35%, while the number with over $5 million rose by 44%.

As farms get larger, the profit margin that can be extracted from them tends to get smaller. The impact of farm size varies by crop enterprise. According to the 1997 Census of Agriculture, farms that grew 1,000 or more acres of wheat and cotton accounted for 37% and 40%, respectively, of total acreage of those crops. For corn and soybeans, farms of this size accounted for only 14% and 16%, respectively, of total acreage. WEFA expects acreage for all of these crops to get more concentrated into large farms, with medium-sized operations losing much of their share of production. This will leave fewer farmers for retailers to do business with, and the remaining farmers will require retailers to deal with smaller profit margins on the products they sell.

While getting bigger through mergers and new investment is one response to the challenges facing the ag retail industry, other survival strategies will be necessary as well. In some regions, urbanization is displacing both crop and livestock production, while others farms are consolidating to capture economies of size. In response to their changing customer base, some retailers may diversify into selling consumer products, while others attempt to add value for their farm clients by offering high-tech services such as electronic ordering and information support for precision ag applications.

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For more information, contact Stewart Ramsey, Director, WEFA US Agriculture Service at 610/490-2523 or e-mail [e-mail].