Ag lending practices undergo change Today's farmer is one click away from finding an alternative lending source, a Canadian agricultural businessman told the hundreds of bankers attending the North American Agricultural Finance Conference in Winnipeg, Manitoba, Canada.
"Farmers are that close, now, to going to someone else," Brian Hayward, chief executive officer of United Grain Growers Ltd., in Winnipeg, told his audience of agricultural lenders.
"In five years, farmers will tell their bankers, `Hi, I need a million bucks. I can't come to your office, and by the way, I have someone else chomping at the bit for my business. Can I have an answer by 4 p.m. today?" he says. "Farmers will continue to want an answer immediately. They don't want to hear that you will get back to them in a day or two."
According to Hayward, as the number and type of companies offering production credit increases, so, too, do farmers' options and the level of service they require from their lenders. "Farmers are becoming more and more spread apart geographically. They are more educated and business oriented, less loyal and more demanding. They want specialized advice, and they have a choice of financing through banks, input suppliers or the Internet," he says.
Hayward believes that the agricultural industry is less than halfway through the biggest challenge it has ever undergone. And, he says, bankers, like farmers, must come up with innovative responses to the challenges they face. "Because you can only squeeze so much efficiency out of something, the consolidation that we are seeing needs to happen. There needs to be fewer players, because of both economy of scale and the current state of the agricultural economy."
The keys, he says, for agricultural lenders to prosper in 2005 and beyond are four-fold. "To remain successful, you must have a strategy; you must move fast; you must have a sense of urgency; and you must adopt emerging technology and then, make it available to your customers," he says.
"Emerging technologies are opening up a new channel of communication from the research lab to the end-users of commodity products," Hayward says. "At the same time technology is creating new end-use prospects for farmers, the Internet is supplying them with increased market access, and real-time weather and information."
There are other major trends that Hayward believes will affect the suppliers of production credit, like rural community banks, in the near future. The first, he says, is customer size, scale and attitude.
With fewer farm customers to service and more capital at stake for each of these decision-makers, farmers' annual capital credit needs are increasing. At the same time, as farms grow in size and the number of farm customers a lending institution has decreases, attitudes about farming are changing. "It's an evolution, because people are now more likely than at any other time in the past, to consider farming as a business and farmers as educated businessmen," he says.
Hayward also sees a trend toward an increase in competitive alliances and an increase in bundling products or services together. With agricultural seed and chemical product bundling becoming more commonplace, he sees a natural extension into the bundling of pre-priced contracts for identity preserved goods or commodities.
"It's a one-on-one marketing situation. Right now, some of your competitors are probably already a part of alignments which provide a bundle that adds value for their customers," he said. "Alliances are going to be critical in the future and there is some urgency for traditional agricultural lenders to begin forming alliances, because your competitors are out there creating partnerships now."
As chief executive officers of a publicly traded Canadian cooperative which retails crop inputs, manufacturers feed, and operates a grain handling and merchandising business, Hayward says he sees today's commodity markets changing drastically in the future. "Like a slow leak in a balloon, commodity marketing is fading and will disappear eventually. What's replacing commodity marketing are increasing alliances and linkage throughout the agricultural pipeline," he says.