The world's largest crop inputs company continues to expand both retail locations as well as companies to grow their portfolio of service for their customers. We asked Mike Frank, executive vice president and CEO of retail at Nutrien about how his industry is changing, what retailers and farmers need from policymakers and what the landscape will look like post COVID-19. Some questions and answers were edited for brevity and clarity. To listen to the full interview, click here.
- Tell us the trends that you are currently seeing in your industry.
Part of what we're seeing across the ag industry is consolidation. Not just with retailers, but that's true at the retail level. It's happening really, starting at the farm gate as farms and farmers continue to get bigger and as they get bigger, they get more efficient. We're seeing that same consolidation happening with our suppliers where they're coming together to become more capable companies. And the same things are happening at the retail side where retail companies are consolidating and the retail networks in the companies are getting larger. I actually see it as a strength. We've learned a lot with COVID-19 in terms of how fragile and how important the agricultural value chain is. And when you have strong players, financially strong and successful farmers, retailers, and suppliers, that all creates a more sustainable and more durable supply chain, ultimately for consumers. So, we view that as good and as a positive change.
We are focused on growth. We are not the only one, but we are one of the companies that's been acquiring and building and growing our retail business. Last year alone, we made about 34 acquisitions to add to our network. But at the end of the day, our customers don't care if we're big or small. What they care about is whether or not we've got the products they need, whether our people are helping them make the best decisions on every field and every acre, and whether we're able to provide them the services that they need. That’s what we're focused on. As we've grown our business, we can operate more efficiently. And again, I think that's really important. Because if we're inefficient, that's not helping our customers. And in fact, the more efficient we are with new technologies, the more we serve our customers.
- How is e-commerce changing the face of retail, especially when it comes down to storefronts and the functionality of storefronts?
If you go back 10 or 20 years, the storefront was important - our customers would come in, have a conversation, think about what they needed to buy, and we would serve them. Sometimes they would pick it up and sometimes we would deliver products. That's not the way ag retail works anymore. We do business with our customers at the farm itself or in the field. We’ve got about 3,500 sales agronomists in our network. They have a home office where they maybe spend a couple hours every week doing some administrative work, but their time is spent in the field because that's what our customers want. And the more time we're spending with our customers on their farm and in their fields, the better we get to know their business.
So, e-commerce is not a big important tool today. We have e-commerce capability and our customers can order products from us online if they choose. But today, this is still very much a people business. And so, we're using a lot of digital tools. For example, we'll work with our customers to develop a farm plan and we'll use that using a digital interface and then we can order or the farmer can order products directly off of that farm plan. In that way, you may think of it as e-commerce but it's not e-commerce the way say you would think of Amazon where the customer goes online and just independently starts ordering products. The vast majority of products that we sell, we have a conversation with that customer before they make their final order just to make sure that we're helping them make the best purchase decision.
- In order for you to grow revenue for the company and for your shareholders. It appears that you either need better margins, or you need more acres or perhaps you need both.
That's not how I think about it. What we need to do is help our farmers make more money. I want our customers to know and trust that if they're doing business with us, they're going to maximize their return on investment and they are going to get the advice on sustainability that they need. We’ve grown a lot as a retail business. Ten years ago, we were selling about $5 billion worth of products every year. This year, we expect to sell about $14 billion of farm inputs and services. We clearly are growing our business, but we're focused on adding value to the customer and when we do that it helps us grow our business.
- The Department of Agriculture has well documented the cut that we have seen in net farm income. Could you see it in the buying patterns of farmers for inputs this year?
What we see happening at the farm gate is, clearly farmers are looking for any area that they can pinch pennies. Probably where that's being felt the most is likely in the farm equipment side where, instead of getting a new combine or tractor or planter, they're getting a few more years and doing maintenance. When it comes to inputs, you can't really cut back on fertilizer because you immediately see that in your yields, the worst thing you can do is penalize your yields. Because then you make a bad situation even worse, not only are you getting lower commodity prices, but you're not optimizing productivity on your farm. Whether it’s fertilizer, seed, crop protection chemicals or nutrients, we haven’t seen yet this year any pullback on investment.
- In a presentation early in the year, you were discussing areas of expansion and organic was on the list. So, you're not just about conventional farming practices?
Absolutely. And in fact, we think all types of farming is what's needed to ultimately achieve what the consumer wants, but also ultimately to feed the planet. We serve agriculture across the U.S. - whether it's a corn soybean farmer in the Midwest, or a cotton farmer in Texas or a nut farmer in California or a vegetable farmer in Florida. We are growing our portfolio organic products and there's really two things that are happening: Some of our producers are certified organic. With those producers, we're always looking for new tools to help them be more efficient in helping control pests and manage their fertility. We're seeing a trend though, as farmers are focused on sustainability kind of broadly, thinking about that not just with respect to the products that they're using, but also being efficient with the land that they're farming…..so they can maximize their productivity so ultimately we don't have to cut down Amazon Rainforest to produce more soybeans to feed a growing planet. I think the idea of sustainability has a different perspective today, whereas, using the most efficient resources and inputs that you can, but also try and maximize or optimize your productivity. With a lot of our customers now we are using a combination synthetic chemistry and organic chemistry? They're lowering their carbon footprint, and they're farming in a more sustainable way. And I think that's where sustainability is going to continue to go.
- Does Nutrien’s sustainability strategy include a caveat for revenue from carbon sequestration?
Yes. As we all know, in agriculture, the soils can sequester significant amounts of carbon. That's a huge opportunity. Now today, in most markets, there's not an active carbon trading market, but we think that this is going to develop over time and it's probably going to come sooner than later. We actually have sustainability tools. We're working with a number of third parties, where if our customer wants a carbon report and a greenhouse gas report on their farm, we can do that. And we can run third party tools to calculate the exact carbon footprints of a bushel produced on that land. And some of our customers are getting premiums from food companies. We're partnered with a number of food companies that want to source sustainable products and they want to be able to trace back to the field, exactly what happened on every bushel that was grown. I think this is an emerging opportunity for our farmer customers. I think it's going to help drive a more sustainable agricultural outcome.
- Let's move inside the Beltway. What do you need from Washington? Or what do you not need from Washington during this time?
Policy in DC is incredibly important and has significant impact on our farmer customers. Three things that are top of mind for me. One is agriculture in the U.S. is clearly a net export business. We need good trade policy. Our farmer customers produce the best products here in the US. And so, they need markets that can accept their products outside the US. Of course, over the last couple of years, there's been a lot of tension with China. We were really pleased to see the phase one trade agreement. However, so far, we're already halfway into the year and the amount of purchases coming out of China…it looks like it's going to be hard to live up to the commitments that they made in phase one. So those trade policies are incredibly important and it's not just with China. The new trade deal with Japan and USMCA are very important to our customers.
Number two would be our true science-based regulatory policy. Our farmer customers, and ultimately society and consumers around the world, need farmers to have access to new tools and technologies. And when regulatory environments get clouded with social issues, typically farmers are on the losing end of that. Ultimately, when farmers are on the losing end, so are consumers. So today, in the U.S., Canada, Brazil, we're seeing good science-based regulatory policy, but there's always pressure on that. If you look to what's happening in Europe today, they've lost that. And because they've lost that, they're now a net importer of ag goods. We really need to advocate for that and hold on to that.
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The third thing would be rural broadband. And the reason rural broadband is so important is because farming is becoming more technified. And unfortunately, there are a lot of dead spots across the rural areas where farming is very productive, but they can't get access to cell coverage, and therefore they can't get access to Wi Fi. As farming gets more precise, not only do you want to optimize the acre, you probably want to optimize a 10 square yard area. And in order to do that, you need to be able to flow data off the farm and off your farm equipment in terms of the outputs coming off that acre and the inputs going into that acre. What happens in a lot of areas is farmers are streaming data, but until they get back into their yards and pull out a thumb drive and put the thumb drive into their computer at home, they can't have access to the data. And that's just not acceptable. Our customers need real time data access so they can really optimize their decisions.
- What will agriculture look like post COVID-19?
I think the biggest impact, obviously, we've had to adjust our operations so that we kept our employees and our customers safe and healthy. We now do touchless pickup and touchless drop off, those things may or may not continue. I think the biggest impact of COVID is back to the consumer. When we went to the grocery store in March and early April, and we saw bare shelves, or we were being allocated, one package of hamburger or chicken…..I think that that was an eye opening experience for all of us, as consumers. I think we just thought that would never happen here in the US - we're such a strong producer of meat and vegetables and commodities. But the ag value chain is fragile. As I talked to my neighbors in the city, they now have a new appreciation for the importance of farmers and ranchers across the US. And I think that's good - most people are three generations removed from the farm. So, they had grandparents that were on the farm. And they've kind of lost track of how important farming is and how we must support our farmers from a policy standpoint, but also from a society standpoint. I hope that's the biggest legacy that we get from COVID-19 and agriculture.
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