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Agricultural companies examine selling outcomes vs. volume

Outcome-based pricing models and agronomic warranties emphasize results rather than product volume.

Automated spraying systems that precisely target herbicides at existing weeds while drastically cutting herbicide use seem like a dream come true for farmers. John Deere’s See and Spray Select technology, for example, cuts nonresidual preemergence herbicide use an average 77% in spraying weeds on fallow ground. 

On the surface, such systems that greatly reduce herbicide may seem like bad news for herbicide manufacturers. 

Not exactly. 

Over time, Bayer Crop Science will expand selling outcomes, says Bob Reiter, who heads research and development (R&D) for Bayer Crop Science and gave a briefing to the agricultural media on Bayer’s technology pipeline. By selling outcomes rather than volume, the amount of product sold pales compared with the results produced. 

“In one respect, people might look at it as a threat,” says Reiter. “I actually look at it as an opportunity for us to be able to work with those equipment providers.”  

These spraying technologies also work in tandem with low-volume chemical formulations Bayer is developing, he adds. 

Outcome-based Pricing Models

Several companies have recently introduced programs that guarantee a certain metric or outcome, such as a yield goal, disease-free field, or irrigation equipment alert.  If this metric is not reached, farmers receive a refund in cash or product. That’s a switch from today’s sales model that companies use to sell seed by bags or bulk or chemicals in jugs. 

Guaranteeing outcomes used to be impossible, because agricultural companies had no predictive capabilities. That’s changed, due to digital agricultural tools that can increasingly predict when an input like a chemical application will pay. 

Bayer is starting its third year of testing outcome-based models. “Farmers are very interested in outcome-based pricing models, and they’re very interested in sharing outcomes and sharing risk,” he says. Still, work is being done on how to enhance value and manage risk for farmers in such a program, he adds.

“Clearly, it’s going to take time to do this, but there’s a lot of interest, a lot of excitement, and I think a lot of value that we can create with it,” he says. “I think over the latter part of this decade, we’ll see significant expansion of outcome-based pricing models and offerings to growers.” 

Advanced Acre Rx prescription program

Other companies are currently offering warranties that back agronomic recommendations and products. WinField United is launching three versions of its Advanced Acre Rx prescription program in 2021, says Jim Hedges, vice president of seed marketing for WinField United. 

  • Elite Rx is a full-scale agronomic service – WinField United’s owner agronomist works closely with the farmer regarding agronomic input selection. Input choice is based on a la carte selection of seed, seed treatment, and crop protection products from a variety of companies. 
  • Complete Rx is similar, although it features a set package of products and recommendations from a WinField United agronomist, rather than an a la carte approach.  
  • Impact Rx features a less management intensive approach. One revolves around disease management, in which a yield warranty is offered for a fungicide and adjuvant pairing based on hybrid or variety selection. On the weed management side, this option covers a soybean yield warranty for a herbicide, seed/trait, and adjuvant package.

Not Yet for Machinery 

Agricultural machinery firms are not yet opting toward outcome-based pricing or yield/service guarantees. Like crop firms, though, they are working to boost harvest outcomes. 

“One example of our Customer Driven Product Design process at work is the AFS Harvest Command combine automation system,” says Scott Harris, Case IH vice president, North America. “Our engineers took producer feedback from the field to create technology that proactively senses and optimizes combine settings to optimize grain quality and grain savings.” 

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