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Bayer Moves Ahead With Outcome-Based Pricing Model
“Today, we get paid for the inputs we sell,” says Liam Condon, president of Bayer Crop Science. “We sell bags of seed and jugs of crop protection.”
Outcome-based pricing models change that by selling a metric like a yield goal if a farmer follows certain recommendations. Although this model is years away from being widely offered, Condon sees it as the future of selling inputs.
Digital Agriculture Keys This Model
Condon briefed members of the agricultural media regarding outcome-based pricing earlier this month at its Future of Farming Dialogue in Monheim, Germany. Up to now, outcome-based pricing hasn’t been done, because no company had predictive capabilities.
“That is rapidly changing,” says Condon. Digital agriculture now makes it possible to form a predictive model that establishes a yield metric if certain products are used as recommended, he says. Ideally, outcome-based models remove input risk for farmers, says Condon. “As an example, in the U.S., corn growers know on average that when they use fungicide, the get a better yield than if they don’t. The problem is, in some cases, they might get a lower yield even if they use a fungicide. Most farmers will want to avoid negative results, so their willingness to try a fungicide is relatively low because they don’t know when to use it."
Under the outcome-based pricing arrangement, Condon says Bayer teams its research and development data with data from the farmer’s field to build a predictive model as to if, when, and where a fungicide will pay. If the outcome falls below the predetermined metric, Bayer makes up the difference to the farmer. If it falls above the metric, Bayer and the farmer share 50-50 in the upside.
Bayer piloted the program this year with several U.S. corn farmers. “The results look extremely promising,” Condon says. “We will roll it out in the next few years.”
Digital Seed Selection
Keying this year’s pilot program is Bayer’s Seed Advisor. This digital seed-selection tool uses an algorithm that matches hybrids with specific fields. In 2017 and 2018, Seed Advisor fueled a 6- to 9-bushe-per-acre increase for farmers testing the tool over what they would have otherwise harvested, says Sam Eathington, chief science officer for The Climate Corporation, Bayer’s digital agriculture business.
“There is a tangible yield increase in making a better decision of what to plant,” says Eathington.
Hurdles exist, though with outcome-based pricing. Improper combine calibration that gives faulty yield readings is one.
“We acknowledge that not all combines are calibrated and set in a proper way,” says Eathington. He adds that Bayer does have a protocol of certifying combines as calibrated and also reconfirms total yield against weigh tickets. Bayer is also examining other yield-confirmation tools, such as satellite imagery.
“The autocalibration systems in some of the newer combines look really good,” he says. He sees this technology spreading quickly.
“We are learning,” says Eathington. He says Bayer needs to learn risks, weaknesses, and operational issues. Farmers also need sufficient data to benefit from the program.
“What the farmers in the pilot love is how we are starting to help them manage risk,” he says. “That is the real driver.”