Innovative pricing structures are shaping agriculture

Agricultural pricing structures have remained largely the same for decades. While buying seed by the bag and inputs by the jug is the norm, it can lead to headaches when calculating cost per acre or the price of modifying management strategies. Several seed and input companies are looking to change that with new pricing structures, offering increased flexibility and reduced risk for farmers.

Seed by the Acre

One program revamping the way farmers buy seed is GHX offered by Syngenta. MaxScript recommendations match field conditions to hybrid and plant populations and offer those seeds for a flat, per-acre price. An on-call team of experts and access to the GHX mobile app aim to keep the process simple.

“The one key difference is that it all starts with the farmer,” says Wade Wiley, head of customer experience strategy and business intelligence for Syngenta. “We’re very focused on the farmer winning, and we want to make it easy for the farmer to realize the potential that they have for their farm.”

The platform intends to give farmers room to think about maximizing yield rather than the cost of seed.

Rye Randolph, a Canton, Illinois, farmer, started using GHX early last year. His seed dealer knew he liked cutting-edge technology and recommended he try the program and provide his feedback. Randolph says it’s made planning and marketing his crop easier. “When you’re planning almost a year in advance and trying to get your operating line set in stone, it’s nice to know the seed is going to cost me this amount per acre,” Randolph says.

Knowing his set price per acre has also allowed Randolph flexibility when it comes to experimenting with plant populations.

“With soybeans especially, a lot of people try to plant one bag per acre with 140,000 seeds per bag,” Randolph says. “I’ve found that I can plant a little bit heavier populations on my good ground and I get a bit of a yield response. So it’s nice to be able to plant a little heavier and still see a benefit financially.”

Buyers can purchase any seed variety from the Golden Harvest portfolio. While the program is focused in Iowa and Illinois for now, there are plans to expand across the Corn Belt.

“Being open to the GHX program helps you to see things in a different aspect,” Randolph says. “It takes away any of the risk of overextending myself on my cost for seed this year. It also makes it one step easier by taking out the process of trying to figure out what my cost is per acre.”

Outcome-Based Pricing

New business models are in the works at Bayer as well. The company aims to bring together its product portfolios and leverage digital agriculture to reduce customers’ risk.

In 2019, Bayer piloted an outcome-based pricing model, which minimized farmer risk by selling metrics such as yield guarantees. If metrics weren’t met, farmers would be compensated, but when fields overperformed, Bayer would profit off the bonuses. In the past three years, the pilot has evolved into a suite of new opportunities under development.

“We realized that we had an opportunity to take the learnings from the work we did on outcome-based pricing at the time and look at a broader portfolio of what we now call new business models,” says Chad Bilby, Bayer’s U.S. commercial digital innovation lead. “When we talked to farmers and did a survey, they were sharing how their purchase behaviors could be changing by the end of this decade. They may be moving to an area where digital recommendations are part of why they are purchasing a particular crop input.”

Bayer is working to integrate these programs with FieldView, a digital farming platform that provides farmers with insights developed from their data. As these systems become more automated, trusted advisers may be more important than ever.

“As much as digital agriculture is changing agriculture, it’s also changing the service that we provide,” Bilby says. “It’s not the data by itself and it’s not necessarily the agronomist by themself. It’s the two together that can provide the best service and best recommendations to that farmer.”

Inputs Also Changing

Seeds are not the only input seeing changes in pricing structures. Precision ag equipment allows for more finely tuned payments for products such as fertilizer and biologicals.

The SIMPAS application system developed by AMVAC utilizes electronic shape files and prescription maps to apply up to three liquid or granular products as needed in one planter pass. Interchangeable SmartCartridges tracked with RFID tags and a pay-for-what’s-used model allows farmers to limit stops while planting.

“When applying prescriptively, you might have cartridge A run out faster than cartridge B or C,” says Jim Lappin, director of the SIMPAS product portfolio. “The retailer only charges for the applied acres of the product physically used out of the containers. The grower can swap those SmartCartridges out when it’s convenient instead of having to coordinate trying to run all those containers to empty.”

SmartCartridges for granular products hold about 20 pounds of material and are shipped in pallets of 48. As the containers are used they can be sent back. AMVAC aims to open a series of refill centers to further streamline the process.

Today, 11 products are available in the portfolio, including corn insecticides, nutrients, nitrogen-fixing solutions, and more.

“The system is retailing for around $3,000 per row,” Lappin says. “If the grower is buying a monitor to run the system, that’s another $4,000 to $6,000, spread across the number of rows on his planter. That buys him the hardware and software access from Trimble. SIMPAS-applied solutions are then sold separately by retailers.”

Risk Assurance

Many of the up-and-coming programs have a similar goal: reduce farmer risk and boost rewards. While both seed programs can offer a buffer if products under-perform, they are not crop insurance. 

GHX offers a premium-free risk assurance to protect against adverse weather conditions. AgriClime offers yield protection in three key crop year time frames: early crop development, pollination to green fill, and harvest. 

“This is completely independent of crop insurance,” says Morgan Dugan, commercial unit head for Syngenta’s Golden Harvest Central. “Farmers will have whatever crop insurance decisions they have and this will be completely separate, above and beyond.”

Meanwhile, Bayer’s proposed programs would offer payback if certain metrics, such as yield, are not met. 

“Our performance warranties don’t go all the way down to total loss,” says Chad Bilby, Bayer’s U.S. commercial digital innovation lead. “Environmental impacts can certainly impact our offers. That’s a bit of the risk we have to carry. We feel that with a leading product portfolio coupled with our digital platform FieldView and the recommendations we can provide, we can start to shift that risk profile and that creates a win for everybody.”