The next big agricultural technology: Modernizing the back office
The pandemic hit the agriculture industry hard. This is a complex and sophisticated industry that has been undergoing a lot of modernization over the past decade. COVID forced growers, packers and shippers to stop and regroup. It also underscored the need to take the modernization effort to the back office, to accounting and payments in order to be more nimble, cut costs and prepare for generational change.
As with most industries, the first wave of investment in new technology in agriculture has been directed at front office, revenue generating functions. Seasonal labor management is a good example of where automation has been implemented. Compliance is another one. From the time a fruit or vegetable is picked to when it shows up on the plate, it’s under a lot of scrutiny for compliance with health and safety laws. That used to mean collecting samples and then driving them to a lab. Nowadays there's technology to take some of the manual work out of sampling.
The COVID-19 pandemic slowed some of these efforts as companies scrambled to adjust. The impact was uneven. If you were selling produce to grocery retailers, you may have had a record year since everybody had to cook and eat at home. But if you were selling to schools or restaurants, it was a struggle to survive. That led many growers, packers and shippers to look for ways to diversify by moving into new markets, and new products such as packaged or frozen foods.
The industry was also hit by COVID related supply chain woes. There was more day to day fluctuation in produce prices than usual, and now the Ukraine war has created even more price volatility. There’s been a big impact on the packing and distribution side as well. Prices for labeling, plastic clamshell packaging, and corrugated cardboard for shipping have all gone up. It’s a lot harder to pass those cost increases along to the consumer than it is in construction, or manufactured goods for example.
This has put a lot of price pressure on all sectors of the industry, and along with that comes the pressure to cut costs. There are a lot of opportunities to do that in the back office. Even in companies that have automated and gotten more nimble on the front end, the back office looks the same way it did 50 years ago. There’s a lot of paper and manual processing, and the majority of payments are still made by check.
Invoice ingestion and workflow automation, digital payments, and payment automation all offer opportunities to cut costs, make more efficient use of labor and position companies for the next generation to lead.
Credit cards are a good first pass at cutting costs by digitizing payments. In an industry with relatively long outlay-to-revenue cycles, they can function as both a payment method and a working capital tool.
If you’re growing strawberries or lettuce, the time between when you put seeds or transplants in the ground and get revenue can be three to four months. It can be up to a year if you’re growing nuts or stone fruit. Putting your planting supplies on a card extends your time to pay and earns a rebate on spend. Cutting a check doesn't do anything for you financially or from a cash flow management standpoint.
Credit card payments are an attractive proposition for vendors as well because there’s a lot of slow pay (and sometimes no pay) in the industry. Getting paid in a timely manner is always a concern, and many vendors are willing to accept card payments to make that happen.
Back office opportunities
The ultimate goal should be a fully automated payment process. Paying more vendors by card and ACH moves you toward digitization, but there can be a lot of effort that goes into scaling digital payments across your whole vendor base. Vendor enablement, managing financial data, and protecting against payment fraud all take work on the part of the AP team.
Accounting and finance for agribusiness is pretty specialized, and the remote geographical location of many agriculture operations means the local labor pool is small. In the mid-sized, family-owned, multi-generationally operated companies that are the backbone of this industry, the back office is typically a pretty lean operation.
Wrapping card, ACH and check payments into one automated workflow and handing off all the enablement, payment resolution and fraud protection to a payment automation provider typically cuts AP time spent on payment processing by about 70%. When you have someone that’s spending ten hours a week on check processing and you can get that down to one or two hours using an automated interface, that’s a whole work day that can be reallocated to more strategic work.
Automating the payment process also helps you reach into a wider labor pool, since new cloud-based solutions support remote work. It helps with attracting new workers and retaining institutional knowledge of processes. When you run a lean operation and someone with years of knowledge around paper processing walks out the door, the new person comes in and sees piles of paper, as opposed to a system with stored data and automated processes.
In the last decade we’ve seen a lot of new technology implemented in the agriculture business, both by proactive initiative and because health and safety agencies are requiring it. Most of that automation has been around growing and production.
Ongoing supply chain issues, labor shortages and cost pressures will drive further automation. Agriculture is a family business, and the next generation coming in has a much bigger appetite for getting rid of inefficient manual processes. There are plenty of opportunities to do just that.