The agency problem 💰
Prime Future 160: the newsletter for innovators in livestock, meat, and dairy
A couple of years ago I went on a roadtrip across the midwest of the US and found myself at an agricultural co-op, chatting about the future of ag retail. I mustered up the courage to ask a question that had been on my mind, but that I worried would get me kicked out:
“Isn’t there a bit of a conflict of interest in offering advice on product usage, when you also get a commission on selling the product?”
That is an excerpt from a fantastic article by Sarah Nolet of Tenacious Ventures, the Australia-based agtech venture firm, exploring the relationship between crop farmers and their ag retail advisors who provide advisory services on crop inputs and sell the inputs.
What Sarah described is the agency problem, when “incentives or motivations present themselves to an agent to not act in the full best interest of a principal.”
What punched me in the face is the parallel agency problem in livestock when you strike out the words "ag co-op/retailer" from Sarah’s quote and replace it with veterinarian or nutritionist.
The Tenacious article continues with an insight into this topic from Shane Thomas of Upstream Ag Insights:
“In the context of ag retail, as the cliche goes, it’s a relationship business. But in the sense that it's not a relationship built on a year or two; these retailers want to be able to continually support that farmer for the next 40 years. They actually have a real incentive to make sure that they’re not just pushing product for the sake of pushing product.”
This also correlates nearly perfectly with the livestock producer/veterinarian and the producer/nutritionist relationship.
And then there’s a punchline that, once again, holds up for us:
"What remains clear is that skilled support is, and will remain, in demand in farm country because farmers need guidance to get the full benefit of new tools, practices, and technologies.
How they pay for it, though, will surely evolve as the existing business models of both farmers and ag retailers alike face mounting pressure to evolve."
After reading Sarah’s article, I reached out to people way smarter than I am to get their input. As one put it, "This conflict absolutely exists in livestock. We've attempted to business model our way out of it which has resulted in a lot of variation in business models, but not necessarily a solution."
There’s a quote that the only way to make money is to bundle and unbundle which is highly relevant as we think about products & services offered by vets & nutritionists!