AND THE FOOD INDUSTRY

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1 SPARKS COMPANIES, INC. e-commerce: IMPLICATIONS FOR AGRICULTURE AND THE FOOD INDUSTRY A Special SCI Multi-Client Study The Food Industry's Next Revolution Computer technology..communications..information Management.e-commerce Not just a new tool a new system! It is changing your business world even faster than you think. e-commerce is fundamentally and forever altering both the business environment and the structure of the entire food system changes now are just beginning, but will become increasingly evident very soon. New dot-com ventures, internet spin-offs, mergers, alliances, JVs, and IPOs are announced daily throughout the industry major changes, but still the tip of the iceberg. Business channels and relationships will be re-forged to accommodate new lines of access that cost less, include much, much more information, permit faster, more direct responses and are far more efficient. Those who anticipate these correctly will benefit from enormous opportunities. No one will be left untouched. How will the industry respond to this new technology, and how will it change? How will your industry segment and your business be affected? What should your strategy be to confront the challenges, fully realize the new opportunities? Learn how you may be affected by the information revolution the implications for all parts of the food industry find out who the leaders are and what are their strategies and learn how to take part in the new revolution. Join SCI in this timely and comprehensive evaluation of e-commerce and the implications for the food industry. Join our close-up examination of the fast-paced developments of the info-tech revolution anticipate its challenges be prepared to take full advantage of new opportunities

2 2 SPARKS COMPANIES, INC. e-commerce: IMPLICATIONS FOR AGRICULTURE AND THE FOOD INDUSTRY Introduction Agriculture and the food industry, already buffeted by a virtual stream of new technologies now is confronted by yet another wave the info-tech explosion with its endless applications is sweeping through every aspect of the food business. The potential efficiencies make its rapid and widespread adoption inevitable, and its implications tremendous. Every aspect of the sector from tractor maker to local coop to major processor to household consumer faces dramatic, fundamental, almost overwhelming changes. This technology, like others, arises from enormous advances in computers with new communications links and better, cheaper information management. It is still in its infancy, but is being embraced broadly by business across the food industry. It will sharply reduce the length of the supply chain in some segments a long-standing, sector wide objective and promises to broaden access and the customer base for many products, streamline raw material sourcing and product distribution, and fundamentally change longstanding business practices. New applications are everywhere hardly a day passes without a new e-commerce venture announcement, an IPO, or a company spin-off involving the internet and the food industry. Peapod, Webvan and Netgrocer fast becoming familiar names in food retailing were unheard of only months ago. The list now includes dozens more, B2B names (and, a new language), all signaling rapid change for a staid industry that will be unrecognizable only a few years in the future. For all its promise, the new technology is not without challenges. It will pose tremendous tests for managers and strategists and, those best prepared are most likely to prosper. But, none will remain unaffected by changes that will: Transform the structure of the food industry as it exists today; Fundamentally alter long standing business practices and relationships; Affect all segments of the industry none escapes!

3 3 THE STUDY This comprehensive study will explore the many aspects of e-commerce and develop the key implications for agriculture and the food industry. It will examine the development of the internet, computer technology and the fast-paced emergence of business applications. It will focus specifically on the implications of this rapidly emerging technology on each segment of the food industry, including: Inputs Industry How will the traditional farm input supply chains be affected? What happens to the widely dispersed dealer distribution networks that characterize much of the industry today will they still be needed how will their functions change? Who will provide product service parts? How will manufacturers be affected? How will product and other information be disseminated by whom? Farm Sector How will the farmer customer base change? Will all farms become e-customers? Who will be the commercial farm customers of the future? How will farm business management requirements change? Is contract farming facilitated? Is the technology size neutral or does it foster further consolidation? Which farms will be the winners and losers? Food Processors/Distributors How widespread will business to business B2B commerce become? How rapidly? How will sourcing raw material change? Will product distribution be transformed? Will this segment of the supply chain be restructured? How quickly? Food Retailing/Consumers How important will direct grocery sales to households become? What are the implications for delivery strategies, infrastructure, product innovations, etc? Who are the industry innovators, the leaders? What are they doing what are their strategies? How will consumer food costs be affected? The Supporting Institutions (Overarching Implications) Not only will every segment of the industry be affected, but the basic infrastructure and institutions supporting the industry and its markets also will be significantly changed. Consider the implications for:

4 4 Traditional Markets/Structure How/where will price determination occur how will price information be disseminated to whom? Will the major exchanges evolve quickly or be bypassed? Will some markets disappear will new markets with different structures emerge? Public Policies/Regulations How will public policies be required to adapt to this new form of commerce? Where will new regulations be required? How will taxation of e-commerce, already a controversial issue, be resolved federal, state or no taxation or a patchwork rate structure across states? How will new issues such as security, privacy and information ownership be resolved? Information Ownership/Privacy Information is a key aspect of e-commerce where does it originate, how is it obtained, who disseminates it? As information generated by market participants becomes more and more valuable, who owns it? What will be the role of public versus private sector institutions? Capital Bankers/Investors How will the new system be financed? Will it require more or less capital in which segments of the system? Will new structures/channels be required? Who Will Be Affected? Every segment of the food industry will be affected, including: Farm machinery manufacturers Seed companies and other genetics providers Fertilizer and pesticide producers and distributors Farm credit and other service providers Producers Commodity processors Grain companies Meat and poultry processors Dairy processors Feed compounders/manufacturers Food processors Investors/bankers Transporters Trade associations Government institutions HRI providers Food retailers Households/consumers

5 5 Preliminary Study Outline I. Introduction: Why the Study Why Now? Another new broad-based technology suddenly confronts the food industry just as it is dealing with the biotechnology revolution and globalization. What will this mean for the industry how pervasive will it become and how soon? This study will examine these broad questions to help participants develop their own individual strategy for dealing with the new technology. Another broad new technology promises to engulf the industry. How will it likely unfold? How will the various components of the food system be affected? What challenges will it hold for existing businesses? What opportunities may emerge? What are the implications for the inputs industry? Farm sector? Processing companies? Distributors? Retailers? Consumers? Supporting Institutions? The study will examine the unfolding of e-commerce and develop and evaluate the critical business implications. II. Emergence of e-commerce This component will describe the factors combining to make e-commerce possible and will examine the factors driving it, with special emphasis on its potential and how widespread it could be within five years. The companies now emerging as leaders in each segment of the system will be identified and their particular strategies reviewed. The supporting technologies identified The potential applications identified and reviewed The expected pace of development and implementation The potential benefits what is driving its adaptation? Scope and scale today how widespread could it be in five years? The leaders/innovators and their strategies in each industry segment III. The Implications for the Food Industry The implications for the industry and the individual segments could be enormous in terms of business conditions and practices, the structure of each segment and for individual companies determine who struggles and who thrives. How will the supply chain

6 6 evolve? How will the structure of each segment evolve? How will business practices develop? Who will be under the greatest pressure? Who will see the biggest opportunities? Who will be the winners and losers? This section will identify and develop the strategic implications for: The inputs industry The farm sector Food processors and distributors Food retailers/consumers IV. Overarching Industry-Wide Implications Beyond each segment of the industry, e-commerce brings significant overarching implications for the institutions that support traditional commerce such as markets, policies, regulations, financiers and investors, trade associations which will be forced to adapt and evolve, as well. This section will examine and evaluate the critical overarching implications for: Traditional market structure and organization Public policies/state-federal regulations Information sourcing/dissemination/ownership Trade associations Capital providers bankers/investors Others V. Food Industry of the Future Five Years Hence This section will synthesize the analytical findings from the foregoing study components and will develop some notions of how the food industry might look in just five years hence. Rather than produce definitive forecasts dependent upon implicit assumptions, the purpose is to assist clients in developing their own informed judgments from their particular perspective in the industry. How significant could the industry be changed? What adaptation will likely occur by whom and how fast will it be required? How might the industry appear in 2005? VI. Appendices All statistical and other information supporting the study will be systematically presented in the appendices.

7 7 Study Products The project will involve several specific products for participating clients including: Pre-Study Conference. A meeting of participating clients and SCI study staff will be held in Washington, DC to review the detailed plans for the study and to identify particular areas and issues that clients want to receive special attention. This seminar will address the major study topics, provide a presentation on each to update clients on current developments, and enable specific client comments and interests relating to each to be noted. Comprehensive Study Report and Presentation Materials. All participating clients will receive, e-commerce: Implications for Agriculture and the Food Industry, the fully documented study report containing all description, background statistics, analysis and evaluations, empirical projections and supporting detail developed during the course of the study. Clients also will receive copies of all PowerPoint presentation materials used in reporting study results. (All materials will be available both electronically and in hard copy.) Post-Study Seminar. A concluding day-long seminar will be held for all clients as a group to participate with study staff and consultants in fully reviewing the findings and implications. Final Report Presentation at Clients' Offices. SCI staff will travel to client offices to present the final report and conduct in-house seminars, as requested. These seminars are tailored to each client s individual needs and interests. SCI staff will present these findings at the clients offices for only out-of-pocket expenses. Project Schedule April 2000 April June Mid-July June July Pre-study conference and study begins Study completed final report sent to clients Client seminar to review report Individual presentations at client offices Study Staff and Review Team Dr. J.B. Penn, Senior Vice President and head of SCI s Washington, DC office will coordinate the overall project. Other SCI staff with directly relevant experience will actively participate in conducting the study including Dr. Bruce A. Scherr, Dr. William C. Motes, Mr. Tom Scott, Mr. Scott Richman, Ms. Elizabeth Bechdol, and others. In addition, consultants with extensive

8 e 8 experience evaluating various aspects of information technology and the food industry will serve Dr. J.B. Penn, Senior Vice President and head of the Washington Office extensive experience in formerly Deputy Administrator for Economics of USDA's Economics and Statistics Service and Senior Staff Economist with the President's Council of Economic Advisers 19 years private sector Ms. Elizabeth Bechdol, Vice President responsible for analyzing agricultural and food policies, future US farm structure, implications of the biotechnology revolution, and federal food processing regulations BS in international law and relations from Georgetown University, MS in Dr. William C. Motes, Senior Vice President extensive experience evaluating agricultural and trade policy formerly head of USDA's policy analysis in the Office of the Secretary and Senior Staff Member of the Senate Committee on Agriculture and Forestry graduate degrees Mr. Scott Richman, Vice President extensive agribusiness consulting experience with special focus on the grain/oilseeds industry, biotechnology, assessing market MS from Columbia University specializing in international business. Dr. Bruce A. Scherr, agribusiness industry specialist in risk management procedures and strategic planning previously President of Sparks, Jacobs, Scherr, Inc. and Agri-Commodities, Inc. and Divisional Vice President, Purdue University. Senior Vice President extensive experience in the grain/oilseeds industry and international markets, long familiarity with the transportation industry previous management, trading Cornell University, MBA from Dartmouth College. Study Fees clients. The fees include attendance at the pre-study conference, the client group review travel to the conference and seminar, and expenses for SCI staff travel to companies' offices for the presentation are not included.

9 9 Sparks Companies, Inc. ENROLLMENT FORM Yes, I want to participate in the special e-commerce: Implications for Agriculture and the Food Industry multi-client study. The cost of the study for current SCI clients will be $14,500 and $17,500 for non-clients. One-half will be billed upon initiation of the study and the remaining one-half upon my acceptance of the final report. FAX to or Please have someone contact me to provide further information. Name: Signature: Title: Company: Address: City, State, Zip: Telephone: Fax: Address: Return this form to: Dr. J. B. Penn - or - Dr. Bruce A. Scherr Senior Vice President President & Chief Executive Officer SCI/Washington Sparks Companies, Inc Whittier Ave. 889 Ridge Lake Blvd. McLean, VA Memphis, TN Phone: Phone: Fax: Fax: jpenn@sparksco.com bscherr@sparksco.com