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E-Commerce in United States Agriculture E-Commerce Team E-Commerce in U.S. Agriculture

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E-Commerce in United States Agriculture E-Commerce Team E-Commerce in U.S. Agriculture
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  .1 E-Commerce in United States Agriculture ERS White Paper E-Commerce Team William Chambers, Jeffrey Hopkins, Kenneth Nelson (Coordinator),Janet Perry (Division Liaison), Shirley Pryor, Peter Stenberg, Thomas Worth May 25, 2001  .2 E-Commerce in U.S. Agriculture I.   Introduction The effect of e-commerce on the agricultural sector, and the implications for farmers andagribusiness, has for some time been considered a controversial topic, reflected in the dissentingopinions of critics, proponents, and analysts. Some proponents have said it is a great costreducer and economic equalizer providing access for all to information and markets. Somecritics see a mechanism for concentrating information and market access among the powerfuland relegating those left out to the digital desert. Other analysts view e-commerce through theeyes of a market investor, where efficient market theory predicts a sharing of risks and gainsbetween the firms developing technological innovations and the farm and agribusiness managersand households that implement them.Given the secular decline in the market performance of e-commerce firms over the last year, itappears obvious that some investors would re-evaluate their decisions had they known what theyknow now. However, the outlook for e-commerce in agriculture is still largely driven by theimplications of the technology for management of firms and the implications of the technologyfor the well-being of households. The authors’ aims in this paper are to collect and report brieflyon what is known about the type, use, and impacts of e-commerce in U.S. agriculture, both at thefarm and agribusiness levels. We address the hopes of the proponents, the fears of the critics,and the outlook for further investment. With this, we hope to identify researchable issues relatedto e-commerce which match the ERS mission of providing information for a competitiveagriculture.We begin with a section that places e-commerce within a broader information technologycontext (a glossary of terms is included at the end of the document). Then, we draw extensivelyon existing literature to discuss the macroeconomic and microeconomic implications of e-commerce for agriculture, using the more formal economics, management, and technologyliterature as well as the popular press, which has a great deal to say about economics,management, and technology. The literature review section is followed by a section that creates  .3a typology of e-commerce firms found in the agricultural sector. Next, we discuss a key issuerelated to the availability of e-commerce data for the farm and nonfarm sector, concentrating ontrends in business-to-business sales for the economy as a whole and the growing use of e-commerce by traditional agribusinesses. We also show estimates of the gaps in Internet use (theso-called “digital divide”) in the U.S. and gaps in online purchases and sales among farmhouseholds. Finally, some research ideas that we believe merit further study at ERS arepresented. II. Defining Information Technology and E-Commerce The “Information Revolution” has been going on well before the creation of the Internet. It hasinspired lofty rhetoric about how it will change the way we live and conduct business. It has alsocreated several new concepts and terms. Some of the terms border on slang (“B-to-B”) withdefinitions that are still evolving. The purpose of this section is to define and clarify the basicterms used in the rest of this paper. A. Information Technology The broadest term is “information technology” (IT). It encompasses everything that allows us toelectronically gather, generate, store, analyze, distribute, or otherwise use information. Althoughthe Internet has received the most attention, IT includes other computer technology such asmicrochips, monitors, hard drives, and software. It also includes more traditionaltelecommunication technologies such as cell phones or fax machines - anything related to theelectronic use of information. More recently, IT has begun to include broadcast technologiessuch as cable TV that are offering access to the Internet. It is IT that makes e-commercepossible.Although much of IT relates to communication and networks, it also has an important role that isseparate from the exchange of information. For example, laser scanners at supermarket checkoutcounters offer advantages over manually typing in the price of each item. Word processingprograms on personal computers offer many advantages over typewriters that are separate fromthe ability to transmit word processing files over the Internet. These “non-network” technologies  .4are not the focus of this paper, but it is important to note that these may have been an importantsource of change in how businesses operate. B. Network Technology, E-Business, and E-Commerce Though the focus of this paper is on the effect of e-commerce on agribusiness, it is helpful todefine the technology that makes e-commerce possible. Network technology is not new. Thetelephone and the fax have been around a long time, and their effects are well understood. Morerelevant to e-commerce are the newer technologies that link computers together.There are two major types of computer networks that are used for e-commerce; electronic datainterchange (EDI) and the Internet. EDI systems are proprietary networks that enable firms tosend data between remote establishments or to link with other firms and conduct businesstransactions. EDI predates the Internet. One advantage of an EDI is that it is private and thedata transmitted through it is secure from the public. EDI systems tend to be more expensivethan the costs of just connecting to the Internet.While EDI networks are private, the Internet is an electronic network open to the general public.Any firm or individual with the right equipment may access it. The Internet can be used fortransactions between firms as well as transactions between firms and individuals. Anothernetwork technology, “extranet”, is a hybrid of EDI and the Internet. An extranet uses theInternet to transfer information, but encodes the information to maintain privacy.The rapid growth of the Internet has given rise to the concept of electronic commerce, or e-commerce. Popularly, e-commerce is thought of as conducting business on the Internet. TheU.S. Census Bureau, however, has a more precise and sweeping definition of e-commerce as anytransaction completed over a computer-mediated network. This includes any transactions overthe Internet as well as through an EDI system or extranet. It is this definition that guides theirmeasurement of the volume of e-commerce.The Census Bureau has also constructed a definition of electronic business, or e-business. It isany process that a firm or other organization conducts over a computer-mediated network. Thisincludes anything that would be classified as e-commerce. It also includes more functions than  .5those that are price transactions, such as logistics, customer support, sending email, oradvertising. C. E-Commerce Transactions: B-to-B and B-to-C Firms that do business on the Internet, whether exclusively or part of a broader business,generally fall into two categories; B-to-B and B-to-C. B-to-B is short for “business-to-business”and applies to transactions between firms. This includes firms electronically purchasing inputsfrom other firms. This also applies to firms that act as intermediaries, or wholesalers, betweenfirms. The term B-to-C, or “business-to-consumer”, describes firms that sell goods or services toa final consumer, usually a member of the general public. Firms may be involved in both B-to-Band B-to-C transactions. The relationship between e-commerce and IT is illustrated in Figure 1.These two categories do not represent equal shares of e-commerce. According to the CensusBureau data, ninety percent of e-commerce consists of B-to-B transactions. These transactionsoccur on either an EDI system or the Internet. B-to-C transactions occur almost exclusively onthe Internet, where the general public has access.A well-publicized example of an e-commerce company is the bookseller Amazon.com. It is anexample of a “pure play” company in that it buys and sells only over the Internet. Pure playcompanies are frequently referred to as “dot-com’s” because of the suffix of their Internetaddresses. Many traditional, or “brick and mortar”, companies also participate in e-commercethrough websites where they buy and sell commodities. Dot-com companies have gone throughconsiderable transformation over the last year, and many of them have experienced large stock value losses.
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