Academic journal article ABA Banking Journal

Ag Bank/farmer Team Can Beat "BIG AG"

Academic journal article ABA Banking Journal

Ag Bank/farmer Team Can Beat "BIG AG"

Article excerpt

Key is rethinking the bank's role

By the time Professor Harold Hill, of the classic musical "The Music Man," has convinced anxious Iowans that what they really need to fight trouble in River City is a boys' band, he has already demonstrated the importance of having a strategic plan and developing the customer relationships to make it work:

Hill meets with River City's most influential citizens to determine the town's strengths and weaknesses.

He enables them to find an appropriate solution to their most pressing problem. His plan for a band becomes less important than the process of building one. Through his relationship with the townspeople, he gets them to share values, tasks, and goals--River City is revitalized.

What Meredith Wilson, who created the fictional Professor Hill, understood best about 1890s small-town America was its fears--of change, of technology, of an unimaginable, largely uncontrollable future.

And, in rural America today, we regard a similarly unfamiliar landscape, trying to figure out how our banks and our communities, closely aligned with agriculture, can compete in the age of farm consolidation and vertical integration, vying on a field with the Farmland Industries, the Cargills, the WalMarts.

For today the toughest competition for agricultural community banks is not the bank across the street, nor even down the road, but the nontraditional suppliers of credit, such as retailers, wholesalers, and food chains. They are inundating ag banks' customers with offers to provide financing for their purchases or even for their production. These offers are occurring in conjunction with the most rapid period of change ever in terms of banking-related technology and e-commerce.

How can ag banks possibly compete against such great odds--especially when you factor in the tremendous concern about the current ag outlook? There are three choices.

They can sell, before the value of their franchise dissipates. Or they can ride the horse until it finally dies. Or they can change the rules. There has never been a greater opportunity for the community banker to step forward and provide the leadership to form his community's "boys' band."

Assessing your strengths

Strengths like day-to-day awareness of market needs, accessibility, a higher level of customer trust, and faster product time to market give community banks the ability to effectively respond to trends and customer demands. However, all that is traditional community banking. Today's ag customers expect more than free caps and calendars.

Once Professor Harold Hill had provided the uniforms and instruments to his boys' band, in order for him to accomplish what no one else had or could, he conjured up the "Think System." Part "positive thinking," it would, he hoped, give him the advantages necessary for success. Community ag banks must come up with their own "think system." The real value of our franchises today is the customer relationships that we have developed. If bankers let those relationships erode, they will be left with a bunch of tangible assets that won't be worth very much.

So how do ag banks fight someone attempting to strip them of these relationships?

First, you must know acknowledge your chief rival. Most ag bankers still consider their main competitors to be the traditional financial institutions they have competed against for years. Yet the much greater threat is the "nonbank" that doesn't realize it's supposed to compete according to the Marquis of Queensbury rules.

With vertical integration, nonbanks try to own the whole relationship with the customer and not depend upon anyone else who can get in the way of the sale of their product. Even more alarming are the food chains that want to own and control the whole process, from production to end-user. These are much more formidable foes than the traditional financial institutions. …

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