When an industry is offered a technology-based productivity improvement by a vendor, the increased profit associated with that improvement can go to three places:
1. The technology vendor itself
2. The business purchasing the technology
3. The customer
When the business purchasing the technology is a commodity business (its product is undifferentiated from a large number of competitive producers, e.g. corn, soybeans), the value from the technology will generally either stay with the technology vendor or flow down to the consumer in the form of lower prices.
This is why technology investment in a commodity business is often about a need to keep up with your competitors and not about actually increasing your profit. To paraphrase Charlie Munger, the productivity improvement doesn't 'stick to your ribs' if you are the farmer.
I think any business sophisticated enough to build highly automated farm tractors is also going to be sophisticated enough to realize that it doesn't make sense for the farmers to own the value associated with those productivity improvements. That is the plight of a commodity producer in the supply chain, I don't think it's a moral failing of the technology vendor.
When an industry is offered a technology-based productivity improvement by a vendor, the increased profit associated with that improvement can go to three places:
1. The technology vendor itself 2. The business purchasing the technology 3. The customer
When the business purchasing the technology is a commodity business (its product is undifferentiated from a large number of competitive producers, e.g. corn, soybeans), the value from the technology will generally either stay with the technology vendor or flow down to the consumer in the form of lower prices.
This is why technology investment in a commodity business is often about a need to keep up with your competitors and not about actually increasing your profit. To paraphrase Charlie Munger, the productivity improvement doesn't 'stick to your ribs' if you are the farmer.
I think any business sophisticated enough to build highly automated farm tractors is also going to be sophisticated enough to realize that it doesn't make sense for the farmers to own the value associated with those productivity improvements. That is the plight of a commodity producer in the supply chain, I don't think it's a moral failing of the technology vendor.