Ask most individuals about farming and they will describe a farmer with an old tractor and plow. They are often surprised to know that modern agriculture is highly technical. For example, the first commercial drone license issued by the US’s Federal Aviation Association (FAA) was to a company for agricultural application.
The agriculture industry has begun to harness the power big data can bring to operations. For example:
- Historical yield, soil, nutrient and weather data can be analyzed to help a producer make a decision on how much fertilizer to apply to a certain soil type in specific climates.
- An agronomist can analyze field data to recommend the optimal seed that a producer should purchase.
Software and algorithms are being created to leverage data to increase yields, improve farm profitability and increase farm sustainability. Investors are taking note.
Over US$4.6 billion has been invested in agriculture technology during 2015. Much of this investment is in software and technology to enable digital agriculture — a combination of data and algorithms that provides specific recommendations at the sub-field level. For example, whereas today most farmers make a decision to plant one seed variety on an entire 40 acre field, digital agriculture allows farmers to identify and plant the “optimal seed variety” in every square meter of the field.
The promise to feed a growing world sustainably
By 2050, the global population is expected to increase by 40% to 9.6 billion people. In order to feed this drastically increasing population, the agriculture industry will need to produce 70% more food while only using 5% more land.
Current production rates and distribution methods will not be nearly enough to feed the population. It is generally acknowledged that digital agriculture and big data will be needed to meet these demands.
The impact of digital agriculture on the field is well-documented and researched. In the future, data creation, analysis and decision-making will almost certainly increase at the field level. Farming operations will have the opportunity to prosper from targeted field solutions, data-driven agronomic advice and smarter inputs. Software is being developed to help propel developing countries toward modern farming practices. Farms are consolidating at an increasing rate as technology supports automation and economies of scale. Input applications are based on factual data and investments into farming tech are funded by profit saved by data-driven efficiency.
Great promise, but significant challenges too
While the benefits of digital agriculture are compelling, it has also been met by significant challenges:
- Difficulty using software, data usage, disparate and propriety data formats and an unclear return on investment are concerns.
- Agribusiness has struggled to provide immediate, tangible results from digital agriculture equipment and software.
- Challenges around gathering and standardizing data make adoption difficult across all stakeholder groups.
- Undeveloped countries lag in adoption with weak network infrastructure and limited capital.
- The gap between modern, advanced farming and subsistence farming is growing at an alarming rate
All of these factors raise important questions for the industry. Producers face problems and decisions every day, both on and off the field. These decisions are projected and magnified up and down the entire value chain — from field to fork.
How is digital agriculture changing agribusiness
While the first two revolutions in agriculture — mechanization and biotech — had a major impact for farmers and select agribusinesses, digital agriculture (the third agricultural revolution or Ag 3.0) will fundamentally transform every part of the agribusiness value chain.
It will affect producer buying behavior, and seed and equipment product design, and could enable dynamic pricing at the consumer retail level. These implications will gradually affect multiple business functions across a single company. For example, digital agriculture and big data will change the way seed and agrichemical companies market, price and sell products, select and invest in their R&D pipeline, recommend and technically support product sales, manufacture and distribute products, and manage credit and financial risk. Business strategy, product design, customer preferences and even organizational structure will change as more digital agriculture data is available.
This revolution will also challenge traditional company roles, intercompany relationships, reward systems and, potentially, entire business models. Digital agriculture is creating competition among both traditional and nontraditional competitors. The industry is in a storming phase and agribusinesses are working to solidify their place in Ag 3.0. Several companies are investing heavily in internal data activities such as standardization, storage, software and analytics. Others are focusing on outsourcing strategies or licensing software from other companies. Still others are taking a wait-and-see approach.
As the industry evolves, disruption will follow. It is essential for agribusinesses to transform their business and themselves to differentiate and provide more value to customers. Although the challenges are concerning, they present thought-provoking opportunities to all stakeholder groups.
Legal disclaimer: The views expressed are those of the author only and do not represent the views of any of the member firms of Ernst & Young Global Limited.