Digitalization, which is actively transforming multiple industries, seems to be one of the most frequently used words within business circles today. We have covered the profound impact of digitalization on the energy industry in our report from the FT Digital Energy Summit. Not long after that event in London, CID was invited to join the Annual Meeting of CEMA – European Association of Agricultural Machinery Producers, titled “Agriculture 4.0.” This event in Brussels discussed how digitalization has reached and is changing the agricultural industry to an equally significant extent as it is changing the energy and mining sectors. In this article we will discuss the key insights shared at this important conference.
The first three revolutions
Revolutions are nothing new for the agricultural industry, and as the title of CEMA’s Annual Meeting indicates, digital agriculture marks the fourth revolution in the sector. The first revolution started at the beginning of the 20th century with the mechanization revolution that enabled farmers to increase their productivity using mechanical equipment. The second revolution, the Green Revolution, took place in the middle of the last century and enabled yield increases through advancements in the breeding of new crops. This revolution was largely led by the work of Norman Borlaug, who was awarded the Nobel Peace Prize for his pivotal contributions to the advancements that occurred during this period. The last decade of the 20th century brought the third agricultural revolution of precision farming. This refers to the advancements made in the 1990s like telemetric and GPS technologies that brought us to where we are today in terms of agricultural efficiency and productivity. The leading producers of agricultural machinery in Europe that gathered in Brussels for CEMA’s Summit have already predicted and are witnessing the fourth revolution – the Digital Revolution – spreading through the sector.
Digitalization of agriculture
The greatest expectation of the fourth revolution is that the sector will transition from its current situation in which all managerial and operational decisions are based on the experience of the farm manager, to a situation in which insights from data will guide the farmer in his decision making. In “Agriculture 4.0,” machines are expected to continuously communicate with each other through an Internet-of-Things, or IoT. This communication is only possible with a constant, predictable and stable internet connection, which is still not consistently available in the rural areas of the EU or the US. This is why representatives of Nokia were present at the event explaining what kind of investments and technologies are needed in order to provide uninterrupted 5G coverage in rural areas. Once this level of connectivity is reached, the communication of machines will enable the co-existence of the farmer with technology such that all agro-technical activities on the farm, or ranch, will happen exactly when the plant, or animal, requires them.
Envisioning the future
Dr. Eberhard Nacke of Claas painted the picture of a digitally-enabled farm harvesting corn for silage. Currently, it is the Self-Propelled Forage Harvester (SPFH) that sets the pace of the whole process. This is partly because the machine is located at the beginning of the process and partly because it is the most expensive machine of the value chain. In the agriculture of the future, however, it will be the tractor on the silage site dictating the speed of the process, since the quality of the silage, not the speed of the SPFH, is the most important factor to the farmer. The experts present in Brussels agreed that precision and site-specific agriculture are likely to be the areas in which the most research and innovation will be focused going forward. Historically, producers of agricultural machinery were focused on designing even larger machines, whereas in the future, machines will be smarter, not necessarily larger. Even modular systems are under development in which multiple small and nimble robots offer substitutes for one large and heavy machine.
Agriculture is inherently based on maintaining a balance between producing the greatest amount of safe, nutritious, healthy, and affordable food, while minimizing environmental impact. In order words, how can we optimize the utilization of scarce resources in the short, medium, and long-runs. The digitalization of agriculture seeks to inform decisions within these frameworks.
While talking about the big picture, it is key to remember that agriculture is inherently localized and any solution not grounded in local environmental and topographical conditions is unlikely to deliver benefits to farmers or their communities. In Australia and other places with vast areas of land, Controlled Traffic Farming (CTF) is gaining traction, since it allows farmers to limit the amount of machine passes necessary to cultivate a given plot of land as well as reduces soil compaction. In Europe, the debate about whether no-till farming systems should be embraced is still heated. Few experts present in Brussels argued that the amount of tillage going forward should be decreased, as some land in Northern Europe is 10 times more productive than that of Australia. This is also in a big part due to the fact that the environmental regulations on the use of chemicals is getting tighter and tighter, as the recent Round-Up discussion in the EU showed. It is also critical to remember that we can, and indeed should, use crop rotation to fight weeds and enhance soil quality.
As farmers present at the conference rightly said, the key in the above conversation is to understand the business model one has, its risk profile, and therefore, the expected return on investment. It is critical for players in the industry to understand whole value chains and design solutions that enable each participant in the value chain to profit. Otherwise, such exploratory value chains are under significant pressure to reform and therefore, are not sustainable.
Two models for agriculture
Harry Smit from Rabobank discussed the two farming models observed throughout the world: the land abundant and the land scarce models. The land abundant model is present in countries such as Australia and Kazakhstan, where a low input low output model of production is used. The land scarce model, on the other hand, focuses on a high input high output farming model. Harry focused in on China and India to explain how the land scarce model is used to support huge populations that are getting wealthier and thus demanding more calories. Technology is the key for such farming systems to be more resource efficient. For example, a drone-crop spraying solution for rice paddies located in the mountainous regions of China would make little sense for the plains of Russia. However, one unanswered question remains: will the farmers of China be able to afford such a solution, or will they still be forced to stick with the old method of backpack hand-sprayers?
Digitized animal husbandry
The digitalization of animal husbandry is happening even faster than that of arable agriculture. This is the view of Professor Daniel Berckmans from the Catholic University of Leuven in Belgium. According to the Food and Agriculture Organization of the United Nations (FAO), demand for meat globally is expected to increase 75% by 2050. At the same time, individual farms are supporting more and more animals in order to remain profitable, which means that the farmer has less and less time to focus on individual animals, which hampers profitability. The solution to this dilemma is technology which enables the monitoring of animals 24/7 with no physical or time burden on the farmer. Such technology monitors the animal for subnormal behavior and only signals the farmer when taking action is absolutely necessary. Professor Berckmans presented the project he designed and implemented aimed at monitoring flocks of chickens. If the behavior of the flock differs by 25% from the median, the system informs the farmer to look into the issue. The results were impressive: 91% of all issues worked on by the farmer within the testing period of the technology were identified by the machine before they were identified by the farmers.
The overarching idea behind the digitalization of animal husbandry is for the human being to stay away from the animal as long as everything is going well. This eliminates the stress put on the animals and creates less opportunities for disease to spread between humans and animals. It is crucial to emphasize that while the human being is having less contact with the animals, it is not the case that the human being is no longer needed. In fact, it is the very opposite: technology is only a tool which enables the famer to be as productive and intentional as possible. The farmer is indeed at the center of the process.
Agricultural Investment Trends
CEMA’s event also provided us with an update on developments in the agricultural investor space. It was noted that, understandably, major investors in the sector come from the US, China, India, Australia and Europe. Furthermore, it was astounding to note that the first six months of investment in 2017 brought more money to the sector than all of 2016 combined: $8.8 billion vs. $6.9 billion. The experts present supported what the team here at CID is seeing on the ground in our day-to-day work with investors and investees alike: a great majority of investors entering the market have very little, if any, understanding and appreciation of the complexity of the sector. Through our work with our clients, we seek to bridge this understanding and present value-generating opportunities.
At the other side of the investment equation there are the agricultural start-ups. It is striking that the teams behind agricultural start-ups often do not fully consider the entire sector either, yet they get funding from – you guessed it – investors who likewise don’t have a full understanding of the sector. This means that wise capital allocation in the sector is not difficult if one knows and understands it well, but it is time consuming. CID seeks to work with clients who are interested in investing in agriculture with the right partner who can guide informed decisions.
Spreading the revolution
The European machinery producers gathered in Brussels were not sure whether Europe would be the exporter of agricultural machines in the future. However, they all share a keen ambition for the continent to be the most significant exporter of agricultural technologies globally, and are working hard on making this vision come true.
Developments and advancements connected with Agriculture 4.0 are as complex as they are fundamental for the industry’s growth. This is why the Center for Industrial Development is investing significant resources in developing a proprietary understanding of the sector through relationships with current and emerging key players in the industry. We are here to ensure that the technologies mentioned in Brussels and deployed in American, European, or Australian fields benefit everyone and, specifically, nations with underdeveloped agricultural sectors. CID will continue to support our reader base and clients by sharing our knowledge and resources to advance our shared vision of agricultural development around the world.
Mateusz Ciasnocha is constantly on a mission to “unleash dormant potential.” He specializes in agriculture, energy, and Africa, and is also passionate about innovation and entrepreneurship. A Hult International Business School graduate, Mateusz currently studies at ESCP Europe Business School and the University of Oxford, where he is receiving a Masters in Energy Management and Philosophy Certificate, respectively. Mateusz is currently in India participating in the prestigious IDEX Fellowship, which enables him to work with Vrutti to support 130,000 smallholder farmers.