Part II: UTOPIA? The Crop and Soil Technology Revolution, and what’s sizzling in drones, robotics and analytics.
“They have built farm-houses over the whole country, which are well contrived and furnished with every necessary…those who live on the farms are never ignorant of agriculture, and commit no fatal errors, such as causing a scarcity of corn.”
– Sir Thomas More, Utopia, Book 2
It could be utopian, couldn’t it, the future that is, and right around the corner, perhaps?
Corn yields at the 300 bushels per acre level, with reduced inputs, and globalized. New healthy foods deploying from fermentation runs and tissue culturing. Run-off of nutrients minimized if not eliminated. Water inputs down 50% on a pound-for-pound basis. Sensors relieving the burden of long days in the sun; unmanned vehicles doing the hard yakka of planting and harvest.
Workers on the land becoming workers of the mind, managing vast banks of data and options in finance, input purchasing, transport, nutrient delivery, plant trials, soil condition, plant height, weed and pest detection, disease control and more.
An influx of knowledge workers into rural areas around the globe, which become high-wage, high-quality of life centers for a healing planet that is minimizing the impacts of climate change. A renaissance of Life Sciences research as DNA computing becomes the next platform of choice and computer sciences, agronomy, physics, chemistry, biology and engineering evolve into a seamless whole — The Materials Superhighway.
Possible? Far more than that — parts of that scenario have progressed to plausible. One of the reasons we see huge deal volume as a Silicon Valley AgTech story —264 deals in all in the area of Agricultural Technology in 2014 alone. Hard to believe that the fields are outperforming the entire CleanTech field, but that’s the case.
30 percent of the deal flow, according to AgFunder, was in the emerging area of PrecisionAg, broadly defined as “a group of hardware and software technologies that help farmers improve decision-making with data-driven analytics”.
Now, farmers around the world have been generally described as “some of the most conservative investors on the planet,” and given that they might have 40 “shots on goal or growing seasons, in an entire career, that makes sense. But 89 different investors, funding 70 different deals to the tune of $276M in 2014, are betting that conditions will change on the farm.
Digesterati Vonnie Estes, in a prescient essay in the Digest in February wrote:
“There may be some opportunities for Uber- or Airbnb-type disruptions. I hope so. However, most products will go through current channels. Many of the start-ups I’ve worked for in the past have said, “If we can just get 1% of the corn acreage . . .” Well, we couldn’t and we failed. Infrastructure and supply chains are well established, and switching cost is high. Any technology that involves a seed will have to go through established seed distribution systems to get widespread market adoption. Any sensor, drone, or robot that gathers data will need that data integrated and delivered to the farmer in a way that will allow for better decisions. Do not ask anyone to do things differently in the supply chain. If the product will go through the normal distribution channels, it needs to be able to withstand sitting in a truck in Iowa at 100 degrees or being stored in a warehouse for a year.”
Bottom line, whether it is drones & robotics, precision ag, crop & soil technology or bioenergy, there’s a revolution underway right out of Silicon Valley as genetics, robotics and cloud computing all crash together.
And whether a customer is hoping to obtain food, feed, fibers, fuel, or sugars and oils for a thousand applications from pharmaceuticals to spandex or household products or packaging — here’s a disruption in the supply chain that will profoundly affect the cost of raw materials and also who controls which amount of leverage in the value chain.
Precision Ag: Look at these technologies for a gander at the future
5 Trends to Watch, Now
Based on our discussions within the sector, here’s our outlook.
1. Consolidation in operation but not ownership.
Out of the wave of farmers reaching retirement age, we expect to see continued expansion of large corporate farms. But more obviously and immediately, our sources see a vast expansion of land leasing. We’ve seen it already in Argentina, where a generational transition already underway there has resulted in many children of wealthy major farm families opting to lease their lands rather than self-operating. Also, we’ve seen that country’s wine sector shift somewhat towards a “contracted grape” business model, vs. direct land ownership.
With leasing coms consolidated operating groups, who will battle for contracts based on proven performance, and that means yield improvement and cost containment. And, we see large operator groups having lower cost of capital than traditional single-farm owners.
With these shifts, we see faster deployment of technology, spreading from “early adopters” among lease-operator groups that can test-and-deploy across larger networks of acreage.
2. Automated vehicles now, crop & soil technology always.
What technologies will operator groups prefer. Naturally, those that translate into yield or cost improvement in “season one” will have the fastest adoption and spread. Cost to deploy will be a factor, and “lease options” vs buying assets will have stronger adoption speed. Technologies that can be shared across a region will do better, faster — for example, “time-share” of drone tech or automated vehicles.
One thing we suspect — it will be the presence of automated vehicles that drives deployment of analytics systems. After all, there are relatively obvious productivity gains available through automated vehicles; the vehicles themselves are becoming more autonomous and sophisticated all the time; and they make natural platforms for deploying mobile applications; and, with the rise of the leasing model, we’ll see more interest in and higher returns from monitoring data from a centralized point if vehicles are automated.
All to say, those Google unmanned vehicles are cute, but they’ll find a far less controversial channel for deployment in the off-road sector, and farms offer a spectacular opportunity.
We see existing supply chain leaders having the “first mover advantage” in deploying technology. Companies like Case New Holland and John Deere in terms of hardware and vehicles. The “Big Six” in crop and soil technology — Monsanto, DuPont, Bayer, Dow AgroSciences, BASF and Syngenta. To some extent, the technologies these companies develop or deploy will help define the rate and nature of technology adoption in the near-term.
Longer-term, we look at other sectors and see that other technology waves usually bring in a new major player or two — consider the rise of Microsoft and Apple, or Tesla, or Google. It may be that relatively unconsolidated crop platforms like sorghum or rice offer an entry point.
Meanwhile, companies like Chromatin, Newleaf, BioNano hauled it in — a heft average of $38 million per venture round for the top five crop and soil technologies in 2014, according to AgFunder. Indicating that crop & soil technologies are likely to be kings for quite some time, if not forever.
3. Annualization of as many plants as possible.
Long-term trend? Making trees grow faster and behave more like annuals where you have protectable “seed technologies” — that’s one. We see it in bushy plants like jatropha, where the push is on for early fruiting — season two or three instead of four or five, and full maturity within five years.
And, looking at land as a 12-month opportunity. We see it already in Brazil, where a wav of sorghum producers are targeting the dormant sugarcane season as a four-month window for deployment.
4. From automation will flow analytics.
As we have mentioned, first comes the vehicle, then comes the software. After all, no point in having drone-tech software at your finger tips without the drone.
Sources have estimated the cost of an unmanned aerial vehicle, for example, at around $15,000 and on-board sensors costing up to $60,000.
It’s not tough to see how those economics work on a 1000 acre farm. A $75,000 investment should provide $10-20,000 in return, which would be a lift of something like $10-$20 per acre, or around 2-3 percent lift in corn acre productivity.
But $75,000 investments are not readily made by individual farmers taking an “early adopter flyer”. While the rise of large farm operation groups on the lease model will help, low- or no-interest financing programs will help also. Performamce guarantees help. Down the line, we could see the emergence of companies that take the performance and financial risk — providing a no-cost “season one” loan to the farm operations group, and taking a share of returns from proven productivity gains.
Some technologies will have fewer adoption hassles because they tie in to existing infrastructure.
For example, CropX requires just three sensors in a given field, and provides up to 30% reduction in water usage — and up to 15% gains in crop yield compared to fields that have experienced overwatering, by offering a more precise measurement of water needs that is easily tied into the farm’s irrigation system.
5. The management operations center.
Where will all these analytics be managed from? Today, most deployment schemes from new companies target the individual farm. But, with mobile technology, why is that? After all, companies like Google deploy at huge server farms that provide low land-cost, economies of scale, and access to low-cost power.
In the long-term, the crops will stay on the farm, but we’re not entirely sure that all of management will. Sure, ventures may well be run there to take advantage of research clusters focused on agriculture, and MBA programs focused on the sector.
But data operations? We suspect these will be managed out of regional centers that may well be off-shore, or certainly in centers of excellence for data, where affordable talent is abundant. And we suspect that the rise of leasing operations will only tend to accelerate that trend.
It doesn’t necessarily mean opportunities will inevitably gravitate offshore — power cost, grid reliability, and cost of talent will all be factors in siting operations centers.
But once you put a sensor in the ground or a drone in the air to provide analytic power, there’s no question that the door is opened to changing the location of the people reading that data, which will be received in Australia less than one-tenth of a second later than a laptop placed in the center of the field.
In tomorrow’s Digest: DYSTOPIA? The catastrophic fall in rural population that automation might bring — who votes for farmers when there are no farmers to vote?