Part 3: Navigating the Next Decade of AgTech
As I started writing about the next decade in agtech it became apparent this was going to be long, so instead of an incredibly long post, I decided to break it up into several posts. Below is Part 3. To read Part 1 on Trend Assumptions and Jobs-to-be-done application to ag, please click here and for Part 2 on how tech savvy the industry will become and the future of soil sampling, please click here.
Seeds of the Future
While everything starts with the soil, seed is a close second. Having the right genetics on your farm along with the right traits is important to maximizing profits. Seed companies understand this. But what’s also noteworthy is how important seed will be for profit maximization of the large agribusinesses, especially in the future. With this being important to both the success of the farmers and major agribusinesses, we will see a more pointed focus on seed breeding technology and products that support the early season vigour of seeds.
When it comes to effectively bringing the best genetics and traits to market the combinations are endless. The goal is to bring the best offerings to market, in as little of time as possible. To do this breeders need to go through millions of genomic characteristics or crossing combinations. This might be for agronomic traits, but can also be for end use cases as well. Lots of this power comes from CRISPR Cas9, but there is more. What will differentiate these companies in the future is their ability to deploy algorithms that can speed up their time to market with a specific trait or to go after a specific market (eg: high protein development for plant based meats). This is where technology like quantum computing will eventually be leveraged within agriculture, likely towards the end of the decade (with costs coming down as well). We are even seeing investment in this space already today for example with BASF investing in Equinom and GenoMAGIC. This will speed up the time to market for offerings to farmers to have available to them. On top of this through data aggregation and algorithms to better recommend farmers the best option for their farms, seed companies will have a big push to know how these seeds and traits will perform in any given area and with specific agronomic practices. Seed costs will go up, but farmers will see yield bumps from seed increase more rapidly and decrease the amount of pesticides and nutrients on a relative basis to grow bigger yields. One big watch in my opinion for this decade is how BASF moves forward with hybrid wheat in North America. Syngenta has already announced they are putting a hold on their investment in the space. While I’m speculating, the economics of seed proliferation do not seem to jive as of today, but that can be overcome.
Now, it’s not just about what is in the seed, it’s about what's ON and NEAR the seed. Over the course of the decade there will be more in furrow and on seed microbial products derived through the same sorts of technology that are powering seed. Microbials are mentioned mainly because of their ability to mitigate use of synthetic chemicals, but their other two super powers are their multi dimensional abilities to increase plant health and do so over a longer time frame in the plants life than traditional synthetic products.
With this, we will see an increase in costs to put seed in the ground and more total crop input spend will shift earlier in season.
Autonomy and Sharing Economy Comes to Agriculture
Through the deployment of sensors and algorithms within agriculture there will be a very pointed movement to automation across many different tools used on the farm; from drones, to irrigation pivots, to machinery and beyond. A few months ago I talked about the stages of ag technology illustrating where we are and where we are heading. With tools like pivots being connected to numerous other sensors (more on that in “The Connected Farm”), there will be more capability to automatically take an action, or alert farmers of a need for action, based on a pre determined set of parameters to trigger. This technology is there today, however, over the course of the decade there will be a wave of uptake in North America.
When it comes to machinery, it is very apparent when one looks at big players like Case New Holland or John Deere that automation is a priority. On top of this, new players like DOT and SmartAg are being acquired by Raven. While I do not necessarily think the “tipping point” will be hit in this decade, I do anticipate a wave of adoption in autonomous tractors. With short comings in network coverage and even bigger shortcomings in 5G today, there is still some big hurdles to overcome in the next 5-10 years, with assumptions that increased connectivity through other means (cables) and 5G effectiveness will get stronger in the extreme ends of the decade.
While that isn’t surprising, the most fascinating part to me is the go to market approach from these companies along with their business model as we get towards the end of the decade. There is talks of the sharing economy further instilling itself in agriculture, it is my guess that John Deere and CNH will begin to evolve some of their approaches in the market, but also seeing an opportunity for the ag retail space to get involved in this and begin to look at how they can participate to add value to customer, specifically in the US where rolling stock is a common part of their business.
New Entrants, New Alignments, Different Competition
As I mentioned in the macro trends section, companies will continue to invest in the agtech space, specifically the digital ag space. Seed and chemical companies will continue to invest in through their venture arms and acquire in strategic ways to give themselves the upper hand in the digital space that thrives on scale and data acquisition. What I do think we will see is more collaboration amongst seed/chem manufacturers with traditional fertilizer, or plant nutrition companies. There has already been licenses and alignments announced between Bayer and Yara as I think these organizations that have been inherently specialist have realized their domain expertise gets limited without understanding more into other areas of crop production. I think before the end of the 2020's we will see major partnerships between these types of organizations, and it wouldn’t surprise me if Yara and Bayer were the organizations to make a more significant move.
On top of this, I think we will see more entry of non-traditional ag companies into the space: Google has invested in Farmers Business Network already, Microsoft is investing in creating a digital ag platform in their FarmBeats platform and then we are seeing more emphasis from organizations like Royal Bank, MNP and the significant emphasis from TELUS over the last year with investments in Hummingbird Technologies and the purchase of Farm At Hand and Decisive Farming, just to name a few. I am sure all of these organizations have various reasonings for giving a focus to ag, but one has to suspect that at least part of it is due to many of the reports showing that ag is the more under hyped and least invested in the tech space out of all industries so they see opportunity in investing and obtaining a piece of the pie, and maybe even in some cases supporting their core business.
Grain companies like ABCD’s (ADM, Bunge, Cargill, Louis Dreyfus) haven't made as significant of investment in the tech space compared to other industry counterparts. These large organizations have infrastructure that feeds the moats in their business; assets (port terminals, inland terminals etc), access (to rail, end users etc) and information (global crop information, relationships etc). Some of this moat has began to decrease over the last number of years as there has been more platform based organizations attempting to jump in on the ABCD’s territory through offering a transparent market place where farmers can attempt to go to buyers directly; FBN, FarmLead, AgXchange and Farmbucks as a few examples. However, they still have a strong offering to the market and will continue to. With that said, their investment choices will change over the coming decade emphasizing the customer experience, in fact it has already started to shift. There has been investment from ADM and Cargill in Grainbridge, which may or may not be the answer, but it’s on the right track. Companies like Bushel will be looked at seriously over the next couple of years and be layered on ancillary to their businesses and to support customers. Not to mention the ABCD’s initiatives in blockchain which will benefit them initially from a cost savings perspective, but there is be reason to be optimistic that that could trickle down to the farm level, simplifying transactions for farms. On top of this, we will see more investment from them in digital tools to better understand the market place from a weather perspective, to production perspective and more to help manage their own buying initiatives as well as look at supporting their customers in unique ways.
Stay tuned for Part 4 where I go through a passion of mine in how the purchasing of crop inputs will change as well as my commentary around peak synthetic pesticide use occurring within the next decade.