Part 4: 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 4.
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. For part 3 on seed, automation and organizational alignment click here.
How Farmers Buy Crop Inputs Will Change
The past decade had more buzz around ag retail than all others combined. Lots due to Farmers Business Network coming online and inserting itself in an area of the industry that has remained largely the same for the last several decades, and some reasoning not often discussed like changing dynamics around crop input patents and perceived risk of selling to a farmer in early 2000’s vs mid 2010’s. While there was a lot of buzz, the change is just beginning. There is pressure on the traditional retail model thanks to consolidation of suppliers and farmers, increased transparency in pricing to farmers, among other reasons that I get into in “The Future of Ag Retail" and “The Re-Engineering of Ag Retail”.
E-commerce will be a part of the future, I think we will see upwards of 30-40% of crop input spend purchased online by the end of the decade, however, I think there has been a misunderstanding in what it takes to effectively deploy an e commerce offering, both by companies like FBN and traditional retailers. FBN didn’t understand the necessity for bricks and mortar and expertise initially, which is why we are seeing them invest down this path today. On the other hand, I have talked to retailers who have said “we can put up a website next month if necessary” to compete in e commerce, which entirely downplays the habit forming necessary for farm customers, the company cohesion necessary at the retail location level and the information systems and alignment at the head office level to deploy such an under taking…which is VERY similar to what has happened in the consumer retail world! Wal Mart struggling to understand that their infrastructure isn’t set up to align with their digital strategy much like traditional ag retail and Amazon who has done an excellent job, but has found out the challenges with last mile distribution.
Ag Retails will begin to better understand the challenges in delivering an omnichannel approach and align their strategy with this accordingly in the coming decade.
The biggest change in input sales has been the ubiquity of data, both to the farmer and the retailers. Data is what enables new ways to enhance the retail-customer relationship, but also de-risk both businesses and increase the success of both businesses. That’s a win-win-win! The data available allows the ability to create Yield Guarantee products, Outcome Based Pricing products or Prescription Based products program. These sorts of offerings will become common as we get into the middle part of the decade; both farmers and retails will see the value in having them (both can manage their business more effectively). I see this being a an increasingly interesting way for farmers to purchase inputs, so we will see continued uptake throughout the decade, especially as the data gets better.
I also anticipate more large retails vertically integrating. We have seen it with Nutrien and Wilbur Ellis but with the increased power the seed/chemical/fertilizer manufacturers will have, there will be a focus to have in house product options to not only wield more negotiating power, but take advantage of profits in a different area of the supply chain. This has been done successfully by Nutrien, but also is done to varying degrees in the grocery retail business (not a perfect comparison, but shows some validity).
Lastly, watch for a decline in wholesalers (distributors), for sure in Canada, but the USA as well. In Canada there is significant numbers of wholesalers, with varying degrees of value add and manufacturers getting into the wholesaling game, like BASF with RetailConnect. There will continue to be talk about manufacturers going direct to the farmer, but keep in mind there are typically two groups in between the farmers and the manufacturer: wholesaler and retailer. The wholesaler is a more likely target to move on in the coming years vs. retail, for many reasons. I do think within the decade there will be more attempts to establish a stronger relationship with the farmer by manufacturers and even attempts to keep higher amounts of the farmer paid revenue, through offerings like OBP. We may see attempts in the 2020’s to go direct, but there needs to be some stronger tactical approaches from manufacturers laid out in the short term to lay the foundation for any effort to go that route.
Ultimately, I think we will see an emphasis to add value to the farmer beyond basic services: there will be a focused effort to reduce buying friction, de-risk the farmer and increase profitability in unique ways, those retailers will be the winner in the coming decade.
Peak Synthetic Crop Input Use Will Be Reached
While I believe pesticides will be a necessity for years to come, I do believe we will see the peak use in terms of total application volumes in North America. While from what I see there is a significant chance of a glyphosate ban, there should still be a peak hit as other more toxic active ingredients such as paraquat or diquat will be next on the chopping block.
Between technology such as see and spray (this could be “see and till” too), the investments that many major companies are putting into biologicals and biopesticides and the consumer demands leaning towards less pesticide use we will see peak pesticide hit. What we will likely see in the interim is a subtle shift to more inter cropping or a term that I heard on “Growing the Future” Podcast from Dan Aberhart is “progressive cropping”, attempting to cut down on pesticide use and giving increased attention to soil health. See and spray technology will be one of the biggest technological shifts across farms since autosteer. I anticipate this technology, even with the short comings it has today, that it will be refined and scaled in field crops in the early 2020’s, and see big uptake across many farms by the late 2020’s.
The ability to precisely predict and apply products like fertilizers will contribute to less synthetic use as well. Whether it be through better soil analytics, modelling capabilities and the ability to actually apply at such an accurate level, will help support this. But what will really contribute to fertilizer use declining, specifically nitrogen, will be microbials and seed technology. This was already discussed, but microbials such as azotobacter and companies like Joyn Bio (JV between Gingko Biworks and Bayer), working to identify and scale a microbial that can fix nitrogen across all species of crops will happen this decade. I do not think we will see the effectiveness reach levels where it could help corn or wheat fix >50% of their nitrogen needs, but I do think we will see levels reached to upwards of 25-30% in a tleast some crops, which is a significant feat in and of itself. Lastly, as I mentioned seed breeding, we will see breeding for the increase fertilizer use efficiency (N, P, K and S) so that less total amounts of these nutrients available will still be able to achieve large yields.
In the 5th and final installment I will cover the Future of the Connected Farm.