Today, the agriculture economy in the United States is facing a host of game-changing issues. This includes a trend of low commodity prices over the last several years and the labor supply issue that the minimum wage is not addressing. Shifting customer preferences and regulatory changes are also having a big impact. Finally, we’re fighting trade wars on several fronts and farmers are dealing with high debt levels, as well as flooding in the Midwest. Technology can play a major role in addressing several of these challenges.
Innovation is not a new concept in the agriculture industry. As an example, self-driving farm equipment has been around for years and well ahead of the auto industry. This has been a major factor in improving yields and reducing input costs as planting accuracy has improved. However, further automation is needed to improve operating efficiency along the supply chain. Both farmers and processors face significant labor cost increases due to minimum wage hikes that will continue for the next several years. These increases have little positive effect as both farmers and processors still struggle to find people willing to do the work. Robotics will play a significant role in addressing this issue. Whether it’s picking crops in the field or automating functions at the processor, business owners are looking for ways to reduce their labor dependence.
Sensor technology via the Internet of Things has also made significant inroads. These sensors improve farmer visibility into what is going on with their land and crops. This allows them to focus their resources to address known issues. Sensors also help processors maintain quality standards throughout their facilities. Sensor technology is also a major component in addressing another industry challenge, traceability. Today, consumers want to easily determine where their food came from. They want to know that it came from companies that believe in and use sustainable practices. In addition, regulators want to be able to pinpoint sources when food safety issues arise. Sensor technology collects the data needed to meet this need. The second part of the issue is harnessing all that data.
There are several efforts in their infancy that work toward a data solution. One of the most advanced is blockchain technology. In simple terms, blockchain is a technology that allows for collection of data from all market participants in a single, secure repository. It will allow for an end to end supply chain trail of a single item. This technology will allow for better traceability by retailer, consumer and regulator which is being requested by the likes of Walmart. Eventually, it will also allow for better collaboration between all members of a particular supply chain. Today, the biggest hurdles to this innovation are the protocols or data formats. Companies in the industry need to know what data to collect and the form it should take. They will need a lot of help in putting these requirements all together.
So, what’s holding innovation back? While there has been improvement, technological innovation remains slow compared to other industries. Two of the major causes are lack of connectivity and insufficient investment returns. Lack of connectivity is an issue based on the nature of the industry. Farming takes place in rural areas where internet access is spotty at best. This lack of connectivity hampers farmers from collecting data in the field. This results in an inability to make decisions in time to make a difference. Innovation is also inhibited by a lack of investment. Entrepreneurs and startups do not want to invest in developing solutions where they can’t see a clear path to a return on their capital. In agriculture, they can’t see an exit strategy which typically includes the sale of the company to a large industry supplier. For many years, the agriculture industry has been dominated by a few large input suppliers. These suppliers have been making good profits years and see no reason to take on innovation investment risk. Without these large players, startups have no incentive to risk their capital on new solutions. This has led to a very slow rate of development and innovation.
There is a reason to be optimistic about what lies ahead as the technology environment in agriculture is changing rapidly. New large players such as Microsoft, Amazon and Google are bringing their data management muscle to the industry. Large end users, such as Wal Mart, are mandating solutions in order to buy product. We’re beginning to see startups dip their toe into the agriculture industry. They are starting to develop solutions for specific needs. The hope is that these new large companies will spur the existing players to keep up and not be left behind. This should speed the rate of innovation and address some of the issues facing the agriculture industry today.
About the author: Harve Light, Managing Director, Conway MacKenzie specializes in providing strategic and in-depth services including crisis management, strategic planning, financial analysis, and big data analytics. He is a member of the American Bankruptcy Institute, the Turnaround Management Association and the Association for Corporate Growth.