Macroeconomic developments in the agriculture industry are creating a greater reliance on precision farming, elevating the importance of data management and impact of technology.
Looking across the industry three primary global trends are influencing agriculture: population growth, shifting consumption patterns and declining farmland per capita. Each of these are changing the way the industry is operating and transforming the journey from seed to crop to table.
Increasing populations, particularly in Asia and Africa, are generating more demand, new dietary tendencies and a burden on sustainability. As a result, food consumption is shifting from a relatively equal global distribution to a heavy tilt toward Asia Pacific. That means a significant realignment of the supply chain where most of the world is trying to feed Asia Pacific.
Population growth also reduces the arable area per capita as farmland is reclaimed to grow our cities. This places pressure on the farmer to produce more from less.
So how can the industry respond to the realignment of the supply chain while at the same time produce more with declining resources?
With respect to input at beginning of the supply chain, there’s been a steady development of seed technology aimed at producing higher yield crops that are resistant to harmful diseases and bad weather. But at the end of the supply chain, consumer habits have changed. Increased demand for packaged foods and ready-made meals, as well as dietary trends such as gluten free are impacting the supply chain.
However, the traditional distance between farmer, food and grain process companies is less prevalent today. There’s been substantial consolidation in all areas of the supply chain. For example, concentration ratios for crop seeds and agricultural chemicals over the past 20 years have more than doubled from 20 percent and 30 percent to 60 percent for seed and chemicals respectively, according to a recent study from the Agricultural and Food Policy Center at Texas A&M University. Meanwhile, from 1992 to 2013, the percentage of sales tied to the top four grocery store retailers rose from just under 20 percent to roughly 40 percent, while the top 20 rose from 40 percent to over 60 percent, according to a USDA study.
Supply chain consolidation makes it easier for farmers and companies to communicate and coordinate. More farmers are doing business directly with grain processing companies or even in some instances selling their products directly to seed manufacturing companies, skipping the middleman. Still, while yields and productivity are rising, net farm income is actually down.
Rather than wait for demand to pick up, farmers are looking for ways to improve their margins through precision farming (“digital agriculture”). In other words, using technology and data platforms in various forms to assess and spot treat different parts of a crop field based on need to achieve profitability.
So what are these technologies and how are they able to make a significant impact?
For one, sensors placed in the ground can provide real-time feedback on variables such as moisture, temperature and nutrient levels that indicate areas of need. For another, satellites and drones can leverage normalized difference vegetation index (NDVI) visualization and multispectral images that use infrared wave bands to capture images of crops that can’t be seen with the naked eye. These images help identify problem areas including identification of weeds, diseases and pests.
While some of these technologies have been around for a number of years, the increase in affordability of drone technology and data platforms makes them much more viable today.
As precision farming gains wider adoption and coordination increases, a larger need for information management systems will emerge. Transforming data into usable information that can maximize profits will become a top priority with a new landscape further developing over the coming years.
For more on this topic, check out a recording of the Eka and Sapient Webinar: The Era of Digital Agriculture—Are You Prepared?
Brian Bruce – Senior Manager
Brian Bruce is a senior manager at Sapient Global Markets. Serving as an ETRM consultant, Brian is a former commodity trader and risk manager spending the past 11 years working in the commodities space across various capacities. As a risk manager at Dow Chemical he managed an agricultural hedge portfolio relating to the Mycogen Seeds based procurement of corn and soybeans. He has additional experience trading and advising on commodity risk management across the energy, precious metals, and petrochemical sectors.
Pranjal Srivastava – Senior Manager of Trading and Risk Management
Pranjal Srivastava is a Senior Manager of Trading and Risk Management specializing in the commodities market. Pranjal has over 10 years of experience advising clients on complex business problems involving trading operations, supply chains and risk management. He has led complex transformational programs for clients in Asia, Europe and North America that delivered each client significant cost savings and increased business value