Digital Agriculture

Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

Demand-driven planning and forecasting A holistic and transformative approach This article is an extract from Performance, Volume 9, Issue 1, February 2017. The full journal is available at Activity-based costing Insights from E.ON Energie Deutschland ey.com/performance

If you could see the future, would you change the past?

Digital agriculture: helping to feed a growing world

Digital (or precision) agriculture and big data hold answers to the problem of how to feed a growing world sustainably. The field-level impact of this next agricultural revolution has been well documented, digital agriculture will, without doubt, change farming. However, research on its effects of agribusinesses has been limited despite the fact it will fundamentally change multiple business functions for agribusinesses across the world. This is the first in a series of articles that will introduce these concepts and foreshadow how agribusinesses will be affected.

82 Volume 9 │ Issue 1 w Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

If you could see the future, would you change the past?

Authors

Rob Dongoski Global Agribusiness Leader, Ernst & Young LLP

Andrew Selck Senior Manager Global Agribusiness, Ernst & Young LLP, US

w w Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

If you could see the future, would you change the past?

Digital agriculture: helping to feed a growing world

ig data and analytics have made headlines across the world for their proven ability to create and transform industries, increase revenue through new products and Bnew customers, and reduce costs and drive efficiencies. As we continue to generate ever more data through the proliferation of IoT and sensors, new technologies and techniques are being employed to turn this While the current focus on most data into usable information. Technologies investment and publications has such as machine learning and artificial been on how digital agriculture intelligence (AI) offer users opportunities will change farming, little has been to harness and transform this data. The written on how this same data growing emphasis on big data has been will impact the various agribusiness coined the “big data revolution” and is stakeholders. We have written identified as one of the most transformative this article as the first in a series technological business strategies of that focuses specifically on the the past decade. LinkedIn and Uber are opportunities and challenges that well-known examples of how big data, digital agriculture and big data industry and disruption go hand in hand. will create for agribusiness and The agriculture industry has been no food companies. exception to this trend. To outsiders, agriculture is often thought of as a low-tech industry. Ask most individuals about farming and they because it will drive innovation on top and increase farm sustainability. Investors will describe a farmer with an old tractor of innovation. For example, historical are taking note. According to AgFunder, and plow. They are often surprised to know yield, soil, nutrient and weather data over US$4.6 billion has been invested that modern agriculture is highly technical. can be analyzed to help a producer in agriculture technology during 2015.1 For example, the first commercial drone make a decision on how much fertilizer Much of this investment is in software and license issued by the US’s Federal Aviation to apply to a certain soil type in specific technology to enable digital agriculture — Association (FAA) was to a company for climates. An agronomist can analyze field a combination of data and algorithms that agricultural application. Data collection data to recommend the optimal seed provides specific recommendations at is evolving from hand-written notes that a producer should purchase. the sub-field level. For example, whereas and manual field analysis to automatic The agriculture industry has begun today most farmers make a decision to data capture via equipment, software, to harness the power big data can bring plant one seed variety on an entire 40 acre remote sensors and aerial drones. The to operations. Software and algorithms field, digital agriculture allows farmers value that this insight can bring to the are being created to leverage data to to identify and plant the “optimal seed producer and agribusiness is so significant increase yields, improve farm profitability variety” in every square meter of the field.

84 Volume 9 │ Issue 1 Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

If you could see the future, would you change the past?

Data collection is evolving from hand-written notes and manual field analysis to automatic data capture via equipment, software, remote sensors and aerial drones.

Digital agriculture and big rates and distribution methods will not Investment data hold the promise to feed be nearly enough to feed the population. It is generally acknowledged that digital in AgTech in 2015: a growing world sustainably agriculture and big data will be needed By 2050, the global population is expected to meet these demands. more than to increase by 40% to 9.6 billion people. In order to feed this drastically increasing population, the agriculture industry will US$4.6b 1. L. Burwood-Taylor, “Agriculture Technology Investment need to produce 70% more food while only Storms to $4.6bn in 2015 as Global Investors Take 2 Note,” AgFunderNews, 2016, Source: L. Burwood-Taylor, “Agriculture using 5% more land. This, coupled with https://agfundernews.com/agriculture-technology- investment-storms-to-4-6bn-in-2015-as-global-investors- Technology Investment Storms to growing environmental and regulatory take-note5380.html, accessed November 2016. $4.6bn in 2015 as Global Investors pressures, poses a daunting challenge 2. How to feed the world in 2050, Food and Agriculture Organization of the United Nations, 2009, http://www.fao. Take Note,” AgFunderNews. for the industry. Current production org/fileadmin/templates/wsfs/docs/expert_paper/How_to_ Feed_the_World_in_2050.pdf, accessed November 2016.

85 Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

If you could see the future, would you change the past?

Digital agriculture: helping to feed a growing world

Software and algorithms are being created to leverage data to increase yields, improve farm profitability and increase farm sustainability. Investors are taking note.

The third agricultural revolution Digital agriculture is widely recognized levels previously unattainable, and as the third great revolution of modern are now conventional in developed agricultural. The introduction and countries across the world. implementation of mechanization While Ag 1.0 and Ag 2.0 definitely (1900 to 1930) and genetic drove significant changes in agriculture, modification (1990 to 2005) are we believe the Ag 3.0 will be the most referred to as Ag 1.0 and Ag 2.0 transformative and disruptive, not respectively. Both revolutions drove only on the farm, but across the entire efficiency, yield and profitability to agriculture and food value chain.

86 Volume 9 │ Issue 1 Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

If you could see the future, would you change the past?

Digital agriculture will While the benefits of digital agriculture change farming are compelling, it has been met by significant challenges, for example, The impact of digital agriculture on the difficulty using software, data usage field is well documented and researched. concerns, disparate and propriety From variable rate application to real- data formats and an unclear return on time NDVI visualization (i.e., the index investment. Agribusiness has struggled for visualizing vegetation health), farming to provide immediate, tangible results will forever be changed. In the future, from digital agriculture equipment and data creation, analysis and decision-making software. Challenges around gathering and will almost certainly increase at the field standardizing data make adoption difficult level. Farming operations will have the across all stakeholder groups. Undeveloped opportunity to prosper from targeted countries lag in adoption with weak network field solutions, data-driven agronomic infrastructure and limited capital. The advice and smarter inputs. Software is gap between modern, advanced farming being developed to help propel developing and subsistence farming is growing at an countries toward modern farming practices. alarming rate. All of these factors raise Farms are consolidating at an increasing important questions for the industry. rate as technology supports automation Producers face problems and decisions and economies of scale. Input applications every day, both on and off the field. These are based on factual data and investments decisions are projected and magnified up into farming tech are funded by profit and down the entire value chain — from saved by data-driven efficiency. field to fork. What does this mean for the various stakeholders in that value chain?

In 1960, Today, By 2050, a farmer fed a farmer feeds a farmer will need to feed 26 people: 155 people: more than 265 people: a machine a biotech revolution a digital agriculture revolution revolution

87 Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

If you could see the future, would you change the past?

Digital agriculture: helping to feed a growing world

Digital agriculture is Digital agriculture will As technological advancements in fundamentally change equipment and inputs slow, companies creating competition will need increasingly to compete on among both traditional and agribusiness digital strategy. Being able to support While the first two revolutions in digital agriculture becomes ever more nontraditional competitors. agriculture — mechanization and biotech important. This revolution will also — had a major impact for farmers and challenge traditional company roles, select agribusinesses, digital agriculture intercompany relationships, reward systems will fundamentally transform every part and, potentially, entire business models. of the agribusiness value chain. Seed Digital agriculture is creating competition companies were not drastically changed among both traditional and nontraditional from the bottom up to accommodate competitors. The industry is in a storming advanced machinery. While significant phase and agribusinesses are working innovation occurred in equipment to solidify their place in Ag 3.0. Several design, it was not altered to specifically companies are investing heavily in internal accommodate genetically modified seeds. data activities such as standardization, However Ag 3.0 will affect producer storage, software and analytics. Others buying behavior and seed and equipment are focusing on outsourcing strategies or product design, and could enable dynamic licensing software from other companies. pricing at the consumer retail level. Still others are taking a wait-and-see These implications will gradually affect approach. As the industry evolves, multiple business functions across a single disruption will follow. It is essential company. For example, digital agriculture for agribusinesses to transform their and big data will change the way seed and business and themselves to differentiate agrichemical companies market, price and provide more value to customers. and sell products, select and invest in their R&D pipeline, recommend and technically support product sales, manufacture and How will digital agriculture and distribute products, and manage credit and big data impact agribusiness? financial risk. Business strategy, product Although the challenges are concerning, design, customer preferences and even they present thought-provoking organizational structure will change as opportunities to all stakeholder groups. more digital agriculture data is available. How do agribusinesses begin to explore

88 Volume 9 │ Issue 1 Volume 9 │ Issue 1

Providing insight and analysis for business professionals

Digital agriculture

How to feed a growing world

If you could see the future, would you change the past?

these opportunities, understand the goals for their businesses. The next few articles of other stakeholders and collectively will focus on how a particular stakeholder As technological move the industry forward in Ag 3.0? group’s business functions, challenges and advancements in equipment opportunities may be impacted. The series Our goal is to provide insights and help and inputs slow, companies the industry ask the right questions to will wrap up by examining some big-picture spur conversations that develop strategies ideas facing the industry and presenting our will need increasingly to thoughts and conclusions on these issues.  compete on digital strategy.