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Five Forces That Will Shape Agriculture
As investors, agribusiness executives, and myriad sector stakeholders converge on Boston this week for AgTech Nexus USA, topics range from artificial intelligence to cultured proteins to blockchain. All of these technologies – and many more – have the potential to disrupt agriculture on a number of levels.
One company working to make a significant contribution to transforming agriculture is Indigo Ag. Indigo’s microbiome-based seed treatment technology complements a plant’s natural processes to improve the health and development of the plant while increasing yield. The company is currently focusing on cotton, corn, rice, soybeans, and wheat.
It is also tackling the challenges of environmental sustainability. Their product pipeline directed at water stress allows for higher yields without increased chemical or water use. Indigo is focusing on microbial products that address nitrogen limitation, which allows for less synthetic fertilizer to be applied.
Named to Successful Farming’s top seven ag tech start-ups to watch in 2018, Indigo Ag has seen remarkable growth since its launch in 2016. In the first half of this year, the Massachusetts-based company has achieved a number of notable milestones including continuous improvement in Indigo Cotton yield gains, the development of an on-farm storage program, organic certification, and expansion of hundreds of thousands of acres of corn, soybeans, rice, and cotton.
Who better to take the stage at AgTech Nexus USA than Indigo’s president and CEO David Perry to share his insight on the five forces he believes will shape agriculture. Below are his predictions.
1. Branded food companies' focus on sustainability. It’s a word that we’re increasingly hearing from companies as consumers demand more information about the products they purchase. “For example, by July 2020, 100% of cotton used in Kmart brand and licensed brand products will be sourced through a more sustainable cotton standard,” says Perry.
Walmart, too, became a part of the sustainability movement when it launched Project Gigaton in 2016. “The company has set a goal to reduce greenhouse gas emissions in its supply chain by 1 billion metric tons (1 gigaton). That’s the equivalent to taking more than 211 million passenger vehicles off of U.S. roads and highways for a year.
“As those goals filter down to agriculture, I think they are going to have a greater influence on this industry,” he says.
2. Advancement of microbiology. “We have deployed microbiology to improve yields, especially under water stress conditions,” says Perry. “There is a great opportunity for this technology to replace a lot of the fertilizer and chemicals used in agriculture. Over the next 10 years, I think we are going to see a dramatic reduction in fertilizer and chemical use and substitute those products with technology that is more natural and less impactful on the environment and the consumer.”
3. Application of data sciences. “Today, farmers are effectively in the database business without enough data to make decisions,” he says. “A farmer has to make 100 decisions or so between planting and harvest, and those decisions impact yield and profitably."
For the most part, Perry believes each one of those decisions being made today is not the optimal one because farmers don’t have enough data to make the best decision possible for their operation.
“If you knew what every farmer in the U.S. was doing and knew the outcome of his decisions, you would then be able to write an algorithm that would answer almost every question – from a given farm with a given soil type in a given climate at a given commodity price and at given input prices – what are the right set of decisions based on that information,” he says.
Today, Perry continues, there is essentially no way for a farmer to do that because he doesn’t have enough data by himself. “You need tens of millions of acres to really be able to fine-tune algorithms that will help, and then you need a process to give that data back to a farmer so he can make decisions with it or support his decision making,” he says. “If we and others start to collect that data and create tools for the farmer to go by, I think you will see dramatic changes in yields and profitability.”
4. Modern logistics connecting farmers directly with buyers. “This happens occasionaly today but most farmers sell to some sort of grain company – a local elevator or co-op or one of the big grain companies,” says Perry. “This is a system that made sense when it was established 100 years ago, but technology has come a long way since then.”
There’s an opportunity to store crops on the farm and ship them directly to a buyer – essentially cutting a ton of cost. “The cost piece is immediate,” he explains. “The bigger impact is once you connect buyers and sellers, it is no longer a commodity. Buyers no longer have to buy the blended commodity from the elevator. It can buy exactly what it wants to. A farmer can then produce a specialty crop instead of commodity and get paid a premium for producing that specialty crop.”
5. Decommoditization of agriculture. “Farmers in the U.S. are in a really tough spot right now,” says Perry. “They are producing bushels of a commodity, and they are doing so between big buyers and big sellers. There are half a dozen input providers. There are a few big grain buyers. And there are 2.2 million farmers in between. Farmers have no negotiating power on the buying side and no negotiating power on the selling side.”
The way this is often described, he continues, is farmers buy at retail and sell at wholesale. “To make things worse, they are producing an undifferentied commodity product and they are not the low-cost producer,” says Perry. “In Brazil or Ukraine, land is cheaper and labor is cheaper. If we are producing the same products and your costs are not lower to produce that product, you can expect margins to be tight. There is an opportunity to change all that. When crops move from being a commodity to a specialty, everybody does better.”
Perry uses coffee as an example. “We used to buy Folgers or Maxwell House. Now we can buy Kenyan and Brazilian coffee. People who care about that are willing to pay three to four times as much for it,” he says. “That’s good for everybody in the supply chain all the way back to the farmer. Now instead of procuring coffee, they are procuring a specialty product. Once we decommoditize ag, we create that oportuntunity.”