Investment in digital agriculture

DowDuPont, BASF, etc. are redefining the agritech investment landscape as we move forward in the digital age, and these companies are looking to scale in a sector that has around US$3 trillion value at the farm gate, and multiples of that downstream. Currently, Facebook’s technologies are being used by BASF to identify weeds,⁷³ Cargill is brewing a sweetener crop from Paraguay called Stevia in containers in Switzerland; Amazon has bought Whole Foods, an organic food retailer, while Google and China’s Alibaba are advising farmers and delivering groceries to customers.⁷⁴ In turn, a more diverse universe of investors supporting these companies is signalling a sea change in agritech investment. With indoor farming, disruptive retail, along with genome and microbial tech all vying for the big dollars, there is understandable angst

for the “have nots” trying to attract capital to compete with the “have mores”.⁷⁵

Based on a global annual crop production value of US$1.2 trillion in 2015 and bottom-up estimation on technology-driven yield improvement of 70 percent, it is estimated that globally, possible value generation by 2050 will reach US$800 billion, if all of the technologies are fully adopted. The actual value capture will depend on how the competitive environment evolves (Goldman Sachs, 2016). The evolution of the market will be driven by the gradual introduction of more advanced and more interconnected digital solutions (e.g. drones, IoT, robotics, PA, blockchain, AI, etc.), and by the rise of Big Data analytics.

According to Roland Berger (2015), the global PA market will grow 12 percent by 2020, while the total market value will cross US$5.5 billion by then. The precision farming market in Asia and the Pacific region is still in the early stages of the adoption life cycle (20 percent), but it is expected to grow in double-digits between 2016 and 2022. India, Australia, China, and Japan have the highest growth rates in the precision farming market, with large-scale adoption of advanced farming solutions such as soil mapping, yield mapping, variable rate technologies (VRT) and guidance and steering systems.⁷⁶ The adoption of IoT solutions for agriculture is constantly growing too. BI Intelligence (2016) predicts that the number of agriculture IoT device installations will hit 75 million by 2020, growing 20 percent annually.⁷⁷ According to IDC (2019), total corporate and government spending on blockchain should hit US$2.9 billion in 2019, an increase

Figure 3-32 Digital agriculture investment by category 2017, in US$ million.

Source: AgFunder, 2017.

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0 Ag biotechnology Novel farming

systems Agribusiness

marketplaces Farm

management Software, sensing

& IoT

Robotics, mechanization &

Farm Eq

Midstream

technologies Farm-to-consumer eGrocery

of 89 percent over the previous year, and reach US$12.4 billion by 2022. The agricultural robot market will reach US$16.3 billion by 2020 (ReportsnReports, 2014).

According to PwC (2017), the current global market for drones in agriculture stands at US$32.4 billion. All this growth is mostly attributed to the rapid uptake of PA applications in developing countries (especially China, India and Asia and the Pacific region) and the uptake of sophisticated solutions in the most advanced areas (United States, Europe and Australia) (GSA GNSS, 2018).

North America is currently the most technologically advanced region and the heartland of PA, with the highest installed base, followed by Asia and the Pacific region. In Europe, western and eastern countries move at different pace and maturity level regarding adoption of PA-based solutions. Western Europe boasts a highly developed PA sector, with increased output and mechanization, which is mainly driven by increased cost efficiency needs (GSA GNSS, 2018). In the Netherlands, for instance, 65 percent of the arable farmers were using PA technologies in their farming activities in 2016.⁷⁸ The growth in the adoption of PA in countries such as the United Kingdom has shown that between 2009 and 2012 the proportion of farms using PA increased. The increase for GNSS was greatest, from 14 percent to 22 percent, for soil mapping from 14 percent to 20 percent, for variable rate application from 13 percent to 16 percent and for yield mapping from 7 percent to 11 percent (European Parliament, 2014). Eastern Europe, on the other hand, starts at a lower level but grows at a greater pace, driven by the need for increased output.

Compared with high PA-adoption countries (e.g. Japan, Australia, South Korea), market trends in eastern Europe and other highly developed countries show that these countries also place high focus on adoption of novel technological solutions, including drones, optical sensors and future ICTs like 4G and 5G, while seeking integration of and with existing technologies into complete farm management systems (GSA GNSS, 2018). Walter et al. (2017) observe that there is increased use of radio frequency identification (RFID) technology in central and northern European countries, such as Germany, Denmark and Sweden. Another technology in digitalized agriculture is robotics. Cost is the main barrier for advanced technology like robotics and its reception is low all over the world. It is mainly used in the dairy industry for automated milking, but mostly in developed countries, with 30 percent of farms in the Netherlands and 2 percent of farms in the United States using this technology.

The guidance systems offer several benefits and they are well accepted by European farmers. Investments are generally lower than for other PA technologies, the risk

is lower, and the results obtained are more convincing for the farmer. Automatic guidance systems have significantly developed in the last decade in the United States, Australia and in Europe (Heege, 2013).

The GNSS market in agriculture is relatively small, only expected to be 1.4 percent of the cumulative core revenue for 2012–2022. The GSA GNSS Report (2013) indicates that there is increasing use of PA not only in developed countries but also in developing countries. Auto-steering and VRT are growing faster than previously estimated and could provide nearly 80 percent of the GNSS revenues from agriculture. In Europe future growth is expected to be increasingly driven by uptake of GNSS technologies in central and eastern Europe where penetration is currently low (European Parliament, 2014).

In general, PA requires expensive equipment. A drone costs at least US$1000. An Internet-enabled tractor costs around US$350 000. These are prohibitively high costs for a farmer who may live on less than US$2 per day.

Many farmers do not have access to credit to invest in higher productivity tools.⁷⁹ Given their high exposure to risk and limited ability to manage shocks, smallholders often prefer to choose cheaper and low-return production options over technology-intensive ones, in this case smartphones. Indeed, telecom operators can play a crucial role in the agricultural sector and offer greater

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

2014 2015 2016 2017 2018 2019 2020

Figure 3-33 Market estimation of precision agriculture 2014–2020, in billion.

Source: Roland Berger, 2015.

Note: Market estimation includes software (e.g. data management systems, advisory services) and hardware (e.g. automation and control systems such as: guidance steering, displays, flow control devices, sensing and monitoring such as yield monitor, soil sensors).

Rest of World South America Asia

Europe North America

Figure 3-34 Precision farming market, by component and technology in 2015.

Source: Global Market Insights, 2018.

Note: Estimated precision farming market was US$3.06 billion for 2015.

Market by component

Hardware Software

Services 4%

15%

81%

Market by technology

High Precision Positioning System (GPS & GNSS)

Geo-mapping Remote sensing

Integrated Electronic Communication

VRT

24% 29%

11%

16% 20%

potential for additional value-added services. In the future, mobile operators could provide end-to-end IoT services to generate revenue growth. By 2020, the total addressable market for telecom operators in agriculture is expected to be as large as US$12.9 billion from vertical integration, partnership and marketing, and value-added service perspectives (Huawei, 2015).

For those in LDCs and developing countries that cannot leapfrog from ICT into more advanced technologies, mobile apps addressing various agriculture services must be the primary tools in the short term. As described

in Section 3.1.4.1, Africa, Asia and the Pacific region, and the EU have the largest total addressable market compared with Latin America and the Caribbean and North America. Developing regions have much untapped market in which agriculture is largely unorganized.

The key factors for successful adaption to these markets include development of local content, testing solutions and training, and favourable regulatory environment.

Consolidating these elements will help ensure that the content and methods of delivery are tailored to both markets and crop types, optimizing the potential value for smallholder farmers.

Figure 3-35 Total addressable market size by mobile application 2015-2020, in US$ millions

Source: Huawei, 2015.

Others Smart irrigations VRT Smart greenhouse Farm management system Agricultural drone Soil monitoring Yield monitoring Precision livestock Precision farming

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