An inflection point tips the balance, one way or the other. Either growth happens more quickly, or conversely slows down exponentially. This is how the news of the $2.1 billion acquisition of Raven Industries by CNH Industrial1 struck me specific to the adoption of technology for food and agriculture. This announcement felt reminiscent of the Climate Corporation acquisition by Monsanto back in 2013, and the Blue River Technology acquisition by Deere & Company in 2017, not just by the size of the deal but how news flows quickly to the agritech community. It also fuels my belief that mainstream adoption of a cross-section of agricultural technologies is well underway. Alongside these acquisition headlines are astute competitors, innovators, experienced and new capital investors in the ag space, and market demand that is lifting all boats, as the saying goes.
In my opinion, there are several unique drivers that will continue to drive growth of innovation and adoption across the agriculture industry.
Constraints, Operational hunger for efficiency: Juxtaposed against the commodity super cycle, and the run up in commodity pricing and demand, operational constraints have plagued agribusiness. The pandemic exacerbated labor issues across agriculture, particularly for labor-intensive farming and processing. Further, there have been upward price shifts in packaging materials including tin and plastic, as well as transportation concerns, whether by local trucking or global shipping that have negatively impacted the beleaguered food manufacturing sector
Consolidation: Consolidation in U.S. agriculture is well documented2,3. And, technology enables economies of scale. An astonishingly obvious conclusion was documented in the July 2021 USDA report on production practice trends: “Higher productivity producers had higher yields, larger farms, and lower per-acre expenditures on chemicals, fuels, and fertilizer than lower productivity producers.”4 The authors laid out an exacting recount of the technological shift in the production of corn in the U.S. heartland. Between seed, fertilizer, chemistry, precision implements, machine control, and streaming data analytics improving the bottom line – it is not surprising that current tech providers are reporting sold-out status and long wait times for technology solutions that are have the best type of proof of value, that being market demand.
Change: If there is one truth amplified during 2020-2021, it is constant change. Agribusinesses often adjust long operational cycles (seasonality) to erratic consumer preferences. In the case of a global pandemic, we’ve witnessed processors proactively building new employee safety protocols overnight, and responding to supply chain disruptions. Change accelerates adoption of technology to address these types of challenges.
With what’s likely to be an unknown roller coaster of additional viral variants and public health mandates, agribusiness will continue to seek solutions from the brightest innovators. Recently, AgWeb published an article referencing the Farm Journal technology survey5. In the survey results cited, 68% of farmers answered that they didn’t see the need for a chief technology officer. At the same time, 58% of these same farmers said their data collection practices are adequate for now but probably not good enough for tomorrow. It would be interesting to dissect this survey by the same high-productivity category that the USDA-ERS team surveyed on production practice trends. My bet is that innovation is highly valued at both the farming and processing level whether it be investment in a specific functional role or otherwise.
Need to Monetize / Price the Externality issues: The fourth critical issue is how to steward natural resources for better sustainability metrics, but also to monetize these assets and systems. I’m not sure whether to categorize regenerative practices as legacy or nascent concerns. Stewardship has always been good business. Carbon sequestration, water stewardship, and clean air are at a premium, and these externalities are receiving focus through emerging carbon offset opportunities, water pricing and transfers, and wind and solar leases. There are few pitches for startups that don’t include sustainability benefits, and support for innovation in this space continues to blossom. In July of this year, Wells Fargo’s Innovation Incubator (IN2), a technology incubator and platform funded by the Wells Fargo Foundation and co-administered by the National Renewable Energy Laboratory (NREL), selected five early-stage sustainable indoor agriculture companies to participate in the program.6 This follows the naming of six agtech startups focused on agtech solutions to Wells Fargo‘s Innovation Incubator in May 2020.7 The newly selected companies will receive up to $250,000 in non-dilutive funding from Wells Fargo and will conduct research and development activities at NREL and the Donald Danforth Plant Science Center in St. Louis, Missouri. They will also join a cleantech ecosystem that includes industry experts, investors, technology bankers, demonstration partners, and a nationwide Channel Partner network of more than 60 cleantech and agtech business incubators, accelerators, and university programs. And, this is just a sampling of the efforts in this important space.
Circling back to where I started this article, high-value acquisitions such as those by such important industry players as CNH, Monsanto, and Deere & reflect momentum in ag technology. Time will tell whether this is amongst one of the important inflection points as U.S. agribusiness builds the pace of technology adoption.
1 https://www.businesswire.com/news/home/20210620005255/en/CNH-Industrial-to-Acquire-Raven-Industries-Enhancing-Precision-Agriculture-Capabilities-and-Scale, June 21, 2021.
2 Three Decades of Consolidation in U.S. Agriculture, MacDonald, Hoppe, Newton, ERS, March 2018.
3 Agricultural Consolidation: Causes and the Path Forward, Economic Review, 85-105, September 2017.
4 2021 Trends in Production Practices and Costs of the U.S. Corn Sector, ERR-294 USDA, Economic Research Services, July 2021.
5 Agweb Technology Is…Considering a CTO, August 4, 2021.
6 Business Wire, Wells Fargo Innovation Incubator Selects Five Early-Stage Sustainable Indoor Agriculture Companies, July 8, 2021.
7 Business Wire, Six Agtech Startups Selected for Wells Fargo Innovation Incubator, May 21, 2020.