67. Drivers for digital transformation
Traditional or new players
Hi. If you are new here, I am Rhishi Pethe, and I am excited you’re in the “Software is Feeding the World'' community. Every Sunday, you will receive this free newsletter at the intersection of technology and agriculture systems. I am a product manager at Project Mineral (focused on sustainable agriculture) at X, the moonshot factory. The views expressed in this newsletter are my personal opinions.
This week’s edition delves into digital transformation in agriculture, and who will drive the said transformation. It will explore research from the Breakthrough Institute on land use changes driven by higher yields, and impact of nitrogen on GHG. Talking about high yields, there is new research, which shows crop yields can be increased by upto 50%, with relatively simple techniques compared to GMOs.
As we think about digital transformation (or transition) in agriculture, which entities are in the best position to bring change, and change in the process? Will farming in the developed world and the developing world converge towards similar values, approaches, and practices over the long term? How much of the change will be driven by downstream entities like CPG companies, grocery retailers, and most importantly consumers?
The definition of what it will mean to farm in the future might change. (Edition 57. What will it mean to farm in the future?) As digitization changes business models, and in turn agriculture itself, there are three entities best positioned to drive change (Hat tip to Sachi Desai for an email discussion)
Retailers or Co-ops due to their existing and strong relationship with growers.
Original Equipment Manufacturers due to their continued presence on the farm.
Input manufacturers due to their product and services portfolio.
Grower trust is the common thread through these entities. Digitization will elevate the importance of trust and performance. Does the grower trust your products, and services? How can you use data and digital tools to enhance grower trust?
With banking customers going online, the role of a teller in your bank has changed (in fact the role of a bank is changing.) So will the current “trusted” humans have a totally different role?
It will happen through automation of some decision making processes through data and model-driven digitization. Digitization will be driven by inexpensive compute, broadband connectivity, and (hopefully) improved interoperability.
There will be non-traditional rivalries and collaborations (for example telcos, pure tech organizations etc.). It can lead to destruction of some of the existing value pools. For example, a crop model recommends a crop plan trusted by the grower, and requires minimal human intervention.
The acquisition spree by Telus in Canada is an example of non-traditional players, with a different customer connection (as a telecom provider) trying to roll up multiple companies and offer a comprehensive on and off-farm solution. The recent acquisition of Conservis (Farm Management System) by a Rabobank-Telus joint venture is an example of a lending institution reaching back to get better access to on-farm data. (Rabo and Conservis have been partners for a few years.) Conservis has connected operational and agronomic data with financial reporting, especially for large growers (> 5000 acres).
There were two interesting topics about the Conservis acquisition.
First, Patrick Christie (Conservis founder, and one of the nicest and smartest people in the industry) said the following about Conservis, and the role of venture capital.
I think if we tried to start this company today, I don’t know if we could get the capital or the time to build what we have. I think a lot of agtech capital is hard to raise in serious amounts unless you’re going really big.
Generally, venture capital is highly functional capital looking for short-term results. I think because we got early commercial success, we were able to build systemic partnerships with other tech tools. But if I was coming to market with a new technology today, going to market as a standalone product would be very hard, very expensive, and I’m not sure it’s a workable model.
In edition 65, Change, where art thou?, when I discussed the question of VC in AgTech, I had posited that VC firms had invested in on-farm data collection and farm management technologies. If VCs had invested in middleware or downstream solutions, then farms would have been less lit up with data. Downstream participants like commodity buyers, or CPG companies would not have had data from the farm to drive value for their use cases (for example, sustainability, carbon, traceability etc.) The Rabobank-Telus acquisition is a data point supporting my thesis from two weeks back. As Pat said, they would not have been able to start the company today.
Second, the acquisition is about getting access to good quality on-farm useful data
Transparent, accurate ag data will become almost as prized a commodity as the products grown on the farm
As other players throughout the food supply chain look toward ensuring their suppliers are applying environmental, animal welfare, and employee standards that align with their own and their customers’ standards, farms will be challenged to easily and securely manage their data. The farms that can – through farm management information systems like Conservis – will be able to unlock more, profitable opportunities.
Digital Acre Portfolio
Most growers (at least in North America) view their ag retailer (or co-op) as a trusted advisor for agronomy decisions and most importantly for farming data.
Every pass across a field should be included in a grower’s digital acre portfolio. The digital acre portfolio is the most complete picture of activities on a given acre. The digital acre portfolio should be stored in a safe and secure place. It should be used (with grower’s permission) to create additional value for the grower for different use cases, through data cleansing, visualization, aggregate analysis, machine learning models, and interoperability.
The digital acre portfolio will be of interest to lenders like Rabobank and to crop insurance agencies. Here in the US, the federal government supports crop insurance through subsidies, and other incentives. “The Case for Next Generation Crop Insurance” (June 2021) research paper published by AGree, leans into data and analytics to improve the federal crop insurance program and incorporate conservation practices into it. The paper makes a case for a three pronged approach to create the next generation crop insurance, and all three are based on having a strong digital acre portfolio.
1. Crop insurance and conservation policy: Improve crop insurance and conservation policies so they work better for growers and reduce risk while adopting new policies to encourage adoption of lower risk conservation practices.
2. FCIP rating model: Enable research to help improve the FCIP risk rating model by addressing knowledge gaps, and utilize data to assess and improve on-the-ground outcomes.
3. Data Innovation: Modernize data collection, interoperability, storage and sharing while protecting producer privacy
Today, the federal program takes a single year view of risk (it does look at production history), and ignores longer-term strategies such as cover cropping and crop rotation. A large part of it is due to consistent, high quality availability of a digital acre portfolio, to get a better actuarial understanding of farming operations.
High yield crops are key to lower carbon agriculture
Talking about carbon markets, and GHG emissions, the Breakthrough Institute’s research showed
In 2018, greenhouse gas emissions from the global food system totaled 16 billion tons CO2 equivalents per year (GtCO2e/yr), and of global food system emissions, a quarter (about 4 GtCO2e/yr) comes from conversions of natural ecosystems to farmland.
BTI’s research shows that modifying key crops in the US with just one new genetically engineered trait could increase yields by 15%, thereby decreasing global food system emissions from land conversion by 5%, or 214 million tons CO2 equivalents per year (MtCO2e/yr).
Improvements in plant breeding, including genetic engineering, has the potential to reduce global agriculture GHG emissions by 1 GT CO2e / year by 2050.
As can be seen in figure 2 below, according to the Breakthrough Institute, most of the GHG reductions come from land use change. It is based on the assumption that increased crop production in one location leads to a proportional decrease in production and related land-use change elsewhere.
BTI’s projections show the impact of production emissions in GHG reduction is small compared to land use change. It does not mean we should not look at production emissions, as a
1% increase in nitrogen use efficiency of cereal crop production just in Brazil could decrease nitrogen fertilizer application by over 20,000 tons (compared to almost 2 million tons total applied to cereal crops in Brazil in 2011).
There is a lot of room to improve on N use efficiency. According to a recent research paper1, the N use efficiency is at 46%, with excess N creating N2O emissions (GHG) and water pollution.
At the same time, N fertilizer use has continued to grow. The proportion of the world’s population depending on food produced from use of N inputs rose to 48% by 2008. Since the discovery of the Haber-Bosch process, N inputs for crop production account for about 85% of total anthropogenic N inputs to the global nitrogen cycle.
Image from the book, “Enriching the Earth” by Vaclav Smil
Figure from Erisman et al article “How a century of ammonia synthesis changed the world” (2008)
Researchers at the University of Chicago (my alma mater), have shown in initial lab tests that by adding a gene encoding protein called FTO2, rice and potato plants increased their yield by 50% in field tests. The plants grew significantly larger, produced longer root systems and were better able to tolerate drought stress. Analysis also showed plants had increased their rate of photosynthesis.
On the left, rice plants without the RNA modification. On the right, a rice plant with the RNA modification that boosts yield. Image courtesy of Yu et al.
Above, the potato yields from unmodified plants. Below, the yield from plants with the RNA modification. Image courtesy of Yu et al.
RNA doesn’t simply read the DNA blueprint and carry it out blindly; the cell itself can also regulate which parts of the blueprint get expressed. It does so by placing chemical markers onto RNA to modulate which proteins are made and how many. FTO controls a process to muffle some of the signals that tell plants to slow down and reduce growth.
It could have huge implications to agriculture, especially in the developing world. If the time and expense to develop new varieties is lower than GMOs, it could make the process of seed breeding more inclusive. It can simplify the process of creating varieties optimized for certain agro ecological zones, farming practices, and climate change patterns.
Here at “Software is Feeding the World,” sustainable agriculture is a constant topic. Agriculture and food systems form a sizable part of current greenhouse gas emissions. They will play a critical role in managing climate change, along with other sectors of the industry. Just as I believe technology will play a critical role in agriculture, similar cleantech will play a critical role for climate change mitigation.
I recently started reading “The Impact” newsletter, with a special focus on clean tech. If you are interested in expanding your horizon to clean tech, I would recommend this newsletter. It is written by analysts, founders and executives in the industry.
The Impact is “A weekly newsletter providing analysis on emerging technologies, research and trending news in the clean-tech space. We arm our readers with tools and insights needed to make a climate positive impact.”
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Zhang, X., Zou, T., Lassaletta, L. et al. Quantification of global and national nitrogen budgets for crop production. Nat Food 2, 529–540 (2021). https://doi.org/10.1038/s43016-021-00318-5