Agriculture Is Fertile

Ground for Digitization

A growing world population enjoying higher-calorie
diets led to record growth for agriculture. Now, digital
agriculture has the potential to feed 1 billion additional
people worldwide.

Next-Generation Agriculture

Converging Trends Could Disrupt the Industry

Driven by a growing global population and, in particular, an expanding middle class with an
appetite for meat, dairy, and high-caloric foods, demand for crops has been climbing for decades.
As a result, the agriculture input industryfarming resources such as agrochemicals, seeds, and
fertilizershas continued to grow.
However, the latest forecasts by the Organisation for Economic Co-operation and Development
(OECD) and the United Nations Food and Agriculture Organization (FAO) predict that both
production growth rates and grain, wheat, and meat prices will drop or remain flat until 2025
(see figure 1). This is the second consecutive year that these longer-term forecasts have
predicted a deviation from the industrys strong growth.
Although the industrys future looks bright overall, several disruptive trends are converging.
In this paper, we look at the alternative routes the industry could take amid three powerful
trends: shifting patterns in demand for crops, technological limits, and social and regulatory
headwinds. Although none of these trends on its own would be disruptive, if combined they
will challenge the agriculture industry as we know it today.

Figure 1
OECD and FAO predict declining growth rates and price levels
Latest forecasts show severe drop
in production growth

with prices remaining flat or

declining over the next 10 years

Changes in 10-year CAGR

(%)

2.1

52%

Average 3-year world price

(US$ per ton)

Wheat

271

Soybean

433

Corn

180

7%
253

1.0

4.0

40%
2.4

3.9

62%

2%

+2%

424

184

1.5

3.3

55%
1.5

20062015

2016e-2025e

Poultry
meat

17%

1,870

1,552

20062015

2023e2025e

Sources: Organisation for Economic Co-operation and Development Agricultural Outlook 2016; A.T. Kearney analysis

Agriculture Is Fertile Ground for Digitization

Demand Patterns Are Shifting

Changes in consumption patterns indicate crop demand growth could slow down, resulting in
less demand for inputs such as seeds and fertilizers. In Western markets, consumers are changing
their eating habits as many shift from meat-based to vegetarian and vegan diets. In addition,
the crop demand for biofuel is shrinking as attention turns toward alternative fuel sources
and electrification. Finally, food waste reduction has moved into the spotlight. In this section,
we take a closer look at each of these trends.
Changes in meat consumption
Each year, the world consumes about 300 million tons of meat and 800 million tons of dairy
products. Meeting these demands requires about 300 million cows, 1.4 billion pigs, 60 billion
poultry, and 900 million sheep and goats. To feed this livestock, the agricultural industry needs
to produce up to 800 million tons of crops, including grain, corn, and soy in addition to pasturerelated feed.
Over the past few decades, meat consumption grew steadily, both in developing and developed
countries. However, this trend has plummeted and is expected to flatten at a low rate (see
figure 2). Developed countries have already reached peak consumption, and an increase in
wealth will not drive meat consumption any higher. Additionally, the perception of meat is
changing in a variety of geographies, and many regard a vegetarian diet as healthier. In the
United Kingdom, for example, 20 percent of 16 to 24 year olds follow a vegetarian or vegan diet,
and 50 percent believe meat-free products are healthier options. Because about 50 to 60
percent of global crop production is dedicated to livestock feed, these dietary trends could
put a significant portion of the industry at risk.

Figure 2
Per capita meat consumption growth is slowing
3.0%

Global meat consumption growth

2.5%
2.0%
1.5%
1.0%
0.5%
0.0%

2000

2005

2010

2015

2020f

2025f

Sources: Organisation for Economic Co-operation and Development, World Bank; A.T. Kearney analysis

Developments in biofuel
After feed, biofuels are the second-largest customer segment for crop production with up to
20 to 30 percent of the United States, European Union, and Brazilian crop production ending
up there. Between 2000 and 2015, annual production increased eightfold from about 18 million
to nearly 150 million tonstranslating into a need for about 100 million hectares of farmland
to grow energy crops such as corn, sugar cane, and canola.
Agriculture Is Fertile Ground for Digitization

Figure 3
Biofuel production growth is in sharp decline
70%

Global biofuel production growth

60%
50%
40%
30%
20%
10%
0%

2000

2005

2010

2015

2020f

2025f

Sources: Organisation for Economic Co-operation and Development, World Bank; A.T. Kearney analysis

However, the biofuel industry has experienced a sharp decline in growth rates (see figure 3).
A huge portion of growth has been driven by government subsidies aimed at sharpening the
focus on alternative fuels to reduce reliance on foreign oil as crude oil prices hit record highs
of more than $100 per barrel. Now, with crude oil priced at about $40 to $50 per barrel, the
profitability of biofuel will continue to dwindle despite government subsidies.
In addition to these economic factors, social headwinds are turning against biofuels as more
people question the logic of biofuels in the ongoing plate versus tank discussion, which focuses
on the competition between cultivating food products versus energy crops. More importantly,
the move to electric vehicles in the medium to long term will lead to a significant reduction in (bio)
fuel demand.
Efforts to reduce food waste
Lastly, initiatives to bring down the roughly 1.3 billion tons of food that is lost or wasted globally
every year are gaining momentum (see figure 4 on page 4). In almost every food category, huge
amounts of food are wasted: 45 percent of fruit and vegetables, 30 percent of cereal products,
35 percent of fish and seafood, 20 percent of dairy products, and 20 percent of meat. Reducing
this waste could have a huge impact on global agriculturewith today's population fed with 20
percent less agriculture production, and all future food production forecasts revised accordingly (see sidebar: Leading the Way in Food Waste Reduction on page 4).
In addition to government regulatory adjustments, private companies are creating business
models to lower food losses. In the United States, for example, start-ups such as Imperfect,
Fruitcycle, and MISFIT Juicery are selling cosmetically challenged productsthe one in five
fruits and vegetables that dont match grocery stores aesthetic standardsfor about 70
percent of standard supermarket prices.
Further, companies such as Plated and Blue Apron in the United States, Gousto in the United
Kingdom, and Hello Fresh in Germany are selling and delivering food boxes with the exact
amount of ingredients required for one meal, which significantly reduces food waste from
Agriculture Is Fertile Ground for Digitization

Figure 4
More than a billion tons of food are lost or wasted every year
Per capita food losses and waste (kg per year)

Consumer

Production to retailing

350
300
250
200
150
100
50
0

Europe

North America
and Oceania

Industrialized
Asia

Subsaharan
Africa

North Africa,
West, and
Central Asia

South and
Southeast
Asia

Latin
America

Sources: Food and Agriculture Organization of the United Nations; A.T. Kearney analysis

oversized packages. All these innovative companies are seeing triple-digit growth as they
eat up the market share of captive retailers.

High-Input Agriculture Reaches Agronomical Limits

The negative impact of intense agriculturefor example, falling biodiversity and soil fertility
levels and higher resistanceis a hot topic in science, agriculture, the media, and politics, and
is continually analyzed from scientific, ethical, and economic angles. It is not our intention to
recount the numerous arguments for and against each side. However, to complement the
perspective on trends and developments affecting the traditional industry, we will touch on
these aspects briefly.
As monoculture farming, double-cropping, and lack of crop rotation along with lack of time
for soil recreation become more frequent, cropping systems and agriculture technologies are
reaching their efficacy limits. Fertility and yield potential are in danger because of the increase
in resistant pathogens that cannot be tackled with current agrochemical products.

Leading the Way in Food Waste Reduction

France is a good example of a
country focused on reducing
food waste. In 2015, France
passed a pioneering food waste
bill that bans supermarkets
larger than 400 square meters
from throwing away or destroying unsold food. Leftovers must
be donated to charities or turned
into animal feed or compost.

Failure to do so could result in

fines of more than $80,000 or
two years imprisonment. This
law is expected to reduce food
waste by seven million tons per
year. In the United States,
legislation has been introduced
to establish national labeling
standards for quality and safety
dates of food and beverages to

cut food waste in half by 2030.

And Germany has changed its
expiration date laws to enforce
sustainability. In the future,
expiration dates for foods that
cannot expire, such as sugar and
salt, will be abandoned.

Agriculture Is Fertile Ground for Digitization

Although market leaders make big investments to develop new methods, farmers seem to
be increasingly losing the battle against resistant pests. Since 1950, the number of resistant
species has skyrocketed (see figure 5). In the 1940s, US farmers lost 7 percent of their crops
to pests; now they are losing 1315 percent.
Another factor indicating that high-input agriculture has reached its limits is vanishing soil
fertility as a result of biodegradation. Intensive monoculture farming and soil compacting along
with intense use of chemicals are changing the soil composition and disrupting the balance
of microorganisms, leading to long-term field damage and yield losses.

Figure 5
Superweeds are on the rise
Number of resistant species
140
120
100
80
60
40
20
0

1970

1975

1980

1985

1990

1995

Acetolactate synthase inhibitor (including imazethapyr)

Glyphosate

Triazines (including atrazine)

Ureas, amides

2000

2005

2010

2015

Dinitroanilines

Sources: International Survey of Herbicide Resistant Weeds; A.T.Kearney analysis

Social Acceptance Waning for High-Input Farming

In addition to new patterns of demand and agronomical limits, the industrys reputation is
changing in regard to high-input farming. Traditional inputs are facing headwinds from regulators
and from society. Genetically modified organisms (GMOs) are under greater scrutiny, secondary
standards are driving down the use of agrochemicals, and regulatory approvals for new
substances are becoming much harder to obtain. More companies and nongovernmental
organizations (NGOs) are questioning the use of GMOs and agrochemicals.
Many NGOs are mobilizing public opinion about GMOs, and some consumer companies
are even turning against GMOs. General Mills and Chipotle are just two examples of food
producers abandoning the use of GMO ingredients in blockbuster products. Vermont has
ratified a law on labeling products that contain genetically engineered ingredients to make it
easier for consumers to identify and avoid GMO products. Because manufacturers are not likely
to create different packaging for one state, labeling will become effective virtually nationwide.
In fact, Kelloggs, ConAgra Foods, and Mars have announced they will label all products made
using GMOs. Beyond the Western hemisphere, scrutiny is rising in Asia. Earlier this year, for
example, activists burned down GMO mustard fields in India. In the seed industry, the
Agriculture Is Fertile Ground for Digitization

consequences of pushback against GMOs are severeseeds with GMO traits and GMO-based
herbicide-tolerant crop systems deliver higher margins than conventional seeds.
Regarding the use of agrochemicals, the public is largely unaware of the progress that has been
made to reduce the amount used per hectare in the past few decades as a result of technological
advancements. More food producers and retailers are responding to societys concerns about
agrochemicals in foods by following secondary standards such as individual pesticide residue
thresholds, which are 20 to 50 percent below legal requirements. In doing so, they put a safety
margin in place to avoid the negative effects of a breach of residue limits. Germanys recent
glyphosate scandal, in which several brewers faced widespread negative media attention as
a result of residue levels in beer far above those of drinking water thresholds, can be seen
as a warning. Several major fast-moving consumer goods companies are drastically limiting or
even discontinuing the use of agrochemicals in the production of their products (see figure 6).
Similarly, grocery retailers are establishing secondary standards. Many major supermarket
chains limit agrochemical residue levels in their products below a certain percentage of legally
allowed levels. A prime example is Austrias leading retail chain BILLA, which has set up a heavily
marketed pesticide reduction program with Global 2000, an independent Austrian environmental organization.
The expanding number of producers and retailers limiting the use of agrochemicals reflects
the expectation that fewer consumers will accept agrochemical residues in their foods.
This will have an impact on regulatory decisions, meaning that approvals and registration

Figure 6
Top companies are limiting agrochemicals in their products

Fast-moving consumer goods producers

Grocery retail and wholesale

HiPP

Prominently features a HiPP

Bio seal on its products
and website, indicating
production without any
chemically synthesized
fertilizers or pesticides

Marks &
Spencer

Aims to offer pesticide

residue-free vegetables and
salads; to be 75 percent
pesticide residue-free by
2015 and 100 percent
pesticide residue-free by 2020

Unilever

Grows tea without using

pesticides at its own estates
and works with suppliers
and farmers to minimize
their pesticide use

EDEKA

Lists only food products with

residue levels 30 percent
below European Union
standards; threshold of EDEKA
private-label products is 50
percent below legal standards

Mondelz

Established Harmony, a
sustainable wheat program
that achieved a 20 percent
reduction in pesticide use
compared with Frances
national average

BILLA

Established a pesticide
reduction program in
collaboration with Global
2000; suppliers not meeting
standards are delisted, even if
they meet legal thresholds; test
results are published online daily

Pesticides abandoned

Pesticide usage significantly reduced

Source: A.T.Kearney analysis

Agriculture Is Fertile Ground for Digitization

of crop-protection products will be much harder to obtain. For example, the European Unions
Regulation 1107/2009 introduced stricter rules for putting plant-protection products on the
market by applying strict hazard-based cut-off criteria for approval. This significantly increased
the industry standards for commercializing products. The fact that the European Commission
only granted a temporary prolongation of glyphosates regulatory approval shows how quickly
public scrutiny can turn into legal regulation. Another example of tighter regulations can be
found in California, where growers must get a prescription from local authorities before
using any agrochemicals. Because of public scrutiny and tighter regulations, the relative
amount of chemicals used for crop production will further decline, continuing current trends.

Coping with the New Normal

The agriculture input industry faces several developments that challenge the decades-old
industry trend of continuous growth. Each development on its own is not disruptive, but when
combined, they endanger the current business model, which focuses on selling input materials
in bulk and providing more inputs for higher production in high-intensity cropping systems.
Instead of betting on cheap mass production and the increasing use of input materials, forwardlooking business models will need to meet a multitude of requirements. As a result, services to
keep fields pathogen-free or to guarantee certain crop-production results on a given piece
of land, such as defined produce per hectare at defined quality levels (for example, mycotoxin
levels and protein content), should be given due strategic consideration.
In this environment, agricultural input suppliers are focused on cutting operational costs and
reviewing their R&D assets and portfolios to reduce R&D spending. However, few are making
decisive efforts to redefine their business models.

Agricultural suppliers are largely focused on

cutting operational costs and R&D spend,
rather than making decisive efforts to
redefine their business models.
Mergers Fuel the Quest for Size
In addition to restructuring, big agrochemical and seed companies are pursuing large M&A
deals. Over the past 10 years, the global agrochemicals and seeds markets have roughly
doubled to about $60 billion and $40 billion respectively, with the top six companies accounting
for about two-thirds of market share. In agrochemicals, it is as high as 80 percent. Despite this
consolidation, a recent wave of takeover bids has kicked off a merger endgame, which is likely to
reduce the big six to four. With the announced merger aspiration of Dow Chemical and DuPont,
Bayers announced takeover of Monsanto, and ChemChinas acquisition of Syngenta, 2016 is on
track to be a record year for agrochemicals M&A.

Agriculture Is Fertile Ground for Digitization

For many senior executives, the dominant rationale behind such mega deals is rounding out
portfolios to cover seeds, traits, and all crop-protection measures so that companies can offer
growers an all-inclusive solution. Dow and DuPont, for example, are striving to become a leading
one-stop shop for farmers by merging DuPonts seeds business with Dows chemicals capabilities. Bayer follows a similar rationale, building on a natural fit of its crop protection capabilities
and Monsantos leading position in seeds.
Another deal rationale is cost synergies, with R&D and marketing and sales being the major
sources. Because the costs of discovering and developing new crop protection products have
almost doubled in the past 20 years to triple-digit millions, merging R&D pipelines and operations to avoid redundant activities can be a huge motivator. Integrating regional sales forces
may also help create leaner cost structures.
The pending merger of ChemChina and Syngenta reveals a third rationale: top-line growth
through market expansion. For Syngenta, the merger is a unique chance to gain access to the
governmentally restricted Chinese market, putting the merged company in the pole position
to drive the modernization of Chinese agrochemicals and seed supply by pushing Syngentas
innovative products into the market.
However, one question remains: Can the high synergy expectations be realized and do they
justify the high premiums on already high share prices? In the end, it depends on the synergies
that actually come with portfolio completeness. When size and superior products can be
converted either into pricing power toward customers, allowing for higher margins, or into
cross-selling synergies, which significantly increase market share, the outlook can be rosy.
However, these top-line synergies do not come free, especially as seed sales and crop protection
sales are two entirely different animals. In terms of mindset, scope, and approach, selling seeds
and crop protection are highly heterogeneous. As a result, integrating seed and crop protection
sales forces into one organization is challenging and will only work for specific farmer segments,
such as guarantee seekers with high brand loyalty or business executives seeking sophisticated
solutions that drive optimal profits.

Digital: A Smart Alternative?

The benefits of pursuing a strategy other than M&A are vague, and investing in new technologies
is no sure shot. However, in the digital age, a strategy that focuses on becoming the market
leader in progressive and disrupting technologies is worth considering along with strategies
that pursue size and market leadership positions using yesterdays technologies.
Aspects of the digital age reached agriculture long ago. Precision farming is delivering a wealth
of value, and technologies such as automation, decision support systems, and agricultural robots
are rapidly being adopted. The Internet of Things and smart sensors are giving some farmers
valuable information, including soil moisture, nutrient levels, the temperature of produce in
storage, and the status of farming equipment. Self-driving equipment connects with satellite
imagery to apply fertilizer automatically and relay nutrient information to a farmers mobile
computer. This use of big data, while offering attractive opportunities, does come with challenges,
such as the question of who owns the data. Overall, from a technology viewpoint, agriculture
is ready for intense digitization.
In other industries, robotics, artificial intelligence, sensing, and big data analytics have all been
introduced successfully. For example, Royal Dutch Shell is using data-driven oilfields to bring
Agriculture Is Fertile Ground for Digitization

down the cost of drilling. When looking for new drilling sites, oil companies monitor the earths
seismic waves, which typically involves using probes to take thousands of readings. Shell,
however, uses smart sensors and fiber optic cables to take more than a million readings.
The data is then compared with thousands of other locations around the world to help
the companys geologists make more accurate recommendations about where to drill.
In agriculture, digitization is thus far taking place mainly in confined application fields with small
tech start-ups developing innovative technologies, including drone-based surveillance systems
(HoneyComb, Delair-Tech, PrecisionHawk, and Mavrx), satellite imaging (Google, Planetary
Resources, and CubeSats), decision support (Farmers Business Network, Trimble, and ITK),
and robotics (see figure 7). The acreage covered by these offerings is still small. For example,
Monsanto's Climate Corporation digital platform covers only 30 to 40 million hectaresabout
2 percent of the worlds crop land.

Figure 7
Innovative technologies are at work in niche markets

Horticulture robots

Decision support

Wall-YE 1000
France

Autonomous
grape pruning

Energid
United States

Citrus fruit
harvesting

Agrobot SW 6010
Spain

Strawberry
harvesting

Upfront decision on crops and variety based

on maximum economic benefit
Optimized timing of operations based
on crop demand and environment constraints
such as weather
Overall optimized treatment regimes

Reduce manual labor to optimize costs

Improve agronomic decision to maximize yield

Digital
agriculture

Sensing and phenotyping

In-field surveillance systems based on cameras
and infrared
Drone-based spectroscopy and imaging
Satellite imaging and biomass control

Instill transparency to optimize treatments

Precision and variable

rate application
Variable seeding rates
Fertilizer and pesticide application based
on real need

Use smart application of inputs to optimize

the cost-to-benefit ratio

Source: A.T.Kearney analysis

Agriculture Is Fertile Ground for Digitization

The logical next step is bundling technologies to create all-inclusive digital platforms.
These platforms will be able to provide end-to-end services for growersfrom selecting
crops, optimizing planting times and seeding rates, and optimizing fertilizer application rates
to agrochemical and growth-regulator regimes with automated application based on plants
actual needs and harvesting at the ideal time. All data gathered throughout the crop cycle
will be compared with that of other growers who farm in similar environmental conditions.
Lessons learned on one field will automatically be transferred to growers farming in similar
conditions. As a result, spreads in yield and productivity that originate from poor to mediocre
agronomical decisions of low-yield growers will be diminished, and overall global productivity
dramatically increases. Our analyses show that the yield increase could reach 20 to 30 percent
for major broad-acre crops. Participating farmers have an opportunity to become yield
championsscaling up globally in major broad acre and horticulture crops to provide food for
1 billion additional people.
Technologically, such a platform is comparable to an autonomous car. In both cases, sensing
devices capture real-time information, which is then processed by an artificial intelligence
system that translates the information into specific actions to be performed autonomously by the
hardware. Of Googles total R&D spend of about $50 billion over the past 10 years, development
of its self-driving car came at a low double-digit billion-dollar investment. This is the approximate price range for bringing new and disruptive technologies to market, such as electric
vehicles with battery technology or photovoltaic panels in energy production. It's likely that a
comprehensive digital farming platform could be achieved with an investment of $15 billion to
$20 billioncomparable to the premiums offered in the latest takeover bids.

a digital service offering will be a

game changer, allowing access to vast
portions of global crop land and disrupting
business models.
The investment does not necessarily have to come from one player, it can be broken down into
smaller pieces. The larger challenge is creating a roadmap and orchestrating development
activities, which requires fusing established players' agronomical expertise with digital
expertise that lies outside their circle and necessitates a willingness to establish competencies
beyond the traditional business.
Establishing such a digital service offering will be a game changer, allowing access to vast
portions of the most intensively used global crop land and disrupting todays business models
(see figure 8 on page 11). Managing such a platform to provide contractual caretaking services
to growers would enable the industry majors to access and make decisions about comprehensive crop protection, seed cultivar, traits, fertilizer, and growth regulator inputs. By
packaging all these inputs into one offering comprising products, recommendations, and
application services specifically for each acre under service, based on soil quality, climate
conditions, and pathogen pressure, digitization helps the industry establish comprehensive
solutions in a way that is much smarter than what traditional marketing and sales force efforts
can offer. In addition, such a service platform model would enable the industry majors to
Agriculture Is Fertile Ground for Digitization 10

Figure 8
Digitization transforms business models of agriculture input suppliers

Traditional farm input model

Digital platform-based farm input model

Multiple companies provide dedicated input products

Farmers get connected, benefit-based solutions

(recommendation plus product)

Fertilizer
Seed

Fertilizer
Agrochemicals

Seed

Farmer
makes
decisions and
applies
inputs

Agrochemicals

Optimal
yield

Weather
Crop yield depends
on growers capabilities

Data,
connectivity,
and analytics

Soil
Field
characteristics

Source: A.T.Kearney analysis

commercialize their know-how and build customer loyalty instead of only selling products,
resulting in more opportunities to capture value.
Digitization has the power to quickly destroy well-established business models. Staying ahead
of the competition will require new ways of thinking. For example, one emerging game changer
is technology that can improve food safety by tracking food from farm to table or by detecting
pathogens and allergens before they reach consumers. Implementing state-of-the-art technologies effectively and rapidly can be a major step toward capturing a large portion of market
share. Similar developments have already taken place in other industries as business models
shifted from product sales to all-encompassing solutions and comprehensive applications
for the customer by a service provider (see sidebar: Growing Products into Comprehensive
Services on page 12).

Capturing Value with New Business Models

Digitization will fuel this shift from products to services. Assuming the end state of any digital
transformation is platform-based service models, the question is how to set up business models
that maximize value. As in all platform-based business models, scale and access to data
matters: getting the maximum share of crop land under service is crucial for success.
In the worlds most significant agricultural markets, digital service models can be used to
service large portions of land. Large and medium-size farms, in particular, can be maintained
Agriculture Is Fertile Ground for Digitization 11

Growing Products into Comprehensive Services

Founded in 1923, Ecolab began as
a chemical company that manufactured cleaners and detergents.
However, by the late 1990s,
Ecolab had become an integrated
service provider, incorporating
its original products into services
for industries such as dairy and
food and beverages. While its
original differentiating characteristics were primarily product
quality and cost effectiveness,
Ecolab shifted its focus toward
more distinguishing features,
including quality standards,
convenience, and safeguarding
results by taking responsibility
and risk away from users. By
redefining its business model,
Ecolab grew substantially. This
shift also happened in Ecolabs
agriculture business. The company used to sell products for
cleaning cow udders. Now, the
company offers year-round udder
health management, audits the
entire milking system, provides

individual training, does remote

quality monitoring, and evaluates milking procedures to
identify improvement opportunities. Ecolab also ensures
certain levels of quality and
makes sure milk is free of
contaminants. Although the
company integrated its own
detergents in this solution,
this is no longer the major
value generator.
Another example of using
technology to shift business
models from products to
comprehensive services in the
agriculture industry is Netafim,
an Israeli drip and microirrigation product company.
In the 1990s, Netafim, then a
company worth $200 million
selling irrigation hardware,
introduced electronic control
technology, using sensors to
make irrigation and fertilizer
application more efficient.

Since then, Netafim has quadrupled its sales to more than

$800 million and captured
30 percent market share by
shifting its business model
toward an integrated end-toend system, including hardware, installation, and operation
service. When first introduced,
users did not pay for the system,
but for the service of improving
crop yield. With this risk-sharing
model, Netafim created a winwin situation for themselves and
growers. The company gathers
data from growers around the
world to determine optimal
decisions, and farmers improve
their risk-return calculus,
achieving a higher yield. This
evolution is reflected in Netafims
new mission statement, which
changed from making the best
drip irrigation equipment for
customers to helping the world
grow more with less.

with digital offerings, either directly by the industry or via service contractors. In fact, many
large farms are already using equipment that is digital farming-enabled. Such large farms
account for 50 to 80 percent of crop land in major markets and are generally willing to use
technology to increase yields for greater profits (see figure 9 on page 13). This service will be
perceived as even more attractive when it includes risk sharingfor example, having the service
provider guarantee an output, such as a pathogen-free field or a yield-increase warranty.
Additionally, many midsized grower-owned farms, which account for 15 to 30 percent of crop
land, are willing to use digitization to increase profits but do not have the financial capabilities
to acquire the necessary equipment, such as sensors and variable-rate spreaders and sprayers.
These farmers can be targeted with all-inclusive service offerings from contractors that cooperate
exclusively with industry partners and offer risk sharing with guaranteed results and warranties.
Altogether, in agricultural power markets, more than 600 million hectares of crop land could
potentially be maintained with digital offerings.
Smallholder farmers in developing countries offer another value cluster for digitized services.
Very basic mobile and app-based recommendation delivery (for example, on pathogen pressure
and optimal treatments) will enable these farmers to significantly increase their yields, providing
the opportunity to access and supply an additional 300 to 500 million hectares of crop land.

Agriculture Is Fertile Ground for Digitization 12

Figure 9
Large farms have at least half of the crop land in major markets
Distribution of agriculture land per farm size (million hectares)
Part-commercial family
farms and small farms

Medium-size
farms

Large
professional farms

Total

Less than 20 hectares

20 to 100
hectares

More than 100 hectares

(More than 200 in United States)

European Union

174

34

52

87

Brazil

330

18

53

259

United States

370

67

296

Sources: Organisation for Economic Co-operation and Development, Food and Agriculture Organization of the United Nations; A.T. Kearney analysis

In this case, commercialization for the industry would need to be achieved via product pricing
rather than all-inclusive offerings.
Ultimately, a fee-per-hectare service offering focused on comprehensive technological
solutions to keep plants healthy and fields free of pathogens will disrupt todays productcentered value-capture models (see figure 10 on page 14). Today, input providers and distributors have at least partial access to growers and can influence their buying decisions. In the
future model, platform operators will be the sole decision makers as they are the ones ensuring
the outcome: healthy, pathogen-free plants.

Size and Speed Matter

Digital disruptions in other industries disclose patterns and success factors for todays digital
world. Being first and fast does create an advantage as the first platform to gain relevant size
is likely to define the standards and significantly shape the future market.
The rationale is simple. Large platforms attract more users, which in turn accelerates the growth
of the platform, kicking off a virtuous cycle of accelerated growth. For example, when Facebook
reached a critical mass, users from other social media platforms such as Myspace switched to
benefit from the possibility of connecting with more people. LinkedIn overtook other professional
networks for the same reason, including German platform Xing, and created a monopoly as the
worlds largest business network. Operating systems on computers and smartphones share
these characteristics: As soon as one system dominates, it becomes a monopolistic ecosystem;
software and app developers focus on the largest market potential, increasing the content and
attractiveness of the leading platform and further fueling its growth.
In digital farming, the first company to develop an appealing platform and business model will
tremendously increase its chances to capitalize on economies of scale by capturing this firstmover advantage and gaining a foothold to establish a monopoly.

Agriculture Is Fertile Ground for Digitization 13

Figure 10
Service providers offer comprehensive farming solutions

Traditional value chain

Digital platform-based value chain

Seed

Fertilizer

Seed
Farm
retail and
distribution

Fertilizer
Grower

Agrochemicals

Agrochemicals

Information
(such as
weather and
soil analytics)

Information
(such as
weather and
soil analytics)

Input flow

Agronomic
advisory

Digital
platform
for
all-inclusive
crop
management

Grower

(recommendation
and
application)

Recommendation flow

Source: A.T.Kearney analysis

Instead of merely reacting to this development, proactive agriculture companies can lead
the way by creating win-win situations in line with a digital strategy and operating model.
The rewards will include some powerful advantages:
Interact with and serve customers at all touch points. Engage with growers by giving them
access to field data, including plant health, nutrition status, and pathogen pressure as well
as planned field operations such as crop-protection treatment schemes from all devices
(computers, equipment terminals, and mobile devices at all times).
Manage the user experience. Provide clear rationale for recommendations and decisions,
comparisons with what other growers have done in similar situations, and the option to
overrule the platform (in exchange for abandoning warranties) to put growers back in the
drivers seat until they establish trust and have positive experiences with the system.
Gain access to new direct-to-consumer sales channels. Link the ideal products to decisions
such as fertilizer blends and agrochemicals for optimal efficacy and tank mix feasibility to
ensure ideal outcomes for each field and each treatment.

Rewriting the Industry Story

The automotive industry has proven that size alone will not prepare companies for what is to
come. Disruptive trends developed from small and new-to-the-industry firms and Silicon Valley

Agriculture Is Fertile Ground for Digitization 14

tech giantsthink electric cars and autonomous drivingquickly turned out to be game
changers that forced the incumbent car companies to rethink their business strategies.
Big agriculture incumbents have yet to make decisive moves toward digitization. Unlike car
manufacturers, they can still act from a position of strength to drive the digital revolution, rather
than taking a back seat. Agricultures top firms have everything they need: vast agronomical
know-how, leading-edge technologies, and global reach to customers. Now is the time to focus
on digital agriculture and lay the groundwork to feed 1 billion additional people worldwide.

Authors
Carsten Gerhardt, partner, Dsseldorf
carsten.gerhardt@atkearney.com

David Donnan, partner, Chicago

dave.donnan@atkearney.com

Benjamin Subei, consultant, Dsseldorf

benjamin.subei@atkearney.com

Christopher Tuot, consultant, Dsseldorf

christopher.tuot@atkearney.com

The authors thank Franziska Neumann, Alexander Bruns, and Lennart Krger for their contributions.

Agriculture Is Fertile Ground for Digitization 15

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