Next-Generation Agriculture
Figure 1
OECD and FAO predict declining growth rates and price levels
Latest forecasts show severe drop
in production growth
2.1
52%
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
Figure 2
Per capita meat consumption growth is slowing
3.0%
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%
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.
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
Glyphosate
Ureas, amides
2000
2005
2010
2015
Dinitroanilines
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
HiPP
Marks &
Spencer
Unilever
EDEKA
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
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.
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.
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
Digital
agriculture
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.
Figure 8
Digitization transforms business models of agriculture input suppliers
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
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).
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.
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
20 to 100
hectares
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.
Figure 10
Service providers offer comprehensive farming solutions
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
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.
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
The authors thank Franziska Neumann, Alexander Bruns, and Lennart Krger for their contributions.
A.T. Kearney is a leading global management consulting firm with offices in more
than 40 countries. Since 1926, we have been trusted advisors to the world's foremost
organizations. A.T. Kearney is a partner-owned firm, committed to helping clients
achieve immediate impact and growing advantage on their most mission-critical
issues. For more information, visit www.atkearney.com.
Americas
Atlanta
Bogot
Boston
Calgary
Chicago
Dallas
Detroit
Houston
Mexico City
New York
Palo Alto
San Francisco
So Paulo
Toronto
Washington, D.C.
Asia Pacific
Bangkok
Beijing
Brisbane
Hong Kong
Jakarta
Kuala Lumpur
Melbourne
Mumbai
New Delhi
Perth
Seoul
Shanghai
Singapore
Sydney
Taipei
Tokyo
Europe
Amsterdam
Berlin
Brussels
Bucharest
Budapest
Copenhagen
Dsseldorf
Frankfurt
Helsinki
Istanbul
Kiev
Lisbon
Ljubljana
London
Madrid
Milan
Moscow
Munich
Oslo
Paris
Prague
Rome
Stockholm
Stuttgart
Vienna
Warsaw
Zurich
Middle East
and Africa
Abu Dhabi
Doha
Dubai
Johannesburg
Riyadh
For more information, permission to reprint or translate this work, and all other
correspondence, please email: insight@atkearney.com.
The signature of our namesake and founder, Andrew Thomas Kearney, on the cover
of this document represents our pledge to live the values he instilled in our firm and
uphold his commitment to ensuring essential rightness in all that we do.
A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea.
A.T. Kearney operates in India as A.T. Kearney Limited (Branch Office), a branch office of A.T. Kearney Limited,
a company organized under the laws of England and Wales.
2016, A.T. Kearney, Inc. All rights reserved.