June 12, 2020
Agriculture's Digital Transformation
Though this may seem surprising, the agricultural industry is one of the most quickly accelerating frontiers of technology investment in our economy. According to AgFunder, AgTech startups raised a total of $4.7 billion in 2019 alone, and venture capital investment in AgTech has grown 370% since 2013.
The startups receiving these investments encompass a range of technologies that affect every aspect of farming operations and farm management - from soil and crop management to harvesting and spraying, to equipment and supply chain management, even to marketing and ecommerce. Still, one thing unifying all of these investments is an underlying emphasis on using data to make farming more efficient, resilient, and productive.
As farmland investors, we take a keen interest in these transformations because they are shaping the future of farming. The digital transformation of farming is also an incredible tool for enabling farming to be done regeneratively. We’ve written in the past about our belief in regenerative farming practices, and to build on that understanding, we’re going to dive deep into farming’s digital transformation and the technologies involved to explore the opportunities we see before us.
The Internet of Things (IoT) is changing farm management from the ground up
One key transformation to keep track of is the evolution of the Internet of Things, or web-enabled sensors and devices that operate over an interconnected network and collect and transmit data without any human-to-human or human-to-computer interaction. Nowadays, IoT technologies are everywhere - from smart home systems to medical devices to manufacturing automation; there has been an explosion of these technologies in the last five years.
The growth in the use of these technologies has deeply infiltrated farming. Farmers across a wide range of cropping systems are now using IoT sensors to track soil moisture, changes in the microclimate of a field, soil carbon and micronutrient levels, and rates of plant growth throughout harvest cycles.
At another level, IoT devices can also be used to control and monitor production processes like irrigation by precisely controlling the amount of water delivered to specific areas in a field at the optimum time, given the growth and characteristics of that field’s crops.
IoT devices are everywhere in modern farming machinery, including in tractors used for irrigating, spraying and harvesting. John Deere even offers its machine data as a service to farmers as well as other companies looking to leverage machine data in farm management optimization.
Startups in the AgTech industry taking advantage of IoT data are widespread and varied. Within AgFunder’s portfolio, for example, you can find examples of companies that are using IoT sensors for applications in everything from row crops to agroforestry to dairy and other livestock operations. But IoT devices become particularly powerful for agriculture when combined with other areas of digital innovation, such as remotely operated machines and artificial intelligence.
Drones and robotics are reshaping farming operations and farm labor
There is huge potential for drones and other unmanned machines to fundamentally change farm operations. Drones in particular have captured the world’s imagination - including ours - over the last several years, even simply for leisure use. Though adoption has been slowed at times due to the need for regulatory approval, the advent of drones in agriculture is accelerating quickly here in the US and abroad.
Drones’ uses for farming can be summarized in two main disciplines: imaging and crop monitoring, and crop spraying.
In the case of imaging, agriculture has been a natural extension of uses of drone imaging in other industries such as construction, mining and energy production. A wide variety of companies are deploying drones for imaging and monitoring of crop fields and can use them to gain multiple layers of insight into crop health. For example, DroneDeploy, a startup here in the Bay Area, is deploying imaging drones for year-round crop monitoring and yield threat detection.
Drone spraying is a newer, less-proven use case for drone technology in farming but harbors just as much potential. Drone sprayers can help farmers avoid wasteful over-spraying of chemical inputs by precisely controlling the amount delivered to each plant. They can automate spraying routes and timing over each field, and deliver inputs to crops planted on steeper slopes or other areas of fields that conventional machinery has difficulty reaching. Furthermore, the use of drone sprayers could reduce the amount of excess agrochemicals in runoff from rainfall, and eliminate both the need for manual labor as well as the exposure of people to harmful chemical agents that they would normally face using a backpack sprayer.
Meanwhile, a growing number of startups are developing robotic harvesting devices to replace human labor involved in harvesting crops that have traditionally been picked by hand, such as berries, peppers, and tree crops. Development in this space has been slower, mostly because each machine has to be specifically catered to the delicate needs of each crop and the specific form of the crop plant itself. But the potential benefits to these devices are akin to those offered by drones for making farming more efficient and reducing reliance on human labor, especially if these challenges can be overcome.
Artificial Intelligence (AI) is turning farming into a data-informed profession
All of the innovations we’ve explored here are powerful unto themselves, but they are even more powerful when woven together in applications that take advantage of data and process automation to allow farmers to more responsively and intelligently make decisions.
This is the role that AI software is playing in agriculture, and is perhaps the most significant technical shift in farming in history.
Farmers have always needed to react to changes in the weather, in their physical environment, and in the markets that they deal in - either in purchasing seeds or inputs or in selling their harvest. That said, farmers have always been exposed to shocks to these systems due to unforeseen events - droughts, floods, economic crises, pest outbreaks, and more. AI-powered farm management software can empower farmers to be more prepared for such events, and to optimize how they operate at a level of detail never before possible.
In fact, this type of software was one of the pioneering developments that spurred the huge growth in the AgTech industry we’ve seen over the last decade. Notably, some farm management software startups have gained such mainstream acceptance that they were ultimately acquired by big players in Agribusiness - Monsanto’s (now Bayer) acquisition of The Climate Corporation and DuPont’s acquisition of Granular are two good examples. But beyond those, farm management software and farming “virtual assistants” are being developed for a wide range of agricultural production systems, including everything from agroforestry to dairy. Furthermore, AI’s capabilities are being extended within farm business management beyond farming operations to include supply chain management, marketing and price risk management.
The future of farming is digital
Successful farms in the 21st century will need to be extremely productive, versatile, and resilient if we are to stand the test of climate change and feed another 2-3 billion people. As investors, knowing that good farmland is a scarce resource, our priority is always to identify and invest in the properties that demonstrate great potential, but also to focus on where we feel we can build value - including by implementing digital innovations on the farm.
We look to farming’s digital transformation not simply to farm more efficiently, but to build on the strengths of any farm and enhance the farm’s value by investing in its sustainable, regenerative future. For starters, we always locate our investments in areas with favorable climate and healthy soil and water resources, and hire operators who have experience implementing cutting-edge production systems and technology. But more broadly, and more importantly, our longer-term vision is to put the digital transformation of agriculture to work on the farms we own, making their productive potential and longevity stronger yet.
While we believe the future of farming is regenerative, we also believe it is heavily digital. Farmers who implement regenerative practices have the greatest need for data-informed decision making and responsive management of all. Along with the short-term performance of their harvest, they are looking ahead to ensure the long-term performance - and value - of their land.
FarmTogether’s vision is to enable our operators to take advantage of agriculture’s digital transformation in order to deliver on both short and long-term needs at once. Armed with the power of data, we’re looking to inject capital into agriculture such that farmers can more capably feed people and care for the planet into the future.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.
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