Agtech Versus Other Tech: It’s Time To Understand the DifferenceBy Pablo Ricaud Arriola | Tue, 06/01/2021 - 15:27
In a modern world with access to nearly unlimited content within the palm of our hands in a matter of seconds, I could not help but wonder as to why vinyl sales have kept soaring in recent years. The reason, I found, is quite simple: We are still bound by the realm of physics and nature. When a vinyl record spins, it creates sound vibrations (mechanical energy), which is then converted into electric energy by a transducer and fed to amplifiers, indulging us with a clean, organic sound – a quality that is yet to be replicated by modern technology.
The same concept came to mind when trying to explain the similarities and contrasts between agriculture technology (agtech) and other tech-driven sectors. Unlike other businesses, agriculture is particularly attuned to the realm of physics and nature.
Just like the music sector has evolved, where streaming now accounts for about 80 percent of total revenues, agriculture has undergone a technification revolution in response to market dynamics; however, the reasons are (as you may have imagined) alarming and not at all the same as the entertainment sector, albeit there is one common denominator between both categories: survival.
The Netherlands has state-of-the-art greenhouses, but they also have an average of about four hours of sunlight per day with temperatures that narrow the options of crops that may be harvested in an open field. Israel is often renowned as one of the leading agtech countries in the world, with less than two months of accumulated precipitation throughout the whole year.
These regions are not spearheading innovation in agriculture despite harsh weather conditions but because of them. Having not been able to create their own Garden of Eden, some nations had little choice but to play God.
In this era of technology for technology’s sake, it is important for us to understand that agriculture and growing living things is very different from other products or services, and, therefore, the technology that is applied to it in order to add value. Before we try to explain agtech, we need to understand its key drivers, and how technology can be applied around them. I also want to point out how because of the technological hype within other sectors, several players in agriculture are actually destroying value because of technology and automation in countries where climate conditions and economic dynamics are better than others for this industry and where implementing too much means increasing costs to the detriment of the bottom line, a dynamic we are not accustomed to in other industries where when technology is applied, more, usually means better. This is a key difference that can make or break farmers and potential investors alike that specially new investors in this sector need to understand if they want ever to succeed.
Here are the main pillars where technology can be applied to make an impact.
Water (and irrigation).
The first absolute necessity for anything to grow – it is literally the source of life. When water is applied effectively and safely, production and crop yield tend to increase and vice versa. Management strategies are the most important way to improve agricultural water use and maintain optimal production and yield. The key is to implement management strategies that improve water use efficiency without decreasing yield. Some examples include improved irrigation scheduling and crop-specific irrigation management. These strategies allow for the conservation of water and energy while decreasing the grower’s costs.
More is less. More than two-thirds of all freshwater supply is used for agriculture, so optimal water management is becoming more crucial than ever, with increasingly prevalent droughts and loss of soil quality, we must preserve what we have. Smart irrigation systems, moisture monitors and digital sensors can all help to harness data and provide growers with a tangible strategy.
The Sun (and climate control).
Solar energy is essential to agriculture – cultivating land, producing crops and raising livestock. Developed about 10,000 years ago, agriculture had a key role in the rise of civilization. Solar techniques, such as crop rotation, increased harvests. This surplus of food allowed for denser populations and structured societies. The greenhouse is born around the sun. By converting sunlight to heat, greenhouses make it possible to grow plants out of season and in climates that may not be suited for them. One of the earliest greenhouses dates to 30 AD, before glass was even invented. Constructed from translucent sheets of mica, a thin mineral, it was built for the Roman Emperor Tiberius, who wanted to be able to eat cucumbers all year.
Nutrition (and pollination).
Crops, as well as every other living organism, require certain amounts of nutrients for normal and healthy growth. Each nutrient plays a different but important role in crop growth and development. Because of this, it's essential to ensure optimal quantities of each nutrient are provided in a form usable by the crop. On the other side, pollinators are essential to the production of many of the micronutrient rich fruits, vegetables, nuts, seeds and oils we eat. In fact, close to 75 percent of the world’s crops producing fruits and seeds for human consumption depend, at least in part, on pollinators for sustained production, yield and quality. Both optimal and sustainable pollination is needed for continuous and robust yield.
Finally: Labor (and automation).
Labor is one of the most important inputs in agricultural production. There’s individual and almost daily tasks that need to be performed around a crop to succeed on a per-unit-basis. This means work, and labor. How it is measured and valued is critical for establishing the cost of producing agricultural commodities and accurately portraying labor's relative share of the total cost of production. As labor is one of the biggest costs of growing food, with it comes most of the necessity of automation due to costs; however, this varies abruptly depending on the region. For example, it makes more sense to use a drone in Florida for pest control over 10ha, than it does in Veracruz for the same area because of the labor arbitrage
When To Draw the Line of What Makes Sense and Where?
Regions with less sunlight mean greater need to catch every joule of it, and greater need for climate control systems to make the best of it at every moment. For example, glass in greenhouses is the best medium because of its transparency to catch sunlight, but, in countries with enough or too much sunlight, the increased investment in glass structures instead of plastic ones is hard to justify. A glass greenhouse makes all the sense in the world in a country like Denmark, but in one like Mexico, there is not much data to support that you have any increase in yield using glass, and, therefore, that the pricey investment has any return at all. You have more technology, sure; it looks better, sure. None of these matter for the bottom line.
The same happens with very expensive, top-of-the-line heating systems made for northern Europe and North America that are just not needed in other countries with better temperatures and by implementing them, the hefty additional operational costs just serve to take a bite off the bottom line.
Regarding automation, first we need to ask ourselves the following question: Why does automation even exist? The answer is different depending on what you are talking about. In a software company, automation means being able to replicate the same unit of service, experience or product across thousands or millions of users. In agriculture, this is something entirely different. As we have portrayed, agriculture is bound to the realm of physics, meaning that you need an actual plant, in an actual space of land, to provide it with actual sunlight, water and nutrients on a per unit basis for anything to come out. You can’t cloud-base these babies. Depending on the crop, these plants need tailored and almost daily care across different areas for it to work and maximize yield. Automation in this realm exists because of two things: 1) better control and 2) reduced labor costs. Control is very good, but if you automate too much in a country where labor is cheaper than the actual automation tools for daily tasks, you would be actually destroying value, unlike in a facility in The Netherlands, where you just can’t afford not to have automation because of labor costs. Very different scenarios.
What you should aim for in my view is profit per square meter (unit economics), not total profit. You could be making a large profit in a state-of-the-art facility, without realizing that you could have the same total profit with 50 percent less space by implementing the right tech for the region and being efficient with costs – not just throwing technology at everything, increasing yield, and having nothing to show for it.
A digital credit card, unlike a plant, can exist in any country without you worrying about how to feed it, protect it, nurture it, or even transport it. It’s not bound to physics. The difference is obvious, yet, we are trying to paint both with the same brush.
The conclusion is simple, and it might sound obvious, but we need to remind ourselves of this in times where billion-dollar companies keep losing money. If tech adds value, do it. If not, it’s a prop. To gauge when and if it adds value, we need to first understand the incentives and constraints of the matter at hand.