The short and mid-term Covid-19 impact on agriculture: ag technology

An impending restructure of the ag technology sector

 

COVID-19 has forced fundamental changes to societal conventions and institutions around the world. One of the economic outcomes is a trend acceleration, that many in ag technology saw foreshadowed earlier in 2020. Only now, it’s unfolding at an accelerated rate. A restructuring of the ag technology sector could be the beginning of the industry’s next evolution. This would be a step toward more industry-wide financial stability and consistency of product offerings for farmer customers.

The ag technology sector is characterized by a diversity of products, company size and viability. This ranges from century-old established equipment manufacturers to small startups. All companies are competing for farmers’ attention and investment in products and services ranging in functionality, cost and ROI. That diversity of company size and offerings means the COVID-19 pandemic affects market participants in dramatically different ways. Companies’ longevity and financial backing are major factors and show how companies are faring in the short term.

“Some companies are doomed when they take such big piles of cash without a clear business model or pathway to truly add value. We have to ask ourselves: What’s the overall value to someone for this kind of technology?” said Craig Ganssle, founder and CEO of Farmwave, an agricultural insights and imagery analysis company. “There’s got to be a bigger picture here of value for it to make sense.”

Proving value

The definition of a company’s value proposition is raising questions, resulting in a lower number of ag technology offerings. General economic stress is forcing introspection about business viability; in some cases, leads to structural changes at companies where venture capital comprised a large portion of the early-stage value. And some of those companies won’t survive the necessary adjustments to more financially sustainable bases.

“If a startup doesn’t have a sound idea that actually works and provides value, this year will determine their fate,” according to Nathan Faleide, strategic initiatives manager for AgIntegrated, an independent provider of software consulting and technologies, and principle of agricultural technology and satellite imaging company Satshot. “The tide will turn from big investment deals or ‘how much I raised’ to ‘how you are running a successful business close to profit, at breakeven or a slight profit’. More or less running it as a normal business that can be sustainable by itself. I think more companies will be asking these questions.”

Future opportunities

Faleide, Ganssle and others agree that it’s not all doom and gloom when the COVID-19 growing pains subside. Though the situation is exposing vulnerabilities for companies, it will ultimately translate into a strengthening of the ag technology sector. This will happen despite major restructuring. Those who survive are going to continue operating and bringing value to farmers who face their own challenges.

“Warren Buffet says, ‘Only when the tide goes out do you discover who’s been swimming naked.’ Companies dependent on outside funding for their primary source of cash flow are likely to struggle raising that next round of funding,” according to Nick Horob, founder and president of farm business software platform HarvestProfit.com. “Low commodity prices present a challenge as many farmers lock down their checkbooks.”

As ag technology companies adjust business and revenue models, therefore, customers will also make adjustments with their input retail partners. They will adopt new tools, evolve their operations to function efficiently and account for broader protective measures. As that happens, the ag technology sector will generally gain strength as a component of modern crop and livestock production, according to Shane Thomas, Farmers Edge global digital ag lead and author of Upstream Ag Insights.

“If there is a move to cut expenses on technology and a decrease in uptake, we could see a dip in the short term regardless of the longer-term trend. There could be benefits in some cases, too, where it solidifies itself on the farm. There may be more scrutiny where the technology is adopted on farms. It will be aggressively used versus what may be a ‘we’ll give it a try and see how it goes’ approach,” Thomas said. “I think it will increase the focus of digital tools being used by manufacturers and retails as well. The ability to purchase online, communicate digitally and send information via the cloud will likely see an uptick in usage through this situation, minimizing clunky inefficient practices.”

The evolving role of ag technology

Sensors and moisture probes are some of the newer tools that can help farmers create new efficiencies with input decisions like irrigation and fertilizer management. Ag technologies, like these, the value becomes clearer when person-to-person contact is limited. Autonomous machinery will also see gradually increased demand as increased labor challenges are created by the virus, Thomas added.

Beyond these specific applications of new technology in agriculture, the resolution of the COVID-19 pandemic will usher in a new age of discovery across the food and agriculture industry. The U.S. ag technology sector will play a growing role and remain a key component of the evolution in how food is produced, processed and distributed to consumers around the world.

“There will be sectors of agriculture that need to new ideas to emerge. The food side will be interesting with what’s actually needed versus wanted since you’re seeing real food waste issues now more clearly. The meat industry is going through chaos with ranchers versus packers. Novelty food products will tank. So, food tracking interest will increase. Corn is going to be rethought with the oil and ethanol prices,” Faleide said. “Other countries will show their food and ag vulnerability, and the U.S. will need to understand how it can recover its food export as ‘always reliable.’ There will be many different winners and losers after this whole debacle.”

Editor’s Note: This is part three in our series of the effects of the COVID-19 pandemic on the agriculture sector. See more here.

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