MATT ARENA-OCTOBER 17TH, 2019 EDITOR: ANDREAS MAASS
America’s relationship with food has seen a dramatic shift over the last half century. Downward pressure on profits has shifted the American food economy’s center away from independent farms and has left the remaining power in the hands of established giants. In 2016, smaller farms accounted for only 13% of the agricultural GDP and less than 1% of the US economy. Both shares were at their lowest levels since the metric was first recorded in 2007. It is no longer poor weather or infertile soil that is causing the ruin of the small to medium scale farmer. Their weak position in the US economy is due to a dramatic shift in agricultural business culture over the last 50 years.
Genetically modified organisms (GMOs), mechanical power, pesticides, fertilizers, automated irrigation, and increased public knowledge of farming practices have led to increased farming efficiency and decreased labor demand since the Great Depression. Many farms adopting these new technologies have increased rapidly in size. Some of these innovations—such as pesticides and fertilizers—were scalable and were therefore profitable for small firms. However, many of these innovations, such as GMO R&D, automated irrigation, and high-end mechanical power, are only profitable on farms that are already large in scale and have easy access to capital. The larger agribusinesses were able to grow faster than the smaller farms, and the subsequent fall in food prices due to an increased supply changed the current demographic of the farming community. By no surprise, the number of farms in America dropped sharply between 1935 and 1970, from 6.8 million to 3 million. Since then, farms have continued to decline but at a slower rate; in 2017, the US census reported that America is covered by 2.04 million farms.
Even this figure is misleading. Today, many of the approximately two million farms recorded by the census don’t make money off of what they grow. Farms that did not adapt, scale up, or exit the market over the past 50 years are now making negative profits. Off-farm jobs now represent over 100% of the income received by the median farm owner. The USDA notes that “farms” with reported annual incomes between $10,000-$349,000 make the significant majority of their money outside of farming. At the top, winners that scaled up take nearly all of the profits. Less than 4% of farms have sales greater than $1 million, but they account for 96% of revenue. The whole business of agriculture has changed. About 100,000 farms produce the majority of what we eat.
This context is paramount when economists consider disruptive changes. Internet of Things (IoT) and Artificial Intelligence (AI) based technology will affect farming in the future. Agricultural technology partners, known as ATPs, use drones, cloud computing, sensors, satellites, monitors, and other modern gadgets to collect information—such as weather data, crop yields, seed varieties, and soil nutrients—to share with their farming partners. Analytics and trends have to be aggregated across a multitude of farms to supply enough data points to provide useful information. This necessitates the existence of data analytics firms in the agricultural industry that store, analyze, and visualize data for any individual farm. As of now, almost all of this is done within the private sector. However, US public farm data does exist, and the increasing use of historical administrative data has the potential to create more efficient federal farm programs.
The data gathered by ATPs can provide potentially critical savings on input costs, and can also be used to reduce waste. The National Institute of Food and Agriculture (NIFA) remarks that AgriTech can reduce the amount of water, fertilizer, and pesticides used, which can continue to keep food prices low. Additionally, it can help the local environment by reducing pesticide and fertilizer runoff into commercial and residential water channels. NIFA also acknowledges a general reduction in natural ecosystem impact and improved safety conditions as potential benefits of Agritech.
The use of this technology is expected to grow; Global News Wire, MarketWatch, PR Newswire, and other market research firms all report a 5-8 year compound annual growth rate (CAGR) north of 11% for ATPs. MyAgData reports in their analysis that farmers that have partnered with an ATP pay 4.7% less on insurance premiums. However, the 4.7% cost reduction is not representative of the savings of every farm. The clear distinction in MyAgData is that they only analyze cost saving data when farmers have actually used an ATP. Financial barriers often exist in keeping many smaller farms from partnering with ATPs, which means they aren’t represented in the sample.
The demographic that does not show up in MyAgData’s statistic is the diminishing sector of small-scale farmers. The Nature Conservancy echoes the point that, “when [smart farming] works, it is spectacular, but it only works in a few places—where farmers can pay for them.” While the benefits in savings presents the opportunity for economies of scale, fixed prices, such as expensive technical service and machinery, create steep financial barriers-to-entry. While not entirely out of the realm of feasibility, small scale farmers are likely to avoid investing in off-farm income in a project that can barely breaks even.
A potential boon for smaller farmers that cannot take advantage of precision agriculture is increasing farmers’ public knowledge through farming guidelines generated by big data. For example, Survey data conducted in the UK suggested that the average oat farmer is producing four less tons per acre (t/ha) than the optimal amount of 20 t/ha. Both academic and industry leaders led the UK funded “The Opti-Oat Project” to collect more than a million data points from satellites. The product was an online brochure of information available to all. Increasing yields through the use of universally accessible knowledge like this will help compensate for the future downward pressure on prices as supply increases.
The other main concern preventing numerous farmers from using smart technology is a lack of clearly established data property rights. In 2014, The American Farm Bureau Federation (AFBF)’s survey on “big data” showed that “50% of the respondents indicated they would be investing in new data technologies and 82% are unaware of how the collected data will be utilized.” Furthermore, at least 32% of farmers are not adopting the technology and are also unsure of how and where their data will be used. The European Commission argues that in many cases without clear transparency, “service providers or manufacturers may become the de facto ‘owners’ of the data their machines generate even if the machine is owned by the user.” U.S. law is not any stronger, as agricultural data is not recognized as property. Farmers are concerned that their data can be used by third parties who buy the data from ATPs without ever contacting the farm beforehand. The risks of data loss, breach, and misuse by ATPs are prominent enough that large agricultural conglomerates such as John Deere, Monsanto and DuPont Pioneer have purchased data analytic firms to keep their data in-house. Thus, they grow ever larger as smaller industrial-scale farms face the disadvantage of asymmetrical information from their technology provider.
There may yet be an opportunity for farmers that are reluctant to share their data with ATPs. Currently, a non profit established in 2016 called Ag Data Transparent is accrediting smart agriculture companies that communicate transparent data property rights. ATPs would be duly incentivized to participate at least once, as having a positive accreditation brings in more new customers and profit than the extra profit earned from secondary data usages. New startups are already frequently consulting with Ag Data Transparent, indicating that the incentive works on some levels. Alternatively, farmers could pay a lower market price for different ATP services, or simply receive royalties, if the data becomes profitable in secondary or tertiary usages.
Solutions are in motion. When deployed on a large scale, these solutions would provide smaller farms the opportunity to enjoy the benefits that large agricultural corporations have so far enjoyed.
Featured Image Source: Easternpeak
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