Growing Champions: Digital technology is opening opportunity for agro-commodities in Southeast Asia

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This article first appeared in Forum, The Edge Malaysia Weekly, on September 26 - October 2, 2016.

 

Everyone I know is talking about digital technology in agriculture (AgTech). Some are pointing to the dramatic changes happening in mature markets. Others comment that digital technology and application can never replace the instinct of the crop farmer or address the challenges of crops in Southeast Asia.

Truthfully, there is no definitive answer as yet, but AgTech is too big to ignore, even for agriculture industries where gestation periods are long and change is gradual.

So, what’s the business case for AgTech?

• The world’s population is expected to hit 9.6 billion people by 2050 and the United Nations Food and Agriculture Organization (FAO) projects demand for agricultural output to increase 1% a year. For instance, Asia produces and consumes 92% of the world’s rice. The main challenge is to increase production to feed an additional 1.3 billion rice consumers by 2025, but using less water and land, and empowering agricultural communities. A solution, assuming that the amount of land available will be constant, is to improve productivity in spite of the negative impacts of climate change, urbanisation and pollution. How?

• There are four ways a farmer can increase productivity: genetically modify the crops for higher yields; increase the use of nutrients; maintain yield balance by deploying best practices; and deploy AgTech solutions or precision farming, a combination of technology and integrated information and production-based farming system.

• Finally, if the proof of concept is the size of investments, AgTech investments continue to show an impressive trend, with an annual growth rate of 26% year on year in 2010 to 2013, and 126% from 2013 onwards. Investment in software technologies went up 155%, sensors and probes increased 167% and variable rate technology and irrigation control by 325%.

So, why the hesitation to jump in with both feet?

• Mindset. For instance, in the Malaysian palm oil sector, generations of farmers have seen economic progress by tilling the soil, applying mechanical best practices and managing costs. Replacing this model with satellite guidance that can monitor and map yields, getting soil information through built-in soil sensors, is a big shift for many.

• Cost. While the average cost of an in-soil sensor has dropped considerably in the past several years, there are still many hurdles facing the average farmer. For instance, increasing yields using sensor and analytics technology can cost him around US$100 per acre, with little difference in affordability across farm sizes from 50 to 500 acres. This means that only large-scale farmers can afford most sensors, or in other words, AgTech solutions make economic sense only in farms of over 2,500 acres.

• Curation. There are multiple service providers offering solutions ranging from computing and connectivity to engineering. However, the challenge is to choose an integrated solution that comes with multiple tools and technologies to suit various farm conditions and needs. Caution must be exercised to avoid highly engineered solutions that may add to costs and complexity.

So, the 800lb gorilla will come knocking. How should you prepare for it?

• Learn about the potential: Understand the application of AgTech solutions such as GPS, which supports sensing, mapping and control systems; from soil fertility and yield mapping to remote sensing and water management; from variable rate treatment and nutrient management to integrated pest management; from geographic information systems (GIS) and normalised difference vegetation index (NDVI) to decision support system (DSS); and so on.

Some interesting initiatives include:

    > Sime Darby, a forerunner in the industry, is one of the first companies to have adopted genomics and seed genetics in oil palm. The company utilises online dashboards to monitor traceability from plantations to the mills, using cloud computing and edge connectivity. Others use GIS and NDVI technologies through drone mapping to monitor the condition of tree health and nutrient uptake.

    > Climate Corp, a company that focuses on predicting local weather conditions using computational analysis by segmenting the US into 500,000 unique blocks. The technology allows users to identify the type of weather they want to insure against and receive a quote within seconds.

• Select a pilot crop that matters: Precision agriculture is recommended for crops using lower human capital per unit area. In Malaysia, forestry and timber, rubber trees and oil palm trees are the main speciality crops suitable for commercial precision agriculture. There is merit in exploring how AgTech solutions can ameliorate the current low-productivity and high-cost situation.

• Find a public-private partnership (PPP): To deploy AgTech solutions in broad-ranging, high-impact sectors, public-private partnerships will be critical, especially to garner political support for influencing legislation as well as to drive sustainable practices.

• Seek technology orchestrators, who can integrate multiple technology solutions into a single platform: Companies in the AgTech space come with different sets of capabilities and service offerings and may not interact with each other, leaving a gap in the implementation of various programmes or projects.

• Set ambitious targets: There is an impending need to define targets that will achieve a fine balance between mobilising various actors/stakeholders, motivating cooperation and action and institutionalising “change” for impact. In the oil palm sector, the national yield remains at 3.8 mt/ha of crude palm oil, when it is theoretically possible under the best conditions to raise up to 6 mt/ha. With all the limiting factors, improving yield through AgTech solutions may be the only way to stay sustainable and globally competitive.

So, think what AgTech can do for you.

My parents always told me that there is no shortcut to success, but digital solutions do provide (not necessarily a shortcut) a faster and more definite route to success. Technology, big data and smart analytics will continue to transform the world around us and there is no better time than today for a well-thought-through plan on how AgTech can shape your business, your industry and in general, Malaysia’s economy.


Zarif Munir is partner and managing director at The Boston Consulting Group