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May 01, 2019
Disruption in Agrichemicals: Making the case for transformation
By: Gaurav Sharma, Dr. Karin Walczyk and Jennifer Helle

As we head into the next decade, the world is increasingly facing a diverse set of agribusiness-related challenges. To put things in perspective, let’s look at some relevant facts and figures:

  • Nearly 10 billion people will need to be fed by 2050.1

  • One-third of the world’s agricultural land is moderately to highly degraded.2

  • Per capita arable land will decrease to 1500m2 by 2050 (compared to 4000m2 in 1961).3

  • Livestock uses almost 80 percent of the total agricultural land for pasture and feed.4

  • Agriculture accounts for 70 percent of water consumption.5

Given the above, it isn’t hard to understand why now more than ever companies across the agribusiness value chain need to focus on increased productivity and sustainability.

On the positive side, these figures present a huge opportunity for agrichemical companies, but even these players have their own share of challenges.

In the past, the agrichemical sector has been quite volatile, mostly characterized by low prices and weather-related challenges leading to tepid revenue growth. However, we see that the susceptibility to future disruptions as compared to other chemical industry segments (see Figure 1) poses an even greater challenge to agrichemical companies today. This is mainly due to a combination of digital disruptions and innovations happening in the sector, which is leading to new entrants challenging traditional business models.

These disruptive developments may significantly reduce or even eliminate pesticide usage in the long run. Several of the disruptions facing the sector are described below.

New crop protection methods: New ways of crop protection threaten existing agricultural methods, which could impact the operations of agrichemical companies. For instance, CropCoat6 developed by Crop Enhancement offers a unique approach to crop protection. When sprayed on plants, the product forms a non-toxic microscopic film that acts as a shield to help the plant resist pests and diseases. Using CropCoat can help reduce the use of pesticides by nearly five times and reduce the farm labor needed for spray applications.

Robotics on the fields: Robotic process automation (RPA) in the agrichemical sector is likely to see strong growth with potential to disrupt the pesticides market. For example, artificial intelligence (AI)-driven weeders could reduce the need for universal herbicides and the genetically modified (GM) crops that tolerate them. This RPA advancement could lead to a partial shift in agrichemical profit pools, partly to the farmer and partly to the equipment manufacturers.

Novel farming methods: Indoor and vertical farming start-ups like Bowery Farming and Plenty are redefining farming methods. They are applying robotics, machine learning and predictive analytics to indoor farming, resulting in more crop cycles, higher yield and no usage of pesticides. Bowery claims to be 100 times more efficient than a square foot of farmland.7 Plenty goes further with its claims to get as much as 350 times the produce out of a given acre of land, using only one percent as much water.8 Any mass adoption and success of these farming models will have massive implications for agrichemical players as it is likely to reduce the demand for crop protection chemicals.

Clean meat: Many companies are working to grow meat in labs from self-producing animal cells. Several large industry players and philanthropists have invested in clean meat start-up Memphis Meats.9 Successful adoption of clean meat in the next few years will reduce the demand for meat from livestock, which in turn will adversely impact the demand for animal feed crops (primarily corn/maize in the United States). Currently, corn accounts for the second highest pesticide and GM seeds consumption in the U.S.; hence adoption of clean meat would negatively impact the demand for pesticides and GM seeds.10

Traditional sales vs. e-commerce start-ups: Challenges related to product pricing are likely to aggravate the situation for agrichemical companies. For example, Farmers Business Network (FBN), the so-called “Amazon of Agriculture,” serves more than 6,500 farms in the U.S. and Canada—representing more than 24 million acres.11 In addition to providing precision farming services, FBN launched an e-commerce arm, FBN Direct, in 2015 that helps farmers procure pesticides at lower prices compared to other channels, much to the dismay of bigger agrichemical producers.

Changing consumer preferences: Health-conscious consumers have an increasing preference for organic/sustainable food and food-producing processes, and they prioritize health and nutrition in their food. This is leading to significant shifts in the food value chains and is likely to impact the demand for agrichemical inputs.

Facing these very real industry trends, agrichemical players need to evolve their business models and strengthen their focus on innovation, particularly in the areas of precision farming and biotechnology.

Digital/Precision Farming: Top agrichemical players realize that digital technologies are critical to help them see through the tidal wave of disruptions. In addition to the large number of mergers bringing consolidation to the agrichemical market, digital farming investments by agrichemical companies have consistently remained high, representing 60 percent of total investments by volume over the last seven years (see Figure 2).12 Companies are leveraging the investments in digital technologies to target outcomes such as:

  • Sustainable farming and increased productivity: On the acquisition front, Syngenta purchased Strider, which provides digital operational management solutions to increase farm productivity.13

    Top agrichemical companies are also investing in and collaborating with start-ups. For example, one recent funding recipient is PrecisionHawk, a commercial drone company that could significantly impact the industry by expanding its agrichemical applications.14 Another example is The Climate Corporation (part of Bayer), who has partnered with AgReliant Genetics to provide data integration capabilities between digital agriculture platforms, enabling better decision-making for farmers.15

  • Smarter crop protection application: Agrichemical and equipment companies are exploring opportunities to invest in or collaborate with RPA providers. For example, John Deere has acquired Blue River Technology, a farm robotics start-up. Blue River claims that its spray and weeding robots can reduce the use of agrichemicals by 90 percent.16 Syngenta has gone a step further by working to develop new crop protection formulations and molecules suited to RPA equipment.17

  • Transparent sustainability along the value chain: Players such as BASF are collaborating with technology firm arc-net to use blockchain technology to improve livestock sustainability.18 Blockchain is also being used for meeting regulatory compliance and consumer expectations, such as tracking organic and sustainable commodities.

Biotechnology advancements: Biotechnology (including seeds, RNA interference, soil microbiome) is another field with a growing focus on agrichemical innovation. Patent analysis indicates that biocides are gaining importance, reflecting consumers’ needs and concerns. Furthermore, biotechnology is witnessing a flurry of investments by (see Figure 2) and partnerships with agrichemical majors. Some examples include:

  • Monsanto (now Bayer) purchased a stake in the biotechnology company, Bioceres.19

  • BASF is collaborating with biotech company Evogene on the development of new selective insecticides using a computational predictive biology (CPB) platform.20

Positioning agrichemicals sector for future growth

The digital push is helping agrichemical companies evolve their business models from merely selling products to establishing themselves as one-stop shops for farming solutions. Thus, their top investments will continue to be in digital and biotechnology capabilities, requiring novel innovations to establish and maintain a competitive advantage.

We see changing consumer behavior as highly important for agrichemical companies and do not underestimate its disruptive potential to reduce the need for pesticides. Start-ups are also entering the sector, benefiting from market needs not (yet) served by traditional agrichemical and food companies. As such, adopting new business models, collaborating with ecosystem partners and investing along the agribusiness value chain will be essential for incumbents to succeed as the industry continues to experience disruption and embrace transformation.


Sources:
1 “How to Sustainably Feed 10 Billion People by 2050, in 21 Charts,” December 5, 2018, World Resources Institute.
2 “The future of food and agriculture: Trends and challenges,” Food and Agriculture Organization of the United Nations, Rome, 2017.
3 “Agriculture at a Crossroads: Findings and recommendations for future farming - Soil Fertility and Erosion,” Global Agriculture.
4 “Animal production,” Food and Agriculture Organization of the United Nations, Animal production.
5 “Water uses,”AQUASTAT - FAO's Information System on Water and Agriculture.
6 “Crop Enhancement has Unique Approach,” October 11, 2017, Phoenix Venture Partners.
7 Bowery Farming.
8 “Is hydroponic farming sustainable?” Plenty, 2018.
9 “Tyson Foods Invests in Cultured Meat with Stake in Memphis Meats,” January 29, 2018, Tyson Foods.
10 Accenture Research analysis of data from Phillips McDougall (part of Agribusiness Intelligence | Informa).
11 Feldman, Amy. “Farmers Business Network: Data farming,” August 17, 2018, Forbes.
12 Accenture Research analysis of Quid data.
13 “Syngenta to acquire Strider,” March 26, 2018, Syngenta.
14 “PrecisionHawk Secures $75 Million to Foster Global Adoption of Commercial Drone Technology,” January 24, 2018, PrecisionHawk.
15 “AgReliant Genetics and The Climate Corporation Collaborate to Provide Data Integration Capabilities Between Digital Agriculture Platforms,” March 18, 2018, Seed Today.
16 “Deere to Advance Machine Learning Capabilities in Acquisition of Blue River Technology,” September 6, 2017, John Deere.
17 Burger, Ludwig and Tom Polansek. “Robots fight weeds in challenge to agrochemical giants,” May 22, 2018, Independent.ie.
18 “BASF and arc-net collaborate to use blockchain technology for livestock sustainability,” April 17, 2018, BASF.
19 “Monsanto enters the capital of Bioceres, an Argentine biotechnology company,” March 22, 2018, AgroNews.
20 “BASF and Evogene announce multiyear collaboration for the development of novel insecticides,” May 29, 2018, Evogene.


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