Labor, ESG, Efficiency, Better Broadband: The Business Case for Precision Ag
Episode ID S1E05
March 9, 2022
Technology in precision agriculture has come a long way over the last several years and improved on-farm efficiency. As the ag economy grapples with ESG demands, labor challenges, and high fertilizer costs, better rural broadband is helping facilitate wide-spread adoption of cost-saving applications like robots, sensors, and artificial intelligence. In this episode, Jeff Johnston speaks with Kenneth Scott Zuckerberg, lead grain and farm supply economist with CoBank. Ken explains the concepts behind precision ag and how it can help the U.S. ag sector address key challenges and improve profitability.
This podcast was recorded prior to the Russian invasion of Ukraine, which has added even more volatility to fertilizer supply chains and prices.
Jeff Johnston: Hello there and welcome to the All Day Digital Podcast, where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the communications industry. This podcast is brought to you by CoBank's Knowledge Exchange group. I am your host, Jeff Johnston. On today's episode, we get to hear from Ken Zuckerberg, lead economist, grain and farm supply for CoBank to get his perspective on precision agriculture and why now is the time for farmers and ranchers to adopt these applications.
Technological advancements in precision agriculture have come a long way over the last several years and farmers and ranchers who've deployed these technologies have enjoyed meaningful efficiency gains. Given all the labor challenges the ag economy is dealing with, now is the time for widespread adoption of these cost-saving applications. Ken has done extensive research on precision ag and is a sought-after speaker on the topic. His technological insight, coupled with his years of agricultural banking and strategic consulting experience makes him the perfect candidate to talk about this very important topic. Without any further ado, pitter patter, let's hear what Ken has to say. Ken Zuckerberg, welcome to the podcast.
Ken Zuckerberg: It's great to be here with you today.
Jeff: Great. I want you to help us understand a little bit about this whole concept of precision ag, because I'd been reading about how farmers can virtualize their farm or virtualize their field to increase yields. Of course, we saw at CES, John Deere came out and introduced their autonomous tractor, their self-driving tractor, which was very exciting. There just seems like there's a whole lot of stuff going on, but not really sure what exactly precision ag is. What say you?
Ken: Precision ag, Jeff, in crop farming anyway, is a farm management strategy that really takes into account what they call temporal and spatial variability in an effort to improve the quality and cost of producing a crop. Temporal and spatial variability is a fancy way of saying, measuring the year-to-year changes in field conditions and other factors that impact productivity, which is customarily measured by crop yields.
Now, farmers think of precision ag as a decision support tool, a system that would advise them what to plant, where to plant, how to plant, when to plant, and then after things are planted, what to do afterwards to ensure a successful crop. Another way to maybe define it would be. it's a focused set of activities that include both data gathering, specifically collecting information on the field, on soil, climate, other factors, and analysis. So data gathering and analysis. After the data gathering and analysis are completed, the result is a recommendation that seeks to help produce more with fewer inputs. It's more of a precise way of farming.
Jeff: Yes. Sounds like data collection, big data, artificial intelligence. This is probably all playing a role into this some way shape or form, right?
Ken: It is. What it boils down to is it's understanding what the critical variables are that impact a crop in a given season, and then almost collecting that information over time and being able to back test what works in certain circumstances and what works in other circumstances.
Jeff: Right. Okay. No, that makes a lot of sense. Taking that a little step further, what maybe specific precision ag applications or devices that you see out there that are really driving a lot of these efficiencies?
Ken: Jeff, let me lay out to you an easy way I think about it. Again, for the animal protein sector and dairy, it's a bit different. If you think about farming the farm field, there's a lot of things that go on above the farm field and below the farm field. Below the farm field you have soil health, you have the water issue. Are you getting enough water? Above the farm field you have lots of different things. Changes in temperature, wind conditions, moisture, rain coming down of course, air pollution and the like.
When you think about those technologies that are available below the farm field could be sensors that measure the quality of the soil and the components of the soil. Is there proper nutrition, nitrogen phosphate, potash in the soil? You also have precision irrigation technologies and tools that also sense, is there enough water in this part of the field to allow the plant to grow, and in that part of the field, is there a water deficit?
Now, above the field it gets really exciting. I know I'm a geek with this but it pretty exciting. You then have an ability to really think about, is the rate of growth in the plants, the crop that you are producing, is that normal, better or worse than previous years? Have there been temperature shocks, cold one day, hot another? What's happening with moisture? What's happening with sunlight? At the end of the day, it's all about water, sun, land, and the combination of lots of different factors coming together to plant the crop.
Now, to answer your question after lot of background, you might have drones, you might have field sensors, you even may have tools on a tractor when it's preparing a field to give you information about what's happening here, covering all those different subjects.
Jeff: We've certainly come a long way. Ken, is it fair to say that precision ag is really all about crop yields and increasing profit because it feels like what we're talking about here, but is that a fair statement?
Ken: Jeff, your statement is true, but it's much more than that. Precision ag is about maximizing crop production. There is a direct benefit there on profitability. If you use less inputs, it's less cost. If you use less fertilizer in particular, that is the highest cost input. By the way, fertilizer prices now are at an all-time high, just with some of the supply chain bottlenecks as well as just a lot of demand out of farmers.
The environmental piece is very interesting. What I find fascinating is when people make statements that farmers need to be more environmentally conscious or more socially conscious. They need to treat the field better with more respect from an environmental standpoint. Precision ag is not new. Precision ag provides so many environmental benefits. For example, by matching fertilization applications to only those parts of the field that require nutrition, again, you're applying less. If you apply less fertilizer, there's less of a chance of fertilizer run off into freshwater streams. If that's the case, there's less problems that go into drinking water. Other chemicals, using less chemicals on the land would arguably mean less drift into other farm fields or into forests or into residentials. Precision ag is about the dollars and cents, but there's a big environmental and a sustainability component.
Jeff: That's really interesting. Makes me think a little bit, we see this whole ESG movement. Environmental, social, and governance in the public equity markets. It's a really big deal. There's tons of money flowing into these ESG funds and the large institutional investors are mandating that the companies they invest in have an ESG plan. We see a lot in the public equity markets. Is it also playing out? Does precision ag play a role in the ag economy as well from an ESG perspective?
Ken: It definitely does because as we talked about a moment ago, if you think about precision in the most simplest sense, producing more with less, then the ESG component is already embedded in.
There are a number of interesting crop diagnostic tools and crop measurement tools that you could audit to say only this amount of chemical was used or only this amount of fertilizer, there's an audit trail there, there's a terrific story. To inform the crop decision, not only do that but then take that data to be able to visit with the food company or the processor and say, "Yes, this is in fact what we are doing on our farm field."
Jeff: A natural question is, with all these great, precision, and digital tools, why isn't farmer adoption higher?
Ken: There's probably three reasons for that. First, concerns about data privacy and security. Second, concerns about whether or not the return on investment is high enough to justify adoption.
Third is something interesting, which is quite frankly more in your camp, connectivity. If you are utilizing a farm implement, a tractor, a sensor, and you collect a lot of good data that's actionable, you have to transfer that data to a work station for further analysis and processing. Without connectivity, rural broadband or a local network that is reliable, oftentimes the data can be lost or it can be incomplete.
Jeff: The good thing is not only is there a lot of money being thrown at this problem, both public money and private money, a significant amount of public money here with the infrastructure bill, but the technology evolution in terms of how we can connect the farm and how we can support precision agriculture has really come a long way. Private wireless networks, for example, farmers can build a wireless network as good as Verizon's network with very similar equipment at costs that were unthinkable only a few years ago. I think we're getting there on that.
Then from a data storage standpoint, there are other options in terms of on-premise off-premise storage of capabilities that could insulate the farmer in terms of losing control of their data. There are some things there, but I want to-- the third one you mentioned ROI is an interesting one and obviously a very important one, and I want to talk about it in the context of what's happening today in the economy.
We've clearly got an issue with labor shortages and we've clearly got an issue with labor costs. A lot of companies across numerous industries are talking about this. Labor inflation is here, it's very real, and it's very significant. How should farmers think about precision ag as a tool and a way to really make a compelling ROI case given the backdrop of labor shortages?
Ken: Jeff, it's an excellent question. I just want to step back one moment and frame how we got here with the labor challenges on the farm and then articulate the business case for where automation comes in. With labor, there's lots of different types of crop farming. If you think about corn and soybean and wheat, that's very, using the term industrialized may be the wrong term, but it's done with large equipment, it's done on large fields and usually the labor component of that aspect is quite a bit less.
Specialty crops, lettuces and almonds, and fruits and nuts, those particular crops are very labor-intensive from the standpoint of both picking fruit, picking weeds, et cetera, in some cases watering. One of the challenges before even COVID was immigration reform since a lot of farm labor often is provided by non-American citizens. The backdrop, there's always been labor challenges, I think, in farming especially the specialty crops. Then we have with COVID the great resignation seems to be leading to the great automation.
What I would articulate is the corn, soybean and wheat world, they're facing labor challenges almost from another angle. Urbanization has only increased in the past couple decades and depending on the study you read, we're above, the amount folks living in city centers is probably 50% or greater and it's going up. When you think about the skilled labor that's required on the farm, when the American farmer, he and she are probably 60 years of age, there's a tension with just even with minimally labor-intensive crops, running the combine, running the tractor, or running the sprayer, there is a shortage of people in that area as well.
With automation, and you mentioned the John Deere announcement at CES, there are a number of emerging, innovative farm automation tools, techonologies, techniques that can apply both to specialty crops, that can magically pick fruit without squeezing the strawberry too hard or the apple too hard, on the corn, soybean and wheat crops, the autonomous tractor, the idea that the tractor could run without a human being or alternatively with someone in the camp that doesn't have to worry about operating the machinery, there's an opportunity there.
Then it goes into different levels of farm processing. We can move into even other adjacent sectors of farming like dairy farming with the milking robots. Many years ago I went to Holland and I went into a dairy that was about the size of a football field. It had one gentleman and his dog running the entire operation. I asked him what it was like 10 years ago and he said, "Well, 20 people were helping."
How did that come about? Well, the cows had sensors and the sensors, they would basically in essence get teased to go into the milking parlor with some extra good rations. They go into the milking parlor, the robot would come and wash the underbelly, another part of the robot would come and extract the milk and then the cow went on her way. Now, if the cow tried to double-dip and get the good rations and try to be milked and it was within the four hours, there would be an automatic gate which would show the cow into a play area and the cow would rub her back against a brush and have some fun, but they wouldn't get a second dip.
Ken: You got to the four hours. Beyond that, cow manure, as you would expect, is a big part of a dairy operation. Not only milking the cow but what do you do with all the poop? Having the ability to have a manure scraper that's automated and take the manure and put it to a different part of the farm for pickup and perhaps reprocessing and then eventually put on farm fields as a nutrient, so many of these different processes can be automated and have been automated.
That's where there can be tangible efficiency gains when you can't get the labor to do it. Holland has been a pioneer on this. The United States, I think in the current environment, if there was ever a time to think about investing more in automation, I would argue it's now.
Jeff: Yes. It seems to like a lot of companies have been forced to get out of their comfort zone because of what's happening in the labor markets. It makes sense that the ag industry is also looking or should head down that same path.
Ken: Jeff, I agree with you. Very smart people have made the observation that COVID didn't necessarily create or promote all of the interesting technologies out there but it helped accelerate them.
Jeff: I was also thinking about something you said regarding the urbanization of those living in rural America. Presumably, it's a younger generation and makes me wonder and think that that's just yet another reason to get broadband into rural America as fast as we possibly can. We can keep the younger generation in rural America to be able to whether it is run the sprayers, or whatever it is, and then maybe be able to do something else with internet access. There's lots of opportunities there.
Ken: Jeff, you're absolutely correct.
Jeff: I want to finish up here with one additional question, Ken. What are some of the factors that farmers or ranchers for that matter should think about when they're evaluating an investment or a plan to do precision ag? We talked about connectivity. Clearly that's something that's going to help the adoption of that and a big consideration as to what you're going to do and how you're going to do it, but what about costs? What about technical expertise on the farm? Should they be working with consultants? How do they identify their needs and prioritize and so forth?
Ken: Jeff, I have a lot of thoughts. With your permission, I'll reframe the question and ask myself, how can this transpire for the benefit of farmers? Who's in a position to help deliver, educate, and guide, and advise the farmer? My answer is, there's a phenomenal opportunity for the farm supply cooperatives to come into the space, to be the value-added partner. Let me explain my rationale.
Today, farm supply co-ops make their money in agronomy by selling fertilizer, seeds, and chemicals. If we think about precision ag, it's scary for them because based on all the things we talked about, "Wait a second, we're going to help the farmer produce more with less input? That goes against the economics of what we're all about." When ag retail or if you're wondering why ag retailing may not have embraced this so quickly, it's all about the money. That's one way to think about it, and there's entrenched thinking there, but let's think about something a little different.
If the right thing to do for the farmer and the environment is optimizing the inputs, perhaps what you should do is simply change your business model. Instead of just getting paid for supplies, why don't you get paid for the advice? Since there is a legitimate business opportunity to help educate the US farmer, and that farmer wants to be educated, they just don't always know who to trust, and the retailer is in a unique position of trust to provide that expertise.
I talk about precision as a service or advice as a service as something a little bit radical, but something where I think the industry should go to. You're killing so many birds with one stone. First, you're doing the right thing for the farmer, the land, and the product. Second, chemicals, and, fertilizer, and seed, it's a commodity business, and here you have the ability to add value, and anytime you can add value in a way that's not just a pure commodity, you make more money. It's just the way it is.
As you and I both know, capital-intensive businesses in the Wall Street world, in the public market get multiples of X, and businesses that have recurring fee income have multiples of 3x. Now, somebody might say to me, "Well, that doesn't apply to the private world of co-ops." I say, "That's nonsense." Value creation is all about having a more predictable, sustainable earning stream.
Precision ag, interestingly, offers you that opportunity to have that greater value to the customer, greater value to the environment, greater value on your business, your earnings stream. Ironically, co-ops are owned by farmers, so the value accrues back to the farmer. Unless I'm missing something, it's a quadruple win. At the end of the day, adding value by giving the customer what he or she needs to allow them to be more profitable creates a more loyal customer, creates resiliency and it eliminates a problem. I just think there's something exciting here that may not be fully understood.
Jeff: That makes sense. It's hard to pivot a business model.
Ken: When faced with change, human beings we’re subject to the human condition, there's only three options. You can do nothing, you can do something, or you can do something transformational. Probably 50% to 75% of people do nothing initially, maybe another 20% to 30% do something, but it's only that 5% to 10% that do something transformational.
Jeff: I think it was the Romans that said fortune favors the brave. We're going to leave it there. Ken, thank you so much for being with us here on the podcast today.
Ken: Thanks for having me, Jeff. It was my pleasure.
Jeff: Great. A special thanks goes out to Ken for taking time out of his day to share some great insight. I thought Ken made a really good point when he said that precision ag isn't limited to improving yields and profits, but that there are also significant environmental benefits. His example of how applying fertilizer in a more efficient way can have a positive impact on our drinking water was really interesting and applicable given the focus on ESG.
Ken's dairy farm example where the owner implemented sensors and robots exemplifies how these technologies can significantly reduce costs. Going from having 20 people running a dairy farm down to the farmer and his dog, is pretty compelling. Hey, thanks for joining us today. Watch out for our next episode of the All Day Digital podcast.