Ag Tech (Agriculture Technology) is rapidly growing as AI, robotics, and improved processing capabilities embolden the market and its participants to create powerful technology that supports growing populations and food demand.
Global populations are expected to jump to nearly 10 billion people by 2050, while food demand is expected to surge 50%.
While demand and projections are supportive of a market on the cutting edge of technology, startups have struggled to break into the market and legacy companies haven’t yet been able to turn a significant profit.
However, since the turn of the year, John Deere - which controls 53% of the tractor market and 60% of the U.S. farm combine market - has made a few massive leaps towards farm automation.
In January 2022, John Deere (DE) revealed a new, fully autonomous tractor at CES 2022 that allows farmers to remotely conquer time-consuming tillage work. In March, the company took it up a notch and announced See & Spray Ultimate for targeted, in-crop spraying. Further, the company hopes to connect its machines via the cloud to the John Deere Operations Center, where Deere will collect and store crop data.
Ag Tech
The self-driving and see & spray technologies are nothing new, but as supporting technology slowly catches up with our fantastic visions for final products, Ag Tech is being emboldened like never before.
Caterpillar (CAT) has been investing in autonomy for over three decades now and already has fully autonomous vehicles at mines around the world. While self-driving tractors are only expected at 10 to 50 farms in the U.S. in 2022, the company expects sales of the $500,000 tractor to take off significantly in the following years.
While the expensive, new tractors will likely only be found on the largest of farms (at least for a little while), Deere’s self-driving technology can be purchased and retrofitted onto other models via the autonomy kit.
While these see & spray and self-driving tractors are certainly headline-worthy, other developments may prove to be more impactful, at least as far as investors are concerned as these are still lower-margin ventures.
Big Data
Deere’s pursuit to become “the Facebook of agriculture” via its Operations Center, where it will aggregate data from farms across the country (that use John Deere equipment), could be the most lucrative push, but it's also already receiving backlash from farmers.
Per the John Deere site, “Are you autonomy ready? Chances are you're already closer than you think… if you're comfortable transferring maps, tillage prescriptions, and machine and field data to and from the tractor in John Deere Operations Center™, you're more than halfway to full autonomy.”
While John Deere wants farmers to own their technology, they have no intention of letting farmers own the data the technology reaps. If you want to benefit from autonomous farming, you have to be willing to freely pass that information back to John Deere, so they can sell it (and everyone else’s farming data) back to you at a monthly, or otherwise, rate.
This conundrum is intensifying farmer backlash against John Deere and other Ag Tech companies that force farmers to get repairs done at their branded locations. While higher-end car owners can identify with that business practice, companies in the farming industry take it to another level by being able to remotely shut down your tractor if, for example, missed a lease payment or got caught modifying their equipment. A recent executive order by President Biden directed the FTC to curb these restrictions.
Minichromosomal Technology
While a high-margin data service to bring all of the technologies together in the most efficient way possible has the highest margin potential (until an iOS update makes data opt-in, of course), the most important tech for countering climate change and soaring populations could come courtesy of biotech companies.
A minichromosome is a small structure contained in a cell that holds very little genetic material but can be packed with information. Minichromosomal technology adds genes to a synthetic chromosome, giving it new qualities such as better resistance to heat or droughts.
The most critical aspect of this is that it is NOT altering the plant's genetic makeup in any way, as it is sequentially adding the chromosome. This results in faster regulatory approval and acceptance by farmers.
Vertical Farming
Vertical farming, which has been dreamed of since the 1950s, is a kind of farming that expands up, not out. Just like how skyscrapers fit more people per square mile, vertical farming fits more plants per square acre.
This kind of farming hasn’t become profitable yet but is expected to become financially viable within the decade. As far as impacts go, this could allow food to be grown more locally, which would decrease food costs as transportation costs wane. Furthermore, the vertical setup can allow easier integration of robots - as the facilities get built from the ground up with automation in mind - which further decreases the cost of production.
Some vertical farming stocks include AppHarvest (APPH) and Local Bounti (LOCL).
Conclusion
Ag Tech is taking off as supporting technology continues to connect more and more devices.
The technologies discussed above are just a drop in the bucket of the fast-moving space that has seen an influx in competition from legacy agriculture companies, start-ups & cryptos, biotech companies, and data & software companies like IBM.
While economies of scale make it difficult for small companies to get a foothold in the industry, backlash against legacy companies and their aggressive push to brand-lock farmers could create opportunities for new companies to insert themselves into the industry.
That said, legacy companies have a huge head start in this industry as farmers are already familiar with them, their repair processes, and their reliability. This could make it hard for other companies to land self-driving tractors on traditional farms. However, for new kinds of farming facilities like vertical farming, new companies may have a better chance as all companies involved have to prove their ability to reliably impact that nascent industry.
