Archive for the ‘Geo Political Ag Issues’ Category

Supporting Argument for Farming 3.0 – The Digital Farm

February 27th, 2012 by Robert Saik

The Theme of The 2011 Farm Forum Event was Farming 3.0…The Digital Farm. I recently was sent a link to the attached article by Terry Aberhart, one of our Agri-Coaches. As I read the article, I was struck by how much this article lined up with our thinking and what we discussed at The Farm Forum Event.

Agriculture really is moving into a new era. There will be disruption, there will be breakdown of bureaucracy..and there will be massive opportunity.

The gains in agriculture 3.0 will not all come from a person working harder. Many of the gains will come through the embrace and adpotion of technology.

Well, if you don’t believe me, then please read the following article writen by Dr. Jim Budzynski the Managing Principal of MacroGain Partners.

I think you will find his thoughts enlightening.

Get Ready For Agriculture 3.0 – 22/02/12

The ag industry has reached another evolutionary tipping point. Consultant Jim Budzynski believes that Agriculture 3.0 will be driven by economics, environmentalism, the incredible promise of synthetic biology and changing consumer demand, and retailers need to be ready for serious change.

I was digging through a file cabinet a few weeks ago and came across some pictures of my dad from the 1970s. We lost dad over twenty years ago, but I remember like yesterday how he fueled my passion for agriculture way back in the 1960s. I was a wide-eyed twelve year old running around Midwest corn and soybean fields taking soil samples with my little stainless steel soil probe. That was long before “grid sampling” and “precision ag” were common phrases, and I learned about agronomy in the “go take a sample in that low spot over there” school. I remember dad’s advocacy on the need for agronomic advisor certification and his mobile plant and soil testing lab, both ideas ahead of their time. Over forty years later, even with an agronomy degree and a PhD in soil chemistry, I still remember the thrill of the first time I got to “draw the map” myself. I wonder whether dad ever thought our industry would move as far in the past twenty years as we could or should have. Agriculture is undergoing a fundamental change, but my sense is that it is happening for many of us with as much regret as anticipation. The reason is that the game is changing fundamentally, and many of us would prefer to “play out our hand” without hurting our heads trying to get this all figured out. I recall my father-in-law (a 90 year-old retired farmer) once telling me how glad he was that he got to retire “before they started farming ugly with that no-till stuff”. He loved nice clean fields and a spotless farm – and he wasn’t anxious to embrace a new paradigm late in his farming career.

Agriculture 1.0 And 2.0
This “new paradigm” of American agriculture is what I call Agriculture 3.0. I won’t spend much time on Agriculture 1.0, which was early 20th century ag – a fairly labor intensive, low productivity affair which fed the people but required 7 million small farms and 30% of the population to do it. Agriculture 2.0 was the era most of our parents operated in; it began in the late 1950s when agronomic management practices like supplemental nitrogen and new tools like synthetic pesticides allowed us to take advantage of the dramatically higher yield potential offered by hybrid seed corn. The defining characteristics of Agriculture 2.0 were relatively cheap inputs, dramatically increasing yield potential, and growing returns to scale (read consolidation) at all levels. Awareness of the environmental impacts of off target chemicals or fertilizer was low, and government support policies initiated in the 1930s assured relatively little market risk and actively encouraged consolidation. A good way to describe Agriculture 2.0 is a 50-year quest to economically produce and globally market undifferentiated #2 yellow corn. We did a heck of a job. Along the way we built systems for crop and animal production, inputs delivery, grain handling, and global marketing that were highly efficient and as undifferentiated as possible (since differentiation drives unit costs up).

Moving On
But guess what? Agriculture is entering a new era – Agriculture 3.0. This new era is not “right” where Agriculture 2.0 was “wrong” any more than the small family farms were “wrong” and the larger farms that replaced them were “right”. Change doesn’t take time for value judgments. But any old timer who lived through the transitions of farming from the 1940s to the 1970s can probably tell you that along the way there was lots of pain and resistance as the old accepted approaches to doing things was replaced by the “new paradigm”.

The shift to Agriculture 3.0 will be driven by two big picture changes that are just taking hold:

1. A movement away from efficiency as the primary focus of nearly all efforts to a new focus on profitability. Think of efficiency focus as doing old things incrementally cheaper each year. In Agriculture 2.0 the path to greater profitability was almost always through efficiency. As a result, the focus tended to be on input costs (seeds, nutrients, and crop protection) and hard conversion costs (labor, operational). Capital costs were assumed to be a given (unless you topped out your small bank’s standard operating lines). But incremental farmland and major equipment purchases tended to be emotional, not economic, decisions. (If you need evidence for this, look how many farmers overpay for farm ground adjacent to their farm or the number of farmers who own tractors that are bigger than needed for their farm’s size.) Think of profitability focus as unemotionally looking at all elements that drive the profitability of the farm and creatively seeking ways to sustainably lower costs and enhance quality or develop differentiated products for which you can get paid a premium.

2. A shift from specialization to integration. In Agriculture 2.0 you were rewarded by taking one narrow task and doing it very well (horizontal focus). As differentiated downstream markets are developed the winners will be those who can link seamlessly up and down a narrow value chain (vertical focus). This requires new thinking and new skills like marketing, risk management, branding, and processing. Not all producers will be willing and able to seize these opportunities, but the largest and most progressive farmers are the most likely to seize the moment. Smaller (or more likely older) farmers who “don’t want to farm ugly” will stay focused on low cost production and make a good living. But a small group will be the leaders in this facet of Agriculture 3.0 and become truly diversified agribusinesses instead of just good farmers.

Practical Implications
Although nobody can with assurance say what the next 30 years will hold for agriculture, a few of the major ways in which this might play out are:
1. Higher levels of institutional land ownership and the breakdown of traditional support and hedging programs (think lower government price supports and the collapse of MF Global) mean that a more businesslike approach to risk management is essential. In the new paradigm huge sums of money can be made (or lost) in a nanosecond – and both will occur with greater regularity than most of us have ever imagined in coming years.

2. The promise of biotechnology is far greater than making weed control easier and cheaper and will ultimately result in the long overdue differentiation of downstream markets, allowing smart operators to make money by getting paid more instead of only by spending less. If those of us in upstream agriculture are unable or unwilling to seize this differentiation, ultimately downstream players will build a structure to “back integrate” and we will all be contractors, hired hands in our own industry.

3. Nutrient and pesticide management is going to move from routine overuse due to relatively low cost to much more precise and judicious use of increasingly expensive, targeted tools. The watch phrase will become “no molecule wasted.” The rapid growth of the biopesticide sector and the rapid growth of several specialty fertilizer players are evidence that this trend has already started. By the time my career ends IPM may be more than just a buzzword – we may actually practice it.

4. Equipment and tillage practices will be evaluated again as energy costs rise, new technologies arise which make true no-till possible, and larger farmers who spend little or no time on a tractor are less driven by emotion and more driven by economics. With enhancements via equipment and genetic technology in disease control, residue management, and cold tolerance, we may actually revisit true no-till and park some big steel. Equipment companies that focus on right-sizing equipment for operations, eliminating unnecessary field operations, and running the numbers on annual cost of use will continue to do quite well.

5. Precision agriculture and related crop consulting services will explode in importance as the need to integrate diverse data sets and drive active decision-making will replace pretty yield charts (which few growers do much with today anyway). A few courageous and foresighted precision agriculture, crop consulting, and data management firms are already on the cutting edge of helping their farmers truly turn data into dollars. Bill Gates once said that “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” The bottom line is that we may not see Agriculture 3.0 by 2012, but we might be amazed when we get to 2021 at how much has occurred in ten short years.

A Few Questions To Ask Yourself

I realize that these profound changes are likely to strike many readers as patently foolish, especially those with the greatest investment in Agriculture 2.0. But I challenge you to ask yourself the following questions:

• At what farm size will the ability to manage scale and complexity outweigh the efficiency of being bigger?

• At some level of retail consolidation will the efficiency and cost gains of scale be outweighed by the difficulty of providing specialized agronomic advice and high levels of individual customer? Is it possible to be too big in retail?

• At what scale and price will the trend towards bigger and more efficient equipment reach its peak? How big a planter is actually too big and cumbersome to be truly efficient given the average farm and field size?

• At some price of energy will the net economic return drive us back to true no-till?

• At what price of fertilizer will efficient broadcast application of bulk granular fertilizer become less logical and banded use of highly available niche fertilizers become more logical?

• At what percentage of the food market becoming “natural and organic” will the use of “inefficient” IPM become more plausible and practical?

• At what percentage of the corn market being identity preserved to meet the needs of unique customers (e.g. industrial chemical production, ethanol, non-GMO) will the current monolithic grain handling infrastructure become inefficient due to an inability to reliably segregate and differentiate grains?

Think About Tomorrow, Today

Agriculture is going to change more in the next fifteen years than the last fifty. Agriculture 2.0 has reached a tipping point, and Agriculture 3.0 will be driven by economics, environmentalism, the incredible promise of synthetic biology, and changing consumer demand. Doing what we have always done a little better every year is necessary but insufficient in this new world.

What are you going to do new today?

Massive amounts of money will be made and lost in this new, high volatility world. Assured profits and risk management will be driven by your individual initiative, not the government or financial markets.
Every player is the ag system needs to ask themself if their current focus will be on the right side of history when we look back in 20 years. Today is the day to start.

Dr. Jim Budzynski is the Managing Principal of MacroGain Partners, a consulting and investment firm focused on helping commodity, agricultural, food, and green energy firms develop business strategies and capital to prepare for Agriculture 3.0. Budzynski can be reached by email at jim@macrogain.com, by phone at 317-708-6280, or by Web site at www.macrogain.com .

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Middle East woes create Ag Opportunity

May 2nd, 2011 by Robert Saik

This article highlights a trend I have been following.  Declining water resources in the Middle East will mean two things. 

1. There are going to be more customers for our Wheat. 

 2. There will be outsourcing of ag production to other areas of the world to create a “closed loop” system that will give little back to the areas in which the food production occurs.

We have a tremendous opportunity to help meet food  demand through our supply and we can help other areas of the world become more sustainable through technology transfer. 

 

After the ‘Arab Spring’

  • 28TH APR 2011

In the face of the ‘Arab Spring,’ Lester Brown writing for the Guardian has taken a look beyond the short-term to what faces the Middle East over the medium to long term.

FoodSecurity

Food security is the hot topic bouncing around the halls of power lately, and with good reason. The world is facing crisis after crisis in matters of sustainability, and population growth is only adding to the problems the world faces. There are solutions which the world knows will work, yet these issues are still pressing and as important as they will ever be.

In the face of the ‘Arab Spring,’ Lester Brown writing for the Guardian has taken a look beyond the short-term to what faces the Middle East over the medium to long term. In his article, he argues that population growth and water supply are on a collision course, and hunger is set to become the main issue after the political uprisings subside. His article is included below.

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Long after the political uprisings in the Middle East have subsided, many underlying challenges that are not now in the news will remain. Prominent among these are rapid population growth, spreading water shortages, and growing food insecurity.

In some countries grain production is now falling as aquifers – underground water-bearing rocks – are depleted. After the Arab oil-export embargo of the 1970s, the Saudis realised that since they were heavily dependent on imported grain, they were vulnerable to a grain counter-embargo. Using oil-drilling technology, they tapped into an aquifer far below the desert to produce irrigated wheat. In a matter of years, Saudi Arabia was self-sufficient in its principal food staple.

But after more than 20 years of wheat self-sufficiency, the Saudis announced in January 2008 that this aquifer was largely depleted and they would be phasing out wheat production. Between 2007 and 2010, the harvest of nearly 3m tonnes dropped by more than two-thirds. At this rate the Saudis could harvest their last wheat crop in 2012 and then be totally dependent on imported grain to feed their population of nearly 30 million.

The unusually rapid phaseout of wheat farming in Saudi Arabia is due to two factors. First, in this arid country there is little farming without irrigation. Second, irrigation depends almost entirely on a fossil aquifer – which, unlike most aquifers, does not recharge naturally from rainfall. And the desalted sea water the country uses to supply its cities is far too costly for irrigation use – even for the Saudis.

Saudi Arabia’s growing food insecurity has led it to buy or lease land in several other countries, including two of the world’s hungriest, Ethiopia and Sudan. In effect, the Saudis are planning to produce food for themselves with the land and water resources of other countries to augment their fast-growing imports.

In neighbouring Yemen, replenishable aquifers are being pumped well beyond the rate of recharge, and the deeper fossil aquifers are also being rapidly depleted. Water tables are falling throughout Yemen by about two metres per year. In the capital, Sana’a – home to 2 million people – tap water is available only once every four days. In Taiz, a smaller city to the south, it is once every 20 days.

Yemen, with one of the world’s fastest-growing populations, is becoming a hydrological basket case. With water tables falling, the grain harvest has shrunk by one-third over the last 40 years, while demand has continued its steady rise. As a result the Yemenis import more than 80% of their grain. With its meagre oil exports falling, with no industry to speak of, and with nearly 60% of its children physically stunted and chronically undernourished, this poorest of the Arab countries is facing a bleak and potentially turbulent future.

The likely result of the depletion of Yemen’s aquifers – which will lead to further shrinkage of its harvest and spreading hunger and thirst – is social collapse. Already a failing state, it may well devolve into a group of tribal fiefdoms, warring over whatever meagre water resources remain. Yemen’s internal conflicts could spill over its long, unguarded border with Saudi Arabia.

Syria and Iraq – the other two populous countries in the region – have water troubles, too. Some of these arise from the reduced flows of the Euphrates and Tigris rivers, which they depend on for irrigation water. Turkey, which controls the headwaters of these rivers, is in the midst of a massive dam building programme that is reducing downstream flows. Although all three countries are party to water-sharing arrangements, Turkey’s plans to expand hydropower generation and its area of irrigation are being fulfilled partly at the expense of its two downstream neighbours.

Given the future uncertainty of river water supplies, farmers in Syria and Iraq are drilling more wells for irrigation. This is leading to overpumping in both countries. Syria’s grain harvest has fallen by one-fifth since peaking at roughly 7m tonnes in 2001. In Iraq, the grain harvest has fallen by a quarter since peaking at 4.5m tonnes in 2002.

Jordan, with 6 million people, is also on the ropes agriculturally. Forty or so years ago, it was producing more than 300,000 tonnes of grain per year. Today it produces only 60,000 tonnes and thus must import over 90% of its grain. In this region, only Lebanon has avoided a decline in grain production.

Thus in the Arab Middle East, where populations are growing fast, the world is seeing the first collision between population growth and water supply at the regional level. For the first time in history, grain production is dropping in a region with nothing in sight to arrest the decline. Because of the failure of governments to mesh population and water policies, each day now brings 10,000 more people to feed, and less irrigation water with which to feed them.

SOURCE: The Guardian
AUTHOR: Lester Brown

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