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          AI&Precision Agriculture

          Will the Convergence Between Artificial Intelligence and Precision Agriculture Lower Farming Costs?

          Sustainable Future of Food

          Written by: Daniel Maguire

          Published: 5 January 2024

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          Key takeaways

          Integration of AI and Precision Agriculture could cut global farming costs by 22%, countering challenges from rising inputs and labour shortages.

          Around 80% of farms globally could eventually adopt these technologies, which could create a global serviceable market of around $USD 67 billion.

          Integrating AI with gene editing and precise application of inputs could also nearly triple crop yields, therefore decreasing food prices.

          Rising costs and farm income concerns

          Crop production in the US is facing significant cost pressures. After input costs rose 80-250% during the supply chain shocks associated with the coronavirus crisis and the Ukraine War,1 crop production costs hit record levels in 2022.2 Coupled with labour shortages,3 net farm income in the US is likely to drop 18% this year, according to U.S. Department of Agriculture (USDA) forecasts.4 Moreover, because US crop yields have plateaued during the past five to six years, as shown below, farmers are seeking innovative ways to lower costs and improve profitability.

           

          US Average Crop Yield ARK Invest

          Source: ARK Investment Management LLC, 2023, based on data from USDA as of July 12, 2023.

          Forecasts are inherently limited and cannot be relied upon. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.

           

          AI and precision agriculture solutions are revolutionising farming

          According to ARK Invest’s research, Artificial Intelligence (AI) and Precision Agriculture (Ag) have the potential to reduce annual agricultural operating costs by more than 22% globally. AGCO Corporation, CNH Industrial, Deere & Company, and Komatsu, among other companies, are creating innovative solutions to boost farm productivity. Last year, Deere announced5 plans to launch a fully autonomous corn and soybean production system by 2030—beginning with the Autonomous 8R Tractor. According to ARK Invest’s research, the company’s precision ag tools—particularly the ExactShot Planter and See and Spray Ultimate Sprayer—will play important roles in boosting farm productivity.

          The combination of See and Spray Ultimate Sprayer, ExactShot Planter, and autonomous technology should lower several agricultural costs. First, the amount of seed, fertilizer, and chemicals involved in farming could drop by around 27%, a reduction driven largely by a 60%6 decline in starter fertilizer—which accounts for around 3% of operating costs—and a 67-80%7 decline in herbicide costs—which accounts for around 12% of operating costs.8 Second, as autonomous technology takes over in-field work from humans, ARK Invest estimates that labour costs, which account for around 8% of operating costs, could drop around 85%. Finally, ARK Invest’s research suggests that predictive maintenance and more efficient field passes could reduce fuel, lubricant, electricity, and repairs by around 20%.

          Cost reductions through technological innovations

          The combination of AI and Precision Ag could reduce the operating costs of farming corn, soybean, and wheat in the US by 26%, 31%, and 31%, respectively, on a per-acre basis, as shown below.8

           

          Cost reductions through technological innovations The combination of AI and Precision Ag could reduce the operating costs of farming corn, soybean, and wheat in the US by 26%, 31%, and 31%, respectively, on a per-acre basis, as shown below.<sup>8</sup>

          Source: ARK Investment Management LLC, 2023, based on data from USDA as of July 12, 2023.

          Forecasts are inherently limited and cannot be relied upon. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Past performance is not indicative of future results.

           

          Global adoption and market impact

          ARK also estimates that 75-80% of farms will adopt these solutions globally, with different adoption rates based on factors like farm size, connectivity, and cultural differences.9 As agricultural companies leverage the various technologies and shift toward usage-based business models—reducing up-front capital costs and enabling per-acre charges—if 75% of farms were to adopt them, ARK Invest believes worldwide farming operating costs could drop 22%. Potentially accelerating adoption, companies like Starlink are boosting rural connectivity with low-earth orbit satellite solutions.10

          ARK’s research suggests that AI and Precision Ag tools operating at scale could reduce operating costs as a percentage of sales from 42% to 33%, potentially creating a global serviceable market of around $USD 67 billion, as shown below. If the use of autonomous technology were to proliferate, agricultural companies potentially could generate recurring revenue streams with software-as-a-service-like margins.11

           

          Global annual agriculture operating costs

          Source: ARK Investment Management LLC, 2023, based on data from USDA as of July 12, 2023.

          Forecasts are inherently limited and cannot be relied upon. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Past performance is not indicative of future results.

           

          While this analysis has focused on operating costs, autonomous solutions also could maximise crop yields by reducing dependence on human labour during nocturnal hours or critical agronomic periods.12 Usually, farmers urgently need labour-dependent machinery to make field passes, which often proves difficult because of labour scarcity. Autonomous technologies can address that problem for farmers and significantly increase the potential for improved crop yield.

          Autonomous solutions for crop yield maximisation

          In 2022, the average corn yield in the US was around 180 bushels per acre,13 around 40% below the 10-year average of the National Corn Growers Association (NCGA) Competition Winning Yield, which was around 510 bushels per acre, as shown below. In ARK Invest’s view, integrating autonomous solutions with the gene editing of seeds and the precise application of fertiliser/herbicide could nearly triple crop yields and push them toward the winning yields in this competition.

           

          US annual corn yield

          Source: ARK Investment Management LLC, 2023, based on data from NCGA as of July 12, 2023.14

          For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Past performance is not indicative of future results.

           

          Conclusion

          ARK Invest believes AI and Precision Ag could introduce the most meaningful innovations to agriculture since the tractor 100 years ago.15 In ARK Invest’s view, they should enhance farm profitability, decrease food prices, and satisfy the globe’s increasing demand for crops, increasing the efficiency and sustainability of farming worldwide during the next five to ten years.

          References

          1

          McKinsey & Company, “Agtech: Breaking down the farmer adoption dilemma”, 2023. Available at: https://www.mckinsey.com/industries/agriculture/our-insights/agtech-breaking-down-the-farmer-adoption-dilemma

          2

          U.S. Senate Committee on Agriculture, Nutrition, and Forestry, “Revisiting Farm Production Expenses”, 2023. Available at: https://www.agriculture.senate.gov/newsroom/minority-blog/revisiting-farm-production-expenses

          3

          USDA, “Farm Labor”, 2023. Available at: https://www.ers.usda.gov/topics/farm-economy/farm-labor/

          4
          5

          Precision Farming Dealer, “Deere: Fully Autonomous Corn, Soybean Production System Planned by 2030”, 2023. Available at: https://www.precisionfarmingdealer.com/articles/5099-deere-fully-autonomous-corn-soybean-production-system-planned-by-2030

          6

          John Deere, “John Deere Debuts New Planting Technology & Electric Excavator During CES 2023 Keynote”, 2023. Available at: https://www.deere.com/en/news/all-news/deere-debuts-new-planting-technology-and-electric-excavator-ces-2023/

          7

          John Deere, “Deere launches See & Spray™ Ultimate: in-season targeted spray technology combined with a dual product solution system for corn, soybeans, and cotton”, 2022. available at: https://www.deere.com/en/news/all-news/see-spray-ultimate/

          8

          USDA, “Commodity Costs and Returns”, 2023. Available at: https://www.ers.usda.gov/data-products/commodity-costs-and-returns/

          9

          ABD, “Transforming Agriculture in Asia”, 2021. Available at: https://www.adb.org/what-we-do/economic-forecasts/september-2021/theme-chapter

          10

          Starlink, “Starlink is ideal for rural locations, and farmers in Australia are putting it to good use”, 2023. Available at: https://twitter.com/Starlink/status/1661464076307038213?s=20

          11

          McKinsey, “The math of ACOs”, 2020. Available at: https://www.mckinsey.com/industries/healthcare/our-insights/the-math-of-acos

          12

          A “critical agronomic period” refers to a specific and limited timeframe during which certain agricultural activities must be conducted for optimal crop growth and yields.

          13

          USDA, “Commodity Costs and Returns”, Available at: https://www.ers.usda.gov/data-products/commodity-costs-and-returns/

          14

          NCGA, “National Corn Yield Contest”, Available at: https://www.ncga.com/get-involved/national-corn-yield-contest

          15

          ARK Investment Management LLC, “What We Can Learn from Automation in the Agriculture Industry”, 2020. Available at: https://ark-invest.com/articles/analyst-research/automation-in-agriculture/

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