Roland Berger Business Opportunities in Precision Farming 20150803

Bussinesss oppporrtunitties in Prrecission Farrmingg: Will W biig da ata fe eed the worrld in n the e futu ure? Roland BBerger Strattegy Consu ultants Gmb bH Automotive Compettence Cente er July 2015 BUSINES SS OPPOR RTUNITIES IN PRECIS SION FARM MING Introdu uction In recentt years the agriculture a industry i hass faced majjor challengges. Driven by a growinng populatioon and econ nomic growtth especiallly in developing countries, the globbal demand d for agriculturral productss is rising. At A the same e time supply capabilitie es are shrinnking due to o reduced land avaiilability and climate cha anges. In adddition, the industry en ncounters inncreased governmental food regulations r targeting a more susta cure and traansparent agriculture ainable, sec industry. Enabling the agriculture industrry to meet to omorrow's challenges, c Precision F Farming ha as evolved into the ccatchphrase e for various s methods a and practice es. Various d definitions of o Precision Farming arre in use wiithin the ind dustry. Baseed on our market m understa anding we derived a comprehensivve definition n. Precision Farming innvolves a brroad range of technoologies (figuure 1) that can c be clusttered into roobotics and automationn technology, imagery and senssors, digitizaation and biig data as w well as bio-e engineering. All of thesse technolog gies are interlinke ed via conne ectivity. R Robotics and automation a technology: A Autonomous operations o are enabled by aautomated steeering w as integrated electronic ccommunicatioon systems teechnology andd high precision positioning ssystems as well Immagery and sensors: s Dataa for evaluationn purposes off soil and crop health, etc. iss collected via sensors, reemote sensingg systems andd geo-mappingg Digitization annd big data an nalysis: Data is analyzed inn order to improve climate aand soil predicctions, peerformance opptimization of equipment ass well as remote control in field monitoringg Bio-engineerin ng: Seeds andd chemicals a re selected baased on externnal conditions and evolutionn of seeds to ennforce resistannce to specificc farm and/or cclimate condittions Figure 1: P Precision Farm ming key techn nologies Source: CE EMA; Roland Berger In our reccent study we w provide an overview w of the global and reg gional devel opment of Precision P Farming.. We describe all majorr technologiies through the period until 2030 iin a roadma ap and outline th he impact off technology y on marke t players – traditional and a new on es alike. Fu urthermore, we identiify new business opportunities alo ue chain annd the underlying ong the agricultural valu strategic control points. Finally,, three strattegic questio uidance on hhow to achieve a ons give gu superior position in a changing world. 2 BUSINESS OPPORTUNITIES IN PRECISION FARMING Table of contents Introduction ..................................................................................................................... 2 A. GLOBAL MARKET DEVELOPMENT ......................................................................... 4 B. IMPACT OF TECHNOLOGY ON MARKET PLAYERS .............................................. 5 C. NEW BUSINESS OPPORTUNITIES ARISE .............................................................. 7 D. RIGHT TO PLAY ........................................................................................................ 9 Authors .......................................................................................................................... 10 Publisher ....................................................................................................................... 12 Photo credits ................................................................................................................. 12 Disclaimer ..................................................................................................................... 12 3 BUSINESS OPPORTUNITIES IN PRECISION FARMING A. GLOBAL MARKET DEVELOPMENT The market for Precision Farming is a growth market. Including hardware and software, it amounts to EUR 2.3 bn in 2014 and is expected to grow with a CAGR of 12% through 2020 (figure 2). The Precision Farming market's potential is highlighted by a comparison with the global agricultural equipment market, which is growing at a far slower pace with a CAGR of 4% to 2.4 million vehicles in 2020. Figure 2: Market estimation of Precision Farming 2014-2020 [EUR bn] CAGR [%, 2014-20] 4.5 4.1 0.5 21% CAGR +12% 3.7 0.5 0.6 20% 3.3 0.4 0.5 3.0 0.3 0.4 0.8 21% 2.6 0.3 0.4 0.7 0.3 0.6 2.3 0.2 0.5 0.2 0.2 0.4 15% 0.9 1.0 0.2 0.3 0.8 0.2 0.7 0.6 0.5 0.4 1.5 1.6 1.6 1.6 1.3 1.4 5% 1.2 2014 2015 2016 2017 2018 2019 2020 Rest of World South America Asia Europe North America 1) Market estimation includes software (e.g. data management systems, advisory services) and hardware (e.g. automation and control systems such as: guidance steering, displays, flow control devices; sensing and monitoring such as: yield monitor, soil sensors) Source: Roland Berger In the future, the highest relative rise for Precision Farming is to be expected in developing countries due to the lower starting level. Nevertheless, our estimations point to the US and European markets as the most promising markets. > North America: The North American market is one of the most attractive markets for Precision Farming. The large scale of farmlands and high labor costs offer attractive incentives to apply Precision Farming technologies. In addition, farmers are highly professionalized and willing to learn and adopt new technologies. > Europe: Like the US market, the European agriculture market exhibits a high degree of professionalism and technology. It can also rely on a well-established ecosystem as well as public and private investment capacities. However, the lack of large-scale farmland and slightly lower input costs create a marginal disadvantage compared to the US market. > South America, Asia and the rest of the world: Many developing countries face the challenges of extreme climate conditions and limited resource availability paired with an increased demand for food resulting from a growing population and economic growth. Consequently, there is a significant demand for increased yield productivity and improved management of natural resources, resulting in strong market growth rates of >20% p.a. Nevertheless, the lack of sophisticated technology, infrastructure and education as well as low labor costs will most likely slow down the application of Precision Farming technologies. 4 BUSINES SS OPPOR RTUNITIES IN PRECIS SION FARM MING B. IMPACT OF TECHNO OLOGY O ON MAR RKET PLA AYERS Traditionally the market for agricultural equuipment and business solutions h as been do ominated byy agriculturral OEMs and a supplierrs. In recentt years the (r)evolution ( of technoloogy such ass data analyticss and softwaare solutions has offereed completeely new market opportuunities for non- n traditiona al players. The T main market playe ers for Precision Farmin ng technoloogies can therefore be segmented into eigh ht categorie es (figure 3) . Figure 3: K Key market pla ayers Source: Exxpert interview ws; desk resea arch; Roland B Berger The currrent markett is still dom minated by traditional companies s but new, disruptive players p are e increasin ngly entering the mark ket and stre engthening their market position.. Each type e of markett player ha as a dedicatted offering: Agriculturall OEMs: Traditional a 1. A agricultural OEMs offe ering both hardware (machinery, ( , se ensors) and d software solutions. s 2. S Suppliers: Traditional T suppliers providing a broad po ortfolio of aadvanced components c s (a auto-steerin ng, planting g, etc.) as well as sppare parts for the orriginal equipment and d afftermarket. 3. S Seed compa anies: Seed companie es are incre easingly mo oving upstreeam in the value v chain n and extendin ng their offe erings into a advisory andd insurance services. T/big data companies 4. IT c s: Large gloobal IT infrastructure prroviders aree beginning to offer big g data analysiss and softw ware solution ns for Precission Farminng technoloogies. 5 BUSINESS OPPORTUNITIES IN PRECISION FARMING 5. Advanced solutions providers: These providers offer high-tech solutions like drones, sensors and control systems that support the application of Precision Farming technologies. 6. Start-ups: The start-up scene concentrates on the development of smart devices and apps. 7. Investment funds/traders: Private fund/trading companies focus on farmland investments and commodity financial trading. 8. Research centers: Universities and research centers publish studies and develop prototypes of future applications. Based on the current developments within Precision Farming, new players will increasingly strengthen their position and find their niche in the market. New players have the chance to co- develop or combine single technologies, occupy strategic control points in the value chain and benefit from the new value pockets. To identify the most promising technologies we developed a technology roadmap through 2030 of all major Precision Farming technologies. The technology roadmap (figure 4) predicts all developments driven by enhanced connectivity. Farming processes will be further automated, the application of imagery and sensors will increase, big data and digitization will become more important and bio-engineering will be further developed. Figure 4: Technology roadmap 2010-2030 2010 – 15 2015 – 20 2020 – 25 2025 – 30 2030 – Automation Auto-guidance with GPS (incl. reference stations) and reinforced by laser/infrared sensors & robotics Variable rate applications improved by precise yield maps Automatic machine setting optimization (harvesting and implements) Machine platoon Highly automated machines Imagery & Aerial imagery (satellite/drones) Multi-functionality drones sensors Basic crop condition sensors (optical) Advanced crop condition sensors (incl. plant heath) Soil condition measurement Location yield monitoring On-machine soil condition sensors Cobotics1) Big data & Field yield maps Augmented reality digitization Multi-layer field maps and data analytics OEM data platforms Open data platforms Bio- Seeds transformation based on field data analytics engineering 1) Collaboration of humans and machines Source: Expert interviews; desk research; Roland Berger Extrapolated into business opportunities, these developments tremendously impact the agricultural value chain and various disruptive business opportunities will occur at all points in the chain. To enable companies to be prepared and able to recognize these new opportunities as they come up in the future, we derived five major business opportunities. 6 BUSINES SS OPPOR RTUNITIES IN PRECIS SION FARM MING C. NEW W BUSIN NESS OPPORTUN NITIES ARISE A Along the e agricultura al value chaain several strategic co ontrol points s can be ideentified whic ch are allocatedd to the stepps input suppplying, prodduction, pos st-harvest, processing and distributio on/marketin ng. From a Precision P F arming pers spective only the first tthree steps of the value cha nterest (figure 5). In the ain are of in e future, it will w be key to o occupy thhe right strattegic control points to gua arantee the company ssuccess and d sustain ann attractive market positioning. Figure 5: S Strategic contrrol points along g the agricultu ural value chain Source: Ro oland Berger The combination or selection of certain strrategic conttrol points offers differeent sets of business b opportunnities for trad ditional and d new, disru uptive players. In total, we identifieed five poten ntial businesss opportunities including their valu e propositio on (figure 6)) that are deescribed in the following: ntegrator: The 1. In T integrator concenttrates on strrategic conttrol points ccovering inp put suupplying annd productio on. Within th hese fields the t integrattor operatess as a co-crreator of an open ecosysstem through partnersh hips or as a provider off B2B/B2C ssoftware so olutions, advice and physical p pro oducts. As mmajor value propositionns, the integgrator enablles "one- sttop" solutions and crea ates an ecoosystem for major mark ket players. 2. S Service prov vider for machine-rel m lated activiities: Servicce providerss for machin ne-related activities focus on strateegic control points cove ering input supplying s aand production. The se ervice providers offer machine-rel m lated servic ces and soluutions by strreamlining the t co ollected datta into fully integrated iinformation systems (e e.g. predictivve maintena ance). As a re esult, increa ased equipm ment utilizattion and red duced down ntime can bee achieved. In addition, vehhicle-to-vehicle commu unication pro omotes ope erational effificiency. 3. S Service prov vider for se eeds-relate ed activitiees: Service providers foor seeds-rellated activities con ncentrate on nts covering input suppplying and production. n strategic ccontrol poin 7 BUSINESS OPPORTUNITIES IN PRECISION FARMING These providers offer advisory services for seed selection as well as a fully integrated information management system to organize the customer's client base. As their value propositions, these players maximize yield productivity with the right seed selection, monitor seed growth as well as provide value added services by data analytics. 4. Service provider for business intelligence (big data): Service providers for business intelligence focus on only a few strategic control points within input supplying. They act as intermediaries between clients and suppliers by providing data-driven advice and prescriptions on equipment, seeds and chemical inputs. Based on their neutral position as an advisor, various business opportunities arise in data analytics (big data) and modeling on all devices. 5. Private investor and commodity trader: Private investors and commodity traders concentrate on all strategic control points within production and post-harvest. They extend the supply chain in order to access production, demand and market data. Further, they invest and exploit farmlands with professional teams and advanced technologies. As a value proposition, these players bring benefits to investors by means of modern farming methods on rich farmland and the utilization of advanced technologies. Figure 6: Business opportunities 1 Integrator 2 Service machine-related activities 3 seeds-related activities 4 business intelligence provider for Service provider for Service provider for 5 Private investor and commodity trader Descrip- > Co-creator of an open > Concentrate on machine- > Offer advisory services on > Act as an intermediary > Extend the supply chain tion ecosystem through related services/solutions seeds choice/prescription between clients and in order to access real-time partnership > Maintain the central role > Offer a fully integrated suppliers by offering data- production, demand, market > Provider of B2B/B2C of equipment by information management driven advice/ data software solutions, streamlining data into a fully system to maintain/grow prescriptions on > Invest in and exploit advices and/or physical integrated information the client base equipment, seeds, chemical farmlands with products management system inputs… professional teams and advanced technologies Value > Enable "one-stop" > Optimize equipment > Maximize yield > Create various business > Bring benefits to investors proposi- solutions with a fully utilization and reduce productivity with the right opportunities based on by modern farming methods completed and optimized downtime due to seeds selection data analytics/modeling on on rich farmland tion decision-making process preventive maintenance/ > Monitor seeds growth all smart devices > Enable utilization/ > Create an open better SCM along production cycles and > Hold a neutral position as generalization of advanced ecosystem, optimizing > Increase farming alert to dangers in real time an advisor and establish technologies resources and generating operations efficiency with > Enable access to data and trust between clients and profits for each player connected/automated provide value added suppliers machines services by data analytics Source: Roland Berger 8 BUSINESS OPPORTUNITIES IN PRECISION FARMING D. RIGHT TO PLAY In order to exploit the emerging business opportunities, established agriculture players have to act fast. In 2014 investors including disruptive big data players such as Google were investing in total ~$2.4 bn in agricultural technology start-ups. Technology companies have realized the enormous extent of potential that is present in the agriculture industry and they are pushing forcefully toward conquering the key positions. In the future, traditional agricultural companies will face intense competition from these new players. Achieving a positioning at the strategic control points will be essential for competing successfully in the 21st century agriculture market. To reach a superior market position a company has to find answers to the following three questions: 1. What sweet spots are attractive for the company? Which strategic control points along the agricultural value chain can be identified as most valuable for the company? The company's own current functions and capabilities need to be matched with the requirements of the emerging business opportunities. 2. How to attain the right to play? The implications resulting from the company's current capabilities and future market position have to be addressed. Investment opportunities need to be developed and evaluated (build up expertise internally or through external smart partnering) as well as divestment opportunities. 3. What is the company's target vision? Finally, the company needs to aggregate the findings of questions 1 & 2 into a strategic vision and put in place work packages to help it reach the desired positioning. Precision Farming will reshape the industry. It offers huge potential for all players. Companies that strive for a right to play have to identify future business opportunities and need to cover the relevant strategic control points. But the transformation needs to be conducted fast, otherwise the answer to the question raised in the title is almost obvious: Big data will feed the world of tomorrow. Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With around 2,400 employees working in 50 offices in 36 countries worldwide, we have successful operations in all major international markets. Within our Global Automotive Practice we have a dedicated team of agricultural experts advising our clients on strategic and performance improvement programs. 9 BUSINES SS OPPOR RTUNITIES IN PRECIS SION FARM MING Authorrs Norrbert Dresssler Global Head off Commerciial Vehicle Cluster C Sen nior Partner Gerrmany +49 9 711 3275-7420 Norrbert.Dressler@rolandb berger.com Seb bastian Gunndermann Parttner Gerrmany 9 89 9230-8142 +49 Seb bastian.Gun ndermann@ @rolandberg ger.com Stephan Kees se Sen nior Partner USAA / Brazil +55 5 11 97203-7332 Step phan.Keese e@rolandbe erger.com Dr. Wilfried Au ulbur Sennior Partner India +91 22 3953-7502 Wilffried.Aulburr@rolandbe erger.com nyi Zhang Jun Parttner Chin na +86 6 1391 6924 4 798 Junyi.Zhang@rolandberge er.com 10 BUSINES SS OPPOR RTUNITIES IN PRECIS SION FARM MING bastien Am Seb michi Parttner Fran nce +33 3 (1) 70 39 4-282 4 Seb bastien.Amichi@roland dberger.com m And drea Marinooni Parttner Italyy +399 (02) 29501 1-296 Anddrea.Marinooni@rolandb berger.com Satoshi Nagasshima Parttner Japan 683 +81 3 358 76-6 oshi.Nagashima@rola ndberger.co Sato om Eduuard Cherkkin Prin ncipal Russsia +7449522576455 Eduuard.Cherkin n@rolandbe erger.com Further a authors: Christian Weber (Project Manager), Martin Höft (Consultannt) 11 BUSINES SS OPPOR RTUNITIES IN PRECIS SION FARM MING Publisher Roland BBerger Stra ategy Cons sultants Gm mbH Sederangger 1 80538 Munich Germanyy +49 89 9 9230-0 www.rola andberger.ccom Photo credits All image es licensed from Rolan nd Berger S trategy Con nsultants Gm mbH if not otherwise e indicated.. Disclaiimer This stud dy has beenn prepared for f general guidance only. o The rea ader shouldd not act on an ny information provided d in this stud dy without receiving r sp pecific professio onal advice.. Roland BBerger Strattegy Consultants Gmb H shall not be liable for any damaages resulting from the usse of inform ained in the study. mation conta THINK ACT App onn iTunes THINK ACT AApp on Goog gle Play © 2015 Rolannd Berger Sttrategy www.rb bsc.eu/RB_iT Tunes www.rbsc.eu/ w /RB_GooglePPlay Consultants C G GmbH. All rig ghts reserved d. 12