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Bussinesss oppporrtunitties in Prrecis

sion
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.

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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

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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.

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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.

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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.

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BUSINES
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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

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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

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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.

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BUSINES
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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

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BUSINES
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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)

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SS OPPOR
RTUNITIES IN PRECIS
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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

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