Agriculture’s Connectivity and Digital Transformation

(17 minute read)

This blog draws from research to outline how agriculture, one of the world’s oldest industries must embrace connectivity and digital transformation in order to address demand and disruption challenges.

Mechanisation, advances in machinery, chemicals and agricultural science have radically transformed agriculture over the past several decades. Agriculture is currently in the early days of yet another transformation, this time related to data, digital, and connectivity. AI, analytics, IoT, robotics, and other technologies are poised to radically increase agricultural productivity and efficiency and improve sustainability and resilience through crop cultivation and animal husbandry.

Research from McKinsey Center for Advanced Connectivity and the McKinsey Global Institute (MGI) suggests that with the help of solid connectivity infrastructure, the agriculture industry could add another US$500 billion in value to global GDP by 2030, a 7-9% improvement, one of seven global sectors that is poised to add US$2-3 trillion in added value to global GDP.

Challenges and Barriers

Agriculture faces numerous supply and demand-side challenges. Demand side challenges are driven by world population growth, estimated to hit 9.7 billion by 2050 which would cause a corresponding increase in food demand and rise in costs of inputs. On the supply side, water resources are expected to fall by 40% of meeting global needs while rising costs, continuing degradation of arable land, impact of climate change and catastrophic weather, as well as socio-cultural pressures for ethical, sustainable, natural, welfare sensitive farming will all add to pressures.

To meet these challenges head-on, agriculture must embrace digital transformation but digital presence in this sector is comparatively less than any other. Agricultural advances have always largely been mechanical and genetic. Digital tools, however, can deliver the next productivity leap by helping farmers use resources more efficiently and sustainably, optimising yields, minimising risks, and address other challenges of welfare and productivity.

Two major obstacles hinder greater digital uptake across the agricultural industry. Connectivity infrastructure is poor across many regions in the world. Equally farms are slow to deploy digital tools because of weak evidence of their efficacy.

The pandemic has further intensified challenges that already characterised the agricultural industry in five key areas. Lower sales, pressurised margins, and rising costs demand greater efficiency from farmers. Gridlocked global supply chains emphasise the need for resilience by increasing local providers and sourcing. Heavy reliance on manual labour has been impacted by mobility restrictions on workforce causing farms to require more automation. Environmental benefits derived from decreased travel and consumption during the pandemic has emphasised greater need for local producers and sustainability. Shifting demand and sales channels have underscored the value of agility and digitisation.

Current State of Connectivity

Data has begun to play a greater part in farming in recent years in respect of soil, crops, livestock, weather etc. Yet very few advanced digital tools exist that can turn this data into actionable insights even in advanced economies, let alone developing ones where connectivity infrastructure is poor.

Even in advanced economies, digital and connectivity reach is poor and existing connectivity is of poor quality, often running on 2G and 3G networks on outdated devices.

Current IoT technologies running on 3G and 4G networks are sufficient for simple use such as monitoring of crops and livestock. With costs of infrastructure and hardware dropping rapidly, greater investment in digital technologies will deliver quick returns. There are further technologies that offer immense potential for enhancing value in agriculture. This requires full use of digital applications and analytics, higher bandwidth, greater density of devices and frontier connectivity technologies.

Some Connectivity Technologies

Here are some connectivity technologies and their value spectrum.

Short Range (RFID, Bluetooth): Efficient device-to-device (D2D) connectivity, storage, identification

LPWAN (NB-IoT, LoRa, Sigfox): Low power, low maintenance networks supporting high densities of connected devices

Fibre / DOCSIS 3.x: High speed, low latency fixed networks supporting other connectivity

Wi-Fi 6: Next-gen WiFi with higher speeds, device density, and features that increase device efficiency

Low to Mid-band 5G: High speed, low latency mobile connectivity overlay on existing 4G infrastructure

High band 5G (mm wave): Highest speed, low latency, and highly secure mobile connectivity

LEO constellation: Global coverage with significantly reduced latency vs existing satellite offerings

Challenges facing the industry are thus twofold: developing necessary infrastructure to enable greater connectivity in farming and developing strong business cases where connectivity already exists for solutions to be adopted. By 2030 connectivity coverage is expected to expand significantly to cover around 80% of the world’s rural areas with the notable exception of Africa. As connectivity increases, the following tools will expand digital capabilities in agriculture:

Massive IoT: Low power networks and cheaper sensors will allow IoT scale up for use cases such as precision irrigation of field crops, monitoring large herds of livestock, and tracking use and performance of remote buildings and large machinery fleets.

Mission Critical Services: Ultra-low latency and improved connection stability will help with running applications that demand complete reliability such as operating autonomous machines and drones.

Near-Global Coverage: If LEO satellites achieve full potential, it will enable the most remote rural areas of the world to use extensive digitisation, enhancing global farming productivity.

Connectivity and Value Creation

Enhanced connectivity in agriculture is expected to add more than US$500 billon to global GDP, a productivity improvement of 7-9% for the industry. However to achieve that value, massive investments are required in connectivity. Technologies like LPWAN, cloud, and cheaper sensors and hardware are already extensively used in other industries.

Initially potential value will accrue more to larger farms that have more investing power and incentives to digitise. Connectivity can help easier surveying of large tracks of land and the costs of developing IoT can be offset in large production facilities. Connectivity also enables more use cases in crop farming of grains, fruit, and vegetables as well as meat and dairy sectors because of the large average size of farms, better applicability and higher player consolidation.

McKinsey develops five use cases where enhanced connectivity is already being used and is expected to deliver huge value especially in Asia and Africa where there is much room for optimising potential for connectivity.

Use Case 1: Smart-Crop Monitoring: Connected irrigation and nutrient-distribution equipment based on connected-sensor data and imagery analysis, aimed at optimising resource usage and crop growth through real time, precise, location-dependent adjustments. Estimated added value: US$130-175 billion by 2030.

Use Case 2: Drone Farming: Drone surveillance and remote interventions based on image analysis and connected sensors communicating data with the drone, aimed at providing more frequent, cost effective, remote monitoring of large areas, and enabling remote interventions to boost yield and reduce losses from pests as well as optimising deployment costs. Estimated added value: US$85-115 billion by 2030.

Use Case 3: Smart Livestock Monitoring: Individualised feeding and care plans based on connected body sensor data and movement tracking, aimed at detecting illnesses early and providing each animal with its optimal feed and medicine mix to maximise growth. Estimated added value: US$70-90 billion by 2030.

Use Case 4: Autonomous Farming Machinery: Self operated machinery and robots able to perform targeted interventions based on connected sensor data, GPS data and imagery analysis, aimed at optimising resource usage, reduce labour requirements, and boosting yield through more precise and individualised interventions. Estimated added value: US$50-60 billion by 2030.

Use Case 5: Smart Building and Equipment Management: Prescriptive maintenance and real time environmental adjustments, aimed at improving performance and extending useful life of farm equipment and other assets as well as decreasing risk of mould, fire, and other threats. Estimated added value: US$40-60 billion by 2030.

Additional Sources of Value

Connected technologies also add indirect benefit and value which is not included in the estimates above. The global farming industry is highly fragmented and most labour is done by farm owners using their own labour especially in Asia and Africa. Connectivity solutions should free up farmer time so they can pursue other value creation activities outside of farming.

Connectivity induced labour efficiencies on such farms would easily add another Us$120 billion bringing the total value from direct and indirect outcomes to over US$620 billion by 2030. Much of this however depends on advanced connectivity coverage and infrastructure which is expected to be low in poorer parts of the world where achieving critical mass of adapters will also be difficult.

Agricultural Ecosystem

With greater digitisation of the agricultural industry and the expansion of an agri-ecosystem, new players will emerge to unlock pockets of value. The main players within the system to date have been those providing inputs such as seeds, fertilisers, nutrients, pesticides, and equipment who have used their close proximity to farmers, access to data, their own domain expertise, and track record of innovation to unlock value.

Advanced connectivity however has the potential to bring in new players. Entrants like telecom and LPWAN providers, agritech companies etc. add value by way of enhancing connectivity infrastructure, developing public and private rural networks, offering data and tech-informed innovative products that increase yields and profits.

All of the above requires extensive high-speed broadband network coverage in rural areas. This in turn requires investments which can emerge from telecom firms, leading agricultural providers and players who could partner up with telecom firms, or large farming establishments who could form local networks.

All of these initiatives require significant collaboration amongst players. Developing connectivity is not the end game. The bigger challenge is about developing partnerships through which significant leverage can be gained by all incumbents to unlock pockets of value and growth to the mutual benefit of all. These partnerships would also include key players in the public sector including governments who stand to gain much in working together to improve agricultural yields.

As one of the world’s oldest industries, agriculture finds itself at a technological crossroads. In order to address the growing challenges and disruptive trends it faces, the industry will require significant advances in connectivity fuelled by infrastructure investment and a realignment of traditional roles played by incumbents. With an estimated industry value of US$620 billion to be gained directly and indirectly, the survival and sustainability of many players may indeed depend on making better use of technology and connectivity.