McKinsey: High crop prices encourage farmers to invest in agtech

Despite economic disturbances, high crop prices are giving farmers around the world cause for cautious optimism, according to a survey of 5,500 farmers from nine countries, by McKinsey & Company.

High crop prices driving profitability

Seventy percent of farmers expect profits to remain stable or increase – the result of high crop prices driving profitability in the next two years. Consequently, farmers are being inspired to invest in new products that are focused on yield increase and crop protection.

Despite an uncertain future with supply chains impacted by geopolitical conflicts, farmers are facing the changes head on, innovating in new areas and adopting new strategies.

McKinsey’s data captures the global voice on the state of agriculture, sharing perspectives on the five themes that are shaping farming operations and considerations for future improvements by farmer facing organizations:

1. Farmers are willing to innovate, despite macro uncertainty

• 70 percent of farmers expect profits to remain stable or increase. Many intend to try new products to capture the current high crop price opportunity.
• Different challenges are expected to be faced by regions over the next two years, but the common risk across all is the increased price of inputs.

2. Using multiple channels for sales is gaining strength, with farmers increasing their use of digital engagement and purchases

• The preference for digital varies throughout the purchasing journey but is increasing in strength at the repurchase stage. Approximately 50 percent of surveyed farmers already make digital purchases for at least one product, with South America standing out as an early adopter of digital channels.
• Parts and equipment maintenance services, precision ag hardware, and farm management software are the top products that farmers expect to purchase online in the next two years.

3. Growing traction of digital financing and payments adopting new financial products and services such as digital payments

• Cash is still the main payment method for 60 percent of farmers globally, but digital payment is emerging as an important trend.
• China has particularly high adoption of digital payment, used by 66 percent of Chinese farmers, compared to 30 percent globally.
• Interest rates, loan amounts, and transaction costs are the main challenges to secure farm financing across all regions, repayment periods also raise to the top in Europe and Asia

4. Innovation and adoption of tech agriculture technologies vary widely by region

• Western countries are leading ag tech adoption, with farm management software being the top technology followed by precision agriculture hardware.
• Willingness to adopt in the next 2 years is highest in South America with expected growth in adoption of 8-9% across technologies while Asia has the lowest adoption rates.
• At least 20 percent of global farmers are either using or planning to use biologicals: for pest control, biostimulants or biofertilizers. But adoption differs greatly across countries.

5. Sustainability practice adoption requires a more holistic approach from farmers and suppliers

• Despite awareness of sustainability practices, global adoption is still below 50 percent.
• Participation in carbon programs is also very low due to ROI not high enough for farmers, complexity of the programs, and the lack of extended outreach, with only 5 percent of growers currently involved in such initiatives globally.

Vasanth Ganesan, Partner at McKinsey, said: “Farmer-facing companies should consider ways to support the farmer with adopting holistic sustainable farming practices and help them with the required financing and tools to scale across all acres. Further, sustainability programs need to be dramatically simplified to access for farms across regions, crop types and sizes. The sector’s focus on sustainability is currently being spearheaded by large farms, but support is needed for smaller farms, too.”

“Across the world, farmers are investing in new products and innovations, but adoption is not universal across all regions. Products and services should be tailored and personalized for growers, to stimulate uptake and provide farmers access to yield-driving technologies and greater cost-efficiencies. Suppliers need to position themselves as innovators and partners who can assist farmers in maximizing their value and growth.”