While it is inevitable that artificial intelligence (AI) and technology, such as robots and the Internet of Things (IoT), will remain key drivers in 2022, the most likely impact on agriculture will come from change climate change, mitigating its impact and ensuring that the sector prevails against obstacles no matter what.
As seen at the COP26 Indaba in Glasgow last September, climate change and what it means for agriculture has an important role to play in the future. While COP 26 will have heightened awareness around climate change and the urgency required, it undoubtedly represents a risk for us (as a lender in agriculture) but also presents a huge opportunity as we are helping farmers to build climate resilient businesses that are not only environmentally viable but also financially viable. There is no doubt that climate change will continue to be a problem.
But that means farmers will need to increase their adoption of innovative solutions to make their operations resilient. These solutions take the form of crop protection (such as shade nets), indoor agriculture and sustainable production techniques (to improve soil health and biodiversity). The decarbonisation of the sector will also begin to develop, which will be accelerated by the introduction of a carbon tax in the industry and the requirement of traceability by supply chains (for the benefit of consumers)
But there is no need to be pessimistic from a South African point of view. According to Agbiz, 2021 saw a good harvest of agricultural raw materials, namely cereals (corn and oilseeds), wine and tree crops (fruits and nuts). In turn, this was further supported by reasonable raw material prices, which offset the increase in agricultural inputs (fertilizers, chemicals and fuel), resulting in higher incomes for agricultural actors. As a result, the outlook for 2022 also promises to be a good year due to favorable weather forecasts and favorable (mainly Asian) commodity demand and prices.
Undeniably, water scarcity will remain a challenge, especially in the central and western regions of the country. But the use of precision agriculture (powered by AI, Big Data, robotics, IoT, imaging, etc.) and efficient irrigation systems (drip and micro -irrigation) to intensify while the need to optimize production (to reduce costs) becomes a necessity.
Inevitably, the erratic nature of power generation is expected to persist, leading to power shortages due to an inadequate power grid (Eskom). As this is expected to get worse, more primary and value chain producers will embrace alternative energy systems (like renewables) to avoid downtime due to load shedding, cable theft or fault. of cable, which will harm their bottom. line.
In terms of changing the business model, farmers are faced with the imperative to remove middlemen through e-commerce, thereby addressing inefficiencies caused by the traditional use of middlemen between primary producers and consumers. The result is the erosion of margins, where each actor in the value chain takes a percentage of the income for the services rendered. Therefore, these intermediaries come from marketers or exporters, logistics companies, auction houses, fresh produce markets, manufacturers, processors, wholesalers and retailers.
Until recently, have primary producers started to deal directly with end consumers? The pioneers were the wine producers who sell their products through their e-commerce platforms (websites). We have also seen large agro-industries in the fruit sectors (notably citrus) setting up platforms to sell directly to consumers.
One of the positive spinoffs of Covid-19 has been the emergence of e-commerce platforms targeted at the agricultural sector. The value proposition of this platform is to facilitate collaboration and exchanges between producers (farmers) and buyers (buyers, such as retailers or FMCGs) who would not necessarily have traded together in the past. These platforms help to increase farmers’ margins by cutting out middlemen and exposing farmers to new markets (buyers) with potential for improved incomes.
Currently, there are around ten e-commerce platforms in South Africa, namely Nile.ag, HelloChoice, SwiftVee, AgriKool, Khula App, TonnUp, Trigga, LivestockWealth, Tridge, Zire, etc. All of these platforms are gaining ground in terms of adoption by farmers and buyers, as evidenced by the volumes passing through them.
It should be noted that Nedbank has developed (internally) and launched its Avo e-commerce platform in the B2C marketplace and will launch its B2B offering in early 2022 and this offering will include selected agricultural sectors. It is therefore evident that these platforms disrupt traditional platforms such as fresh produce markets, livestock auctions and input markets.
The Department of Agriculture, Agrarian Reform and Rural Development (DALRRD), in collaboration with social partners (businesses and labor), worked on master plans for agriculture and agrifood aimed at to increase the performance and competitiveness of certain sectors of the agricultural sector with the highest potential for job creation and improvement of food security.
This would increase investment and funding in these sectors; the government is also at an advanced stage of deploying financing instruments that will create equity in the beneficiary’s businesses. The funding model will inject equity in the form of grants (from the government) with the expectation that financial institutions such as banks advance loans according to defined criteria – called the “blended finance model”.
To this end, one must consider the opportunities on the continent through the African Continental Free Trade Area (AfCFTA), which carries with it the promise of considerable inclusive economic growth for Africa. Potentially, this enables one-stop border concepts aimed at a smooth flow of traffic and goods, some of which would transport fresh agricultural products to regional markets. It also brings business expansion to other African countries, for example Dangote conglomerate expanding their agricultural activities to Zimbabwe, Zambia etc.
Most importantly, as a bank built on partnerships to do good, the most successful companies are built on collaboration. Consider the Discovery business model – at the heart of it is a business platform bringing together insurance, retailers, healthcare and travel companies, on a shared value model that delivers value to customers. It works efficiently. Other examples include Uber, Airbnb, Takealot.com, etc.
The agricultural sector is no different, and to tackle its most difficult issues such as transformation and climate change, the use of partnership models will become crucial. The advantage of using a partnership approach is that it leverages the capacities of partners for the benefit of the recipient (client).
Technology to take the lead
In the future, technology will certainly play a vital role, although some argue that it has not been fully utilized in the industry, its influence is increasing. However, although it is not new, blockchain technology in the agricultural space has been pedestrianized, some believe that this technology can help with traceability, which helps improve food security and sustainability. It can also be used to track impact and facilitate SDG reporting and monitoring.
The other technology (which is relatively new) that could potentially benefit the agricultural sector (from an agricultural services perspective) is the metaverse which combines the advantages of AR (augmented reality) and virtual reality (virtual reality) to provide a realistic experience for users. . This can help in the machine maintenance space or even in the virtual management of the farm.
Innovation (often at the back of technology) opens up more and more opportunities (for a wide range of stakeholders, primary and secondary, large and small). The ability to engage / participate on multiple platforms using mobile phones and other devices makes agriculture much more accessible to a much more comprehensive range of stakeholders.
While innovative trends will undoubtedly have a positive role to play, the Covid-19 minefield, inflation issues, growing food challenges are minefields that need to be creatively explored for the sector. agricultural remains above the grain.