Ag Tech Sunday - The short and mid term impact of COVID-19 on Ag Tech

By Jeff Caldwell - Lessing-Flynn

COVID-19 has taken tens of thousands of lives around the world and forced fundamental changes to societal conventions and institutions. One of the economic outcomes of the pandemic is an acceleration of a trend many in ag technology saw foreshadowed earlier in 2020. Only now it’s unfolding at an accelerated rate. While it’s symptomatic, a restructuring of the ag technology sector could also be the beginning of the industry’s next evolution. This would be a step toward more industry-wide financial stability and consistency of product offerings for farmer customers.

The ag technology sector is characterized by a diversity of products, company size and viability. This ranges from century-old established equipment manufacturers to small startups. These are all competing for farmers’ attention and investment in products and services ranging in functionality, cost and ROI. That diversity of company size and offerings means the COVID-19 pandemic affects market participants in dramatically different ways. Companies’ longevity and resulting financial backing are major factors in how companies are faring in the short term as the marketplace tightens.

“Some companies are doomed the day they take such big piles of cash without a clear business model or pathway to truly add value. We have to ask ourselves: What’s the overall value to someone for this kind of technology?” said Craig Ganssle, founder and CEO of Farmwave, an agricultural insights and imagery analysis company. “There’s got to be a bigger picture here of value for it to make sense.”

Proving value

That clear definition of a company’s value proposition is causing a lot of questions. This is resulting in changes in the number of ag technology company offerings during the COVID-19 pandemic. The general economic stress is forcing a lot of introspection about business viability; in some cases, that introspection leads to structural changes at companies where venture capital comprised a large portion of the early-stage value. And some of those companies won’t survive the necessary adjustments to more financially sustainable bases.

“If a startup doesn’t have a sound idea that actually works and provides value, this year will determine their fate,” according to Nathan Faleide, strategic initiatives manager for AgIntegrated, an independent provider of software consulting and technologies, and principle of agricultural technology and satellite imaging company Satshot. “The tide will turn from big investment deals or ‘how much I raised’ to how you are running a successful business close to profit, at breakeven or a slight profit. More or less running it as a normal business that can be sustainable by itself. I think more companies will be asking these questions.”

Future opportunities

But Faleide, Ganssle and others in the ag technology sector agree it’s not all doom and gloom when the post-COVID-19 growing pains for the ag tech sector subside after short-term marketplace adjustments. Though the situation is exposing vulnerabilities for many companies, that exposure will ultimately translate into a general strengthening of the ag technology sector. This will happen despite the process requiring some companies’ major restructuring if they’re to continue operating and offering new tools and services to farmers who face their own marketplace challenges.

“Warren Buffet says, ‘Only when the tide goes out do you discover who’s been swimming naked.’ Companies dependent on outside funding for their primary source of cash flow are likely to struggle raising that next round of funding,” according to Nick Horob, founder and president of farm business software platform HarvestProfit.com. “Low commodity prices present a challenge as many farmers lock down their checkbooks.”

As ag technology companies adjust business and revenue models, so too will their farmer customers and their input retail partners in how they adopt new tools and evolve their operations to function efficiently and account for broader protective measures in the longer term. As that happens, the ag technology sector will generally gain strength as a component of modern crop and livestock production, according to Shane Thomas, Farmers Edge global digital ag lead and author of Upstream Ag Insights.

“If there is a move to cut expenses on digital technology and a decrease in uptake, I think we could simply see a dip in the short term regardless of the longer-term trend. There could be benefits in some cases, too, where it solidifies itself on the farm — there may be more scrutiny where the technology is adopted on farms, and it will be actively and aggressively used versus what may be a ‘we’ll give it a try and see how it goes’ type of approach,” Thomas said. “I think it will increase the focus of digital tools being used by manufacturers and retails as well. The ability to purchase online, communicate digitally and send information like prescriptions via the cloud will likely see an uptick in usage through this situation, minimizing clunky inefficient practices.”

The evolving role of ag technology

Thomas pointed to sensors and moisture probes as the kind of newer tools that can help farmers create new efficiencies with input decisions like irrigation and fertilizer management as the types of ag technology whose value will be even clearer during and after a time when person-to-person contact is limited. Autonomous machinery will also see gradually increased demand among farmers in the post-COVID-19 world as they adjust to increased exposure of labor challenges created by the virus, Thomas added.

Beyond these specific applications of new technology in agriculture, the resolution of the COVID-19 pandemic will usher in a new age of discovery across the food and agriculture industry. The U.S. ag technology sector will play a growing role and remain a key component of the evolution in how food is produced, processed and distributed to consumers around the world.

“There will be sectors of agriculture that need to new ideas to emerge. The food side will be interesting with what’s actually needed versus wanted since you’re seeing real food waste issues now more clearly. The meat industry is going through chaos with ranchers versus packers. Novelty food products will tank. So, food tracking interest will increase. Corn is going to be rethought with the oil and ethanol prices,” Faleide said. “Other countries will show their food and ag vulnerability, and the U.S. will need to step in to understand how it can recover its food export brand as ‘always reliable.’ There will be many different winners and losers after this whole debacle.”

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