Ag 3.0

American agriculture is entering a new phase I call Agriculture 3.0. I won’t spend much time on Agriculture 1.0, which was early 20th century ag – a fairly labor intensive, low productivity affair which fed people but required 7 million small farms and 30% of the population to do it.

Agriculture 2.0 was the era most of our parents operated in; it began in the late 1950s when agronomic management practices like supplemental nitrogen and new tools like synthetic pesticides began allowing us to take advantage of the dramatically higher yield potential offered by that new-fangled hybrid seed corn.

The defining characteristics of Agriculture 2.0 were relatively cheap inputs, dramatically increasing yield potential, and growing returns to scale (read consolidation) at all levels. Awareness of the environmental impacts of off target chemicals or fertilizer was low, and government support policies initiated in the 1930s assured relatively little market risk and actively encouraged consolidation. Bigger farms, bigger equipment, bigger elevators – a good way to describe Agriculture 2.0 was a 50-year quest to economically produce and globally market undifferentiated #2 yellow corn. We did a heck of a job. Along the way we built systems for crop and animal production, inputs delivery, grain handling, and global marketing that were highly efficient and as undifferentiated as possible (since differentiation drives unit costs up).

But agriculture is entering a new era – Agriculture 3.0. This new era is not “right” where Agriculture 2.0 was “wrong” any more than the small family farms were “right” and the larger farms that replaced them were “wrong”. Change doesn’t take time for value judgments. But any old timer who lived through the transitions of farming from the 1940s to the 1970s can probably tell you that along the way there was lots of pain and resistance as the old accepted approaches to doing things was replaced by the “new paradigm”.

Practical Implications of Agriculture 3.0

Although nobody can with assurance say what the next 30 years will hold for agriculture, a few of the major ways in which this might play out are:

1. Higher levels of institutional land ownership and the breakdown of traditional support and hedging programs (think lower government price supports and the collapse of MF Global) mean that a more businesslike approach to risk management is essential. In the new paradigm huge sums of money can be made (or lost) in a nanosecond – and both will occur with greater regularity than most of us have ever imagined in coming years.
2. The promise of biotechnology is far greater than making weed control easier and cheaper and will ultimately result in the long overdue differentiation of downstream markets, allowing smart operators to make money by getting paid more instead of only by spending less. If those of us in upstream agriculture are unable or unwilling to seize this differentiation, ultimately downstream players will build a structure to “back integrate” and we will all be contractors, hired hands in our own industry.
3. Nutrient and pesticide management is going to move from routine overuse due to relatively low cost to much more precise and judicious use of increasingly expensive, targeted tools. The watchword will become “no molecule wasted”. The rapid growth of the biopesticide sector and the rapid growth of several specialty fertilizer players are evidence that this trend has already started. By the time my career ends IPM may be more than just a buzzword – we may actually practice it.
4. Equipment and tillage practices will be evaluated again as energy costs rise, new technologies arise which make true no-till possible, and larger farmers who spend little or no time on a tractor are less driven by emotion and more driven by economics. With enhancements via equipment and genetic technology in disease control, residue management, and cold tolerance, we may actually revisit true no-till and park some big steel. Equipment companies that focus on right-sizing equipment for operations, eliminating unnecessary field operations, and running the numbers on annual cost of use will continue to do quite well.
5. Precision agriculture and related crop consulting services will explode in importance as the need to integrate diverse data sets and drive active decision-making will replace pretty yield charts (which few growers do much with today). A few courageous and foresighted precision agriculture, crop consulting, and data management firms are already on the cutting edge of helping their farmers truly turn data into dollars.