{"id":16069,"date":"2016-11-17T17:20:29","date_gmt":"2016-11-17T22:20:29","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/bayers-sky-high-hopes-for-a-digital-farming-revolution\/"},"modified":"2016-11-17T17:20:29","modified_gmt":"2016-11-17T22:20:29","slug":"bayers-sky-high-hopes-for-a-digital-farming-revolution","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/bayers-sky-high-hopes-for-a-digital-farming-revolution\/","title":{"rendered":"Bayer\u2019s Sky High Hopes for a Digital Farming Revolution"},"content":{"rendered":"

Digital Farming<\/strong><\/p>\n

Climate change will make it difficult for farmers to continue to supply enough food for the world\u2019s growing population. While the world will add three billion people by 2050, arable land per capita is expected to decline by around 17%. An increase in food production of 60% is required to feed the planet, but less land and consumer resistance to genetically modified yield enhancing seed varieties means innovative solutions are needed to close the gap between this requirement and current production levels.<\/p>\n

The marriage of digital analytics with one of the world\u2019s oldest industries is the solution that has gained the most traction. Today each farmer goes through more than 40 major planting decisions each season. Digital analytics can be used to capture and analyze data and make recommendations specific to farmers along the entire planting cycle so that these decisions can be optimized to deliver more yield while also improving sustainability. [1]<\/p>\n

Monsanto\u2019s Digital Efforts <\/strong><\/p>\n

Monsanto, the biotech seed giant, made its leap into digital farming in November 2013 with the $1bn acquisition of Climate Corporation, a San Francisco based startup (founded by former Google employees) which was using agronomics, climatology and the power of \u201cbig data\u201d to improve farmer decision making. [2] As the world\u2019s largest hybrid-seed producer, Monsanto has a library of hundreds of seeds and terabytes of data on their yields. \u201cBy adding these to the Climate Corporation’s soil and weather database, it produced a map of America which says which seed grows best in which field, under what conditions.\u201d [3]<\/p>\n

Through a series of acquisitions, Monsanto expanded the capabilities of its core digital product, FieldView Drive<\/em>, which allows a farmer to connect his\/her tractor to a device that can transmit field data to an IPad and use that information to understand seed performance by field, soil zone and see a side by side view of planted areas and yield data. [4] With small players entering the ag-tech space, Monsanto transformed FieldView into a centralized platform for transmitting data from various sources of equipment and sensor technologies, giving farmers a central spot to access the latest technologies. [5] Monsanto believes the benefits of Climate Corp\u2019s user base and technologies, avoiding the need to develop their own systems for creating farmer accounts, securely transmitting data and payments, are enticing enough to attract third-parties to its platform. [4]<\/p>\n

As of August 2016, FieldView was being used on 100 million U.S. acres, with 15 million using its premium services. Monsanto expects the product to reach 400 million acres by 2025 and to be profitable by 2020. [6]. For farmers, the results have been very positive. \u201c[Those] who have tried Monsanto\u2019s system say it has pushed up yields by roughly 5% over a two-year period, a feat no other single intervention could match.\u201d [3]<\/p>\n

Transforming its Organization<\/strong><\/p>\n

With a mission to unlock \u201cdigital yield\u201d through predictive analytics and Internet of Things (IoT) technology, Monsanto is also rethinking the role of information technology in its organization. Traditionally serving as a \u201cback office\u201d business support function, Monsanto\u2019s IT department is now being challenged to be a \u201cshaper of demand\u201d and help drive forward-thinking business strategies. \u201cMonsanto, at the end of the day, is a yield based company. We are trying to increase the yield, reduce input costs, increase output, and drive that more sustainably. If we are a yield based company, think about the power of unlocking digital and digital yield for our company, in all that we do\u2026IT delivers the digital platforms that [unlocks that],\u201d said James Swanson, Monsanto\u2019s CIO. [7]<\/p>\n

The Merger and Future<\/strong><\/p>\n

While Bayer\u2019s management deflected a question during the M&A conference call on how much value was ascribed to Monsanto\u2019s digital agriculture platform, Werner Baumann, Bayer\u2019s CEO, did reveal, \u201cthe way new technologies can change business models, and with the significant investment and Monsanto really being at the forefront of this development, this is going to be highly valuable.\u201d<\/p>\n

Bayer\u2019s longer term vision is an outcome driven value proposition. \u201cWe are not simply selling farmers seeds, traits, and crop protection products, but optimized field level prescriptions to improve on-site decision making and execution. In the future, we should be able to offer outcomes-based solutions, for example a disease or a weed-free acre, or maybe even a yield guarantee, to give some examples,\u201d said Liam Condon, Head of Crop Science Division. [1]<\/p>\n

Lastly, a major slice of the opportunity resides in developing countries. How can Bayer take these technologies to farmers in Brazil, India and Africa to bridge the productivity gap vs. farmers in the U.S.? How will Climate Corp\u2019s large-scale grower platform perform in a small farm holding setting? [8]<\/p>\n

(775)<\/p>\n

[1] Bayer AG And Monsanto Joint Investor Conference Call M&A Call – Final 2016, , Linthicum<\/p>\n

[2] Michael Specter, \u201cClimate by the Numbers: Can a Tech Firm Help Farmers Survive Global Warming?,\u201d \u00a0\u00a0\u00a0\u00a0The New Yorker, <\/em>November 11, 2013, http:\/\/www.newyorker.com\/magazine\/2013\/11\/11\/climate-by-numbers accessed November 2016<\/a><\/p>\n

[3] Digital disruption on the farm; Schumpeter 2014, The Economist Intelligence Unit N.A., Incorporated, London<\/p>\n

[4] “Biotechnology Companies; The Climate Corporation Launches New Climate FieldView DriveTM to Simplify Data Collection, Storage and Visualization for Farmers”, 2016, Biotech Business Week, , pp. 41<\/p>\n

[5] \u201cThe Climate Corporation to Create Industry\u2019s First In-Field Sensor Network to Feed Its Analytics Platform and to Build First Centralized Platform for Industry-Wide Digital Ag Technology Development,\u201d The Climate Corporation press release (August 17, 2016)<\/p>\n

[6] Karl Plume, \u201cMonsanto\u2019s Climate Corporation seen as profitable by 2020,\u201d Reuters, <\/em>September 1, 2016, http:\/\/www.reuters.com\/article\/us-usa-monsanto-interview-idUSKCN11631D accessed November 2016<\/a><\/p>\n

[7] Interview by James D. Swanson, Boardroom Insiders\u00b8 Forbes, <\/em>February 2016<\/p>\n

[8] Michelle Donahue, \u201cSmart Farms: Big Data Meets Big Ag,\u201d PC Mag, http:\/\/uk.pcmag.com\/news\/85916\/smart-farms-big-data-meets-big-ag<\/a> <\/em>accessed November 2016<\/p>\n","protected":false},"excerpt":{"rendered":"

In September 2016, Bayer announced the acquisition of Monsanto for a lofty $66bn valuation (18.6x EBITDA). 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