Could Cheap Oil Derail Ag Tech?

Internet of Things technologies hold great promise for the agriculture industry, but they're not always an easy sell.
By Mary Catherine O'Connor
Jan 27, 2016

I recently had two discussions about the commercial viability and potential of IoT technologies for agricultural applications. First, I spoke with Sara Olson, a research analyst who covers innovations in the agriculture sector for market-research firm Lux Research. Late last year, she published a report (titled "Sensing in Agriculture: How Can Technology Developers Drive Adoption?"), for which she led a team that researched the costs of deploying various IoT technologies versus their financial impact for farmers.

I later spoke with James Mahan, a plant physiologist with the U.S. Department of Agriculture (USDA), who has spent decades researching and developing a range of sensor technologies designed to help farmers better understand the actual (versus perceived) needs of crops and, therefore, use inputs (fertilizer and water) more efficiently.

What I learned is that IoT technologies can, in fact, revolutionize farming and enable the industry to meet the growing demand for food, while also reducing its demands on natural resources. But I also learned that none of that really matters as long as oil remains cheap.

OK, I'm exaggerating a bit here. But the point is, farmers are extremely wary of making technology investments in general. It's not a sector known for early adopters. Plus, agribusiness is inextricably tied to oil—because of fertilizers and energy associated with irrigation, processing and transportation—and it has narrow margins. So when oil becomes cheap, farmers are far less motivated to invest in technology that has a main benefit of cutting the costs of inputs, even if it can also boost yield. This is especially true when the crop price falls as well, as it has for corn growers.

"Back when farmers were getting $8-per-bushel corn—which was sky-high—a lot of technology developers saw an opportunity to help growers make a better yield," Olson told me. "But now, while we're seeing all that technology development come to fruition, the margins farmers are seeing are too low." On the day I spoke with her (Jan. 19), she told me the corn price was $3.69 per bushel. In recent weeks, it has dropped even lower. With the combination of such squeezed margins and oil hovering around $30 a barrel, farmers are hard-pressed to invest in new technology because they lack both the funds and the motivation.

It's unfortunate, she said, "because these technologies could reduce fertilizer use, make better use of water and cut labor. And sadly, even if the [crop] prices rebound, the idea that sensors [and related technology] are too expensive for farmers… could be hard to change."

The availability of water is another important variable. The epic drought that plagued California's Central Valley throughout the past few years stoked interest and investment in water-saving technologies. While the drought is far from over, the 22-plus feet of snow that El Niño has brought to the Sierra Nevada this winter could mark a return to wetter days. Or, it might not. But, Mahan said, since the early days of irrigation, whenever farmers have had water in abundance, many have failed to use it judiciously.

"We've seen it time and time again. The issue with water is that if you have adequate water, the tendency is you apply a surplus if it is available," Mahan explained. "What we found is that with good instrumentation, we can provide that water in a just-in-time method. So, with good monitoring, as long as we know where the crop is, we can take a lot of excess water out of the system."

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