Digitalization creates value in the whole food chain. While China is way ahead of Western countries in middle and front end e-commerce, the worldwide agri industry needs to start adopting technology to enhance yields, decrease waste and increase customer value. But don't set the wrong standards. It will make the system more fragile than it already is. Turn it the other way around.
For the first panel on digitalization Dick Veerman had an exchange of views with Tiffany Tsui (Springtide Consultancy), Mary Shelman (Mary Shelman Group, former head of Harvard Business School's agribusiness program) and Aidan Connolly (AgriTech Capital, former board member of Alltech).
“The last three to four years, I have not used any money in China,” says Tsui while she explains the biggest difference she sees between China and for instance the Netherlands. “Even a beggar in the metro, I pay with WeChat by scanning his code. WeChat is widespread in China, making it very convenient for all shops to be on this platform.”
“Delivery in China is huge.” The last mile – closing the cost gap between the store, hub or distribution center and the customer – is not a problem in China, while in the Western world it makes e-tailers loose money. The large scale has cost benefits, as does the large army of cheap labor from the rural areas.” SARS in 2003 was a turning point for delivery in China. Tsui: “SARS was mostly impacting China. Since that moment e-commerce really started to take off due to public safety concerns. SARS gave a major boost to e-commerce by changing consumer behavior. They are now used to paying and buying online. The whole system is so easy to use.” Covid-19 could do the same thing for the Western world 17 years later.
Precision will turn agri into a real industry
Connolly believes that technology provides huge opportunities for food production. More productivity and less waste. “No other industry runs as inprecisely as agriculture does. The gap between what we know and what we should be doing is massive. Precision in being able to measure – for instance in crop fields, in animals, and even in ourselves – is going to create massive changes. Definitely in the next ten years we will see a food production that we have never seen before.”
However, he is disappointed in the pace it is being adopted. “In the West we are embracing new technologies, particularly digital. However the speed of embracing has been slow.” China, Connolly believes, is moving forward much faster. “The speed of technology adaptation in the agri business will take place more rapidly as well.”
Shelman sees two challenges in doing more with less, as Connolly proposed. “It’s one take to create value, it’s a second piece to capture value. Typically, farmers who are more productive, increase their scale.” Which does not comply with consumer’s needs, believes Shelman. Moreover, “as we see from the Covid impact, an efficient system and supply chain aren’t very resilient.”
“The real world isn’t perfect,” Shelman says. “We have developed all of these efficient systems, but they cannot cope with outside shocks, like Covid or extreme weather conditions. Typically, the farmer bears that cost.”
Connolly responds: “The promise of technology is not simply to make farming more monocrop, cheaper and efficient. It can also be to design new systems that are more sustainable, more robust and antifragile.” Shelman couldn’t agree more. However, she is skeptical: “Naturally technology leads into a push. We need to reinvent the fabric of farming. And maybe this shock [of Covid-19] is it, maybe it isn’t. We need to proactively think about that and support that transition.”
SARS (2003) gave a major boost to e-commerce by changing consumer behaviorSARS boosting e-commerce in China
“Delivery in China is huge.” The last mile – closing the cost gap between the store, hub or distribution center and the customer – is not a problem in China, while in the Western world it makes e-tailers loose money. The large scale has cost benefits, as does the large army of cheap labor from the rural areas.” SARS in 2003 was a turning point for delivery in China. Tsui: “SARS was mostly impacting China. Since that moment e-commerce really started to take off due to public safety concerns. SARS gave a major boost to e-commerce by changing consumer behavior. They are now used to paying and buying online. The whole system is so easy to use.” Covid-19 could do the same thing for the Western world 17 years later.
Precision will turn agri into a real industry
Connolly believes that technology provides huge opportunities for food production. More productivity and less waste. “No other industry runs as inprecisely as agriculture does. The gap between what we know and what we should be doing is massive. Precision in being able to measure – for instance in crop fields, in animals, and even in ourselves – is going to create massive changes. Definitely in the next ten years we will see a food production that we have never seen before.”
However, he is disappointed in the pace it is being adopted. “In the West we are embracing new technologies, particularly digital. However the speed of embracing has been slow.” China, Connolly believes, is moving forward much faster. “The speed of technology adaptation in the agri business will take place more rapidly as well.”
No other industry runs as inprecisely as agriculture does. The gap between what we know and what we should be doing is massiveThe cost of efficiency
Shelman sees two challenges in doing more with less, as Connolly proposed. “It’s one take to create value, it’s a second piece to capture value. Typically, farmers who are more productive, increase their scale.” Which does not comply with consumer’s needs, believes Shelman. Moreover, “as we see from the Covid impact, an efficient system and supply chain aren’t very resilient.”
“The real world isn’t perfect,” Shelman says. “We have developed all of these efficient systems, but they cannot cope with outside shocks, like Covid or extreme weather conditions. Typically, the farmer bears that cost.”
Connolly responds: “The promise of technology is not simply to make farming more monocrop, cheaper and efficient. It can also be to design new systems that are more sustainable, more robust and antifragile.” Shelman couldn’t agree more. However, she is skeptical: “Naturally technology leads into a push. We need to reinvent the fabric of farming. And maybe this shock [of Covid-19] is it, maybe it isn’t. We need to proactively think about that and support that transition.”
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Krijn Poppe regarding the last remark of Mary Shelman in the text: “Naturally technology leads into a push. We need to reinvent the fabric of farming. And maybe this shock [of Covid-19] is it, maybe it isn’t. We need to proactively think about that and support that transition.”
What is your opinion, could Covid-19 be the shock that leads to reinvent the fabric of farming?
Direct effects of Covid-19 on the food system clearly exist. As The Economist recently made clear the system works nicely, especially if governments don't block borders. But there are effects in disappearing demand (closing shops nearly closed the flower business, closing restaurants hurts the french fries industry, and immigrant workers are in the picture: they sometimes do not show up or are a big worry as in slaughterhouses).
Of course some benefit, e.g. more demand for healthy food, for online etc. And in certain regions there seems to be some connection between air quality and Covid-19, so that is another reason to worry about the location of the livestock industry in some regions (and in the Netherlands also the mink farms are in the picture as some mink are resoonsible for animal-human transmission of Covid-19).
So there will be changes, in demand, in location of industries and in regulation. The big questions are: what is going to happen to the economy, what is the fall out in geo politics (US-China, North-South in the EU) and is this the trigger to end the neo-liberal period that was installed by Reagan and Thatcher in the 1970s crisis as the younger generation asks the governments and food business not only to fight Corvid-19 but also to start more actively preventing the next crisis: climate change. And that then probably will promote digitalisation. Another trigger could be higher labour cost, not due to the unemployment coming up, but due to regulation in the labour market by the governments (as all these workers in critical jobs are low paid, often immigrants and ideas about a higher minimum wage or basic income become accepted)
Krijn, could you please confirm: are you referring to this article on the EU - When borders close, who will pick the crops?
In the US - all of sudden 'the Wall' was wiped out - the Trump administration welcomed migrant workers form Mexico. The EU created exceptions and the system kind of continued to function. And .... now we're faced with viral infections in collectively housed migrant groups (in meat, horticulture, parcel platforms etc).
In case Covid-19 will flare up again (and it probably will), I guess the Ricardian efficiency of hiring low cost labour is under threat. Jobs will be lost and partly replaced by new technological solutions. At the same time picking costs will go up, requiring local workers. Fresh foods will be more expensive, less affordable and will travel less. What do you think?
marylshelman@gmail.com en Aidan Connolly, please feel free to join the discussion on the scenario I just put forward: the migrant workers discussion that has come up, could lead to organising primary food production of freshly consumed goods from a less Ricardian logic and would limit world trade. At the same time it would unleash a technology and value push (trusted food with a guaranteed origin/life cycle).
But then again: where would Amsterdam, Moscow, Reykjavik, Montreal or Boston source affordable pineapples or oranges for their middle classes?
Dick Veerman #3 No, I had a more recent paper in mind.
On #4 The pineapples and oranges are perhaps not the problem, when they are picked by locals (although perhaps badly paid and housed) in e.g. Brasil or Ghana. The vegetables in Florida or California depending on Mexican immigrants or the fruit and meat from the Netherlands depending on workers from Eastern Europe are a better example.
Interesting to see that farmers in different countries (UK, Netherlands) call on their government to have more working permits for immigrants.