Global pesticides, seeds and fertiliser companies may be forced to re-engineer their business models as farmers adopt specialist technology that helps maximise harvests, while reducing the use of crop chemicals.

New businesses are springing up that promise to tell farmers how and when to till, sow, spray, fertilise or pick crops, based on algorithms using data from their own fields.

Their emphasis on reducing the use of chemicals and minerals – known as farming inputs – is a further challenge for an industry already struggling with weak agricultural markets worldwide.

“If our only goal is to sell as much inputs as possible by the litres of chemicals, I think we would have a real problem going forward,” said Liam Condon, Head of Crop Science at Bayer, the world’s second-largest pesticides supplier.

Bayer bought proPlant, a developer of software for plant health diagnostics, earlier this year. Rivals are also investing in digital farming with the aim of generating service revenues that could offset any future drop in chemicals volumes.

Monsanto’s failed swoop on Syngenta triggered a bout of M&A activity that has left the global seeds and pesticides industry in turmoil. The sector has annual sales of more than $100 billion, while fertilisers are worth around $175 billion.

Risks and challenges

According to market research firm AgFunder, venture capital investments in food and agriculture technology nearly doubled to $4.6 billion last year, with “precision agriculture” start-ups raising $661 million in 2015, up 140 per cent from 2014.

For now, the main aim of these companies is to help farmers using their drones, field robots, decision support software and smart irrigation systems to boost yields, said Carsten Gerhardt, a chemicals industry specialist at advisors AT Kearney.

“But in the mid- to longer-term, I also expect a reduction in the use of input factors by about 30 to 40 per cent,” he added.

Eric Bartels, partner at McKinsey, who focuses on the agricultural industry, said developing new pesticides would help companies hedge against any drop in sales, however, because farmers will pay a premium to keep their fields pest-free.

Another question is whether today’s chemicals and farm nutrients giants can capture the farm management software market for themselves.

Gerhardt said digital start-ups would struggle to catch up with established players’ knowledge of plant biology and the farm business, and to build a global sales network.

Rabobank’s farm sector analyst Harry Smit says crop chemicals and seed players diversifying into such services, will struggle to be seen as providers of impartial advice.

“Farmers want independence,” said KWS Finance Chief Eva Kienle.

“They don’t want to get the impression that they are being recommended a product just because the supplier is earning a profit on it.”

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