Agrochemical giants challenged by AI transformation of farming

Reuters
"A lot of the technology is already available. It's just a question of packaging it together at the right cost for the farmers."
Reuters
Reuters

The prototype of an autonomous solar-powered weeding machine by Swiss start-up ecoRobotix is pictured during tests on a sugar beet field near Bavois, Switzerland. The Swiss robot is one of a new breed of AI weeders.

In a field of sugar beet in Switzerland, a solar-powered robot that looks like a table on wheels scans rows of crops with its camera, identifies weeds and zaps them with jets of blue liquid from its mechanical tentacles.

Undergoing final tests before the liquid is replaced with weedkiller, the Swiss robot is one of a new breed of AI weeders that investors say could disrupt the US$100 billion pesticides and seeds industry by reducing the need for universal herbicides and the genetically modified crops that tolerate them.

Dominated by companies such as Bayer, DowDuPont, BASF and Syngenta, the industry is bracing for the impact of digital agricultural technology and some firms are already adapting their business models.

The stakes are high. Herbicide sales are worth US$26 billion a year and account for 46 percent of pesticides revenue overall while 90 percent of GM seeds have some herbicide tolerance built in, according to market researcher Phillips McDougall.

“Some of the profit pools that are now in the hands of the big agrochemical companies will shift, partly to the farmer and partly to the equipment manufacturers,” said Cedric Lecamp, who runs the US$1 billion Pictet-Nutrition fund that invests in companies along the food supply chain.

In response, producers such as Germany’s Bayer have sought partners for their own precision spraying systems while ChemChina’s Syngenta, for example, is looking to develop crop protection products suited to the new equipment.

While still in its infancy, the plant-by-plant approach heralds a marked shift from standard methods of crop production. Now, non-selective weedkillers such as Monsanto’s Roundup are sprayed on vast tracts of land planted with tolerant GM seeds, driving one of the most lucrative business models in the industry. But companies like ecoRobotix, Blue River, Robert Bosch and ROBO Global are developing new devices to enhance the weedkillers. 

“A lot of the technology is already available. It’s just a question of packaging it together at the right cost for the farmers,” said Richard Lightbound, Robo’s CEO for Europe, the Middle East and Africa.

While the technology promises to save money, it could be a tough sell to some US farmers as five years of bumper harvests have depressed prices for staples including corn and soybeans. US farm incomes have dropped by more than half since 2013, reducing spending on equipment, seeds and fertilizer.

Still, the developments are giving investors in agrochemicals stocks pause for thought, according to Berenberg analyst Nick Anderson. And agrochemical giants are taking note.

Bayer, which will become the world’s biggest seeds and pesticides producer when its acquisition of GM crop pioneer Monsanto completes, teamed up with Bosch last September for a “smart spraying” research project.

The German partners plan to outpace rivals by using an on-board arsenal of up to six different herbicides and Bayer hopes the venture will prepare it for a new commercial model — rather than cannibalizing its current business.

Bayer agreed to sell its digital farming ventures, including the Bosch project, to German rival BASF as part of efforts to win antitrust approval to buy Monsanto. But BASF will grant Bayer an unspecified licence to the digital assets and products.

BASF said the Bosch precision spraying collaboration was very interesting but it was too early to comment further as the transaction had not completed.

Syngenta, which was an investor in Blue River before Deere took over, said the advantages of the new technology outweighed any potential threats to its business model.

“We will be part of the story, by making formulations and new molecules that are developed specifically for this technology,” said Renaud Deval, global head of weed control at Syngenta, which was bought by ChemChina last year.

While it has no plans to invest directly in engineering, Syngenta is looking into partnerships where it can contribute products and services, Deval said.

Still, Sarasin’s Shah said the big agrochemical firms would need to accelerate spending on getting their businesses ready for new digital agricultural technology.

Michael Underhill, chief investment officer at Capital Innovations, also said the major players may be underestimating the potential impact on their pesticides’ businesses. He said the GM seeds market would also take a hit if machine learning takes over the role genetic engineering has played so far in shielding crops from herbicides’ friendly fire.

The advent of precision weed killing also comes at a time blanket spraying of global blockbusters, such as glyphosate, which is under fire from environmentalists and regulators alike.

More than 20 years of near-ubiquitous use of glyphosate, the active substance in Monsanto’s Roundup, has created resistant strains of weeds that are spreading across the US farm belt.

Regulators have raised the bar for bringing blanket chemical agents to market.

And the fear of toxic risks has been heightened by the debate over the potential impact of glyphosate on health.


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