A winning combination

Tuesday, 7 November 2017
Melbourne, Australia
By Selva Freigedo

  • Maximum capacity
  • It’s already happening…
  • A glimpse at the future

Editor’s note: The Port Phillip Publishing office is closed today for the Melbourne Cup Holiday in Victoria. Today’s essay is an excerpt from Port Phillip Insider Extra, originally published on 16 September. Port Phillip Insider Extra is the premium edition of Port Phillip Insider. It’s published every Saturday. In it, analyst Selva Freigedo offers her own unique investment insights. And she shares some of the top ideas from our global affiliates in the US, the UK, France, Brazil, Argentina, Chile, Spain, India, China, and elsewhere. You can learn more about the service here.

Humans have a fascination with the number three.

In religion, Christians have the holy trinity, Romans had the three graces, and in Hinduism you have the Brahma-Vishnu-Shiva trinity.

We count to three whenever a group of us wants to do something at the same time. Mainly because one and two set the rate that makes it predictable to know when number three will be said, which makes it easier to use to synchronize an activity.

The number three is also associated with good luck. You have probably heard ‘third time lucky’ a few times before.

Yet, it is also associated with bad luck, ‘bad things always come in threes’ or ‘three strikes and you are out.’

In fairy tales, it is also quite common: Three little pigs, three blind mice, Goldilocks and the three bears.

Number three was also what Kevin Eastman and Peter Laird were thinking of on a November night in New Hampshire in 1983, as they were hanging out in their living room.

What were the most popular three things among teenagers back then?

Well, ninjas, mutants and turtles.

So they combined them to create the Teenage Mutant Ninja Turtles.

Eastman thought that a slow turtle as a skilled ninja, would be the funniest thing. So he doodled one, a masked turtle with nun chucks. They joked that mutant ninja turtles would be the next big thing.

Well, they were right. It turned out to be a winning combination.

And, something similar is happening in the Mexican state of Jalisco.

Their winning strategy consists of combining three things that are quite popular today.

That is, drones, robots…and avocados. As you may already be aware, avocados have become quite popular among millennials, rumour has it they prefer them over housing.

As El Financiero from Mexico reports, using robots and drones to grow avocados has increased Jalisco’s avocado production by 251% in the last five years. In fact, even with water shortages, Jalisco grows 25% of Mexico’s avocados and is the largest producer per hectare with 35 tons per hectare.

Using digital technology in agriculture is nothing new. But what is changing, is that growers are accessing tools that were out of reach before, like drones and robots.

And digital agriculture may well be the trend that guarantees our future survival.

Maximum capacity

The United Nations projects that world population will reach 8.5 billion by 2030 and 9.7 billion by 2050. Most of the population is expected to be concentrated in the developing world, with India passing China as the most populated country in the next seven years.

According to Live Science, looking just at our food production capability, the world can only hold a maximum of 10 billion people. That’s it. At 10 billion we will be running at full capacity.

We are rapidly approaching this number and we cannot produce enough food for a human population this large.

According to a 2009 United Nations Food and Drug Administration report, by 2050 agricultural production will need to increase by 70% to meet food demands. Much of this growth would need to come from higher yields as there is not that much arable land left.

How long can this trend continue?

To avoid a Malthusian catastrophe — when famine and food scarcity drives a population’s living standard down to subsistence level after a period of abundance — we need a technical revolution. In the past, Thomas Malthus was proven wrong by the agriculture and industrial revolution and we could be seeing a new revolution with digital agriculture.

The truth is, the old way of doing things is not enough to feed our growing global population.

Current agriculture is inefficient.

According to Poultry World, it takes seven tons of feed to produce just one ton of meat and 880 gallons of water, to produce one gallon of milk.

To feed 10 billion people by 2050, we will need to improve efficiency.

And digital agriculture can help us achieve just that.

It’s already happening…

The truth is, this revolution is already happening.

Machines are taking control over agriculture and farms and they are becoming more like factories, where production is controlled and efficient.

Farmers are now getting access to tools they didn’t have in the past, mainly drones and robots.

Drones are allowing farmers to visit areas that were inaccessible for them to monitor crops and keep diseases at bay.

In the past, farmers used to use satellite images to get detailed maps of their land and information on crops. This was costly and images had to be ordered and they took around two weeks to be delivered, which by the time they received the images, things could have drastically changed.

With drones, the process is much quicker.

Drones are used in soil and field analysis, in planting, crop spraying, monitoring, irrigation and crop health assessment. According to Technology Review, using drone planting systems achieve an uptake rate of 75% and decrease planting costs by 85%.

Spraying and irrigation with drones, is also much more efficient. Some drones have sensors where they can identify sickness, or if a part of the field is dry.

According to PricewaterhouseCoopers, the emerging global market for business services using drones is valued at over US$127 billion, with agriculture taking US$32.4 billion of the total drone market.

Robots are also used in agriculture, mostly for time consuming and repetitive tasks. Yet the way we are using robots is changing — they are used autonomously now.

As an example, tractor manufacturer John Deere just acquired startup company Blue River Technology for US$305 million. The company makes robots with cameras that allow them to identify weeds and shoot them with herbicide. Targeted weeding avoids the need to spray the whole crop with chemicals.

Their first product LettuceBot, is involved in producing 10% of the US lettuce production.

Mobile robots are also arriving to dairy farms.

In Australia, a dairy farm in New South Wales is the world’s first robotic rotary milking dairy. The farm, featured in The Guardian, is using technology to have the cow’s milk themselves. That’s right, no need for humans. The prototype developed by FutureDairy, can automatically milk up to 90 cows an hour.

This is how it works. Once the cow reaches the shed, they go into one of the 16 milking points in the rotary platform. The platform turns and attaches the cups to the cows to extract milk. Eight minutes later, the cow gets off the platform into a yard where it can eat fresh grass.

The cows have identifications that keep a record on how much milk they produce and the last time they were milked. The farmer comfortably controls the operation from their iPad and can intervene if something goes wrong. At the end of the day, it is all about collecting data to make operations even more efficient.

There is no need for humans. It could spell the end of farm jobs…

According to ResearchMoz, the agricultural robot market size was at $817 million in 2013 and they are anticipating it will reach a whopping $16.3 billion by 2020.

A glimpse at the future

In the agricultural region of Salinas Valley in California, seeing robots working in the farms alongside humans is quite common.

They are using robots to solve their labour shortage. The truth is, farm work is hard work. Not many people want to do it. An ageing population and a decrease in immigration has caused a 20% labour shortage. Yet they still need to feed the population, so robots are picking up the extra work.

Salinas could be a glimpse at our future.

Farmers have partnered with technology to increase the use of robots to do the work. But they are not only using technology to increase productivity, but also changing the products they grow to suit the machines they use.

Take Taylor Farms for example. It is growing a romaine lettuce that has a longer base, which makes it easier for robots to slice to collect.

So in the future, we could not only be using more robots and technology in farming to automate things, but we could also be modifying crops to make it easier for them.

This is how much impact technologies are having on agriculture and productivity. And this is just what we may have to do, to feed our increasing and ageing population.

What to do

The digital agricultural revolution is well on its way in the countryside.

With robots and drones taking over the heavy lifting, we could see a much needed increase in efficiency in food production.

One way to take advantage of this growing trend is with the Robo Global Robotics & Automation ETF [NASDAQ:ROBO], which is capturing this technological innovation.

The fund is up over 31% since the beginning of the year. It includes drone makers like Parrot SA and Aerovironment Inc. As well as companies investing in robotics and automation in agriculture, like Deere and Company.

As always, this is not an official recommendation, but something to look at on your own time.

We will keep an eye out on this developing trend for you.

Selva Freigedo

PS: If you liked today’s article, click here to find out how you can begin receiving Port Phillip Insider Extra direct to your inbox every Saturday. With some of the best investment ideas in Australia and around the globe, you’ll be giving yourself a huge advantage over other investors in the market.