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Brief: “Soaring” input costs are accelerating agtech adoption, McKinsey survey finds

September 22, 2022

  • Sky-high costs for fertilizer, crop protection products and labor are increasing the number of US farmers turning to agtech tools and products, according to a new survey from McKinsey & Company.
  • The research surveyed 1,300 US crop farmers, 80% of whom cite input cost as the biggest risk to profitability.
  • Some 50% of small farmers plan to use new yield-increase products; 30% of large farmers (those with more than 5,000 acres) plan to use “green” products such as biofertilizers, citing lower costs per acre.

Why it matters

A combination of geopolitical conflict, climate change and ongoing supply chain disruptions have sent global input costs to all-time highs this year. And there’s no certain end in sight for these volatile market conditions and input costs. 

Now, farmers are seeking alternative products and technologies that, according to McKinsey, “squeeze the most value from each acre.” For example. some large farms are already employing precision agriculture tools such as drones. 

A slew of recent investments in agtech tools — from Aqua-Yield’s nanotech for fertilizers to Taraniscrop intelligence platform — reflect an industry-wide shifting towards alternatives. 

Ag biotech, a category that includes biological inputs, was one of the fastest-growing sectors of agtech investment in 2021, according to AgFunder data. [Disclosure, AFN’s parent company is AgFunder.]

But as McKinsey notes, despite the rising acceptance of agtech, barriers to widespread adoption persist. “Unclear returns on investment and poor experiences for growers continue to hinder farmers from scaling agtech,” notes the report. 

Agtech veteran and founder David Friedberg also hinted at the slow nature of agtech adoption over the years; it prompted him to invest in Brazil’s largest ag retailer last week as a way to help promote his other investments to farmers.

Agricultural suppliers, meanwhile, need to rethink their relationship with farmers to manage a change in purchasing and selling strategies. Half of large farmers now plan to buy inputs earlier in the growing year. Half also plan to sell more crops forward, according to the research.

“With growers increasingly willing to leave traditional equipment providers and experiment with new technologies, suppliers will need to harness data and analytics to create more dynamic sales strategies, new value propositions, and offer more personalized products and services to farmers,” David Fiocco, partner at McKinsey, said in a statement. “Suppliers need to reposition themselves as strategic partners to farmers, who can support them in their growth.”

A few ways to do this include personalizing products for growers via data collection/analysis, engaging online and offline with farmers, and enabling farmers to trial new technologies, according to the report.

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