In the News
News Worth Knowing – January 16, 2024
Terrain analysts dissect news topics important to agriculture and weigh their significance for the sectors relevant to our Farm Credit customers.
In this issue, our analysts discuss artificial intelligence on the farm, agriculture in the climate change spotlight, and what shifting demographics around the world mean for supply chains and individual sectors.
The second case, that AI can yield improvements in detecting pests and disease, is not only correct but wildly understated.
Applications of AI in Agriculture
Matt Roberts, Ph.D., Senior Grain & Oilseed Analyst
Overview: Across the economy, businesses are trying to figure out what artificial intelligence means for their industry, and agriculture is no different. An article published by the nonprofit news organization The Conversation suggests how AI can be transformative for farmers in ways that are unique to agriculture.
Notable Quotes:
“[F]armers are increasingly using AI-powered tools to tackle challenges that threaten human health, the environment and food security.”
– “3 Ways AI Can Help Farmers Tackle the Challenges of Modern Agriculture,” a November 29, 2023, article from The Conversation
Takeaway: Technologists have spent the last two years writing about the promises and perils of AI for everything from romantic relationships to human existence. The article “3 Ways AI Can Help Farmers...” proposes three specific cases for AI in agriculture:
- The first discusses federated learning, a method of training AI models in which the data never leaves the owner’s possession and instead models are trained locally. Then only the model is shared to a central organization, maintaining the confidentiality of the data. Many conversations with farmers over the years lead me to believe that sharing models instead of data is a distinction without a difference and will not result in real changes to farmers’ attitudes.
- The second case, that AI can yield improvements in detecting pests and disease, is not only correct but wildly understated. Whether by providing an AI agronomist for the 95% of farmers in the world who don’t have access to one, or by permitting quicker pest control or fertility adjustment advice in season, AI offers huge potential benefits. In addition to bringing agronomy to the masses, AI can automate simple agronomy tasks, leaving professionals free to focus on bigger issues facing an operation.
- I’m most dubious about the article’s third case, that AI will be superior for market price prediction. Market prices are the result of millions of interactions of participants. As more of those participants are AI, the behavior of the market changes, forcing all participants — human and AI alike — to change also.
I believe that AI on the farm will simultaneously matter much more and much less than many currently believe. I don’t believe it will fundamentally reshape agriculture, or much else. But it will radically democratize expertise and enable many to focus more energy and effort on harder problems by freeing us all up from the mundane.
Sector Impacts:
- Fruit, Nut & Vegetable: Labor shortages, increased regulatory pressure and low commodity prices have made specialty crop production in California difficult in recent years. The adoption of AI has already been part of the solution for many innovative farmers, particularly with cultivation and harvesting. Future adoption of tools like AI, however, will depend on the cost of the technology, which for many specialty crop growers is currently far too high to justify investment.
- Dairy: The dairy industry is rapidly developing and adopting AI technologies that allow for faster and more efficient identification of diseases like mastitis that can reduce milk production and worsen quality.
- Grapes & Wine: AI has many potential applications to enhance the quality and efficiency of wine grape production. These include guidance on water application, soil management, harvest timing, disease detection and pest control.
Producers may see opportunities to command a premium for adopting climate-friendly practices as downstream buyers strive to meet commitments.
Climate Summit Focuses on Food and Agriculture
Ben Laine, Senior Dairy Analyst
Overview: The 28th annual U.N. Climate Change Conference (COP28) in Dubai, which concluded in December, focused heavily on the environmental impact of food and agriculture. Many countries signed on to pledges, and some groups within agriculture made commitments related to methane reporting and other measures. Meanwhile, pledges and commitments from other industries in recent years are quietly, but increasingly, being adjusted or backed away from.
Notable Quotes:
“Countries must put food systems and agriculture at the heart of their climate ambitions, addressing both global emissions and protecting the lives and livelihoods of farmers living on the frontline of climate change.”
– “‘Food Is Finally on the Table’: COP28 Addressed Agriculture in a Real Way,” a December 17, 2023, article from The Guardian
“Nearly half of the companies that joined the U.N.-backed Net Zero Insurance Alliance have quit the program, including five of the eight insurance companies that were founding members.”
– “Companies Made Big Climate Pledges. Now They Are Balking on Delivering,” a December 3, 2023, article from the Washington Post
Takeaway: Agriculture was a major focus at COP28. More than 150 countries, including the U.S., signed on to a Declaration on Sustainable Agriculture. The U.N. Food and Agriculture Organization laid out a road map that includes a target of reducing methane emissions from livestock by 25% compared with 2020 levels by 2030. A Dairy Methane Action Alliance made up of Danone, Bel Group, General Mills, Lactalis USA, Kraft Heinz and Nestle has agreed to begin reporting methane emissions in 2024 and writing action plans to reduce emissions.
These commitments can be criticized for being heavy on ambition but light on detail. However, attention is expected to build in the coming years, culminating in more comprehensive commitments by COP30 in Brazil in 2025. Producers may see opportunities to command a premium for adopting climate-friendly practices as downstream buyers strive to meet commitments. But allow some time for things to settle, as these targets and commitments tend to shift.
Sector Impacts:
- Beef & Pork: Animal agriculture is already feeling the growing focus on food system sustainability. That focus will drive more factual information about the ways animal agriculture can be a solution and mitigation measure rather than being viewed solely as another source of emissions. In animal agriculture, progress on sustainability goals appears to be shifting toward more regenerative grazing practices within the cattle and sheep industries and breeding programs within the dairy business, where using beef sires offers beef buyers a more sustainable and higher-quality product than straight dairy-bred steers. University researchers are working to quantify the emission savings of raising beef-dairy crossbreeds instead of straight dairy-bred cattle in the beef supply chain.
- Grain & Oilseeds: To date, most of the changes discussed to reduce greenhouse gas emissions from crop production are changes in soil management, such as tillage. However, when the global community expands its greenhouse-gas focus beyond carbon dioxide and methane, crop production’s largest potential reductions may come from improving nitrogen retention. In coming years, expect to see increased emphasis on fertilizer practices.
Technology will increasingly displace labor but in doing so bring an end to cheap goods.
Aging Populations Underscore Need for Resilient Supply Chains
Dave Weaber, Senior Animal Protein Analyst
Overview: The aging of populations in countries that are key to the global supply chain will change where manufacturing occurs in the future because of availability of labor, technology, capital and raw materials. This means about $35 trillion of global manufacturing capacity will need to be rebuilt over the next decade or two. Technology will increasingly displace labor but in doing so bring an end to cheap goods.
Notable Quotes:
“From [age] 55 to 65, your income is the highest it’s ever been, your expenses are under control, and the delta between those two makes you the wealthiest you’ve ever been. And the money that is held by people 55 to 65, that is 70% of global private capital. ... That’s what makes the system run.”
“We don’t have an economic theory as a species for what happens when you don’t have consumption or production or investment. But we’re going to find out real soon, and the Koreans are going to lead the way. They won’t be alone. … It’s not that the Germans are running out of kids; that happened 30 years ago. This is the decade they run out of working-aged adults.”
“[China is already] one of the five fastest-aging workforces in human history. They’re now reporting a 70% drop in the birth rate since 2017.”
– “MIC 2023 Keynote Presentation: Peter Zeihan,” a November 2023 presentation on demographic trends and supply chain strategies during the aPriori Manufacturing Insights Conference
Takeaway: If we want consumer and other goods when we are unable to rely on China, we will need to build the plants and manufacture the goods ourselves. To do this, geopolitical strategist Peter Zeihan suggests that over the next six years we will need 9% to 15% annual inflation to spur investment to double the size of the industrial plant capacity in North America. When done, we will have built a more efficient, more sustainable, more technologically advanced supply chain system that is largely immune to international shocks.
Sector Impacts:
- Fruit, Nut & Vegetable: It is unclear if rising incomes will increase consumer demand in many countries if their populations are growing at a lower rate or even shrinking at the same time. While fewer consumers mean lower consumer demand, richer consumers can increase it, particularly through stronger demand for high-quality goods. Which effect dominates is crucial for California nut producers, who export most of their product overseas. Luckily, given their nutritional profile, nuts are likely to be seen as a “quality” commodity that a richer population prefers more and more of, even if that population is shrinking.
- Dairy: Differing age profiles developing across the world are going to change the dairy product mix that will need to be exported.
- Grapes & Wine: Demographic trends will impact the wine industry in several important ways. For example, challenges in finding vineyard workers are likely to become more acute, and demographic shifts represent a headwind for wine demand.
Terrain content is an exclusive offering of American AgCredit, Farm Credit Services of America and Frontier Farm Credit.