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In this episode, we discuss the impact of digitalization on efficiency, productivity, the environment, and the distribution of gains in the agri-food industry. The regulatory framework governing competition policy, property rights and information disclosure are essential to the resulting market structure.
This podcast series is produced by Fernando Di Laudo and Jonathan Davidar.
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Transcript
Roumeen Islam: This is the World Bank’s Infrastructure Podcast. In today's episode, we discuss how digitalization is transforming agriculture and what it means for governments and private investors.
I just learned about “Hello Tractor”. Yes, Tractor. The kind you use to plough your land before planting. This company rents out smart tractors that function sort of like an Uber for tractors in Nigeria. They can do in eight hours what it might take a farmer 40 days to do. Many small-scale farmers unable to buy their own tractors now can rent these tractors and pay for them with mobile money.
The smart tractor has GPS technology that allows usage tracking and data collection (data such as location and uptake) and can transfer this in no internet areas, such as rural areas. Then, many such tech advancements supporting agriculture, such as tech-powered indoor vegetable farms, or drones to do soil and field analysis. Some countries are benefiting a lot and many more could join them. Let's find out how.
Good morning and welcome. Today, we have as our guest, Julian Lampietti, expert on the agriculture and food sectors and someone who is in the cattle farming business himself. He is going to talk to us about the benefits of digitalization in the Agri-food system. Welcome Julian.
Julian Lampietti: Thanks so much, Roumeen I'm delighted to be here.
Roumeen Islam: And we're very happy to have you here with us. So, Julian, when you think about digitalization of the agrifood system, what are you referring to?
Julian Lampietti: Great question Roumeen. Digital agriculture refers to the tools that digitally connect, store, analyze and share electronic data. And that turns that into information all along the value chain.
And what's really interesting about that, is if you think about almost 8 billion consumers in the world, of food; and 600 million farmers, and all of the things that you need to connect those two groups and all of the information that needs to be exchanged, and how much that can be improved, that's really a lot of what digital agriculture is all about.
Roumeen Islam: Could you give me an example of the types of data that you could get that you wouldn't be able to get as easily or as fast without digitalization? Could you give an example of this?
Julian Lampietti: Sure. Everything from the rate of evapotranspiration of your plants to the kind of soil you're producing on, or the price of chile in China, are all pieces of information you can get normally, but you can get lot faster using digital technologies. Of course, those data can be turned into other things that are really, really valuable for the way we trade and the way we produce things.
Roumeen Islam: Okay. So, when you say agrifood though, what are you leaving out? Why isn't it just agriculture? What do you mean by agrifood?
Julian Lampietti: What we're really talking about when we talk about agrifood is everything that's involved in producing the food: all the input industries, the on-farm activities, and then taking all of that downstream, all the way to the fork at your dinner table. What we're not talking about is really consumer preferences and behavior. And of course, digital technologies have a huge impact on how we think about the things we want, and that's not part of what we're dealing with in the work we're doing.
Roumeen Islam: Okay. Thank you for clarifying that. Now, I was wondering if you could speak a little bit about the magnitude of the gains that one gets by digitalizing the sector. Can these gains be quantified?
Julian Lampietti: That's a really good question, Roumeen. And there's been a lot of effort on this kind of stuff recently. It's extremely hard to quantify the overall gains at an economic scale, but I'm going to give you two examples.
One of them is Jack Ma who runs Alibaba in China and globally, I suppose, came up with this idea of, “Well, I have all these trucks going out to these villages and they're coming back empty. And those farmers in those villages are producing food. And I can set up a digital system that will allow those trucks to be filled with food and they can come back and sell that food when they come to town. And I take advantage of the backhaul (a key concept in transportation in terms of reducing your costs)”.
So, there was So, that's one example of the kind of impact it can have on rural development. Should I give you another example?
Roumeen Islam: Please do, yes.
Julian Lampietti: So, there's another example that comes to mind. Agriculture is one of the sectors that involves a lot of government interaction, some would say interference. That's for long, historical reasons.
If you think about the time it takes farmers to fill in paperwork. And I know this firsthand from my own farm, where I get vast amounts of requests for paperwork from the government that I need to do. Digital technology tremendously simplifies that process.
There was a study in Estonia that was done that showed that farmers went from spending 300 minutes to 45 minutes in terms of their paperwork. If you think about it, there's 600 million farms and each one saves 255 minutes, all of a sudden you get to a very big number of amounts of time saved just in terms of government paperwork that you have to do.
Roumeen Islam: That's several minutes, yes. And imagine if you know, you were doing something else that was very productive with that time. That's how you'd value, what you have saved.
Could you speak a little bit about why these gains come about? You've already alluded to some of these reasons, but shall we speak a little bit about the economics of it? How does digitalization support market activities?
Julian Lampietti: Sure. I think the key idea to think about going back to what I said at the beginning is this notion of connecting the world’s 600 million farms to its 8 billion consumers, and the idea that there's a vast amount of information and transactions that need to occur for you to get the food on your table and for me to produce the food that you want. So, this system is plagued by massive information asymmetries and transaction costs.
And what digital technology does, is it has certain characteristics that are very unique in my mind. The first is it's infinitely durable. You create a dataset, it's there forever. It doesn't go bad, unless your hard disk goes bad, and it gets destroyed.
Second, it's non-rival: The data that I have, you can have it too, unless I specifically sort of exclude you from it, but it's something that my consumption does not affect your consumption.
And then, third, it's got almost zero cost of replicability: to copy that data and pass it on to the next person is almost free. So, you introduce those characteristics into a system that's plagued by information asymmetries and transaction costs and you realize that you can really make that system much, much more efficient. And that efficiency will result in a dissipation of the rents in the middle and an increase of the rents at either end of that chain, with the farmers and the consumers, if you do it right.
Roumeen Islam: Thank you for that but could you just explain very simply when you say information asymmetry, you mean information that one party has and another party doesn't, but that the market would work better if both of them had the information. Right?
Julian Lampietti: That's exactly right. And I'm going to give you an example. We've all been living through COVID-19 and one of the things we saw happen at the beginning of the outbreak was suddenly grocery shelves were empty and people couldn't buy flour and all sorts of things — that made them very nervous. At the same time, farmers were plowing under the crops, smashing eggs, getting rid of their livestock. Because they didn't know where to sell it.
And so, you had consumers who didn't have the food they wanted, and farmers who were producing food that they couldn't sell. And if you could just connect those two groups better, you could then overcome a lot of these kinds of information asymmetries and other kinds of logistical bottlenecks that create transaction costs between these two groups.
Roumeen Islam: Okay. You differentiate between on-farm and off-farm activities. I wonder if you could talk a little bit about how the farmer is being helped on-farm and then how that is different from the support he gets from digitalization when you look at him on his off-farm activities or look at whoever does off-farm activities.
Julian Lampietti: Absolutely. The on-farm production process is incredibly complex. It requires understanding the weather, the soil, the water, and a multitude of other factors that affect the natural environment - endogenous, exogenous, all of it. And digital technology allows you to process those things a lot faster. And I'm going to give you a very simple example.
The Africa race center developed a decision support tool to help farmers better target fertilizer application. Instead of spreading the same fertilizer over their field, they were able to do a soil test to get a recommendation for what kind of fertilizer to put where. That process allowed them to do two things:
It brought down their costs because they use less fertilizer, but they also increased their output because they put the fertilizer they did use in exactly the right place. It exactly the right kind of fertilizer and their profits increased by about $500-600 per hectare.
Roumeen Islam: That's precision. They're really precise about how much they need of every input, so there's no waste basically.
Julian Lampietti: Right. You're tremendously reducing the waste and you're really putting the fertilizer where it's needed, which is producing more output for you.
Roumeen Islam: And you're reducing your own costs per unit of output, so your profits are increasing. Could you talk a bit about off-farm activities?
Julian Lampietti: Farmers’ produce or products go into complicated chains that involve lots of transactions and there's a really classic example and I'm actually going to go to the fisheries sector, but I really liked this example and it's very easy to explain. In Kerala the fishermen go out to sea, they harvest their fish, they bring them back to the port, and then they negotiate when they arrive at a single port, with the people that are there, who have the refrigerated trucks and will take those fish onward.
With the advent of digital communications and cell phones, those fishermen are now able to call ahead to the different ports, identify the best places to sell the fish with the highest prices, and the net result has been an 8 percent increase in returns for the fishermen.
Roumeen Islam: Okay. I'm seeing a number of things coming out from what you're saying. One of them was, you know, a very strong impact on logistics, getting things where they're supposed to be, rather than sitting around where they are not wanted, right?
Secondly making sure, because you’re fixing the logistics problem, that you are raising profits for the people making and selling the products. And the third thing that I'm also hearing is that you have much more precise application of inputs so that your per unit costs fall and you do much better at reducing all the waste. Are these the things that I should have heard, and would you like to add to this?
Julian Lampietti: No, I think that's perfect. And it's not just more precise application of inputs. It's a much more efficient production systems on the farm in many ways, due to better information.
Roumeen Islam: Oh yes, of course, thank you for that. Now, I'd like to move a little bit to changes in cost structures and business models. We've spoken a bit already about the changes in costs, but could we think about the market broadly read and think about how business models might change over time as a result of digitalization?
Julian Lampietti: Absolutely! The cost structure and the business models are going to change. And I think the real question is about the data that drives this system and whether that ends up creating a concentration of the markets in big firms or whether we can get to a point where you can actually have very, very efficient, small firms producing, because of the virtually zero marginal cost of exchanging all of that data, because of the particular attributes of digital technology. And I think the key here is going to be who's controlling the rights to that data. And I think there's a very important role for public policy there.
Roumeen Islam: Right. Because in previous periods of technological innovation, for example, mechanization, we saw an increase in the size of farms. And here, I guess what you're saying is that it depends on how data are controlled. Is that right?
Julian Lampietti: That's absolutely right. And it also, I think, depends on what we want, and what we want our food production systems and our landscapes to look like. And there's really two potential equilibria out there. One is you could have huge tractors and huge farms extracting the resources of the earth to produce the food we need. Or you could have tiny, sustainable systems where, instead of very large tractors, you have tiny little micro-tractors and thousands of them, sort of like ants farming the world.
Roumeen Islam: All right. But how do you think all of these changes will improve or will affect equity?
Julian Lampietti: Sure. This is a really important issue. Keep in mind that about 10 percent of the cost of food that you pay actually goes back to the people that produce it.
And Let me give you an example. There has been a boom in microcredit in the world, and that's happened because people can have registries of information that allow them to assess the credit-worthy of farmers, not based on a land title and a bank account, but on whether they have a tin roof on their house and what crops they’re growing and where they're growing them.
It gives you all of this additional information and it allows you to work with a farmer who maybe would have to normally take two-three days off work to engage in a transaction with you, because suddenly distance has shrunk. It also gives the farmer access to credit in ways where cash isn't being handled and the other things that really make the transactions less costly.
Roumeen Islam: And in this, of course, we're assuming that markets develop in a way that they continue to exist, as you mentioned earlier. Now, related to this question, how might these changes exacerbate the employment issue in the agrifood sector? Because all these technological changes would of course have an impact on employment.
Julian Lampietti: So, the technological changes have both positive and negative impacts on employment.
On the positive side, people have new opportunities to do different things.
What we see is people move up the food chain as they move up the value chain. What we see is that people move up the value chain as they adopt more digital technologies, and that gives them time to do other things.
Roumeen Islam: And are there certain categories of people involved, such as for example, certain kinds of middlemen who may lose their jobs. You said that there are pluses and minuses, right?
Julian Lampietti: Absolutely. And I think what we're seeing is that in a move to automation that is associated with COVID, in order for people to reduce the risks in their supply chains, lots of traditional unskilled jobs get lost.
A really good example is slaughterhouses in the United States which were a real hotspot for COVID at the start. And then they started moving to all sorts of automated processes. And there's no doubt that people need to get reskilled and retooled in order to cope with the kind of change that comes with this digital technology and the kind of changes we're seeing in jobs.
Roumeen Islam: Yes, and this is the same with every technological advance. We see some jobs going and other jobs coming in.
Julian Lampietti: Let me also say that it can also give you the opportunity to have more people engaged in agriculture if the technologies are cost-effective and it allows more people to be able to run more small farms that can be productive parts of the economy because the costs of all that labor and other things can go down.
It may hurt certain parts of the population but may give opportunities to other parts for a whole new lifestyle.
Roumeen Islam: That's a very interesting observation. How would the impact on the environment look?
Julian Lampietti: Oh, this is a scary one, Roumeen. The downside is that today we produce more than enough food for the world, but there are people going hungry.
If we want to just produce more food, this technology can help us do that. It will extract every last bit of resources that are out there and destroy the environment on the way. Of course,
And if we can find ways to do that, and do it in a way that realizes all the great environmental services and nature-based solutions that are out there, we can actually produce the food we produce today, without extracting the resources, but doing it in a way that produces a lot of positive externalities.
Roumeen Islam: That's a very good way to think about it. And it really strikes me how in every sector, you know, we have the production issue and then we've got the distribution issue and we really need to solve both of those. Thank you for that.
Julian, could we speak a bit about the role of the public and private sectors in this digitalization process. How would the public sector think about whether or not some sort of regulatory framework or complementary investments are needed to support this digitalization?
Julian Lampietti: One of the things that drives me crazy about all of this work that's being done on digital technology, Roumeen, is this idea that the public sector should be right there helping develop these technologies. Now, there is no doubt that a lot of the technology comes from areas where there's been large amounts of public investment in the military, for example.
The military complex has produced technologies like global positioning systems and satellites and all sorts of things that have then resulted in a fantastic commercialization. I love to give this one example. Landsat which is the US satellite system was a government service that people paid for.
And in 2008, I think it was Obama who by stroke of a pen said, “This technology is free. Anyone who wants a Landsat image can have it.” And boom, you suddenly had this incredible growth in the use of this technology for on-farm applications, which led to huge productivity gains.
I think that I do believe the government should drive the price of that to be as cheap as possible so anyone in the private sector can compete and anyone with a telephone and an idea can actually access data that would allow them to try that idea out and see if they can make it work commercially.
Roumeen Islam: Okay, those are interesting thoughts. First,
Let's go on to complementary investments that may need to happen to make digital technology work as intended. Could we speak a bit about this?
Julian Lampietti: Clearly just handing someone a cell phone and saying “communicate!” is only going to get you so far. The first key is that the communication on that device is not prohibitively expensive. You need the communications infrastructure at a cost that is competitive. This means that you need both communication infrastructure and competitive markets to deliver communication services.
The other key points are that you need roads and other infrastructure, electricity, education, all of the things that are needed to make a system work and the economy to run efficiently. For things like roads, it's unclear to me whether you need to build less roads or you need to build more roads with digital technology. The technology allows you to solve all sorts of transportation problems in ways we never could before, that we just dealt with by building a bigger road. And now you can use that technology to make the use of that road so much more efficient.
Roumeen Islam: Yes. And I think this sort of thinking is important for every sector in which we engage. Can we use our assets more effectively, given the new technology that we have now available to us?
You've talked a lot about the benefits of digitalization and the agrifood sector, but let's speak a bit about where it's actually happening. As you give me examples, can you think of why it took off there as opposed to somewhere else? Maybe you could talk about that as well.
Julian Lampietti: Sure. Let me give you two examples. One is in Uruguay and the other is in Kenya. , with digital tracking systems associated with each of those animals. That allowed Uruguay to essentially out-compete Argentina and Brazil, its two big neighbors on the high-end beef market at a global scale.
Roumeen Islam: So, are you saying that Uruguay has overtaken Argentina in the beef market?
Julian Lampietti: In terms of value per kilo of what they produce. And this is probably because they can trace back any piece of meat that goes anywhere in the world and say: “this is exactly where it came from.”
That's a big deal in a world where about $110 billion worth of disability-adjusted life years are lost every year due to bad food. It creates an opportunity to be on a premium market. On a market where you can say: “this animal was grass fed in this way” and you have the system to show it, creates tremendous value for all of your producers and consumers at the end of the day.
Roumeen Islam: What about Kenya?
Julian Lampietti: That's information about the soils, but also information about people, and what they're doing, and what crops are growing.
All of that allows a much more efficient sort of entrepreneurial development of new technologies in the country.
Roumeen Islam: That's very nice. You said startups, so they're very small companies.
Julian Lampietti: Yes. They are tiny, and there's no doubt that lots of them will fail. But this is what we want to see: we want to see the innovation.
Roumeen Islam: Thank you very much, Julian. That was a lot of very useful and educational information.
I'm just wondering whether you'd like to let our listeners know about your recent report on Agtech.
Julian Lampietti: Absolutely Roumeen. We just released a flagship publication: What's Cooking: Digital Transformation of the Agrifood System. I encourage you to read that report, but also to go to our blog site, which is called What’s Cooking? and check out our innumerable blogs and short stories around the food system.
And please join us in this really important year with the UN Food Systems Summit, the COP in the UK, where we really have a chance to all get together and change the food system. Thank you, Roumeen.
Roumeen Islam: Thank you very much, Julian.
Well listeners, what did we learn today? Firstly,, and allowing an efficient and precise application of inputs, so waste is reduced.
Secondly, market structures are likely to undergo large changes. Though the direction of change, for example, whether we'll move for more mega farms or to more small farms is hard to predict at a given time and place.
Thirdly,
Finally, Thank you and bye for now.
You can find more information about the podcast on https://www.worldbank.org/en/news/series/tell-me-how. If you've got questions or comments, we'd love to hear from you. You can also find us on all popular podcasting platforms. This episode was released in October 2021. Don't forget to subscribe and thanks for listening. See you in two weeks.
View all episodes on our Tell Me How: The Infrastructure Podcast Series homepage