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Rising costs, climate change and lack of automation putting pressure on farmers’ profits

Dramatic increases in labor costs and other input, along with climate change, have put significant pressure on farmers’ profits, according to analysis from McKinsey & Company.

Farmers have reported that the cost of fertilizer and crop protection has risen by 80 to 250 percent over the past few years.

Meanwhile, a warmer climate is resulting in increased weather variability, more frequent acute weather events, longer droughts, and new invasive crops and pests, all of which reduce yields.

To remain economically viable, farmers must find innovative solutions. McKinsey’s latest report – Trends driving automation on the farm – identifies the trends to boost adoption and change the future of farm equipment and operations.

McKinsey’s analysis reveals that farm automation could have a positive impact on farmer economics and mitigate the effects of climate change, especially in an environment of rising regulatory pressure.

Yet less than 5 percent of farmers currently use automation technology. The research indicates that continued pressures on farm economics and a drive toward more sustainable farming practices will accelerate adoption of automation.

US farmers report that input costs are the number one risk to their profitability, with widely used fertilizers rising 15 percent in price over the past 5 years.

More efficient use of pesticides and fertilizers can be achieved through automated precision spraying, fertilizer application robots, and other solutions.

McKinsey analysis shows that some herbicide application technologies that use computer vision to selectively spray weeds and avoid crops can reduce costs by 80 percent, creating a value of $30 per acre and a payback period of 2 years.

Labor is also a persistent challenge for farmers, with over 22 million pounds of fruit and vegetables wasted due to a shortage of workers to pick crops in the UK alone last year.

Further, labor wages have increased at a faster rate than previous years, increasing the economic pressure on farmers.

Analysis shows that automation could open a wider labor pool by lowering the operating skills required by workers and improving working conditions.

Moreover, automation can enhance productivity and reallocate labor towards the highest value tasks on the farm.

For example, fully autonomous equipment could reduce the need for machine operators to engage in hazardous activities such as spraying and enable a single operator to handle multiple machines.

Vasanth Ganesan, partner, at McKinsey says: “Though farmers have low levels of adoption currently, there is an increasing level of interest from farmers to invest in new innovative technologies that allow them to protect their current book of business while also continuing to optimize yield looking into the future.

“In addition, sustainability commitments made by companies across the agriculture and food value chain combined with regulations will further incentivize farmers to adopt automation technologies.”

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