DAILY Bites
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McKinsey’s survey involved 4,400 farmers across nine nations around the world to identify ag risk.
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North American and European farmers expect profits to be lower this year, while other regions are more optimistic.
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There appear to be financial benefits of adopting agtech and sustainable agriculture practices.
DAILY Discussion
Farmers say that the increased price of inputs, extreme weather events, and volatile commodity prices are the top three risks to profitability in the next two years, according to the 2024 Global Farmers Survey, a report put out today by McKinsey & Co. To help mitigate these risks, producers around the world say they are increasingly looking at adopting agtech and and modern practices to boost productivity on their agricultural operations.
It spotlights a shift toward operations-focused solutions that underscores a broader trend in agriculture, where efficiency and sustainability are becoming paramount.
The survey was conducted with 4,400 farmers in the first quarter of 2024 and spanned the United States, Canada, Mexico, France, Germany, the Netherlands, India, Argentina, and Brazil. The respondents represented farms ranging in size from about 120 acres to more than 6,000 acres (15 percent of respondents from Canada and the United States). In terms of production, row crops such as corn and wheat predominated, ranging from 46 percent of the sample in India to 80 percent in Latin America, followed by specialty crops such as fruits and vegetables and a combination of both specialty and row crops. (The sample set aspires to mirror the diverse agricultural landscape of each region.)
The survey covered five main areas: farmers’ views of profit risks and opportunities, farmers’ outlook on future profits, adoption of sustainable practices, adoption of products and technology, and purchasing channels and main influencers on the purchasing journey.
North American and European farmers told McKinsey that they expect profits to be lower this year (64 percent and 55 percent). In comparison, Latin American and Indian farmers anticipate higher profits over the next two years (58 percent and 76 percent).
“Input prices remain the top concern, with 48 percent of farmers noting price increases as the main risk to profits, compared with 63 percent in 2022. Despite a general decrease in costs for fertilizer and the active ingredients for crop protection over the past year, farmers reported an average perceived increase in overall costs of 13 percent in the same time frame. They continue to worry about the price of inputs such as fertilizer, which has the highest perceived inflation in the past 12 months,” the report said.
Volatile commodity prices are a newly added risk not included in the company’s previous survey in 2022. Thirty percent of farmers, mainly in North America, viewed it as one of the top risks. Farmers who think commodity price volatility is a top risk are three times more likely to use hedges and are more likely (72 percent versus 47 percent) to use crop insurance as they strive to protect themselves from this risk.
“Despite the risks they face globally, farmers also see opportunity to capture profit in the coming years,” the report explained. “When surveyed, farmers said the top three opportunities to increase their profits in the next two years were improved yields, higher crop prices, and lower prices for inputs. To capture these opportunities, farmers anticipate taking three main actions: trying new yield-increase products, trying new crop-protection products, and purchasing innovative equipment, products, or technology.”
American and Canadian farmers, particularly, said they were likely to use new yield-increase products to boost profits.
Supply and demand dynamics seem likely to shape farmers’ outlook on future profits. In the United States, prices of corn and soybeans have been declining due to a large global harvest, a drop in export sales, and substantial amounts of crops in storage.
Opportunities for sustainable practices are at the economic forefront for both small- and large-scale farms, as many producers believe this presents the possibility of yield increases. When it comes to which sustainability practices farmers are implementing, the leading practices are crop rotations (68 percent), reduced or no tillage (56 percent), and variable rate spraying or fertilization (40 percent). Generally, India and Mexico lag behind the adoption of sustainable practices compared with Argentina, Brazil, Europe, and North America. Other sustainability measures include the adoption of biocontrols and nbioutrients to help promote soil health.
However, the report found that farmers who are currently not using a specific sustainable practice are unlikely to adopt it in the next two years (less than 10 percent of farmers for most practices).
McKinsey believes that farmer-facing organizations could help growers capture the financial benefits of adopting additional sustainable agriculture practices. For example, they could do the following:
- Identify opportunities to bridge the gap between untapped consumer demand for sustainable products and farmers who are on the verge of achieving a positive ROI from adopting more sustainable farming practices. Recognize that this effort requires coordination across the entire value chain.
- Help growers understand and utilize available public and private sector monetization opportunities for greenhouse gas reductions, biodiversity, and other sustainability programs.
- Align commercial offers (products and advisory services) with the requirements of sustainability programs — including potential support on data collection and monitoring, reporting, and verification.
- Continue to offer education and specific ROI-focused data to help growers understand the full balance sheet effects of changing practices.
To their benefit, many farmers continue to adopt technology, albeit at an arguably too-slow pace. The survey found a three-percentage-point increase since the 2022 survey in the number of farmers using or willing to adopt at least one new digital technology to improve operations. North American farmers lead adoption of technology, while Latin America experienced the fastest growth (a ten-percentage-point increase from 2022 to 2024).
The United States, specifically, has the highest adoption of operations-focused technology, with 61 percent adoption of digital agronomy, 51 percent adoption of precision agriculture hardware, and 38 percent adoption of remote-sensing technologies. Digital agronomy and precision agriculture hardware are the top two leading technologies worldwide.
Part of this is because agtech adoption is correlated with farm size, and the U.S. had some of the largest farms in the survey. Large farms (more than 2,500 acres) were found to be 45 percent more likely to adopt agtech than are small farms (less than 100 acres). This is likely due to the scale needed for a positive ROI in agtech; for smaller farms, the ROI is simply too unclear for the grower to gamble on it.
“This year’s survey underscores the complex landscape that farmers globally must navigate, adapting to risks from increased input prices and extreme weather while striving to increase productivity,” McKinsey said. “Farmer-facing organizations have a pivotal role to play in supporting farmers by offering tailored, ROI-centric solutions, fostering sustainable practices, and using digital tools to help deliver a resilient and profitable future for farmers worldwide.”
