What to invest in next to profit from tech
Written by admin on July 30, 2009 – 11:56 pm -Terry Kastens
Kansas State University Extension Farm Management Specialist
Making it pay
One definition of technology is "the application of science to industrial or commercial objectives." Broadly, agricultural technologies are those processes or machines that impact agriculture. New technologies are especially of interest to crop producers -- specifically technologies that lower cost of production or enhance crop revenue.
Since technologies generally require an investment, the natural question is will it pay? To answer that, other questions must be asked. How large is the expected profit with the technology? What are the chances there will be a return? How large is the required investment in time and money? The answers determine if a particular technology is adopted.
Some technologies are appropriate for only small classes of farms or smaller geographical areas; other technologies are appropriate for a high percentage of farmers everywhere. Typically, a farmer either adopts a technology or not. So the rate of adoption measures the number or percent of farmers adopting a technology across time.
Farmers who increase profit from a technology are able to pay more for land rents and land purchases. Whether they have to pay more for land is based on how many other farmers in the area are also adopting the technology.
It doesn't take very many large profitable farms in an area to make this happen. Because of the investment required, it's typically the larger farms that are the earliest adopters of technology. Thus, the benefits from a technology are bid into land values and rents over time. Rate of adoption determines how fast this occurs.
Getting an edge
So early adopters of a technology invest to be more profitable. Those who come along later must adopt just to survive. Higher land rent causes higher cost, meaning non-adopters regularly find themselves going broke in the face of rents they perceive as too high.
Big and obvious gains from a technology (especially if that technology requires a small investment) are short-lived since any gains are quickly adopted and quickly bid into land. On the other hand, gains from slow-moving technologies often last for years.
So how do you get an edge? Invest in fast-moving technologies immediately. Don't waste a lot of time pondering or analyzing them. To delay adoption means only that you'll get further and further behind. Then consider making some investment in slow-moving technologies. Why? Because you can garner a profitability edge over your neighbors that lasts for years.
Though there is no good blueprint for whether a technology will be fast- or slow-moving, examples can help gain some insight. For instance, tractor cabs were a fast-moving technology and acquired nearly universal coverage in perhaps one decade -- the 1970s. Herbicide-resistant soybeans were largely adopted over a few years in the late 1990s and early 2000s.
Specific technologies
A historical example of a slow-moving technology is tractors, whose adoption required around 40 years. Another is no-till farming, where adoption is about 30%, despite farmers moving in that direction for decades.
Precision agriculture (PA) is one technology often spotlighted over the last 10 to 15 years. PA began when global positioning system (GPS) signals became publicly available in the early 1990s. Engineers were supposed to give us all the cool electronic stuff to work with the GPS signals, and agronomists were supposed to help us make better crop-input decisions. The future belonged to yield maps and variable-rate application (VRA) of crop inputs such as fertilizer.
Because GPS signals were mostly free, PA was heralded as great for small farms. It also allowed big fields to be managed like little ones, which was great for the large farms.
But what followed was not massive adoption of VRA. Even today, only a small part of cropland is treated with VRA. Yet, this technology is far from dead. Rather, its adoption grows a little each year. So the VRA part of PA should be viewed as a slow-moving technology.
The story on PA doesn't end with VRA of crop inputs. An unexpected direction PA moved in was GPS-based machine operations, especially around steering -- lightbars, for example. In the last few years, lightbars have given way to automated steering called auto guidance.
Unlike VRA, more accurately steering a tractor or sprayer has immediate and obvious benefits in reduced machine operations and reduced amounts of crop inputs. Relative to lightbars, auto guidance has the added benefit of reduced operator fatigue, something hard to put a dollar value to but easily understood by operators. Although still an emerging technology, auto guidance adoption is expected to be quite fast.
GPS-based automatic control of boom and sections of machinery is an especially recent PA technology. This technology impacts the headlands of fields generally fraught with excessive machine slowdown and overlap, over-application of inputs, and reduced yields. And, in part, because it often uses existing GPS components, boom and section control requires only modest investment.
Precision focus
Yet, especially if you farm odd-shape fields with large equipment, the expected payoff can be quite large, regularly resulting in payback periods of only one to three years. Moreover, not having to manually control booms and sections in the headlands results in a large convenience factor. Boom and section control is expected to be a very fast-moving technology.
So how do you get an edge with precision agriculture? Keep working in the direction of VRA of fertilizer, seed, and perhaps even herbicide, even if it means using it on only a portion of your farm. The profitability edge you'll get over your neighbors who aren't even considering VRA will last for years. Also, consider adopting auto guidance and boom and section control immediately.
If you're not convinced, go to www.agmanager.info and download the KSU-GPSguidance.xls spreadsheet. It'll help you quickly assess the potential benefits of these two machinery enhancements. You'll be surprised how quickly they'll pay off.
Finally, while you're focused on precision ag, don't forget to keep an eye on all the other technologies coming down the pike. If you think they'll be slow, spend some time educating yourself. If you think they'll be fast, jump on board today.
Terry Kastens (tkastens@ksu.edu or 785/626-9000) is a professor emeritus in the Department of Agricultural Economics at Kansas State University in Manhattan, Kansas.
Tags: Farm Economy, Tractors
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