Inflation is driving US farmers to seek new innovations to improve yield, finds McKinsey

Soaring costs for fertilizer, crop protection and labor are accelerating farmers’ adoption of agtech, according to a survey of 1,300 US crop farmers by leading global consultancy, McKinsey & Company. 

With US inflation worsening, the research found that 80 percent of farmers now cite rising input costs as the biggest risk to profitability. These pressures are driving the adoption of new products and technologies to squeeze the most value from each acre. Fifty percent of small farmers are planning to use new yield increase products, and half of large farms, with more than 5,000 acres, are already using precision agriculture hardware such as drones.

Soaring supply chain costs are also weakening loyalties to traditional suppliers in a previously conservative industry, with one third of large farmers reporting brand loyalty is now a lower priority when selecting farm equipment.  

Volatile costs and uncertainty are similarly transforming purchasing and selling strategies, with half of large farmers now aiming to buy inputs earlier in the growing year and the same proportion planning to sell more crops forward. High input costs are also spurring more sustainable innovation, with 30 percent of large farmers now planning to use green products such as biofertilizers, citing lower costs per acre compared to other products as a prime driver.  

Yet despite acceptance of agtech rising since the last survey, there are still barriers to adoption. Unclear returns on investment and poor experiences for growers continue to hinder farmers from scaling agtech. When it comes to buying new products and services, over 50 percent of farmers pinpoint customization of recommendations and adequate customer service as the biggest barriers to online purchasing.

David Fiocco, Partner at McKinsey, says:

“The farming sector is being buffeted by inflation, climate change and geopolitical conflict and is increasingly turning to new products and technologies to squeeze more value from every acre. Large farmers are spearheading the sector’s technological transformation from robotics to electrification, but they are increasingly being followed by small farmers.

“With growers increasingly willing to leave traditional equipment providers and experiment with new technologies, suppliers will need to harness data and analytics to create more dynamic sales strategies, new value propositions, and offer more personalized products and services to farmers. Suppliers need to reposition themselves as strategic partners to farmers, who can support them in their growth.”

In response to these trends, McKinsey suggests that agricultural suppliers should consider adopting more agile business models, such as:

• Rethink their approach to engaging with farmers. Suppliers can use data and analytics to update their value proposition and target customers while adopting omnichannel approaches to continually engage farmers on and offline.
• Become strategic partner and innovator of choice. Helping farmers find new products and technologies to increase yields and reduce costs by, for example, designing programs that enable farmers to trial new technologies.
• Personalize products and services to growers. By using dynamic, data-driven sales strategies and in-season analysis, suppliers can customize their products to farmers’ needs. For example, harnessing field-level remote-sensing data can help personalize field teams’ approaches to farmers.
• Help farmers monetize the adoption of sustainable practices. Suppliers could make connections across the supply chain and find ways to support implementation and expand penetration and adoption of sustainable practices such as regenerative farming.