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Digital acceleration of agricultural transformation

Opinion: The future food system


Agricultural transformation is key to poverty reduction and improved livelihoods in the rural space. Over the past decades, poverty rates in rural areas have declined significantly, with much of that coming from a narrowing of the rural-urban income gap. Timmer notes that the transition out of poverty has been through agricultural productivity, with higher efficiency providing food, labour, and savings to support the process of urbanisation and industrialisation. However, it’s too early to declare total success, with 78% of the world’s poor people living in rural areas and relying on agriculture for their livelihood.

Technology has long been recognised as a key driver of the increased on-farm productivity associated with agricultural transformation, and digital technologies are no exception. The potential gains in productivity associated with new, low-cost, data-intensive digital technology applications are enormous as they disrupt the level and allocation of physical capital, labour, and natural capital. And the possibilities are endless – from self-driving tractors to subcutaneous implants that monitor livestock health. Estimates suggest that, in the next 2-3 years, digital technologies in agriculture will have a sizeable market coverage around the world. Berger’s projections also show that the global market for precision farming technologies will double in 2020 compared with 2014 (from about US$ 2.5 billion in 2014 to above US$ 5 billion in 2020).

However, the more important disruption to agricultural transformation will come from the impact of digital technology on the upstream, midstream, and downstream markets associated with farming. The global food system is complex, involving many actors who exchange vast amounts of information. Worldwide, 570 million farms produce the food for 7.6 billion consumers. The system is further complicated by roughly 100,000 upstream businesses supplying farmers with inputs, and the millions of downstream agribusinesses moving, processing, and selling their outputs. Imperfect competition, information asymmetries, externalities, and high transaction costs all take a significant bite out of producer and consumer surplus. The power of digital technologies is the nearly costless matching of producers and consumers, which ultimately has the potential to sharply reduce market failures and profoundly reshape value chains.

While digital technologies will have profound positive effects on efficiency and productivity on and off the farm, the impact on equity and environment are not as clear-cut and require a more in-depth assessment. Digital agriculture technologies may affect income distribution, labour skill requirements, and environmental sustainability and these effects may be uneven across demographics and locations. More evidence on the impacts of digital agriculture is therefore required. For example, will agriculture create new jobs, or will it be the next victim of jobs destruction due to automation and reduced need of middlemen services along the value chain? Will precision technologies lead to the sound use of natural resources or will they instead accelerate their depletion? Will data generated by food producers and consumers be used to improve the sharing of economic benefits or will information be captured by just a few powerful players?

The public sector has a role to play in identifying public goods, policies, and investments to ensure the efficient, equitable and environmentally sustainable distribution of digital dividends of agricultural transformation. The policy interventions need to take place on both the supply and demand side. With large variations in markets and capabilities across countries and regions within countries, there remain significant challenges related to the supply of digital agricultural technologies. On the demand side, public policies are needed to create and increase demand for digital technologies and services that can improve development outcomes. In addition, the growing complexity of digital ecosystems that underpin the digitisation of food systems, as well as an exponential increase in the volumes and speed with which data is collected and analysed, create challenges for designing appropriate policy and regulatory systems. For example, the development of big data, internet-of-things and cloud data storage systems necessitates redefining what constitutes data privacy and exploring novel approaches to strengthening data security. As the volume and economic value of data in food systems continue to increase, policy and regulatory issues related to data ownership and data use rights gain in importance. There is also a question on the role of the public sector in generating and disseminating data that can both encourage innovation and competition, and at the same time, reduce opportunities for market capture.