Consumers becoming drivers for innovation in farming practices

While most farmers don’t have any control of the price they get for their product, they can control their production practices: Daneel Rossouw of Nedbank AgriBusiness.

JEANETTE CLARK: In a recent podcast, the first in this series, we unpacked some of the themes around agriculture that have come into the spotlight globally as well as locally, considering our current context: a post-pandemic but conflict-driven global economy. In South Africa, agriculture remains an important sector, which has contributed positive growth to GDP in two years where the trend was more down than up.

Today we welcome Daneel Rossouw, functional head of agriculture and relationship channels at Nedbank AgriBusiness, as we dive into the areas where the bank sees potential for growth in the sector, specifically through the use of innovation and technology.

Daneel, whether your clients have business in horticulture, animal production or field crops, or even if it’s not necessarily in primary production but rather in the value chain, Nedbank AgriBusiness says it aims to unlock opportunities. Now, from your position in this role, how have you seen the sector adopt technology to combat some of the challenges it faces, like climate change or to increase productivity?

DANEEL ROSSOUW: Thank you, and always nice talking to you. I think we’re living in interesting times, and when you talk about innovation in technology, it can be driven through many factors; one definitely is climate change. Even if you look at the primary producers themselves, they’re facing the challenges of the cost squeeze and economy of scale. We see a number of farming units getting bigger, but also the number of units getting less and less every year because of the challenges of economy of scale.

I think what we don’t talk about enough around technology and innovation is also the pressure that our consumer is starting to put on our farming community and the producers, and even through the value chains themselves, where they have very specific needs, especially in terms of traceability.

So when you talk about new innovations in technology, I think you must, as a bank, and also through the value chain, take that into account – how we can improve traceability, how we can farm or produce more with less, given climate change and the fact that South Africa is really a water-scarce country. We don’t have high-potential soil compared to even other sub-Saharan African countries, so we have to do more with less.

From a technology perspective then you either adapt or you don’t adapt – and it’s not easy to adapt. We know that, especially from a management perspective, and the new technology is not necessarily cheap.

So, to be able to survive, our clients will need to adapt to this, but be very innovative in the way that they do it. If I can refer to one or two examples that we see – and you did refer to the pre-crop industry as an example – we’ve seen a number of new technologies being used to see stress in plants, as an example, and to monitor stress through a specific season, also then being able to determine crop estimates with the use of drones and data analytics.

We see a lot of digitalisation and software development for effective orchard management, incorporating … weather stations and local weather data to ensure more accurate crop estimates. [Those are] just basically two examples that I can quickly use.

JEANETTE CLARK: Climate-smart farming is definitely a buzzword in the making, but what exactly does it entail? For example, many farmers have been driven towards renewable energy in the past year or so, but you could argue that the original impetus might have been Eskom, rather than climate change, as a business risk. But what do you see as climate-smart farming in the context of renewable energy?

DANEEL ROSSOUW: When we talk about renewable energy itself we can talk about biomass, we can talk about solar or even wind turbines … some [farmers] get electricity directly from Eskom, from municipalities, and the reliability is not necessarily what it needs to be. Unfortunately not everybody can put surplus renewable energy back into the grid. So sometimes it becomes quite tricky to look at renewable energy on [the] farm level specifically. But I must say I think the most renewable energy plants that we’ve seen in the last number of years is actually within the value chain, more on the processing side.

But when we talk about farm level it is quite difficult at this stage to get … especially battery capacity, and the price of batteries is not coming down as [much as] we had hoped. So it’s quite expensive, so you need to make use of a combination then of renewable energy plus generators, as an example.

But what is the driving force behind that? I think at this stage it’s more economical because of … reliability issues that we see with Eskom at this stage. In my personal opinion, it is not necessary [at] farm level to be climate-smart at this stage, but it is more driven through Eskom’s inability to provide electricity as they basically should do.

But very interestingly, again, I think what I’ve also said earlier is the drive from the consumer side, looking at farming practices and renewable energy is very much the talking point with our consumers too – how you produce and what you use in your production cycle. So making use of renewable energy, becoming more climate-smart with that, is actually what the consumer wants as well.

JEANETTE CLARK: Do you have specific financial solutions tailored to renewable energy?

DANEEL ROSSOUW: Yes, we do. We have actually embraced a number of our sustainable-development goals, and developed finance products within the specific goals. At this stage we are focusing, yes, on renewable energy. We are also focusing on soil health, as well as water efficiencies. With all three of those development goals that we’re embracing through finance products, I think the bottom line, what we try to [achieve] … is to do it as cashflow-neutral[ly] as possible, to make it easy for our farmer or even processes to adopt renewable energy with a view that it shouldn’t cost more than the savings that you can get.

So we try to do it as cashflow-neutrally [as possible] and then in the process in practice it means that we can also extend payment terms. Where we are at normal loan terms of approximately six years, we can extend that from eight to 10 years, taking into account the client’s cash flow and trying to do it as cashflow-neutral as possible, and as easy as possible.

JEANETTE CLARK: Is robotics and farming and the automation of various functions in production still something new in South Africa, or have you seen an increasing number of traditional agriculture companies or producers adopt automation in their processes?

DANEEL ROSSOUW: Again, it is quite interesting. I think there’s a difference … if you are comparing the different industries [with] each other. I think the fruit industry, as an example, has perhaps adopted robotics a bit quicker than some of the other industries – not to say that [they are] lagging. I think the fruit industry was just perhaps more suited for robotics. One prime example – I think I referred to it earlier as well – is that early-detection system, making use of drones and data analytics and a lot of algorithms to ensure early detection of unproductive trees in specific orchards, and looking for what type of problems there might be. It can either be through growth or a lack of irrigation water, which some of these data-analytics companies also now have the ability to pick up.

I think the big benefit is not only cost saving, but ensuring more equal production through your orchard. Then obviously the ability to do crop estimates from a cash flow perspective, and obviously from a profitability perspective, I think it helps quite a lot. Also, when it’s being used by a processor and not just the farmer itself, it can be quite beneficial in terms of market access too.

And then if you look at other [implements] in the grain industry, I think [it’s] also very quick now to adopt new technologies and robotics – but it’s a lot more expensive. When you talk about that, I think we need to talk about precision farming. I think that’s what it’s all about now, making use of GPSs, equipment that is self-driven through the use of GPS technology, being able to monitor on a much [more] detailed level if you look at production. And then, even after that, for the next year the applying of fertilisers to that specific area that had lower yields than in the previous season.

So I think we are still very much at the beginning of the fourth industrial revolution in South Africa, but with a lot of potential and they think we will see exponential growth in the use of aerobotics within the next few years across all industries.

I think one very good example – and perhaps not robotics, but when you talk about new technologies – is what we’re doing in the dairy industry now. I think the dairy industry started with it and it went to the other livestock industries as well – just the whole concept of genomics and just lifting the bar every year with each production cycle getting better and better-quality animals just through the use of genomics. It is quite expensive, but I think the benefits are [there] to see.

JEANETTE CLARK: So maybe Daneel, just to wrap up, agriculture was and will most likely always be a sector where there is a lot of risk. It’s often from external factors where the farmer does not necessarily have any control – for example, the weather. But as a funder to the sector, what risk-mitigation strategies can be utilised to address some of these risks?

DANEEL ROSSOUW: I think first and foremost, climate change – not only in the farming community, but even globally for me – is one of the biggest risks, and sometimes the inability to mitigate against climate risk. From an economic perspective, the majority of our farmers are price-takers; they don’t have any control necessarily about the price that they get for their product. But one thing that is within their control is their production practices.

Now I did mention that South Africa is a water-scarce country. We don’t [have] a lot of high potential soil or land, so we have to produce more with less. The only way that we can do that is to mitigate the risk as best [as] possible. Now what we see [is] when we don’t have a drought, we have a flood. I think the new norm is just this volatility that we see on the climate side.

Then, if you look at climate-smart agriculture in terms of regenerative agriculture and conservation farming practices, protecting the soil is one example, especially in the dry land areas. To guard against erosion, the soil structure for water uptake and so forth, for me is critical in [terms of] what can be done and what needs to be done, more [so] in the dry land and environment.

If you look more toward your irrigation, the use of the latest technologies in terms of irrigation equipment, moving away from flood irrigation to drip irrigation or to micro-irrigation – we know it’s not always practical to do it – but I think the general trend is towards more efficient irrigation practices and systems. We’ve seen it in the Western Cape a few years ago when we moved towards Day Zero. Even highly profitable and knowledgeable farming units adopted new technologies – not just to save water, but also [to] save energy by making use of more efficient irrigation systems.

Unreliable infrastructure is also a big problem. As I’ve said as well, looking at new technologies is not necessarily cheap. We know it’s expensive, but you have to look at that cost benefit of [adopting] new techniques to mitigate against risks.

JEANETTE CLARK: Thank you, Daneel. Some of the points that you’ve highlighted are, first of all, that big data is here to stay, more and more so in the agriculture sector, and our producers and farmers have to start using that. We will see more renewable-energy projects on our farms and then robotics, drones and automation.

But what I find very interesting and what is becoming clear is that consumers are becoming drivers for the change in farming practices, demanding traceability or climate-friendly approaches.

That was Daneel Rossouw, functional head of agriculture and relationship channels at Nedbank AgriBusiness.

Brought to you by Nedbank Agri.

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