It's time to stop taking agriculture for a collective farm

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Despite numerous stereotypes, agriculture is undergoing rapid modernization that nowadays has a serious effect on the economic efficiency of food manufacturers. For example, AgroTerra GC has reduced the cost of output products by 30% for two years with the help of digital technologies. Patrick Gidirim, the Managing Director of the company, told Ilya Strokin, the Director of KPMG Competence Center in the agricultural sector in Russia and the CIS, about the role of big data in decision-making, about the development of technological infrastructure in rural areas, about the influence of consumer behavior global trends on agriculture and the perspectives of agricultural producers’ cooperation.

Patrick, you said a few years ago that you shared an optimistic view only of those manufacturers who invest in digital technologies and personnel. What progress has your company made in these areas? Has it had an effect on the financial results?

If we talk about the results, I want to make it clear - we do not seek for an absolute crop, but we seek to increase the return from each ruble invested in technologies. Therefore, much attention in AgroTerra is paid to those features that we influence to a greater extent. These are costs per hectare and per ton of output products. The cost of our main products per hectare - wheat, soybeans and sugar beet - has been fixed for the last few years, at the same time the crop yield per hectare has increased in average by 30%. That is, the cost per ton has decreased in average by a third. Now AgroTerra is producing more with the same costs. We have achieved it due to our approach to digital technologies and our staff development.

We have been working with SAS, one of the leaders in working with big data, for the last 4 years. We have our own model of the technology investment optimization, which takes into account agrochemical data from each field. We analyze a huge array of information, our progress and mistakes at each stage of the production cycle. Modern technologies are the basis of our production system and we try to improve their use efficiency every year. For example, a lot of decisions are made based on the big data analysis - we take into account agrochemical features of the fields, the weather in each specific region and farm, the cost of technologies, products, etc. We started doing this long ago.

But the first step is anyway human resources without which no digitalization makes sense. It is simply impossible without the support of line managers (this is that level where the company is really managed) and field employees.

Now we are starting a project with the code name "Place of Power", which will help us develop the digital competencies of line managers and field workers in accordance with the challenges of the 21st century. Now even the words that we use to describe agriculture, as well as values, principles, its perception - all this remains the same as in the middle of the last century. But the XXIst century is completely different and changes must be made at a fundamental level. So, we will have something to talk about in 3 years - remind me what I said in 2020 and ask: "Well, have you succeeded?" I hope we will have been able to show the results of this work by that time.

Today AgroTerra has 19 elevators and 24 farms - how do you participate in the company management system?

I decided long ago that a leader did not need to be an expert in all issues. His main role is to build and improve the decision-making system based on the principle «properly, quickly, responsibly». I believe that decisions should be made at the lowest level where possible, closest to the production. But questions and problems need to be escalated to a higher level. That’s why, my involvement in the management is involvement through exclusion: when there are urgent and material issues, I learn about them within an hour and they are resolved very quickly. But prompt decisions are made at the level they are implemented at.

Of course, we were going to this goal for a very long time. But from the very beginning, the first most basic level of control, protection and management in AgroTerra was the values, which we follow to work and hire employees. We have four values:

We are honest and trustworthy.
We are a team.
We are strong-willed and achieve results.
We are constantly improving.

I am proud that AgroTerra employees are worried about their work. Of course, there are employees with other values, but we’re gradually creating such atmosphere where no one wants to avoid the values.

If we go back to technologies, what direction of the company's digital transformation do you consider the most promising in five years?

It is believed that agriculture is technologically the most underdeveloped industry in comparison to other industries. I agree with this statement, but little does anyone think why it is happening. And little does anyone understand the scope when discussing the challenges of digitalization in agriculture. If we take all the products grown by AgroTerra for a year (in total, it is about 1 million tons), load them into trucks and line them up in a single chain, its length will be about 740 kilometers. It is like the distance from Moscow to Orel and back.

At the same time, AgroTerra is just one of many Russian agricultural producers. The scope of production in our industry is enormous, it means that the transformation that we can imagine in the center of Moscow, where LTE operates and 5G will be in the near future, is impossible within our territories. I drive 5 kilometers away from the regional center and the cellular signal is not stable anymore. What can we say then about the digitalization of more than 70 million hectares that are being sown across the country now? I'm not even talking about agriculture globally.

Another challenge is the scope of information. There is not just Big Data but MEGA Big Data (I don't yet know how to call it wisely) in agriculture. Something happens in our fields every second - in fact, this is a huge factory but without a roof and walls. Even if we put a detector on each square meter of the field to record the change in all parameters affecting the crop, they will collect such a volume of information that even the richest companies will not be able to process it economically. Moreover, we cannot predict the weather for more than two weeks. At the same time, we annually invest more than 6 billion rubles in the production that will depend on the weather in 6-9 months.

That’s why, on the one hand, agriculture needs digitalization, and on the other hand, those approaches that are developing in other industries now are not applicable to us without serious adaptation. Our approach is to look at what we have and form those digitalization directions that will suit us.

What industries digital transformation do you get inspired by?

I highly appreciate what is happening in the extractive industries in terms of digitalization. For example, in the oil and gas industry where the main facilities are far from not only big cities, as in agriculture, but sometimes from the centers of civilization. Oil-industry workers have solved the most difficult task of collecting the oil deposits primary data where there is no connection as a rule and just a satellite phone works. But the data collected must be highly accurate. The information received is processed by artificial intelligence that evaluates the reserves and development perspectives of a certain oil field. The price of an oil production decision based on such information is hundreds of millions of dollars.

Another interesting example is logistics companies with a large fleet of airplanes and railway cars. I'm talking about Amazon, FedEx, DHL and other industry leaders. It is impossible to manage warehouses, build an optimum track routing, control the loading of various transport modes, predict peak demand periods, track movements of tens of millions of shipments, keeping the delivery terms, manage the customer service in this-scale business without digitization.

A Center for Research and Innovation has been operating in AgroTerra since 2015. What technologies and developments do you test? Have you managed to execute your plans for creating a venture fund to support agricultural startups?

The Research and Innovation Center is an important part of our system of continuous improvement. We have tested about 100 different soybean cultivars for the last 3-4 years. For example, we have carried out more than 1,300 different experiments this year. All experiments are carried out according to the strictest rules: control of factors, three replications, etc. But the most important thing is that our center is not a laboratory where experiments are carried out in a test tube; practical things are tested here in industrial-scale areas. We are planning to have three such centers more in spring and they will cover our entire production territory after a while so that we could carry out experiments as close as possible to the place where they will scale. Moreover, we expect our laboratory for the agrochemical soil analysis to be certified according to the world standards soon.

As for startups, we were going to create a venture fund for agricultural technologies 5 years ago but, unfortunately, we have postponed the solution of this issue. The fact is that co-investors' expectations from the fund are unrealistic for our industry. Any venture fund is seeking to get out of investments within 7 years and it is necessary to set the period at least twice as long in agriculture. Moreover, startups often look at Russia as a field for experiments, planning to earn in other countries. It is not interesting for us.

How has the value-added chain changed if we compare agriculture today and 10 years ago? Has agricultural business become riskier, more predictable, or maybe more marginal?

If we talk about agriculture in Russia as a whole, there is really very serious progress in some segments. Large agricultural companies and processing plants invest in both technologies and people. We are still behind the West in terms of the seed genetics. To take a step forward in this direction, it is necessary to have a deep localization of technologies, which is impossible without the mutual interest of the state and investors.

But I can’t see much progress for the last 10 years if we look at the integration of the entire production chain. Every company and every segment continue living in its own little world. And unfortunately, it is happening not only in Russia. Manufacturers behave as if they met with their partners for the first and last time, that’s why there is too high volatility and too low innovation level in the industry. You can't work like that now. Other industries understood it, which virtually integrate the production chain, make it shorter, flexible, and react to changes in the environment much faster. And we still believe in the vertical integration in agriculture, that is, in production from field to market. I think that agricultural business needs to move to the virtual integration too. When we work with key partners along the entire chain, we coordinate and integrate better, and produce what a consumer needs.

Does it mean that AgroTerra can become an operator of outsourcing functions in 10 years?

We are aware of the limits of our capabilities. In spite of the fact that we are quite a large company, we are a small agricultural producer within Russia and the world. But we can positively influence the ecosystem, which we live in without controlling a large part of the land and logistics. Nowadays ecosystem is a vogue word. I understand it as virtual integration with adjacent segments, as well as our suppliers and customers in food production.

Let me explain it with an example. AgroTerra has been producing soybeans in the Central Black Earth Region since 2012 and has already become one of the largest producers of this “miracle culture”. The company has been producing soybean seeds for over 4 years. We have tested various technologies and now I can safely say: we are really specialists in this area. For example, another company knows how to deal with chemistry or develop the soybean genetics, how to build processing. There are leaders who know and can do much more than we do in adjacent segments. AgroTerra cannot do everything on its own and no company in the world can do it. That’s why, we should all together learn to cooperate quickly, trust each other and create such ecosystems that will lead us to the XXIst century.

If we imagine AgroTerra in 10-15 years, we will not work within the paradigm “from field to market”. We are likely to follow the Intel Inside concept. Do you remember when a computer with such a sticker was considered as more reliable? I want AgroTerra Inside to mean that the products are produced with a high quality at all stages, that everything is grown in compliance with the environmental criteria, sustainable development and environmental friendliness.

What trends are affecting the agricultural development today?

Firstly, the consumer market tells us what to do. If I can choose banking services the most convenient for me or customize what I watch on TV, why can't I choose the food that is most useful for me? Such food exists but it is not enough. Secondly, the environmental safety is becoming more important. This is a good trend, compliant with our position. Mission of AgroTerra: Stewardship of LAND. I like that more and more people share this position.

The rest of the trends are continuation of these two. For example, I have recently tasted an EFKO burger made of vegetable protein. It was a good opportunity for me to taste the product made of the culture we really believe in - soybeans. It was very tasty, and also such food is useful for human health and the environment suffers less than during the production of beef. I can see a very interesting perspective of development.

What do you think agriculture and food consumption will look like in 2050?

Deglobalization has more often been spoken about recently, but I am an optimist and a cooperation follower, so I hope this trend will pass by agriculture. The industry becomes stronger through dialogue and cooperation and they are needed internationally as well. Attempts of vertical integration within a single country, "from field to market" not within business but within a country will not bring any results. This is dead-end policy. Many countries have experienced it and none has succeeded. There is no need to go far for examples; it is enough to recall the USSR and the product shortage in the last years of its existence. Perhaps there was something on the field, but it was not reflected in filling the market. And it applies to all countries that dream of closing their borders from the outside world.

I believe that agriculture of 2050 is products customized at every stage from field to market, which not only saturate a person with proteins and carbohydrates, but also help improve immunity and health. Food as medicine. This is not a trivial task, but I believe it is fully realizable. Look at the clothes production: the clothes used to be made to order and were very expensive, then we went through the mass production of standard clothes, and now more and more companies make clothes of your size, and they are not more expensive than those in the market are. It became possible due to digitalization, as well as new models of virtual vertical integration of production chains, etc.

And I am also sure that AgroTerra with its principles and approaches will not be an exception, but it will be one of the examples how the Russian agricultural business is being transformed. I would like us to stop looking at the Russian agriculture as a collective farm now and not in 30 years and to look at it as the production of the XXIst century.

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