Editor’s note: This is the second of a series on questions growers should ask before investing in new ag tech. Because fresh produce is a high-value segment of agriculture, there are a lot of options available to spend money on, but asking the right questions before a purchase can save time, money and headache.
Once the existential questions are out of the way, any grower thinking about new ag tech needs to turn a questioning mind to the balance sheets; specifically, the question of return on investment.
Aaron Fields, CEO of Campo Caribe, a Caribbean-based controlled environment agriculture company, told attendees of a summer webinar hosted by Indoor Ag Conversations that every ag tech decision has to revolve around ROI.
“Is this helping my lettuce, my plant, my produce, grow faster so that I can create more in a set amount of time? Or is it taking away cost to add value because I can’t necessarily make that lettuce worth more money to somebody else, but I can produce it cheaper?” he asked.
His questions highlighted the four key areas of focus in a technology audit: grow revenue, increase productivity, reduce costs and make operations smoother. If a technology doesn’t impact one of those, he said growers really have to question whether it’s worth it.
He explained: “I think everyone should ask themselves that when making any decision: What’s the ROI on this, and does it really make my life better?”
Asking what is the ROI can be a bit daunting, however, given its centrality to an operation. Here are some ROI-focused questions to ask yourself when zeroing in on a new piece of ag tech.
No. 1: Where will I likely see the highest ROI, anyway?
As mentioned in the first installment of this series, Chris Higgins, general manager of Hort Americas, a components and materials supplier for CEA growers, recommends growers look to their expenses. There they can find where any improvement, especially technological, will most likely be worth their time.
“If you have something that’s allocated as 1% of your expenses, maybe that’s not worth trying to fix today,” he says. “If it falls in that 1% of cost category, you can probably go make that money back faster by just selling more product at a higher price.”
If it represents, say, 50% of expenses, then that’s an area where even a small bit of improvement will pay off, he adds. That translates to a higher likelihood of ROI. Alternatively, he recommends looking at expense areas that have an outsized impact on yield as a potential area where a good ROI is likely.
“I like to take it back to their income statement and their profit and loss statement, because that then helps that small business entrepreneur determine if it’s worth their time,” he says. “If they can identify the things that are most important to them, the tasks that might seem very daunting become more important.”
No. 2: What level of tech is needed?
Say the problem you’re trying to solve or the goal you’re trying to achieve has pointed you toward, for example, some level of CEA. Would you invest in a proverbial (or literal) glasshouse when a high tunnel would work? Of course not.
“If you want to grow 100,000 pounds of tomatoes, you can grow it in a high-tech glass house, a semi-closed, a retractable roof, a poly house, a tunnel or a field,” Richard Vollebregt, CEO of greenhouse roof company Cravo Equipment Ltd., said during the webinar. “They all grow 100,000 pounds of tomatoes, but how much capital did you need to grow them? And what was your cost per pound to grow that tomato?”
He noted that most consumers and retailers don’t care about the specifics of how a piece of produce was grown, so long as it meets spec, is there when it needs to be and is available at an acceptable price. With that in mind, he said growers need to focus on the finances involved with growing.
“You need to figure out what is the profitable production system that’s going to make your capex [capital expenditures] efficient and minimize your opex [operating expenses] and hit the highest price window you can to generate the most revenue per acre or per hectare,” Vollebregt said. “It doesn’t matter what crop or what country you’re in, that’s the fundamental starting point.”
No. 3: Will it help me prevent problems before they get expensive?
Going back to the four key focuses of a technology audit, Roy Levinson, commercial lead for digital farming and water meters at Netafim North America, recommends looking to reduce expenses by proactively preventing problems before they start — or at least before they get expensive — with potential new ag-tech items.
“Some of the most significant unwanted expenses in fresh produce operations come from avoidable issues, like missed fertigation windows, leaky valves, burned-out pumps or nutrient imbalances,” he says.
Some of the most practical technology, and thereby most likely to have a good ROI, for dealing with these issues “will give you the visibility and control to catch problems when they happen,” he adds.
“Alerts can be set up to warn you, for example, when the operating pressure drops or irrigation schedules conflict or give you reminders for routine maintenance,” Levinson says. “This round-the-clock monitoring frees people up so they can focus on evaluating growth rates, emitter checks or other high-value tasks.”
No. 4: Is the ROI compelling for my operation?
Charlie Anderson, CEO of autonomous robot company Burro AI, says that a lot of growers start with the question “will this piece of tech work for my operation technically?” where the focus is on the “working technically” part of the question. But almost anything can be made to work technically, he says.
Instead, he recommends growers assume the technology will work technically and ask if it will work financially and logistically for them.
“Oftentimes, the technology working is actually a much smaller portion of the risk. And the larger portion of the risk is, if the technology works, can it yield a compelling return in my operation? And can it do it in the real world with real world people, not something that is more of a pilot?”
He advises growers identify their operation’s best use-case for a potential piece of new ag tech, particularly since most tech can do far more than one thing, and that can be a distraction.
“Generally speaking, it works best to figure out a high-utilization job that has to be done for many months out of the year, and preferably one that is easy to start with,” he says. “Begin by proving out the technology from a return perspective and also by proving it out to your team or to your crew.”
No. 5: Do I have the time to see the ROI?
Not all tech ROI is as easy to determine, either because of the tech itself or because of the operation to which it might be applied. Extended time commitments might be required to realize the ROI on a piece of tech, says James Reid, founder, owner and CEO of South African precision ag orchard machinery manufacturing company Red Ant Agri.
“In an annual environment, every year you can literally measure against the last year and against your neighbors and industry norms,” he says. “When you come to a perennial crop, like a fruit tree, you’ve now got to have a bit of faith because it’s going to take two or three years of doing the same things right before you’re going to see a difference.”
Even in an ideal situation where a new piece of machinery or a new process or management program is implemented well and is making good changes, those changes won’t likely be obvious overnight, Reid says.
“So, are you prepared to take this on as a medium to long-term commitment?” he asks.
Catch the rest of the Tech Questions series here:
