A MAD end of year perspective

Pravin Chandrasekaran, managing director at OpalCrest, the global data science firm focused on the agribusiness value chain, gives his views on developments in 2014 and some predictions for 2015.

This year was yet another interesting one in the agricultural world. The three lenses I use to view the industry are Markets, Agribusiness and Data Science (MAD), because each lens gives a meaningful insight into the developments within the industry in 2014.

The commodity markets for agri started bullish at the beginning of this year and ended on a bearish note.

Agribusiness started the year with lower margins due to higher energy and logistics costs and raw material values. It ended the year with higher margins as energy prices dropped. A prime example is the soybean industry.

Finally, in the data science world, 2014 saw a move from interest in the use of agdata sciences into a multitude of precision farming and big data firms focused on the agricultural industry.

Markets and data science both enable agribusinesses to grow efficiently. Across the value chain in the industry, businesses have always relied on the commodity markets to transfer risk, create efficiency, improve margins and provide an indicator for where the next opportunity lies. This has been the case for hundreds of years and I do not foresee a lessening role for these markets as technology advances.

However, data science is an additional tool that can provide insights into agribusinesses as never before. These could be in precision agriculture, logistics optimisation, predictive risk management, sales portfolio selection and so on. The combined power of data science and commodity markets as enablers will help agribusinesses innovate at the fastest rate we have seen in the last few decades.

While 2014 saw interesting developments in markets, agribusiness, and data science, I anticipate much greater focus and alignment across these three areas in future years. For example, there has been a significant focus on precision farming and the development of analytics products serving clients on a subscription basis. As much as innovation in the farming sector is exciting, there is so much of the value chain that is yet to be explored in the agricultural industry. The capital flows at this moment are extensively focused on one segment of this value chain – farming.

A great deal of focus on precision farming, analytics and technology will improve yields, reduce farming inefficiencies and eventually reduce the cost of production. This should mean lower volatility in markets, greater margins for consumption-side agribusinesses and more investment in data sciences. However, an under-investment in data sciences in other parts of the value chain will have consequences.

First, it will arguably lead to difficulties in extracting the most value out of the investments in precision agriculture analytics.

Second, over-production and a structurally lower price regime could drive margin revenues below marginal costs, creating a disincentive for crop production or in economic terms, a “consumer deficit”.

Third, downstream parts of the value chain will be unable to absorb all of this overwhelming output from upstream.

Fourth, agribusinesses that are production-driven will likely be late adopters to technology and thus slower to react to the markets.

In agribusiness, enablers such as data sciences and markets should strive to create consumer surplus. This can be achieved best by a proper understanding of the agribusiness value chain and where the opportunities lie.

I predict 2015 will be an exciting year in all facets of MAD (markets, agribusiness and data science).