The promise and perils of ‘ag-o-mation’

Growing labor concerns across the agricultural economy highlight the opportunity for investors to help the sector lead the broader effort to integrate automation with the existing workforce.

Agriculture has always had a singular influence over labor markets.

Progress from human through animal to industrial power reshaped the farm first before spilling outward, and as contemporary futurists ponder how technology will continue to shape the way we live, renderings of lush fields harvested by robots under the gaze of drone fleets provide some of the most dramatic suggestions of just how different things might become during our lifetimes.

Much of the conversation surrounding technology and agriculture is characterized by optimism, but the past 18 months have also provoked some to sound alarm bells about how technological change and labor tightness are influencing current and future ag market conditions.

Peoples Company president Steve Bruere told Agri Investor last November there are areas of the US with productive farmland that lack the employment base to exploit it. In May, a British berry growers’ organization highlighted similar strains brought on by a decline in seasonal workers and in June, a CoBank report warned that rising labor costs could accelerate moves towards automation in the dairy sector and, over the long-term, threaten the economics of growing crops in the US rather than importing them.

Labor issues figured prominently at last month’s Agri Investor Forum in Chicago, where an LP panelist described how they already favor managers investing in automation and strategies focused on crops that can be harvested mechanically. A manager replied that automation is already helping address near-term labor challenges on farms and is a potential “game changer” over the long-term. That’s especially true when you consider  that the average payback time for equipment necessary to transition from hand-picked to mechanically harvested vineyards is as little as two years, which suggests such conversions will become more common.

Rabobank’s Food and Agribusiness Summit in New York last week did reveal some disagreement as to whether current labor concerns reflect long-term shifts or short-term dislocations, but also general agreement that automation will be an important factor throughout the agricultural economy going forward.

An audience member representing a large fruit company said the company has remained committed to operating in California, even as rising labor costs have inspired many of its competitors to decamp to Mexico. The audience member then described the challenges of introducing harvesting machines that increased efficiency but had to be adjusted after being poorly received by the fewer workers still required to operate them.

They also described how the company’s use of automation has supplemented other steps to retain workers such as introducing incentive-based pay, exploring the provision of healthcare and childcare and hosting informal gatherings to foster an inclusive culture among a workforce often made up of people from a disparate group of countries and regions.

In an increasingly competitive market, where social and governance factors are rising among LP priorities, some managers have already begun exploring new models for meeting their agricultural labor needs. Such efforts have concentrated largely on practical issues of housing, training and retention of qualified workers. In the years ahead, managers will also be challenged to manage the effects of automation’s introduction on those workers.

Much of agricultural labor consists of predictable physical activity with a high potential for automation, according to a widely cited McKinsey study that found the sector has the potential to become 57 percent automated, compared with 43 percent for finance and 27 percent for educational services. The study highlighted that agriculture had fallen from 40 percent of US employment in 1900 to less than 2 percent today and compared impending shifts in employment due to automation with those brought on previously by the shift from ag to manufacturing.

Ours is likely to be only a period of transition towards futurists’ visions of a robot-dominated agriculture. Managers who can balance their efforts to harvest the near-term benefits of automation while continuing to steward the interests of the sector’s existing workforce in that context are likely to be rewarded handsomely by savvy LPs.