In 2019, PwC, Rabobank and Temasek shared about the USD800 billion investment opportunity in Asian agriculture. While this may seem novel, this investment gap was in fact noted as early as the World Food Conference of 1996.
At that time, the United Nations Food and Agriculture Organization (UN FAO) was observing the onset of slowing productivity growth in agriculture. It saw this as a manifestation of waning gains from previous investments in First Green Revolution technologies from the 1960s to 1980s. It projected that, without additional annual investment in agriculture (beyond the status quo investment rate), productivity growth in agriculture would slow down, and undernourishment would fall by only a modest degree from 20.5% in 1990 to 11.9% undernourishment by 2010, not the ideal 0%.
While undernourishment outcomes are influenced by many other causes beyond agricultural productivity and investments, such as poverty levels and lack of income support, what is glaring is the accuracy of the FAO’s forecasts. Global undernourishment by end-2010 was at 11.8%, down from 12.3% in 2009. This means the forewarned 11.9% figure was definitely achieved within 2010. Therefore, while the USD 800 billion potential investment in agriculture may sound like a promising investment opportunity, the fact is that investments in agriculture have not grown as fast as environments have been evolving.
THE INVESTMENT PUZZLE: SIGNIFICANT RESOURCES AND LIMITED AGRICULTURAL INVESTMENT
The lack of investments in agriculture over the past decades is puzzling, though, since globally there has not been a shortage in capital.
Over the past decade, World Bank statistics show that gross domestic product (GDP) per capita globally has increased by more than 50% from $9,661 in 1990 to $15,509 in 2015 (in inflation-adjusted international dollars at purchasing power parity). There is no shortage of capital for investing in agriculture, as capital has in fact grown even faster than GDP. This was noted earlier by Thomas Picketty in his work, Capital in the 21st Century. Credit Suisse statistics show that by the end of 2019, in fact, global wealth stood at USD399 trillion, significantly larger than GDP at 88 trillion (in current USD).
Grown in Singapore, for Singapore
The Singapore Food Agency (SFA) has awarded close to SGD40 million of funding to nine companies in Singapore to help them adopt technology to ramp up local food production. This marks a significant step towards reaching the country’s goal of fulfilling 30% of its nutritional needs through local sources by 2030. Source: www.sfa.gov.sg/fromSGtoSG
It is therefore not a problem of having insufficient financial resources, but of getting these investments into the agricultural sector.
These trends apply regionally as well, wherein East Asia’s GDP per capita has practically tripled from $5,088 in 1990 to $14,969 in 2015 (in inflation-adjusted international dollars at purchasing power parity). Similar to the global scenario, Asia and the Pacific’s GDP by end-2019 grew to USD30.6 trillion (in current USD), but total wealth was at least five times larger, at USD163 trillion (in current USD).
It is therefore not a problem of having insufficient financial resources, but of getting these investments into the agricultural sector. This requires improving business models within agriculture so that such investments can become more profitable and enticing to investors.
“3PS” FRAMEWORK FOR AGRICULTURAL PRODUCTIVITY: POTENTIAL, PROBLEMS AND PRACTICES
To understand this puzzle of insufficient investment in agriculture, I first highlight the factors shaping agricultural productivity from a crop-science perspective. Productivity is measured in the tonnes of food produced for every hectare of land tilled. These can be summarised through three “Ps”, namely, POTENTIAL of crops, PROBLEMS in crop environments, and PRACTICES of farmers, based on crop modelling courses offered by the Florida-based Decision Support System for Agrotechnology Transfer (DSSAT) Foundation.
DIGITAL TECHNOLOGIES FOR A COMPLEX AND RAPIDLY CHANGING WORLD: WHAT IS POSSIBLE?
Even if the needed inputs and practices exist today, the problem is that they cannot yet be fully utilised in the face of rapidly changing environments as a result of the great deal of complexity these changes bring about.
This complexity is brought about chiefly by the impacts of climate change. The 2021 report by the United Nations’ Intergovernmental Panel on Climate Change (IPCC) has shown how global warming has coincided with the increasing occurrence of drought, changing patterns of precipitation, and pest and disease emergence and migration in various areas. Similarly, the nutritional composition of soils can change as a result of fertiliser use, which can lead to “overfertilisation”, that is, when an oversupply of nutrients induces unwanted weeds to sprout.
Climate-smart agriculture interventions in Northern Vietnam
Due to its vulnerability to climate challenges, Village Ma has been chosen to be a living lab to test climate-smart agriculture. The objective is to test a range of complementary approaches that can help farmers become more resilient to climate risks, and make their farms more sustainable. The project is led by CIAT for the CGIAR Research Program on Climate Change, Agriculture and Food Security. Source: www.ciat.cgiar.org
Therefore, this increased complexity brings to the fore the need for timely information on changing environmental factors and how they impact farming: timely alerts on the occurrences of droughts, floods, pests and diseases; analytical capability to determine and calibrate the optimal response; and implementation capacity to implement the optimal response evenly across crops.
Herein lies the potential for digital agriculture, by applying the “Internet of Things” (“IoT”) concept to agriculture, and which I break down into three components:
- “24-7” digital data collection to provide timely information to farmers on the rapidly changing environments (including timely alerts on sudden disruptions);
- Data analytics to process this information and identify the optimal practices to implement; and
- Automated implementation of the recommendations, including controls of water levels, nutrient release, and pest and disease control, among others.
By applying these technologies, farmers can follow a path of constantly improving their productivity levels over time, as they learn from each of the previous cycles of planting, growing and harvesting crops, each time calibrating their practices to further bridge the gaps between current and potential yields.
CLASSIFYING IOT AGRICULTURE INVESTMENTS: INDOOR AND OUTDOOR TYPES
A further difficulty to raising investments differs given the strategic challenges faced by different farming systems. I distinguish between two types, namely, indoor and outdoor farms.
On the one hand, indoor farms offer the benefit of greater productivity, by allowing farm operators to control the growing environments of crops. By replicating growing environments overseas, they can grow practically any plant. For instance, it even allows crops commonly found in temperate countries to grow in tropical countries (such as Singapore). This also allows for shorter ‘cycle times’ of planting, growing and harvesting crops, since farm operators do not need to wait for the next cropping season; instead, they set the timing of temperature changes.
However, the shortcoming of indoor farms is that they tend to be more expensive than outdoor farms. Growing food in outdoor farms offers the benefit of natural sunlight, temperatures and rainfall, thus making it cheaper. However, the scope of crops that can be grown in outdoor farms is smaller, since farmers are limited by the extant climates and temperatures in the places where they grow their crops. These climates also allow for greater vulnerability to over-heating of crops, insufficient sunlight, droughts, floods, and pests and diseases.
Given these differences, the digital technologies used in each type of farm also vary.
1. 24-7 digital data collection
INDOOR FARMS: Technologies are mostly in the form of indoor sensors to track the pH level in the water, temperature, humidity, air pressure, lighting/heat/UV radiation and others.
OUTDOOR FARMS: In contrast, there is a greater expanse and acreage of space to cover. Thus, farmers need to rely on drones, weather stations, satellites and ground sensors.
2. Data analytics
In both indoor and outdoor farms, data analytics involves identifying the ideal conditions and practices for optimising crop growth. The range of recommendations they offer can differ, though, since indoor farms include recommendations on the temperature levels and lighting, factors which outdoor farms cannot control.
3. Automated implementation
INDOOR FARMS: Constant re-adjustment of room temperatures and lighting to simulate the ideal growing conditions, and the release of water and nutrients.
OUTDOOR FARMS: These farms can only control the release of water through automated irrigation and fertilizer application; targeted and uniform spraying of chemicals through drones; smart seeders and harvesters; and potentially, the automatic release of biological organisms for controlling pests and diseases.
Food security is defined as a situation that exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.
SINGAPORE CONTEXT: INDOOR IOT FARMS AND THEIR VIABILITY
Food security is defined by the Food and Agriculture Organization of the United Nations (UN FAO) as “a situation that exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.”
As a high-income island city-state, indoor IoT farm technologies offer myriad potential for growing almost any type of crop in Singapore. This contributes to boosting food production, and also to helping meet Singapore’s “30-by-30” target of 30% nutritional self-sufficiency by 2030, despite its land constraints.
However, even if these technologies offer the technical potential to increase local production, where they may fall short is in their business potential. The key limitation is that the average Singaporean is not insensitive to price differences. Outdoor grown crops overseas – where land is more freely available and under conducive natural growing conditions – are naturally cheaper to produce than indoor agriculture. As such, locals will understandably prefer imports, if locally grown indoor crops are more expensive.
Nonetheless, indoor farms are not necessarily inferior to outdoor farms, even when it comes to costs. There are economies of scale, meaning, products can be sold locally at even lower costs if a sufficient level of scale is reached. For instance, in Japan, the Kyoto-based indoor farm Spread Co. produces more than 20,000 lettuce leaf heads daily and sells these to over 2,000 domestic supermarkets, as described in the book The Plant Factory by Toyoki Kozai.
The future of farming
Seeing opportunities in helping enterprises and traditional farmers grow their produce indoors under controlled conditions all year round, Singapore’s I.F.F.I (“Indoor Farm Factory Innovation”) aims to serve as the designer and consultant to the new generations of urban farming by providing the latest farming technology, including IoT applicaton for precision farming and AI automation to simplify farming processes. Photo: The Business Times
To what extent can indoor farm technologies be viable in Singapore? To address this important question, I conducted simulation experiments to identify crops that can be viably grown in indoor farms in Singapore, given various scenarios for government policies and technologies. These experiments allowed for developing a framework that considers (1) revenue drivers, including prices and the quantity of crops that can be sold locally to substitute for imported vegetables; (2) cost drivers, including the cost of seeds, electricity, farm labour, packing, rentals, research and development and marketing; and (3) capital expenditures or CAPEX, including facilities (research and development labs, experiment labs, meeting/cleaning rooms), land and structure (including grow racks) and construction costs.
This tool is known today as UrbanAgInvest (© Nanyang Technological University, Singapore), of which I am the First Inventor, together with Prof Paul Teng, Adjunct Senior Fellow for Food Security with the Centre for Non-Traditional Security Studies (NTS Centre) at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore, who is co-inventor.
This tool was initially applied using Spread Co.’s business model, to test its viability and scalability if imported into Singapore. For instance, the model showed the crops (such as New Zealand spinach, Japan lettuce, French chicory, kale from the United Arab Emirates) that offer greater potential for substituting imports with domestic produce.
Since then, the tool has also been used to test the impacts of potential policy support scenarios by the government. In an earlier RSIS Policy Report that I co-authored with Prof Teng, for instance, we tested the impacts of property tax exemption policies on the achievement of Singapore’s targets for leafy vegetables. We found that property tax exemption can allow for a larger quantity of viable local production, given that indoor farms are capital-intensive and have high property tax valuations (further details in the box below).
Summary of UrbanAgInvest Findings behind previous RSIS Policy Report
The analysis using the UrbanAgInvest tool, for the RSIS Policy Report, was conducted based on publicly available data as of 2018. Assuming a future population of 6.34 million by 2030, and the same per-capita consumption of leafy vegetables of 6 kg per person annually, the computed the total demand for leafy vegetables would increase to 101,500 tonnes of vegetables.
If the “30-by-30” target for leafy vegetables is to achieve 30% leafy vegetable self-sufficiency in tonnage, this translates to increasing local leafy vegetable production from 13,000 tonnes in 2017 to 30,400 tonnes in 2030. Compared to 2017 production levels of 11,800 tonnes this would require an additional 18,600 tonnes of vegetable production. Model findings showed, however, that compared to this quantity of additional production only an additional 10,700 tonnes can be viably self-produced, assuming the same level of efficiency and cost structure as Japan’s Spread Co., and holding other factors constant, including the current property taxation policy. In contrast, if the property tax on indoor farms was lifted, then additional production of 19,610 tonnes can be viable, meeting the 30% leafy vegetable self-sufficiency target.
Moreover, we found that given the larger amount of viable production within indoor farms that results from property tax exemption, this offered further potential benefits such as a 76% increase in capital investments in this sector (assuming each earns a minimum 8% internal rate of return), and a 28% net increase in total tax revenues collected annually from the goods and services tax, income tax and property tax combined.
FINDING THE “SWEET SPOT” IN POLICY
However, food security policies do not exist in a vacuum. In the case of property tax exemption, even if having more food production allows for potentially reduced food prices, such a policy cannot simply be implemented without considering the equally important targets of ensuring sufficient taxation revenues and inflow of investments which are necessary for maintaining Singapore’s competitiveness.
Other agencies’ interests would thus need to be considered, and what is key is to find the “sweet spot” which addresses these multiple interests. For instance, model findings showed that compared to the base scenario where indoor farms are not property tax exempt, the policy option of exempting indoor farms provides further benefits, such as (1) a net positive increase in capital investments to the farming sector; (2) a net positive increase in total tax revenues collected annually from the goods and services tax, income tax and property tax combined; and (3) additional income to local enterprises in the indoor farming sector.
THE WAY FORWARD
Reflecting back on the earlier report by PwC, Rabobank and Temasek, it is clear that realising the USD800 billion investment opportunity in agriculture requires a balance of research and development on the technology aspect, and of identifying the optimal types of policy support policies that address the long-term challenges to scaling particular technologies, while considering the multiple interests.
Beyond this, there is scope for conducting further policy simulations of other equally important policies on the demand side. For instance, it can also be used to test the scenario where the state coordinates increased local sourcing from local indoor farmers for meeting food demand in institutions where such demand is stable (for example, the Singapore Armed Forces, hospitals, schools, and so on), although this would require separate viability assessments for these institutions too. The UrbanAgInvest tool is also adaptable to other technologies, including outdoor IoT farming technologies, to identify which ones can viably be imported by food producers in Singapore (or alternatively, developed by local universities) in order to expand food production levels, given the island city-state’s space limitations and the price sensitivity of local consumers.
JOSE MA. LUIS MONTESCLAROS
Jose Ma. Luis Montesclaros is a Research Fellow with the Centre of Non-Traditional Security Studies at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore, where he is concurrently a Ph.D. Candidate in International Political Economy. He is Co-Investigator of the “Enhancing Food Supply Chain Resilience and Food Security in ASEAN with Utilization of Digital Technologies” study, in collaboration with the Economic Research Institute for ASEAN and East Asia (ERIA). Previously, he conducted food security risk assessments for Singapore’s Inter-Ministry Committee on Food Security (IMCFS), and co-authored the World Bank’s “ASEAN Equitable Development Monitor Report 2014”. He holds a Master’s in Public Policy (Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore; ASEAN Scholarship), and a BS Economics Degree (University of the Philippines), and was one of the two “Leaders of Tomorrow” representing LKYSPP, NUS at the 44th Saint Gallen Wings of Excellence Awards (Switzerland).
DECEMBER 2021 | ISSUE 9
Tomorrow's Technology Today
