Norwegian fertilizer producer Yara is in the process of a transformation that could in turn help to change the landscape of farming and the fertilizer industry for good.
The company announced earlier this year that it and US technology firm IBM had agreed to build a digital farming platform, aimed at helping farmers to sustainably increase their yields, crop quality and income. Its senior management team has since expanded on its intention to provide farmers with the possible service.
But as much as Yara wants to help farmers, the endeavour is equally a recognition of a future in which chemical fertilizers will have to be more efficient — when less must make for more — and one in which the company may have no choice but to evolve if it is to continue to thrive at the top of the supply chain.
The relationship and provision of services that it is developing with IBM could be of the very kind that will make it increasingly necessary for large-scale fertilizer producers, such as Yara itself, to become greater than the current sum of their parts.
‘Good for Yara, good for the world’
All else being equal, a growing global population ought to mean that greater volumes of fertilizers are required because ever-more food is required. The UN projects that the world’s population will reach 9.7bn by 2050, from an estimated 7.7bn as of June 2019.
But concurrently there is a general inclination toward environmental protection and efficient use of resources that will — save for specific, localised political developments — only become steeper as time moves on.
What is required from fertilizers is lower emissions, less runoff — in general, a decrease in waste that is lost to the environment.
Chemical fertilizer products themselves can become less wasteful, and alongside increased use of organic and mixed-organic fertilizers, such developments should provide progress. But another effective way that is envisaged to ensure advancement is for farmers to use only the nutrients that are required, when and where they are required, and in precise quantities, instead of over-fertilizing and/or applying inefficiently.
Agronomic knowledge is key, and that knowledge can be enhanced through technological means.
Both Yara and the market in general believe that premium and speciality fertilizers will ultimately take significant share from commodity products, as data analysis identifies farmers’ specific needs.
These developments are positive not only for the world but also for Yara itself, the Norwegian firm said at its 2019 Capital Markets Day in London.
The idea is that these changes can allow the company to draw on its vast bank of knowledge and resources, combine that with IBM’s technological abilities, and drive the business forward by providing tailored solutions to agriculture, while simultaneously benefiting the planet by increasing the efficient use of fertilizers.
The Yara-IBM vision, and developing a future
Distributors and others already offer digital soil analysis and related services, and many fertilizer and agronomics companies that have not yet entered the digital-farming market will do so in time. But the scale of the Yara-IBM vision, and the fact that the enterprise is being pursued by a very large producer at the top of the supply chain, make it currently unique.
The platform aims to combine in-field data with artificial intelligence and machine learning to, eventually, cover around 100mn hectares of farmland — equivalent to almost 7pc of global arable land, Yara has said, citing the World Bank and the UNFAO. It will provide hyperlocal weather information, as well as guidance tailored to individual crops and fields.
The plan is to roll out the first services by the end of this year.
Yara was keen to emphasise in London that the link-up is genuinely a joint initiative — IBM brings innovation capacity, data management and analysis, and existing technology; Yara provides product and a trusted brand, environmental/agronomic expertise, and access to an immense pool of farmers.
One suggestion, or theory, is that Yara’s contribution of knowledge would effectively be a one-time provision — the fertilizer company would deliver information for a given location to IBM, and IBM could manage and analyse the data thereafter to provide solutions to the customer.
But the changeability of environments, as well as the evolution of regulations to which those environments are subject, should ensure that Yara’s contribution will be ongoing.
Yara has emphasised that it wants to conduct ‘true’ management of the 100mn hectares, to perform its role comprehensively, and bring genuine, continuing value to the farmer.
This fully fledged agronomic management has the capacity to transform the landscape of both farmland and the fertilizer industry.
Indeed, the relationship that Yara is building with IBM makes for something potentially paradoxical. Yara is surely undertaking the venture because, at least partially, it has identified that simply being an old-fashioned fertilizer producer and marketer may no longer be enough in the future. By embarking on such a venture and leading the way, Yara is committing the industry to that future, and ensuring that being an old-fashioned fertilizer producer and marketer will no longer be enough, because the tech will ensure more efficiency, and therefore less in required volumes.
The very organisation that Yara once was could become obsolete, partly by its own pioneering hand.
Competition, consolidation and potential domination
Yara recognises that those that can be considered its competitors in the digital-farming arena, while presently difficult to identity, will increase in number with time.
But the company expresses a high degree of confidence about what it considers its competitive advantages — agronomic expertise, possession of the physical product, a highly trusted brand and a healthy distribution network.
With regard to the final element, though, the fertilizer giant wants more.
Yara spoke of market consolidation at its London event. One country that it mentioned as a case was Germany — Europe’s largest fertilizer market. Argus asked Yara to expand on the point and explain its vision.
The company said that it does not possess the distribution model in parts of Europe that it does in, for example, Brazil. In Germany, large cooperatives and distributors litter the market structure, and Yara has so far chosen to participate within this framework, rather than try to change it.
But it now wants to have an “interface” with farmers — a chance to connect directly with agriculture.
It remains to be seen whether this means in practice that Yara will attempt, successfully or otherwise, to cut out or control all intermediary levels of the market — mainly the distributors/wholesalers and their traditional customers, retailers. A recent link-up with Swedish firm Lantmännen, moreover, indicates that Yara continues to be happy for now to work with agricultural cooperatives.
It is also unclear whether Yara’s digital service will be market-leading and, if it is, what kind of premium farmers would have to pay for the privilege of signing up. Yara fertilizer brands tend to be among the most expensive in a given market, and often the single most expensive.
Regardless of the uncertainties, it is a concern for those intermediary businesses, such as wholesalers, given that a crucial aspect of Yara’s vision is being close to farmers at an individual level, assessing their needs and providing them with the precise service bundle that they require.
Moreover, and importantly, Yara has major resources and power behind it.
If markets are to rationalise, while relative consumption of fertilizers simultaneously drops as efficiency increases, it seems that Yara not only wants to be at the forefront of the technological evolution — it also wants to expand its significance within those streamlined market structures.
This paints a picture of a possible future in which there is a huge array of buyers purchasing directly from a small group of producers — those that have the resources, finances and scale to access and employ IBM-level technological strength.
Yara seems to be in the process of fundamental change — from production-focused, volume-based and crop-centric to solution-focused, value-based and farmer-centric. It will not be the only company of its kind to undergo such a transformation.
But questions remain regarding the viability of the entire idea. To ‘consolidate’ to the extent that it envisages, Yara would presumably have to build further infrastructure, or take on financial burdens, or hire an army of new employees, or perhaps all of the above.
Another important consideration, said a European market participant, is that the data that Yara gathers will have come mainly via its own sales, rather than being a more comprehensive database, such as that offered by global provider Proagrica.
But Yara has already committed much to its vision, and it is helping to set a certain course for the industry, on which others will undoubtedly aim to compete with — and surpass — the Scandinavian producer.At a certain point, technological advancements may remove the need for chemical fertilizers entirely. But Yara will have at least assimilated at the right point in history, when it can still influence the evolution of the industry from within.