Will the Convergence Between Artificial Intelligence and Precision Agriculture Lower Farming Costs?

Rising costs and farm income concerns

Crop production in the US is facing significant cost pressures. After input costs rose 80-250% during the supply chain shocks associated with the coronavirus crisis and the Ukraine War,¹ crop production costs hit record levels in 2022.² Coupled with labour shortages,³ net farm income in the US is likely to drop 18% this year, according to U.S. Department of Agriculture (USDA) forecasts.⁴ Moreover, because US crop yields have plateaued during the past five to six years, as shown below, farmers are seeking innovative ways to lower costs and improve profitability.

Source: ARK Investment Management LLC, 2023, based on data from USDA as of July 12, 2023.

Forecasts are inherently limited and cannot be relied upon. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.

AI and precision agriculture solutions are revolutionising farming

According to ARK Invest’s research, Artificial Intelligence (AI) and Precision Agriculture (Ag) have the potential to reduce annual agricultural operating costs by more than 22% globally. AGCO Corporation, CNH Industrial, Deere & Company, and Komatsu, among other companies, are creating innovative solutions to boost farm productivity. Last year, Deere announced⁵ plans to launch a fully autonomous corn and soybean production system by 2030—beginning with the Autonomous 8R Tractor. According to ARK Invest’s research, the company’s precision ag tools—particularly the ExactShot Planter and See and Spray Ultimate Sprayer—will play important roles in boosting farm productivity.

The combination of See and Spray Ultimate Sprayer, ExactShot Planter, and autonomous technology should lower several agricultural costs. First, the amount of seed, fertilizer, and chemicals involved in farming could drop by around 27%, a reduction driven largely by a 60%⁶ decline in starter fertilizer—which accounts for around 3% of operating costs—and a 67-80%⁷ decline in herbicide costs—which accounts for around 12% of operating costs.⁸ Second, as autonomous technology takes over in-field work from humans, ARK Invest estimates that labour costs, which account for around 8% of operating costs, could drop around 85%. Finally, ARK Invest’s research suggests that predictive maintenance and more efficient field passes could reduce fuel, lubricant, electricity, and repairs by around 20%.

Cost reductions through technological innovations

The combination of AI and Precision Ag could reduce the operating costs of farming corn, soybean, and wheat in the US by 26%, 31%, and 31%, respectively, on a per-acre basis, as shown below.⁸

Source: ARK Investment Management LLC, 2023, based on data from USDA as of July 12, 2023.

Forecasts are inherently limited and cannot be relied upon. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Past performance is not indicative of future results.

Global adoption and market impact

ARK also estimates that 75-80% of farms will adopt these solutions globally, with different adoption rates based on factors like farm size, connectivity, and cultural differences.⁹ As agricultural companies leverage the various technologies and shift toward usage-based business models—reducing up-front capital costs and enabling per-acre charges—if 75% of farms were to adopt them, ARK Invest believes worldwide farming operating costs could drop 22%. Potentially accelerating adoption, companies like Starlink are boosting rural connectivity with low-earth orbit satellite solutions.¹⁰

ARK’s research suggests that AI and Precision Ag tools operating at scale could reduce operating costs as a percentage of sales from 42% to 33%, potentially creating a global serviceable market of around $USD 67 billion, as shown below. If the use of autonomous technology were to proliferate, agricultural companies potentially could generate recurring revenue streams with software-as-a-service-like margins.¹¹

Source: ARK Investment Management LLC, 2023, based on data from USDA as of July 12, 2023.

Forecasts are inherently limited and cannot be relied upon. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security. Past performance is not indicative of future results.

While this analysis has focused on operating costs, autonomous solutions also could maximise crop yields by reducing dependence on human labour during nocturnal hours or critical agronomic periods.¹² Usually, farmers urgently need labour-dependent machinery to make field passes, which often proves difficult because of labour scarcity. Autonomous technologies can address that problem for farmers and significantly increase the potential for improved crop yield.