Betting the Farm
While technological advancements, such as heavy-duty farm equipment and fertilizer, have been largely responsible for past productivity gains in the agricultural industry, a growing number of farmers are now looking to enterprise-grade software tools to boost yields on higher-quality crops. But beyond improving the profitability of a single plot of land, these software tools can equip farmers with the necessary information and functionality to compete against the growing threat of climate change.
Trimble (Nasdaq: TRMB), which is a $2.3B revenue and $6.4B market cap company, is one such software provider with the opportunity to combat the following climate trends that are endangering global agricultural productivity[i]:
- Average temperatures in the U.S. increased 1.3 to 1.9 degrees Fahrenheit between 1895 and 2012.[ii] During roughly the same time-period, the average annual precipitation level in the U.S. increased by 5%, varying by region.[iii] These unforeseen fluctuations in both temperature and precipitation can impair crop yields.
- In 2014, scientists projected sea levels would rise another 1 to 4 feet by 2100.[iv] These rising sea levels are expected to impact agricultural production through a decrease in the availability of freshwater, land loss and saltwater intrusion.[v]
- Scientists recorded an increase in the number and severity of extreme weather events from 1960 and 2012, including droughts, heat waves and flooding.[vi]
Exhibit 1: Climate change will depress agricultural yields in most countries in 2050 (Source: World Bank).
From Manual Labor to Data-Driven Decision-making
By way of background, Trimble provides a broad range of “workflow” enterprise solutions (software, hardware and services) in over 100 countries across several industries, including agriculture, engineering, construction, natural resources, transportation and utilities. More specifically, the company’s agricultural business unit recently launched the “Connected Farm” platform, which bundles together a number of different products. Rather than using a handful of different point solutions from different providers, the “Connected Farm” is capable of systematically collecting data on one integrated end-to-end platform. The full solution includes sensors, GPS devices and satellite imagery. If fully implemented, farmers can make more informed crop management decisions. Underlying modules include the following[vii]:
- Information management solutions, which can centralize and dashboard all data collected from the field (e.g., plantings, temperatures, precipitation rates, soil moisture readings, frost incidences, etc.).
- Guidance and positioning systems, which can provide manual and automated navigation guidance for tractors and other farm equipment used in spraying, planting, cultivating and harvesting.
- Variety of other applications, such as irrigation and drainage system modeling tools to better manage water flow.
Trimble has also moved up and down the farming value chain to further address market needs. As an example, the company recently acquired AGRI-TREND, which operates a network of over 200 independent agricultural consultants in North America. The acquisition will enable Trimble to provide agronomists and other crop advisors with a set of tools to advise growers on how to better manage their operations.[viii] Trimble also offers food traceability and quality inspection solutions, which enable food producers, distributors and retailers to meet food safety requirements, secure their supply chain and optimize product freshness and quality.[ix]
Steering More Toward Sustainability
Trimble’s portfolio of products fundamentally enhances crop management, which can combat the mounting pressures of climate change. That said, the company has an opportunity to further capitalize on these capabilities and serve as an agent of change.
Though the company sells into the agriculture, marine and forestry markets, among others, Trimble does not actually appear to have any formal stance on climate change, sustainability or environmental stewardship. At the very least, the company is foregoing positive press surrounding an advocacy campaign. But more importantly, the company has access to mountains of valuable historical crop and weather-related data that could be shared and studied on an aggregated and anonymized basis with public and non-profit organizations, as just one example. The company could also take on the role of a thought leader and publish research-driven insights or best practices for public consumption. This content could be particularly helpful to small family-owned farms, as well as developing markets. Finally, the company could proactively engage with the broader agricultural community through a variety of outreach programs or partnerships, such as with the G8’s New Alliance on Food Security and Nutrition or the World Economic Forum’s New Vision for Agriculture.
Trimble is uniquely positioned to facilitate the world’s response to climate change, and it would be in everyone’s best interest if they rolled up their sleeves and got their hands a little dirty. [758 words]
[i] “Trimble Inc.,” S&P CapitalIQ, November 2016.
[ii] National Climate Assessment, U.S. Global Change Research Program, 2014, http://nca2014.globalchange.gov/highlights/report-findings/agriculture#statement-16364, accessed September 2016.
[iii] J.D. Walsh, et al., “Chapter 2: Our Changing Climate,” Climate Change Impacts in the United States, The Third National Climate Assessment, Eds. J. M. Melillo et al., http”//s3.amazonnews.com/nca2014/low/NCA3_Full_Report_02_Our_Changing_Climate_LowRes.pdf?download=1, accessed September 2016.
[iv] “Future Climate,” National Climate Assessment, U.S. Global Change Research Program, 2014, http://nca2014.globalchange.gov/highlights/report-findings/future-climate, accessed September 2016.
[v] “Regions: Southeast,” National Climate Assessment, U.S. Global Change Research Program, 2014, http://nca2014.globalchange.gov/report/regions/southeast, accessed September 2016.
[vi] “Extreme Weather,” National Climate Assessment, U.S. Global Change Research Program, 2014, http://nca2014.globalchange.gov/highlights/report-findings/extreme-weather, accessed September 2016.
[vii] Trimble Inc. (2016). Form 10-K 2016. Retrieved from S&P CapitalIQ.
[viii] Trimble Inc. Trimble to Acquire AGRI-TREND to Provide Stronger Toolset for Crop Advisors. N.p., 10 Nov. 2015. Web. 4 Nov. 2016. <https://www.trimble.com/news/release.aspx?id=111015a>.
[ix] Trimble Inc. TRIMBLE ACQUIRES HARVESTMARK TO PROVIDE FOOD TRACEABILITY AND QUALITY CONTROL. N.p., 22 Apr. 2015. Web. 4 Nov. 2016. <http://investor.trimble.com/releasedetail.cfm?releaseid=907841>.