Formalizing the Agriculture Industry

Obsolete agricultural practices feed a poverty trap while slowly strangling the natural environment. Digital solutions and the initiatives they can steer are gradually making sure that the sector reaches its true potential.

According to World Bank data for 2021, agriculture accounts for 3.84% of GDP (5% for Latam and Caribbean [LAC]), with arable land at 12.3% of the total. LAC countries could become the world’s food basket, and the region is the world’s preeminent exporter of agricultural products.

Yet the potential is curbed by perennial issues of scalability in a largely informal sector, one where smallholdings with obsolete practices are actually damaging soil quality.

The stakes are high as confirmed by the UN’s major 2022 Global Land Outlook 2 report. Its findings reveal that soil health and biodiversity underpin the security of societies and economies, where around USD44 trillion of economic output — over half of global GDP — is somewhat or particularly reliant on natural capital. Improved soil health can boost land productivity and biodiversity, as well as the total amount of carbon sequestered.

In LAC countries family businesses account for 80% of agricultural producers, 40% of production, and two-thirds of related employment. Tellingly, however, 14 million small producers remain in poverty, mostly without access to financing. This is Mexico’s story.

Enter Agriculture 4.0

The OECD notes that a 10% rise in the Digital Ecosystem Development Index represents a 1.4% increase in GDP. Digitalization has the potential to maximize productivity, slash costs, and mitigate supply chain risks, all on the shoulders of big data.

Where the poor of Mexico are concerned, cash remains less king than joker, its use perpetuating the informal economy and poverty trap. Digital solutions like micro-loans delivered over the humble mobile phone have pulled countless Mexicans into financial inclusion with access to commercial opportunities.

The neologism ‘AgTech’ means adding precision and sustainability to farming practices by funding projects promising sustainable profitability. Agriculture 4.0 marks a paradigm shift where, aside from credit sourcing, data-driven digital solutions include automation, remote sensing, and precision agriculture.

In a TBY interview, Javier Rodríguez, Managing Director of McCormick Tractors notes in this vein how, “Farming costs can be reduced more by new technology with the use of GPS.” All this with an app on the farmer’s phone.

A Microcosm

Vision 2030 is Mexico’s roadmap for a nature-positive food system. Yet in the southeastern state of Chiapas—to take an example—less than 500 acres of corn are grown under regenerative agriculture with 1.7 million acres under conventional production.

This is compounded by the cost of fertilizer and disruption to supply chains by war in Ukraine. Note here that regenerative corn fields generate nearly twice the profit of conventional ones. This is because legume-based cover crops curb fertilizer use, which by sector reckoning accounts for 32% of gross income for conventional fields versus 12% in regenerative fields.

… and a Solution

Because of its weight in the produce basket, corn production has in past years seen state complicity in the destruction of natural resources. Yet farmers, ranchers and officialdom are best viewed as partners in a sustainable endeavor. International environmental agency The Nature Conservancy is perhaps best known for its global “Plant a Billion Trees” initiative.

In Chiapas it supports Mexico’s Vision 2030 that foresees incorporating 6.2 million acres of land into sustainable agriculture and cattle-ranching schemes by that year. Another goal is to reforest 3.5 million acres of land. Chiapas is Mexico’s second most biodiverse state, and lateral thinking has brought together farmers, environmentalists, and ranchers for sustainable management projects attuned to soil health.

Reforestation and restored soil health means greater carbon storage. Initiatives in Chiapas will also look beyond corn to beans and coffee production. Project funding comes in part from the Mexican environment ministry’s climate change fund, Mexico’s National Institute for Forestry, Agriculture and Livestock Research (INIFAP), and TNC as part of its “Plant a Billion Trees” campaign.

The Cycle of Life

Absolutely everything has its price, and even agriculture is a vast producer of waste. Ministry of Agriculture and Rural Development data reveals that annually the sector produces over 300,000 tons of agricultural plastic waste. A new solution is afoot. Israeli firm Netafim is poised to open a recycling facility in Culiacan Municipality in the state of Sinaloa. Initial capacity will enable the annual recycling of over 3,000 tons of plastic in a catchment area benefitting farmers in Baja California, Sonora, Sinaloa, and Chihuahua, who will sell used drip hoses.

The digitalization of the farming sector promises to provide actionable data resources and systematic planning and execution. Moreover, the small producer can obtain the credit needed for CAPEX, reducing harmful obsolescence, boosting competitiveness, and formalizing the fragmented sector in the process.