How big data will revolutionize the global food
chain
Advanced
analytics opens vast untapped potential for farmers, investors, and emerging
economies to reduce the cost of goods sold.
The way digital
technologies are reshaping the
relationship between consumers and brands has been hotly debated over the past
few years, with much discussion of the reshaping of consumer decision journeys,
the advent of multichannel marketing and sales, and the impact of smartphones and
the mobile Internet on customer behavior. Yet an even bigger opportunity has
been largely overlooked. By taking advantage of big data and advanced analytics
at every link in the value chain from field to fork, food companies can harness
digital’s enormous potential for sustainable value creation. Digital can help
them use resources in a more environmentally responsible manner, improve their
sourcing decisions, and implement circular-economy solutions in the food chain.
Huge untapped potential
So far, most of the
excitement about digital’s potential in the consumer-packaged-goods industry
has centered on marketing and sales. But for food producers, the opportunities
begin higher upstream and end lower downstream. At the upstream end, the
agricultural practices followed by dairy farmers, cacao and coffee producers,
wheat and barley producers, cattle farmers, and so on result in enormous
variations in commodity costs in an industry where raw materials represent
easily 60 percent of the cost of goods sold (COGS).
Manufacturing and
packaging also represent a substantial share of COGS, as well as contributing
to companies’ environmental and social footprints and food-safety risks. At the
other end of the food chain, big data and advanced analytics can be used to
optimize downstream activities such as waste management. Food waste causes
economic losses, harms natural resources, and exacerbates food-security issues.
About a third of food produced for human consumption is lost or wasted every
year in a world where 795 million people—a ninth of the population—go hungry.
Cutting postharvest
losses in half would produce enough food to feed a billion more people. Global
food waste and loss cost $940 billion a year, have a carbon footprint of 4.4 Gt
CO2-equivalent (more than 8 percent of global greenhouse-gas emissions), and a
blue-water footprint of about 250 cubic km (3.6 times the annual consumption of
the US). In 2007, the amount of food wasted globally equated to 1.4 billion
hectares—an area bigger than Canada—of agricultural production.
Using technology to
improve areas such as climate forecasting, demand planning, and the management
of end-of-life products could bring enormous social, economic, and
environmental benefits. For example, the French start-up Phenix runs a
web-based marketplace to connect supermarkets with end-of-life food stocks to
NGOs and consumers who could use them. The platform enables the supermarkets to
save the costs of disposal, gives consumable products a second life, and
alleviates some of the social and environmental burden of waste.
The opportunities for
digital innovation in the food chain are enormous and vary by context, with
some well suited to emerging markets and others more appropriate to mature
economies.
Efficiency opportunities for emerging economies
Emerging markets can
tap the potential of digital in the food chain through innovations such as
precision agriculture, supply-chain efficiencies, and agriculture-focused
payment systems.
Precision agriculture is a technology-enabled approach
to farming management that observes, measures, and analyzes the needs of
individual fields and crops. By allowing farmers to apply tailored care and
manage water more effectively, it boosts production, improves economic
efficiency, and minimizes waste and environmental impact. Its development is
being shaped by two technological trends: big-data and advanced-analytics
capabilities on the one hand, and robotics—aerial imagery, sensors,
sophisticated local weather forecasts—on the other. According to 2014
estimates, the global market for agricultural robotics is expected to grow from
its current $1 billion to $14–18 billion by 2020.
New entrants and large
companies alike are developing products and services for precision agriculture.
The start-up CropX offers sensors to help farmers adjust irrigation to the
needs of their soil, while Blue River uses computer vision and robotics to
determine the needs of individual plants. At the opposite end of the scale, IBM
has developed a highly precise weather-forecast technology, Deep Thunder, and
an agriculture-specific cloud technology.
Recommendations can be
adjusted in real time to reflect changing weather conditions. Soil sensors and
aerial images help farmers manage crop growth centrally, with automated
detection systems providing early warnings of deviations from expected growth
rates or quality.
Automated systems showing the status,
performance, and potential bottlenecks of critical equipment in real time can
be used to optimize fleet management, thus increasing delivery reliability and
preventing spoilage. Transport times can be cut in half by using smart meters
to improve routing. Coupling transport-management systems with agricultural
sensors can allow unified hauling of inbound transportation, generating average
savings of 10 to 20 percent.
Agriculture-specific
payment systems and financial services can help farmers make their economic models more
resilient. Some growers use insurance contracts to offset weather risk, for
instance. Insurers calculate a premium on the basis of the likelihood of a
particular weather event, such as frost, and the impact it would have on a crop
at a specific point in its growth cycle. The premium is paid out when the
number of occurrences surpasses a predefined threshold.
Payments is another
area where digital solutions can make food chains more efficient. In Kenya,
Sokopepe provides a trading platform for agricultural commodities that links
small-scale producers to retailers and bulk purchasers via mobile-phone
messaging. Another Kenyan initiative, MFarm, provides up-to-date market prices
via an app or SMS and connects farmers with buyers, offering a group selling
tool for those farmers too small to market to a large buyer by themselves.
Solutions to systemic challenges for mature economies
Developed countries can
use digital tools and methods to tackle challenges such as improving the safety
of food, the sustainability of sourcing decisions, and companies’ environmental
footprints.
Food safety could be improved through the
adoption of innovative technologies such as consumer food scanners that analyze
a dish using spectroscopy and give users immediate information on its
composition. The European Commission recently launched a competition to develop
a viable, affordable, and noninvasive food scanner, with a prize of €800,000 in
funding for the winning team.
Two groups of people
would derive particular benefit from these devices: sufferers from food-related
illnesses such as obesity, allergies, and intolerance, and health-conscious individuals
wishing to use food scanners as a complement to activity trackers. In view of
the global epidemic in obesity and type-2 diabetes, estimates suggest that the
market for personal food scanners could reach US $1 billion by 2020.
Sourcing decisions could be made more
sustainable by adding yield-forecasting and risk-assessment tools to agronomic
modeling methods to assess the impact of hyperlocal weather forecasts on a
particular plant’s yield and soil conditions. This would allow global food
manufacturers to not only choose the best regions and countries to source from,
but also to adapt their sourcing routes to weather challenges. These tools
could also be used to determine the ideal mix of commodities in a country’s
agricultural portfolio, taking into account productivity levels by region.
Given the
unpredictability and volatility of raw-materials costs, global food companies
could derive huge benefits from finding ways to mitigate these risks while
maintaining a responsible sourcing strategy toward growers.
Environmental-footprint
management is another
challenge that digitization can help to address. For instance, Cisco’s Internet
of Everything will provide consumers with the means to trace a food product
back along its entire chain of production, from farmer’s field to supermarket
shelf. A scannable code on packaging will take users to a website that provides
a detailed analysis of every stage and process undergone by that product’s
specific production batch.
The technology could be
used to provide consumers with a guarantee of a product’s environmental
credentials. One of the challenges of advanced environmental practices is the
difficulty of demonstrating the reality behind marketing claims and overcoming
consumer skepticism, particularly where price premiums are concerned. A robust
method for tracing sourcing through to origins could support this practice and
make it more economically viable for food manufacturers.
Digital methods and tools are
opening up opportunities for leading food companies to improve their management
not only of the “last mile” of marketing and sales, but the entire journey from
field to fork.
By Clarisse Magnin
http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/how-big-data-will-revolutionize-the-global-food-chain?#_=_
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