Information and Communication Technology as a Driver for Change in Agri-food Chains

Abstract

Information and Communication Technology as a Driver for Change in Agri‐food Chains
Agri‐food chains will be changed in the coming years by Information and Communication Technology (ICT). Technological trends and economic analysis suggest that ICT will be a major driver for innovation. Satellites and sensors make precision agriculture possible. More and more data are being generated in agriculture and the rest of the food chain, which helps to steer production processes with greater precision. However, there is a low level of integration of these data between actors in the food chain. By improving this ‘interoperability’ of data, processes in the food chain can be optimised and new business models developed. Data‐intensive food chains have the potential to alleviate many of the current sustainability and food safety issues and contribute to human health. The economic and policy effects of such developments still need to be explored. At first sight it could lead to more closely integrated supply chains that make the farmer act as a franchise taker with limited freedom. But the opposite could also be true, with more transparency and easier options for direct sales via consumer food webs, using smart solutions for the ‘last mile’ delivery. New issues like a trade‐off between transparency and privacy or pricing data might well arise.

Full text

Krijn J. Poppe, Sjaak Wolfert, Cor Verdouw and Tim Verwaart
The current economic crisis provides
an opportunity for governments and
actors in the food chain to innovate.
History suggests that older industries
like farming and food processing will
increase the use of new technologies
(Box 1). Information and
Communication Technology (ICT)
will change the agricultural and food
sector. We see this trend already
happening among the different actors
in the food chain: dairy farmers
installing milking robots and adopting
sensor technology while arable
farmers are using satellite based
positioning systems for precision
agriculture. At the other end of the
food chain, retailers are providing
product data to consumers on smart
phones. Exchanging data in the food
supply networks will contribute to
alleviating major societal problems
like food waste, sustainability and
poor health.
The different actors in the food
supply networks have their own
specific problems that force them to
innovate. Retailers focus on market
share and brand loyalty: their main
worry is to keep customers returning
to their stores. Loyalty cards
providing more data help in this
respect. Competition between
retailers is strong, and increasingly
with food service and online retailers
too. Time-stressed consumers are not
necessarily interested in buying large
volume products from shelves on a
Friday evening, which also explains
the interest in ICT-related shopping
experiences, from smart phones to
web shops.
Food processors have to cope with
the increased power of the large
retailers. Internationalisation to
increase size and consumer-oriented
product innovation are key
challenges, in addition to finding
cheap inputs. Data from input
suppliers and data on sustainability
can play a role in product
differentiation of top A-brands
targeted at market niches. Logistic
solution providers that organise
transport in the food chain try to cope
with the pressure on margins by
developing service concepts like just-
in-time deliveries, so that business
partners can concentrate on their core
functions. This all leads to increased
data exchange in the food chain.
Farms strive to decrease their costs,
either by use of more technology, by
increasing their size, or a combination
of both. They are increasingly data
intensive and make these data
available to food processors for
tracing and tracking (Global-GAP) as
well as to governments (for instance,
the use of geographical information
systems has been partly driven by the
Common Agricultural Policy). Other
farmers try to escape this trend by
focussing on a value-added strategy
for special products, often for local
markets. Such farmers already benefit
from internet technology (websites)
and ICT-based home delivery systems.
Input industries often work on a
worldwide scale; they are R&D
intensive and deal with new
technologies such as Genetics,
Robotics, Informatics and
Nanotechnology (GRIN).
ƒ
‘‘ On pourrait se
promener le long de la
filie
`re de l’offre et voir
ce qui se passe a
`tout
instant.,,
The need to feed 9 billion people in
2050 with restricted resources while
generating less pollution is a major
societal challenge with implications
for government intervention as well
as a business opportunity for the
food chain. Besides the challenge to
feed the world, the nature and
characteristics of farming and
transportation raise important issues
of sustainability, food safety and the
relationship between food and health
(e.g. obesity).
The role of ICT
The need for innovation to address
all these challenges will be
supported by ICT. After the
successful installation of computers
in the last 25 years of the 20
th
century, the Internet started to
connect those computers in the
1990s, leading recently to new forms
of collaboration in social media.
Working processes inside
Information and Communication Technology as
a Driver for Change in Agri-food Chains
La technologie de l’information et de la communication comme moteur
du changement dans les filie
`res agroalimentaires
Informations- und Kommunikationstechnik als Triebfeder fu
¨r Vera
¨n-
derung in den Wertscho
¨pfungsketten der Agrar- und Erna
¨hrungswirt-
schaft
60 ƒEuroChoices 12(1) ª2013 The Authors
EuroChoices ª2013 The Agricultural Economics Society and the European Association of Agricultural Economists

organisations have been
transformed and (long distance)
specialisation between firms has
increased in global agri-food supply
chains. It is likely that in the
coming years new forms of
collaboration between
organisations (businesses,
consumers, government) will take
off with more intensive data
exchange replacing paperwork.
Hardware, like sensor technology and
Radio Frequency Identification (RFID)
chips but also computer power and
transmission capacity, is still getting
cheaper and leads to new options, like
the Internet of Things (the idea that not
only computers could be networked,
but a lot of other things that have a
chip attached, from cows to containers
and refrigerators). Unmanned tractors
are on their way: for example, the
Austrian company Fendt won a gold
medal with a prototype at the 2011
Agritechnica in Hannover.
Drivers
Innovation happens not only because
there is a supply of a new technology,
but also because there is a demand. In
addition to the immediate business
and social challenges described above,
there are a number of macro-trends
that make the huge adoption of ICT in
the food supply chains likely.
Demographic developments suggest
that labour markets will be tight in the
coming years. Current unemployment
levels might mitigate this, but there
are big mismatches between demand
and supply in the labour market
regarding skills and location, which
can be alleviated by the use of ICT.
Robotics first come to mind, but the
Box 1: Long wave theory
Over recent years the economic outlook in many countries has deteriorated strongly. The financial and sovereign debt crisis has
led to leading European politicians arguing that this is ‘the biggest crisis in the life of the Euro’ and even ‘since the depression’.
Historical economic analysis of long-term business cycles supports this view. Economic development since the first industrial
revolution has been driven by technological-economic cycles (waves) that take about 50–60 years to complete (Box Figure 1).
These waves start with a new technology that is not necessarily a new invention but becomes cheaper at such a startling speed
that it has big effects on how societies are organised. This is what is now happening with ICT: the microchip that Gordon
Moore invented in 1971 still doubles in capacity and halves in price roughly every 18 months.
This breakthrough typically happens in a period of standstill with capital searching for new business opportunities. After this phase
investors become too enthusiastic, resulting in a financial bubble. That leads to a crash: the current financial crisis can be
interpreted as the mid-life crisis of the ICT wave. Historically, such a period is a turning point that calls for institutional innovation,
in which new ways of working are accepted. Rules are put in place to make new technologies work in situations (of older
industries like agriculture) that until then had not innovated with the new technology. At the same time higher incomes and
labour costs support the adoption of new technologies. This happened in the 1950s with tractors and chemicals and could now
happen again with ICT.
Box Figure 1: Long wave theory
time
Degree of diffusion of the
technological revoluton
Installation period
Next
wave
Deployment
period
Turning
point
IRRUPTION
FRENZY
SYNERGY
MATURITY
Big Bang
Unemployment
Decline of old industries
Capital searches new techniques
Financial bubble
Decoupling in the system
Polarisation poor and rich
Golden age
Coherent growth
Increasing externalities
Last produc ts & industries
Market saturation
Disappointment vs
complacency
Crash
2008
1929
1893
1847
1797
Institutional
innovation
The opportunity for green growth
1971 ICT chip
1908 car, oil, mass production
1875 steel
1829 steam, railways
1771 water , textile
Source: Perez (2002); see also Perez (2010) and Poppe (2009).
ª2013 The Authors EuroChoices 12(1) ƒ61
EuroChoices ª2013 The Agricultural Economics Society and the European Association of Agricultural Economists

effect is bigger. Where a lot of blue
collar (manual) labour is already
mechanised, the remaining labour is
engaged in white collar activities, from
sales and advice to management. This
gives a big incentive to increase size, as
costs can be allocated to more
products: a farmer and a processor can
make contracts for 1,000 tonnes of
potatoes at the same cost as for 100
tonnes. And bigger farms and firms
depend on professional management
systems, less on informal methods of
working. This not only leads to the
adoption of ICT, but also ICT-adoption
will affect the size and structure of
farming.
An economic crisis is also a crisis of
values. There is an increased interest
in ‘local’ as opposed to the
dominance of ‘global’. Food has
always been a means for consumers
to profile themselves in a social
environment, but in the last decade
food culture has clearly grown in
importance. Sustainability aspects are
much discussed, by chefs as well as
large segments of consumers and
NGOs. The consumer market has
become more heterogeneous. So has
the farm sector. Reducing market
interventions in the CAP gives farmers
more freedom to produce as well as a
pressure to choose their own
strategy. With heterogeneous
consumers and farm systems it
becomes attractive to search for
methods to match the demands of
those segments.
ƒ
‘‘ Man ko
¨nnte die
Wertscho
¨pfungskette
‘durchlaufen’ und
jederzeit sehen, was
vor sich geht.,,
Related to the matching of
consumer and farming segments,
integration of farming in the food
chain via contracts and quality
assurance schemes like GlobalGap
continues to increase. As agricultural
processes become more
programmable (and are less
dependent on unpredictable natural
events), as investments are less
general in nature but become more
tied to specific products (such as
know-how on how to grow organic
broccoli) and marketing is a joint
effort of a producer group and a
retail chain (such as with some new
apple cultivars), more complex
organisational forms appear, as
relying on the spot market would be
a big business risk for the parties in
the food chain (Boehlje, 1999). This
all leads to more sharing of data.
These trends have the potential to
further increase the uptake of ICT in
the agri-food chain and lead to
system-innovations, which is already
happening in many places.
At the frontier
In the farm sector the use of ICT
technology has increased strongly
over the last decade. In a number of
European regions the use of
precision agriculture techniques has
been introduced successfully,
especially in arable farming. Based on
satellite data, tractors can be very
precisely located. This makes it
possible to increase labour
productivity by making machines
bigger (for example, a 24 m broad
spraying machine must be driven by
such technology to keep a tractor on
exactly the right track, otherwise the
arms of the spraying machine would
move too much), and by precise
application of pesticides and
fertilisers (also reducing pollution).
Combining remote sensing data on
crop growth and farm data on crop
interventions (and ex post yields) lead
to better decision making. But data
are still hardly shared with advisors or
the processing industry, analysed by
intelligent software or combined in
regional analysis and advice. That will
change.
Glasshouse horticulture has more
control over its production
conditions than open air activities.
Glasshouses have become wired
with sensors and computers to steer
the production process in an
optimal way. In dairy farming, milking
robots have been introduced
successfully on family farms in North
Western Europe where labour is
expensive and farmers are highly
educated. The use of sensor
technology is increasing: cows
increasingly will be measured with
Olive oil factor
y
in Andalucia
62 ƒEuroChoices 12(1) ª2013 The Authors
EuroChoices ª2013 The Agricultural Economics Society and the European Association of Agricultural Economists

sensors as intensely as sports
athletes; sensor data being much
better than the human eye at
predicting diseases or the optimal
time for insemination.
In agri-logistics, tracing and tracking
has become standard. The food
scares (dioxine crisis, bovine
spongiform encephalopathy) have
stimulated that development, as has
European law. In some cases this
has led to advanced systems that
include the consumer stage.
Barcodes are already used to
provide consumers with information
on the ingredients in food products
and the way they have been
produced. If consumers are ready to
pay for a ‘sustainability’ premium,
the traceability that barcodes allow
for facilitates the transmission of
consumer premia back to producers.
What starts as a service or
segmentation policy could easily
turn into new business models and
new policy options; a food
processing company could offer a
premium to farmers to increase the
supply of commodities with
‘sustainability’ characteristics;
governments could also use article
68 of the Common Agricultural
Policy to reward farmers that
produce such commodities.
ƒ
‘‘ One could ‘walk
through’ the supply
chain and see what is
going on at any
moment.,,
Retailers are using apps on smart
phones to support consumers and
to increase brand loyalty. Such apps
help to create shopping lists and
optimise shopping routes in the
store. Tesco has taken the idea one
step further in an experiment in
South Korea where the supermarket
comes to the consumer in a virtual
form, projected on the wall of the
metro station, as an alternative to
an online shopping service. Home
delivery systems are becoming more
widespread. Sharp falls in prices of
delivery services, also due to the
liberalisation of the post and
parcel market as well as the
labour market, have helped farmers
to set up web shops. ICT will
further help to solve the so-called
‘last mile’ issue in several ways,
from dynamic routing trucks to
opening and closing the door of a
garage or box by Internet via a
phone call.
This list of examples shows that
several actors in the food chain have
already advanced use of ICT and are
experimenting with new
developments. It is based on these
experiences and the trends at the
macro level that we think that ICT
will strongly change the food chain
in the coming years, based on the
exchange of data between partners.
Figure 1 summarises how more data
and ICT contribute to the
development of new business models
and the relevant policy challenges:
more advice bundled with
technology; precision farming; better
service concepts in logistics;
segmentation in the food industry to
cope with heterogeneity in farming
and among consumers; and
consumer decision support. In the
near future, Facebook-like data
exchange platforms will make it
possible to move data seamlessly
from one partner in the food chain
to another. This will also make it
possible to create new services, as
outlined in current research projects
(Box 2).
Taking all such innovations together,
they could potentially lead to a virtual
supply chain. The history of a
product could be followed from the
consumer table back to the input
industry. And it goes one step
further: as in a kind of Second Life
environment one could ‘walk
through’ the supply chain and see
what is going on at which stage at
any moment, and what its history is.
This makes totally new business
models possible.
A more data-driven chain
In conclusion we argue that based on
macro-trends and current
developments, the agri-food chain
will become much more data-driven,
based on up-to-date ICT. It will move
away from a situation characterised
by a low level of integration of data,
even though internally in companies
a lot of data are already available.
This will help solve the mismatch
between current applications of ICT
and the increasing need for
intelligent solutions. Such a
development has a large potential
impact on issues like sustainability,
How more data contributes to current business models
Tran spo rt
loyalty
Small Cost price
GRIN
Tran spo rt
Input industries Farmer Food processor Retail / consumer
Soware
Provider
Logiscs
soluon
providers
Service cope with retail
Sustainability HealthFood SafetyFeed the growing world
Precision Farming:
beer control
Beer management
decision
Sophiscated
Technology,
More advice
Segment
products and
input suppliers;
Benchmark with
competors
Consumer
decision support
(pre- and aer
sales)
Beer service concepts, e.g. in
store replenishment
Figure 1: The need for more data in food chain
Note: GRIN: Genetics, Robotics, Informatics and Nanotechnology.
Source: EU FP7 project SmartAgriFood.
ª2013 The Authors EuroChoices 12(1) ƒ63
EuroChoices ª2013 The Agricultural Economics Society and the European Association of Agricultural Economists

food safety, resource efficiency and
waste reduction.
The economic effects of such
developments are still to be
explored. At first sight it could lead
to more closely integrated supply
chains that make the farmer act as
a franchise taker with limited
freedom. But the opposite could be
true, with more transparency and
easier options for direct sales in
consumer food webs, using smart
solutions for the ‘last mile’ delivery.
It is unclear if all this would widen
the gap between large (viable) and
small (vulnerable) farms. It could
imply that some value-added
activities, like advice, move from the
most remote rural areas to regions
with clusters of knowledge when
they are provided by ICT. New
issues like the dilemma between
privacy and transparency could
arise. In some cases the ownership
of data is unclear and some
valuable data might need to be
priced. There are clear common
pool issues for companies in a
supply network in setting up data
exchanges. As the sustainability
issue shows, the increased use of
ICT can have positive societal
effects. For this reason, and the
sake of innovation as such,
policymakers should support these
innovations. In particular, special
attention may be needed to ensure
the availability of ICT infrastructure
in rural areas.
Further Reading
nBoehlje, M. (1999). Structural changes in the agricultural industries: How do we measure, analyze and understand them?
American Journal of Agricultural Economics,81(5): 1,028–1,041.
nHenten, E.J. van, D. Goense and C. Lokhorst (eds.) (2009). Precision Agriculture ‘09, Wageningen Academic Publishers, Wageningen.
nPerez, C. (2002). Technological Revolutions and Financial Capital – the Dynamics of Bubbles and Golden Ages. Edward Elgar,
Cheltenham.
nPerez, C. (2010). The financial crisis and the future of innovation – a view from technology with the aid of history, In Let
Finance Follow and Flow. Advisory Council for Science and Technology Policy, The Hague.
nPoppe, K.J. (2009). Kondratieff, Williamson and transitions in agriculture, in K.J. Poppe, C. Termeer and M. Slingerland.
Transitions Towards Sustainable Agriculture and Food Chains in Peri-Urban Areas. Wageningen Academic Publishers, The
Netherlands.
Krijn J. Poppe, Sjaak Wolfert, Cor Verdouw, Tim Verwaart, LEI Wageningen UR.
Emails: krijn.poppe@wur.nl;sjaak.wolfert@wur.nl;cor.verdouw@wur.nl;tim.verwaart@wur.nl
Box 2: The SmartAgriFood Project
The SmartAgriFood project (www.smartagrifood.eu) is funded in the Future
Internet Public Private Partnership Programme (FI-PPP), as part of the 7
th
Framework Programme of the European Commission. The key objective is to
elaborate requirements needed by a ‘Future Internet’ to dramatically improve the
production and delivery of safe and healthy food.
In Agri-logistics the project shows how data exchange between growers of pot
plants, service providers and retail stores would lead to intelligent dynamic planning
that decreases costs and waste and improves product quality. It also shows how
RFID technology in vegetable logistics improves operations and tracing and tracking.
In Food Awareness the project demonstrates how the data from the food chain
could be delivered to consumers and matched with their own shopping profile
based on health and sustainability considerations. For the Smart Farming system, a
service-oriented architecture is designed to allow the integration and support of a
plethora of services that can be developed by any stakeholder. This is expected to
create a new market place like Apple’s App Store market. The system is designed to
retain all collected raw data (e.g. sensors’ values, selling prices, used chemicals)
when moving from one system provider to another.
The core idea SmartAgriFood is to bring ICT developments one step further by
organising data exchange in the chain and to show how this leads to innovative
concepts. A number of common pool resources (like an ABCDEF – an Agri-Business
Collaboration and Data Exchange Facility) are needed for this data exchange.
64 ƒEuroChoices 12(1) ª2013 The Authors
EuroChoices ª2013 The Agricultural Economics Society and the European Association of Agricultural Economists

summary
summary
Information and
Communication
Technology as a Driver
for Change in Agri-food
Chains
Agri-food chains will be changed in
the coming years by Information
and Communication Technology (ICT).
Technological trends and economic
analysis suggest that ICT will be a major
driver for innovation. Satellites and
sensors make precision agriculture
possible. More and more data are being
generated in agriculture and the rest of
the food chain, which helps to steer
production processes with greater
precision. However, there is a low level of
integration of these data between actors
in the food chain. By improving this
‘interoperability’ of data, processes in the
food chain can be optimised and new
business models developed. Data-intensive
food chains have the potential to alleviate
many of the current sustainability and
food safety issues and contribute to
human health. The economic and policy
effects of such developments still need to
be explored. At first sight it could lead to
more closely integrated supply chains that
make the farmer act as a franchise taker
with limited freedom. But the opposite
could also be true, with more
transparency and easier options for direct
sales via consumer food webs, using smart
solutions for the ‘last mile’ delivery. New
issues like a trade-off between
transparency and privacy or pricing data
might well arise.
La technologie de
l’information et de la
communication comme
moteur du changement
dans les filie
`res
agroalimentaires
Les technologies de l’information
et de la communication (TIC) vont
dans les prochaines années changer les
filières agroalimentaires. Les tendances en
matière de technologie et l’analyse
économique suggèrent que les TIC seront
un facteur majeur d’innovation. Les
satellites et les capteurs rendent possible
l’agriculture de précision. L’agriculture et
les autres éléments de la filière
alimentaire génèrent de plus en plus de
données qui aident à orienter avec
davantage de précision les procédés de
production. Ces données sont cependant
faiblement intégrées entre les acteurs de
la filière alimentaire. En améliorant la
compatibilité des données, on peut
optimiser les procédés dans la filière
alimentaire et développer de nouveaux
modèles. Les filières alimentaires à forte
intensité en données peuvent contribuer à
améliorer les questions actuelles de
durabilité et de sécurité des aliments, et
donc la santé humaine. Les effets de telles
évolutions sur l’économie et l’action des
pouvoirs publics restent encore à
explorer. A première vue, on pourrait
aboutir à des filières alimentaires plus
intégrées qui amèneraient l’agriculteur à
agir comme un franchisé à la liberté
réduite. Mais l’opposé pourrait également
se produire avec davantage de
transparence et des choix plus faciles
pour les ventes directes à travers des sites
web de consommateurs faisant appel à
des solutions intelligentes pour la
livraison de proximité. De nouveaux
enjeux comme l’arbitrage entre la
transparence et le respect de la vie privée
ou la formation des prix pourraient bien
émerger.
Informations- und
Kommunikationstechnik
als Triebfeder fu
¨r
Vera
¨nderung in den
Wertscho
¨pfungsketten
der Agrar- und
Erna
¨hrungswirtschaft
Die Informations- und
Kommunikationstechnik wird die
Wertschöpfungsketten der Agar- und
Ernährungswirtschaft in den nächsten
Jahren verändern. Technische Trends und
wirtschaftliche Analysen deuten darauf
hin, dass die Informations- und
Kommunikationstechnik die bedeutendste
Triebfeder für Innovation sein wird.
Satelliten und Sensoren ermöglichen
Präzisionslandwirtschaft. Immer mehr
Daten werden derzeit in der
Landwirtschaft und in den anderen Teilen
der Nahrungsmittelkette erzeugt, anhand
derer die Produktionsprozesse immer
präziser gesteuert werden können. Es
besteht jedoch ein geringes Maß an
Integration dieser Daten zwischen den
Akteuren in der Nahrungsmittelkette.
Durch eine Verbesserung der
Interoperabilität dieser Daten können die
Prozesse in der Nahrungsmittelkette
optimiert und neue Geschäftsmodelle
entwickelt werden. Datenintensive
Nahrungsmittelketten besitzen das
Potenzial, zahlreiche der aktuellen, mit
Nachhaltigkeit und
Nahrungsmittelsicherheit verbundenen
Probleme zu lösen und zur Gesundheit
des Menschen beizutragen. Die
wirtschaftlichen und politischen
Auswirkungen solcher Entwicklungen
müssen noch ergründet werden. Auf den
ersten Blick könnte es zu stärker
integrierten Wertschöpfungsketten führen,
die aus dem Landwirt einen
Konzessionsnehmer mit begrenzter
Freiheit machen. Das Gegenteil könnte
jedoch auch der Fall sein: Mehr
Transparenz und einfachere Wege für den
Direktverkauf über Nahrungsnetze, die
sich intelligenter Lösungen für letzte-
Meile-Lieferungen bedienen. Das Auftreten
neuer Probleme wie z.B. ein Zielkonflikt
zwischen Transparenz und Datenschutz
oder Angaben zur Preisbildung wäre gut
möglich.
ª2013 The Authors EuroChoices 12(1) ƒ65
EuroChoices ª2013 The Agricultural Economics Society and the European Association of Agricultural Economists