The state of agricultural drones (Newsletter #4)

Introduction: Digitising Agriculture

Our most recent newsletters have focused on innovation occurring in the feed and food markets – the “Ag” in Agtech, to put it simply.  However, as this nascent industry gains traction and investment, it is important to remember that many influential Silicon Valley venture capital firms were initially drawn to the space as a result of technological disruption.  

A study by McKinsey illustrates agriculture is, by far, the least digitized of any prominent industry. 

The thesis of a second agriculture revolution – this time powered by technology – has proven very alluring for tech-focused investors and accelerators.  One area, in particular, has received significant media and investor attention – agricultural drones.

What are Agricultural Drones?

Agricultural drones are far from one-dimensional.  In fact, as companies have deployed their products to farmers in the last three years, much of the feedback has been to continue expanding the capabilities provided by drones in order to boost a farmer’s return on investment.  What are some of those capabilities?  Agricultural drones can be broken down into three main subgroups: precision agriculture, mapping/surveying, and crop-dusting/spraying.

Precision agriculture drones are generally deployed to optimize the use of inputs such as water or fertilizer as well as increase efficiency and yields by determining crop health.  These drones aggregate either multispectral or hyperspectral imaging with in-field data analytics to provide farmers and agronomists real-time updates with respect to items like soil health and crop condition.  Advanced imaging on drones allows for infrared scans that produce a Normalized Differentiation Vegetation Index (NDVI), a measure of crop health using colour graphics.

Initial excitement surrounding the use of drones in agriculture focused primarily on the ability for drones to map or survey large swaths of land with little effort on behalf of the farmer.  Drones equipped with GPS and automated flight paths – though not all are self-controlled – give farmers access to an aerial view of their land.  In doing so, the drones can provide information about irrigation leaks, weed growth, and general crop maintenance.  However, despite the initial excitement, farmers and agronomists quickly realized aerial imaging is not sufficient to create a worthwhile return on investment, prompting demands for the “actionable intelligence” delivered by select precision agriculture drones.

While precision agriculture appears to be the driving force of the industry moving forward, drones are capable of spraying crops with fertilizer and pesticides at a far more efficient rate than the conventional tractor, reducing costs and pesticide leakage into groundwater.  Additionally, experts estimate that aerial spraying can be accomplished 5x faster than traditional machinery.  These applications, however, are hindered by common downsides to drones ­– limited battery life and a meagre storage capacity.

What is the Agriculture Drone Market Outlook?

As Figure 1 illustrates, there has been significant volatility in venture funding for agricultural drones. This stems from two primary issues – the crowded nature of the field and the gap between consumer preferences and available technology.  The FAA, the United State’s aviation authority, passed an exception in late 2015 that allowed drone use for commercial purposes.  Hearing wind of that exception prior to its passing, investors flooded the drone market with capital, which explains the significant uptick to almost $350 million in funding in 2015. 

ag drones funding

Much of that capital, however, was early-stage funding, either seed rounds or a Series A or B. What companies – and investors – soon realized is that for farmers to pay hundreds or thousands of dollars, they needed actionable information capable of doing more than just photograph.  An interim period has thus ensued for the crowded and competitive agriculture drone space, with suppliers looking to diversify and enhance their technology.

Although demand may not be taking off as rapidly as expected, we still see positive development in the market for drone devices.  As Figure 2 highlights, the market for agriculture drones is expected to soar from its current value of around $500 million to $3-4 billion by 2024.  Other reports suggest the market value to be $3.7 billion as early as 2022, a staggering 39.9% CAGR from 2016.

It’s clear that, all things considered, expectations remain high for the growth of the agriculture drone market.  Nevertheless, significant challenges to the success of the industry still persist that will need to be immediately addressed in order to see such explosive growth.  

cagr ag drones

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