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Insight 05.09.2022

How can agricultural machinery optimisation help cut global emissions?

How can agricultural machinery optimisation help cut global emissions?

CO2 emissions from the agricultural sector account for 20% of total global emissions.


To date, the market penetration of zero-emissions farming equipment and machinery is far behind that of consumer vehicles. But policies, such as revised emissions regulations and targeted R&D investment could help ensure more sustainable food production. 

The need for more efficient land and non-land management

Over the course of human history, agriculture has demonstrated its ability to meet the biggest challenges facing humanity. The monumental one we have to tackle today is ensuring sufficient food supply within a finite amount of arable and habitable land. Indeed, with a population growth of 0.8% per year (according to the OECD), about 50% more food will be required by 2050. At the same time, 50% of the earth’s habitable land is already used for agricultural purposes, of which livestock occupies 77%, but in return contributes only 22% of the global calorie supply. To make matters worse, about one third of all food produced is lost or wasted every year.

The first key step is reforming the food system in order to tackle malnutrition, which includes both undernutrition in low- and middle-income countries and overweight in high-income countries. The second step is to efficiently manage inputs such as land, labour, water, seeds, crop protection chemicals, fertiliser and mechanisation in order to maximise output. The adoption of improved agricultural mechanisation, in particular, has the potential to streamline these inputs through more efficient production processes, rather than through the intensification of input use, which mostly impacts natural resources.

Between 1961 and 2009, about 60% of the tripling in global agricultural output was due to increases in input use, implying that improvements in total factor productivity (TFP), an indicator of how efficiently agricultural inputs are used to produce a country's crops, accounted for the other 40%. By the most recent decade that was studied (2001–09), the balance had shifted and TFP accounted for three quarters of the growth in global agricultural production.

Increasing agricultural productivity with mechanisation

Studies have shown that there is a significantly positive correlation between cereal yields and the number of tractors used, which demonstrates that agricultural machinery can contribute directly to the achievement of Target 2.3 of the United Nations Sustainable Development Goals (SDGs):

By 2030, double the agricultural productivity and incomes of small-scale food producers, especially women, indigenous peoples, family farmers, pastoralists, and fishers including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets, and opportunities for off-farm value addition and employment.

However, mechanisation comes at the expense of more energy consumption, potential biodiversity loss and pollution, hence SDG 2.4 which deals with the environmental aspects:

By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems, that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding and other disasters and that progressively improve land and soil quality.

From a climate perspective, we need to remember that emissions from the agricultural sector as a whole account for about 20% of total global emissions, and up to 27% when forestry and land-use change are included. According to McKinsey, current global emissions from agriculture, forestry and land-use change are about 19.9Gt CO2 equivalent. McKinsey has identified improving agricultural machinery as the number one solution among 25 tangible measures to produce food more efficiently and reduce emissions from farming.

Therefore, the real question in the debate on the development of agricultural mechanisation is not only how to improve farming techniques, but also how these techniques can contribute to improving the sustainability of the whole agricultural system.

 

Current Agricultural Machinery
Main Positives Main Negatives

Significantly increases yield per acre, per person and per dollar relative to extensive farming. Enhances food security, while improving people’s livelihoods.

Limits or destroys the natural habitat of most wild creatures and leads to soil erosion and compaction.

Contributes to the development of value chains and food systems as it has the potential to render post-harvest, processing and marketing activities and functions more efficient, effective and environmentally friendly.

Favours the use of a same plant species, pesticides and insecticides through its focus on utilisation efficiency of inputs, even though it is technically agnostic to such practices.

Improves utilisation efficiency of inputs and facilitates timeliness and quality of cultivation.

Requires large amounts of energy input to produce and use.

Allows for the preservation of existing areas of woodland and rain forest habitats, which would need to be felled for extensive farming methods in the same geographical location.

Can create social problems such as land-use conflict and gender inequalities in rural areas.

 

Mitigating the negatives of farming machinery through better regulations and practices

To date, the market penetration of zero-emissions farm equipment and machinery has been lagging far behind that of consumer vehicles (almost zero). Although market leaders have piloted proof-of-concept and prototype equipment and machinery, no notable commercial launches have occurred. However, broader market dynamics suggest internal combustion engines and other fossil-fuel sources are ripe for mass displacement by 2050.

With the right investment from machinery manufacturers, total-cost-of-ownership parity between, for example, tractors powered by internal combustion engines and those powered by zero-emissions sources (such as battery electric power) could be viable by about 2030. After that, incremental capital-expenditure cost reductions will likely come from a rapid reduction in battery prices (historical and forecast), which alone could make up 30 to 50% of tractor component costs.

The slow turnover of agricultural machinery is a major obstacle to rapid improvement: the typical lifetime of a tractor is over 20 years. But policies, such as revised emissions regulations and targeted R&D investment by farm-equipment majors and new pure-play challengers, can help accelerate adoption of more effective and environmentally friendly equipment.

Encouraging the transition to zero-emissions farm equipment & machinery

When looking at the agricultural machinery industry, investors should look specifically for companies that are truly committed to producing machines that, on top of being the main working tools for the farming community, can help in solving environmental challenges while increasing productivity and providing economic benefits for all actors involved. Additionality will come from encouraging the transition towards zero-emissions farm equipment & machinery by trying to make sure companies build products that aim to improve energy and yield efficiency while also trying to protect and restore biodiversity.


Tidjan Ciss Tidjan Ciss
Equity Research Analyst
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