Mike Ashurst: 

Welcome, everyone. I hope you’re all well. Great to see so many you have stayed with us for the entire week. Today’s webinar is the final webinar in this series, and we’ll be looking at “Emerging risks and opportunities in agriculture”.  

I’m very pleased to introduce today’s speaker, Lorie Graham, chief risk officer and vice president of support and development at American Agricultural in the USA. Lorie has shared some of her vast knowledge of emerging risks in the last two MORO meetings and also in other ICMIF webinars. Lorie, it’s great to have you back, and I’ll now hand over to you for the presentation. 

Lorie Graham: 

Thank you. So today we’re going to talk about some of the things that are going on in agriculture that are impacting us as insurance carriers and providing some opportunities for us to respond to the changes that farmers are experiencing. Autonomous farm equipment is a big thing in the United States. I do see a lot of trending developments also in other countries, a lot going on in Australia. 

Today I’m going to try to pull in some farm and agricultural information from other areas, but talk about what’s changing on the farm. When you’re looking at a timeless farm equipment and the things that impact the use and uptake of those farms, you’ve got to look a little bit at the demographics of the farm. So let’s take a quick look at some of the trends that are driving the adoption of technology in agriculture. 

First thing I want to talk about is the changing farm demographic. Farmers are aging, they’re aging in most areas of the world, and they’re pushing agricultural stakeholders… There aren’t enough people to work for the farm sector in the future. They’re concerned about young farmers coming up into the farming community and taking over family farms. A lot of what we’re seeing in the United States is that farmers aren’t able to retire and they’re continuing to work the farm at an older age and young people are going out and getting an education and not coming back to the farm. 

We’re also seeing farms that are being kind of gobbled up by corporate farms as vertical integration is taking place. And I’ll talk about some of these challenges, too, for farmers. But these young people aren’t coming back and it’s predicted that there won’t be enough farmers to feed the world in the future. As we have a growing population, moderate predictions is that the farm sector will fall short of the economic potential. 

In the U.S., the average age of the principal operator from 1976 to 2017 is shown in this graph. Farmers are older than workers in almost any other occupation. The average age has been growing rapidly. And during the last 30 years, the average age has grown from 50.5 years to 58.6 years. This is only up slightly since 2012. We do an ag census in the United States every five years. 

The last ag census was five years ago. So not much change in the last five years, but a significant change from the 1970s. Farmers over 65 right now outnumber farmers under 35 by a margin of six to one. And nearly two thirds of farmland is currently managed by someone over the age of 55. Young producers, those producers under the age of 35, account for about 9%. 

However, the young producers are operating much larger farms; and to do that, they need technology. I looked at some statistics in other countries. 2016, looking at the globe, looking at the entire world, farm managers under the age of 40 are depicted in this graph. So this is the percentage of farmers in each of the countries under the age of 40. 

If you look at the average, the middle, the European Union, the black line, you can see that the percentages are somewhere around 125 to 15%. And what’s been causing this farmer age to increase. So we look at what’s driving it so that we can understand how it might unfold. 

With the mechanization of agriculture, fewer people are required to do the same work and farmers rely on this to be efficient and get the best return out of their farm inputs. So those that were displaced in the farming community found jobs in other areas. You’ll hear stories of people that grew up on farms and moved to the suburbs, and this allows farmers to work longer. 

There’s also been improvements in agricultural production. The primary factors are now capital and land, increasing land prices all over the world and it’s pushed the value of farm lineup quite significantly. In the U.S., the average price per acre in the 1900s was $577. By 1974, it had reached $1,620. 2012, it was $2,560. And as land and equipment prices increase, it reduced the number of new entrants that could get into the farming industry. 

There are some other factors that have reduced the number of people that work on the farm. One is farming is hard, physical work. We’ve got generations of people that didn’t grow up in the farming industry. And farmers wear many hats. They have to be experts at a lot of things. They have to know how finances work. They have to understand the markets. They have to understand the technical aspects of growing and equipment. And it is a highly regulated profession as well. 

They have a lot of laws and regulations that constrain them from being able to do some of the things that make what they do easy. And most opportunities for young people in agriculture are off the farm today. I did it again. I do it every time. I’m going to try to click instead of using the arrow forward. Okay. So I want to talk about farm technology adoption. 

So just because the adoption is out there, just because the farmers are aging, and just because we have youth who aren’t getting back into farming doesn’t drive this whole trend. We have to understand how they’re using it, how they perceive it, how affordable it is and what it can do for them. How does it increase the efficiency of what they do? 

Younger generations are tech savvy. The average age of farmers is increasing, but we’ll soon see transformation as farms are transferred to young people who are very tech savvy. They live and breathe technology. They grew up with it. The average farmer in 2017 was nearly 17 years older than the average American worker. And with fewer young people to take over family farms, they will increasingly rely on technology to produce enough food to feed a growing population. 

This is a brief story of a girl and just showing how young people are perceiving farming today. This lady, this Kayla Visser, she actually started a group of young people that are using technology in farming. And she says technology is versatile and no matter what you decide to do in life, it will be a part of it. She wants to get back into the farming business. Her parents grew up on a farm and moved out to the suburbs, and now she’s figuring ways to get back into farming. 

Young people are more interested in where their food comes from and how farming operations produce the food that they eat. I think I’m double-clicking. Okay. Millennials are also looking to farm. Millennials are growing in populations all across the world, and there’s been a significant number of people under 35 moving to rural areas to farm. So when you look at farms and how we’re getting a growth in large farms, new entrants tend to be in the smaller farm categories. 

They’re coming in and they’re being more organic about how they do things. They’re more consumer and customer connected, so through CSAs, and more of the farm-to-table kind of thing. Young farmers tend to start small and do direct markets because it’s a viable way for them to get into farming. They tend to use technology and market via technical apps, drones, satellites, and autonomous tractors and robotics are now all at home on farms. 

As a result, tomorrow’s farmer won’t just be a part of the agricultural sector, they’ll also be a part of the tech sector. Tomorrow’s farms will look a lot like coders who populated the Silicon Valley. We’re going to see more in the way that technology is connected to the raising of livestock and the way it’s used to produce crops. And when you look at what is driving this, we’ve got aging farmers and we’ve got young farmers. 

They need to grow as much per acre as possible. Input costs are huge, and they need to use technology to achieve this. They need to reduce the risk of failure, which technology can also help. And they need to minimize operational costs and sell crops at the best possible price. And to do so, they need to be able to operate on platforms in the marketplace and really control how they distribute and what prices they get. 

I have some studies about the adoption of precision agriculture in the United States. Of course there’s tons of different technologies that are out there, and the adoption rates vary significantly between those different categories of technology. And the largest corn farms, over 2,900 acres, have doubled the rate of adoption compared to all farms. 

I’m going to give you some graphs here. This is a study that was completed by the USDA between 1996 and 2013, and show you how farmers are utilizing technology. So in this first graph, this is the adoption of precision ag on corn farms. Across the Y axis is the percent of corn farms on cropland. And the green is the percentage of farms adopting. And the kind of brownish color is the percentage of cropland acres. 

You can see that a significant number of farmers are using yield monitors, yield maps, soil GPS maps, guidance systems, and variable rate technology to apply their chemicals and plant their crops. So, with guidance systems, 54% of cropland acres, 29% of them are adopting precision agricultural techniques. So this next slide is the adoption of precision ag on soybean farms. 

You can see yield monitors, yield maps, the things that I talked about on the previous slide. The comparison of the percentage of farms adopting this technology and the percentage of cropland acres. This slide is the adoption of yield mapping, so just the one yield mapping. So farmers can use these yield maps to determine where and how to plant the crops on their land. 

They use aerial photometry. They use sensors and farm equipment to determine where they can get the best yields from their crops. And you can see here that corn has a significant adoption of yield mapping. Spring wheat is much lower. Peanuts are lower. The second one is soybeans. So corn and soybeans are the two highest adopters of yield mapping. This is the adoption of GPS soil mapping by crop. 

So corn is significant again. If you look at the, it’s the brownish line here, the one that’s not dotted, that’s soybeans. So corn and soybeans, again, dominate. But you can see a big uptake in most recent years in peanuts. This is the adoption of guidance systems by crop. Spring wheat is significant in this one. So it’s, again, technology specific. And then you have rice up there and corn and soybeans aren’t nearly as high in the guidance systems. 

This is the adoption of variable rate technology. So with variable rate, there’s sensors in the equipment that apply chemicals or plant seeds, and they determine where that will happen on the land as the equipment’s being moved across and doing what it’s doing. And so you can see a significant amount of variable rate technology in corn and in soybeans again. But all of those were trending upward. 

I wanted to talk a little bit about smart farming. When you look at a farmer today, a modern farmer, they’re not always out in the field, applying things. They can run a lot of what they do from their computer system in their home. And so I wanted to talk about some of the things that farmers are doing that are different.  

So the digital agricultural technology that’s out there is the same as it is for the insurance industry in a lot of places. A lot of huge technological advances and ways for farmers to improve their efficiency. Basically these are the things that are impacting the farming industry today relative to technology. So we have big data, artificial intelligence, sensors, drones, autonomous equipment, weather tracking, livestock biometrics, satellite imagery, RFID technology, artificial intelligence, pervasive automation, and many chromosomal technology. 

There’s a lot of other things going on as well, but I’ve picked just kind of some of the technical things that are readily adopted in the farming industry to cover in this presentation. So the farmer is going to invest in this technology. They have to determine whether it’s available for them and if it’s affordable. Startup entrepreneurs offer digital services at a cost that farmers can afford. 

There’s apps for everything in farming. You can find an app to do just about anything. There’s cloud computing services, connectivity, and open source software that they have access to. There’s also autonomous equipment. Autonomous tractors are programmed to perform tasks. I wasn’t able to put videos in my slides today, but I have videos of tractors being operated without a farmer. 

It’s using global positioning systems. The equipment can detect when it’s near a place where it needs to reposition and it can automatically, through radio feedback automation software, make the equipment operate in a way as it would if a farmer were operating it. This picture is from Mulligan farms. Their adoption of precision ag has been gradual. 

Early in the season, the tractors path through the fields then they’re programmed on a USB device. All of this is made possible with their GPS receiver and it taps into land-based antenna systems throughout the farm. The computer tells the planter how frequently it should lay seeds. And then the sensors are also mounted on the fertilizer’s spray boom to ensure that each sprayer delivers just the right amount of fertilizer, depending on the health of each individual plant. 

As they go through the fields, it can detect what the plants need and determine what needs to be applied and to what extent. Autonomous tractors. Agriculture is pretty much ahead of the curve. We’re looking at autonomous vehicles in our industry, and I think agriculture has had major strides in autonomous equipment. They don’t have some of the barriers that we do with autonomous vehicles because there’s not as much traffic and it’s typically operated on private land. 

But they’ve been in the development since the advent of precision ag in the 1980s. This is a picture of a video that I have where this tractor is just going up and down these rows and tilling. They can operate more efficiently. Case IH in New Holland have introduced new autonomous tractors in the 2016 Farm Progress Show. If you guys have been to any of these shows and you see these massive pieces of equipment, you can climb inside of them and see, it looks like a computer center. 

There’s many advantages for growers. They get exceptional accuracy. They can conserve seed and improve their return on investment. They can collect information on soil conditions and improve the maintenance of crops with increasing data before and after harvest. They can reduce the workload and stress on employees because these equipment can be out there doing this while employees are doing other things. 

Equipment can be operated more hours per day. You can operate them beyond normal working hours. In fact, the last slide that I showed you, that family does a lot of their work at night. And there’s advanced sensory and guidance systems. They can determine what the ground moisture is, the progress of the plants during planting and harvest. They can estimate the current yields that they’ll get and the amount of fuel used on a given circuit from the farm equipment. 

Mobile equipment can be set up as a mobile hotspot and it can collect sensor data. And the new technology includes machine sync systems, which allow tractors to communicate with other equipment. I did have some videos too, but I wasn’t able to include where the harvester is working in conjunction with the trucks that are collecting the things that are coming out of the harvester and it’s putting the harvested material into the truck side by side. 

There’s auto track vision, multiple cameras that can detect rose and steer a tractor to avoid crushing plants, making sure that it’s not driving over the top of things. And then auto track rose sense helps the operator avoid crops and ensure full coverage of fertilizer and other plants. Some of these vehicles can even communicate when they need maintenance or when they’re having problems for the farmers. 

Telematics is the next thing that I wanted to talk about as far as technology and farming. And it’s basically an interdisciplinary field that encompasses telecommunications, farm equipment technology, geolocation, equipment safety, electrical engineering through sensors and instrumentation, and computer science. So telematics in the farm has some specific applications here that I’m going to show you. 

Agricultural telematics. This is an actual picture from a site that sells equipment and technology to farmers. It’s called Farm Swarm. And what it does is it provides mechanical warnings. It allows mechanical devices such as tractors to warn mechanics that the failure is likely to occur. It can sense stress in the machine and send messages. 

It does enter a tractor communication that can be used as a rudimentary Farm Swarm. A Farm Swarm is when farm vehicles and farm equipment and sensors work together and they basically coordinate the activities between the pieces of equipment. They communicate to each other, they get feedback from each other and they work together. So a robotic farm swarm is the hypothetical combination of dozens or hundreds of agricultural robots. 

These could be drones. They could be just the robotic machines out in the field. They could be farm equipment. And they use thousands of microscopic sensors which monitor, predict, cultivate and extract crops from the land, with less human intervention. And the small-scale implementations are already on the horizon. This allows farmers to optimize their operations and make sure that they’re getting the most out of every dollar they put into their farming operation. 

The next thing I want to talk about with automation and technology is variable rate technology. And basically this just describes any technology which loves the farmer to vary the rate of crop inputs. It combines variable rate control system, so control system in the vehicle, with equipment to apply inputs at a precise time. So farmers can gather data from past crops in this land and data about the land, and they can utilize that information to do site-specific application. 

The first one I wanted to give you an example of was variable rate swath control. Basically, there’s a pre-computed demographic and it procedurally applies inputs at variable rates. So you see this liquid or this granular application at the bottom. What happens is that the computer system and the sensors tell these blooms when to release chemical or release seed or released granular fertilizer so that they don’t waste fertilizer and so that seed isn’t planted in areas that aren’t going to have high yields. 

These help farmers work with precision agricultural technology to manage food production. Pre-computes the demographics of the fields where the inputs are to be used. The system understands the relative productivity of different areas of the field and the tractor or ag bots can procedurally apply inputs at variable rates throughout the field. You add swath control and it’ll provide savings on seed, minerals, fertilizers, and herbicides. 

There is an ag leader product called Direct Command that says that adding swath control to your setup will pay for itself in just 2,143 acres of farm land. So the next technology that I want to talk about is robotics. An ag bot, sometimes called an ag robot, is an autonomous robot used in farming to help improve efficiency. The one in this picture here even has solar panels to give it its fuel supply. 

It reduces the reliance on manual labor, especially in crops that are manually sensitive, like if you have to have a lot of people to do things like harvest strawberries or lettuce, those types of things. So, many types of ag bots are a self-propelled vehicle, which operates on… And this one I set on solar energy. Positive impact to the environment because they use less herbicide and because they’re using solar. 

Precision ag and the robots will pick up and remove weeds. And so employees aren’t exposed to the chemicals. They don’t have to handle these chemicals and have the health aspects of doing that. So this is one example. This is from the University of Sydney. The name of this robot is Ladybird. In the upper left hand side, you can see, through sensors, this robot can go in and tell when a piece of fruit or a vegetable is ripe. 

It can sense it and it knows how to pick it. And it treats it in a way that it… Like this one I think it is picking tomatoes and putting them in the crate the way a human would. Ladybird is in the field in the second picture in the top. The vehicle goes in between the rows. You can see how the wheels are where the rows are in this one. And it’s fueled by solar energy. 

In the upper right, you can see that it’s taking imagery of lettuce as it’s going past lettuce in the field and it’s getting data about it. And it knows when a weed is there and it knows to pick the weeds. So it can tell the difference between weeds and lettuce. It could tell if a plant wasn’t thriving and it can apply just a smidgen of chemical to that specific plant right where it needs it. 

In the lower left, this is an actual field and how the sensors see out in this crop. It can be used for automatic harvesting. The bottom middle picture, this is actually weeding. It’s weeding around the lettuce. And in the bottom right, it can perform scans that can tell the health of the plant and what the plant needs. This next one is just an example of Swarm robotics. I talked about Swarm a little bit earlier. 

It can automatically perform a bunch of agricultural tasks in a range of agricultural industries. And so these are booms. They’re out spraying together. But you can combine robotic equipment with different functions and they can speak to each other, essentially. They’re developed, because of the higher anticipated food need in the world with a growing population, and their more efficient farming activities with these form types of things, to farm the land in a way that’s efficient and viable. 

They do this through smaller lightweight machines. You’ll see that these aren’t as big as other tractors. Some bots are actually much smaller than these and they’re scalable to any size of farming operation. And there’s so much more going on in the industry. Equipment that can harvest and pick, monitor water, pH and health plants, weed control, autonomous mowing, pruning, seeding, spraying, and thinning, and phenotyping, sorting, packing, and moving. 

This is a farm robot in the upper left hand side of the picture. This is from Growing Georgia. The BBC reported this one. I believe this is… I don’t know. I know it’s in Europe. This is a robot that goes out because cows tend to get really stressed when you heard them in to milk them. This robot moves really slowly and it moves them in for milking. And then it also is collecting data and images of the livestock. So it’s telling the farmer when livestock are having health problems, stuff like that. 

In the upper right hand side, this is called the Robohub. These are for like nurseries. So when you have nurseries, when the plants are small, the pots are little and close together. And as the plants grow, those pots need to get bigger and moved further apart. And it’s a labor intensive task. And these robots go in and they move these pots to precision distances from each other. 

They do all of the lifting and moving of these plants as they grow. And then the bottom one is called Growing Produce. It is a harvester. It’s tending and taking care of weeds and those types of things. This particular crop is lettuce. They’ve even automated things such as delicate fruits like strawberries and how they’re handled. So as an insurance industry, what does all this mean for us? 

What do we have to do to maintain the farm business that we have or appeal to new farm business? What do we do to do with our products and how are we going to need to change to be prepared for all these changes that the farmer’s having? So for us, there’s going to be new and uncertain risks. These systems that work together can malfunction, the equipment, the connectivity of the equipment. 

So let’s say you have a piece of autonomous equipment and it’s out in a field and it’s working with other equipment and the farmer’s in his office and dwelling in operating this equipment and this big piece of farm equipment malfunctions, and then just starts driving straight out onto a roadway or across people. And so we do need to be concerned, I guess, about how precise this equipment is, how connectivity is going to be maintained and what kind of fail safes are built into these equipment. 

If it loses connectivity, does it automatically shut down? If it creates a situation where it does cause harm or get out onto a roadway or run over a person, is that the responsibility of the farmer? Is he installing all the updates on his equipment? There’s a thing called bricking that’s going on right now, where farmers buy this equipment. And it’s not just farmers. Bricking happens in a lot of different types of technological situations. 

They break into the operating systems to get the equipment to do things that it doesn’t do because of safety procedures. So there’s a lot of uncertain risks that could happen with this autonomous technology. Another thing is cyber crime. These farmers and the FBI actually has a website out in the United States for farmers. They’re a target. They create our nation’s food supply. 

What would happen if the equipment malfunctioned and did things to our food source unknowingly? Or if the hacker got in and basically ransomed or hijacked the entire system and the farm equipment couldn’t operate and it reduced crop production? If that happened on a worldwide scale or even a U.S. scale, that would be a big event. There’s also going to be new liability theories. 

Just like with autonomous cars, autonomous equipment, if it malfunctions and causes injury or damage, whose fault is that? Is that the manufacturer of the equipment’s fault? Is that the farmer’s fault because he didn’t install an update? Who is going to be responsible for this? And those are going to be some pretty tricky things for people to figure out. 

The other thing is long–term unknown impacts. So we know today how this technology works. We don’t know in the future how it will impact us. It’s an unknown field for us as underwriters and insurance companies, re-insurers. We don’t really know longterm how all of these things will impact our book of business. The other thing is competitors. 

With all of this autonomous technology and nontraditional carriers in the marketplace, could they be bundling insurance with the manufacturers? Just like with autonomous vehicles, that’s a risk for us as an industry. And customer experience. We’ve got the tech savvy farmer. Are we tech savvy? Are we the ones providing solutions for them in ways that are meaningful to them? 

I mean, they’re going to be understanding what can be possible. They grew up on technology or they’ve adopted technology. And I don’t think there’s a big difference between the older and younger farmer with respect to adoption of some of the larger equipment; some of the newer things maybe, but even the older farmers are very tech savvy. New products and services. 

Can we use precision ag data to do customer centric pricing for those customers who do things better and operate safer than other customers? Should they get a better price? Crop insurance. Could we have smart contracts? Could we use what’s captured by these equipment and these devices to provide a smart contract that automatically responds when certain conditions exist? 

Could we provide discounts based on maybe we can change their behavior maybe through understanding and getting data, just like with home sensors? Insurance companies are looking at giving discounts because they know they improve the safety. Could we provide that type of discount for a farming client? And then automatic coverage for new equipment? Would we be able to sense that equipment and automatically provide coverage for these pieces of equipment for a farmer and offer coverage? 

And could we offer specialized coverage in these services? Are there new perils that we should be concerned about, cyber perils? Should we be offering cyber coverages to farmers and customer centric platforms where we can actually have interaction and develop a stronger relationship with the farmer? I just mentioned farm cyber. There’s also the loss control opportunities by rewarding the types of behavior that we know reduce farm liability, we can change the behavior of farmers in the future. 

Can we partner with new strategic partners? Can we get connections with the people who build this farm equipment or are developing this technology and provide new leads for insurance or provide a partnership in which, because of our relationship with that new partner, we can develop a specialized program for our clients? So that’s all I have today on autonomous and changes in technology and agriculture and opportunities. If anyone has any questions, I’m happy to take those. 

Mike Ashurst: 

Thanks, Lorie. Thanks for taking us through all of these developments in agriculture and the potential risks and opportunity that these bring to the industry. We do have a few questions. So the first one, are there other trends that we should be evaluating for farm business? 

Lorie Graham: 

Absolutely. Farming is such a fun area to follow. Farmers are engaged in like nanotechnology, using nanotechnology to apply nutrients to fields. There’s kind of ropes that they are nano and they have like the nutrients that are needed that apply it at the roots. Again, that creates another exposure for us because nanotechnology is a huge unknown for the future. 

Other farm trends that are impacting farmers are the… Well, obviously the changes that have happened from COVID-19 have kind of escalated this, but farmers are becoming more vertically integrated. If you look at hog farmers today in the U.S., with the reduced production facilities, we have very few facilities relative to the number of farms. So most hogs are shipped to places to be processed. 

These processing plants, because of COVID-19, have been closing down because people have been getting sick. They work in close proximity to each other. So now this farmer has hogs and has to make a decision. Do I destroy the hogs and do something with the carcasses or do I continue to feed them and operate at a loss? And so some farmers are actually considering developing their own processing facilities, becoming more vertically integrated and doing some of those services that are done by others for themselves. 

I think we’re going to see some of that. I see it in seed dealers as well. Farmers who harvest seed, they’re processing seeds and grains, packaging them now and selling them directly. And I think there’s going to be a lot of change in farming in the upcoming years besides just autonomous technology and sensors. 

Mike Ashurst: 

Thank you, Lorie. The next one, how does the young farmer differ from the aging farmer with regard to size and type of farm? 

Lorie Graham: 

So the younger farmer, that’s kind of split. Young farmers who come in and make an investment and can get into the farming area, they will basically invest and get a big farm or operate a big farm and grow it too big and be more vertically integrated. Then you have the small farmer who is kind of like the millennial one that I talked about, who’s doing the more where he’s close to the community, having relationships, farm-to-table, those kinds of things. 

Doing the smaller, more organic, more specialized kinds of crops and livestock. So you can’t have both for the younger. The older farmers also have kind of a dichotomy because they have big farms that they’ve had for years that they’re not retiring from. And then we have older farmers who are just like they’re farming, but it’s not really their primary source of income or occupation. They’re kind of quasi-retired, but not retired. 

Mike Ashurst: 

Okay. And a couple of more other that have come in. Some of the studies you mentioned are several years old. Has there been a significant pickup of technology in the last few years? So have those trends continued? 

Lorie Graham: 

Yeah. Unfortunately in the U.S., the ag census is only every five years. The 2017 census came out. So I don’t have super recent numbers. And I looked for numbers and other countries. What I can tell you from what I see, so our company is actually an affiliate with the American Farm Bureau Federation. And so we go to some of these ag shows and we see the technology and equipment, and we see how farmers respond to it. 

I do know it’s very expensive, the larger equipment. The smaller robotics tend to be a little bit better for from a price and entry. But I think that the adoption is still growing, in my opinion, based on what I see, but I don’t have any statistics to back that. We do know that we are seeing more and more of this type of equipment on farms, from an insurance standpoint. We’re being asked to insure these like $100,000, $200,000, $300,000 pieces of equipment that are fully technologically capable. 

Mike Ashurst: 

Thanks, Lorie. The next question, do you see automation creating risk concentration and significantly raise business interruption exposure? 

Lorie Graham: 

Absolutely, and what we’ve learned from COVID-19. Most business interruption coverage in the U.S. is offered from a covered peril. So you would have to have a covered peril to a piece of farm equipment. I know that there are some more advanced insurance products out there that offer it for breakdown of equipment. And if that was a like cyber breakdown, I would think that there might be a potential for coverage there. It would depend on what your company offered, but I do see a potential for aggregation of exposure. They’re a target, just like any other technological business. 

Mike Ashurst: 

This is the final one. So vertical integration suggests that this could be an alternative to more consolidation and scale as the only strategy to deliver margin. 

Lorie Graham: 

Yes. I think farmers are looking for ways to get more of the food dollar. Right now they operate at such a small margin, and if they can vertically integrate their farms… And it takes investment, of course, it takes funds and knowledge and relationships. But if they can vertically integrate their farms, they can get more of the food dollar. So if you look at the food dollar, if you take $1 and the production of food, the farmer has maybe 20% of that. 

The rest of it comes from processing, distribution and retail sales. And so if the farmer can get involved at those levels in the organization, they get better returns. I do see consolidation still happening in the United States. I should’ve put some statistics about that in this presentation. As farmers are aging and retiring, when young people are… We see a trend of young people getting more into it, but they’re not exactly coming in at the rate that we’ll see farmers retiring or dying in the upcoming years. 

I think that these are ways for us to, for a person who’s an investor, the consolidation, ways for them to continue to provide the food source. I think we’re going to see both. I think we’re going to see consolidation and vertical integration. Our seeding companies have been writing to us and expressing interest in expanding the farm policies or commercial activities, because we’re getting way more requests for vertical integration. 

We have one that was a dairy that has methane digestion and now producing energy through methane or selling it to the utility company as their primary source of income. It went from a way for them to get rid of the manure into this like multimillion dollar facility and their primary source of income. 

Mike Ashurst: 

Okay. And there is one more that has just come in. So how is the sharing economy impacting on farm business, as in farms being able to share equipment instead of only toiling for themselves? 

Lorie Graham: 

That’s been going on throughout history, that farmers are sharing equipment, employees, that kind of stuff. I have not seen anything for a sharing economy like you can use my piece of equipment. Basically it’s a custom farming type situation where the equipment either comes with the farmer’s employees and they pay for it. 

I guess if you call that a sharing economy, farmers have been doing it for years. We call it custom farming, where you take the equipment that you have and your staff, and you go out and you do additional farming for other farmers who don’t have that equipment or staff. But I don’t see apps in that relationship. I don’t see it like we do in the personal space and the homeowner space, or even business space, traditional retail type business with farms. 

I’m not seen the apps for that at all. That’s a good question though. Now you’ve got me curious and I want to go out and see if that’s developed in the last few years. The last time I looked at that was probably 2018. I didn’t see anything in that space at that time. 

Mike Ashurst: 

Right. Thanks, Lorie. Thanks for your presentation and thanks for handling all those questions. That brings us to the end of this webinar series. So thanks, again, to everyone for joining us. And remember, you can find all the recordings and presentation slides at the private page on our website, which is icmif.org/MOROwebinars. 

Thanks, again, to Lorie and all the other great speakers we’ve had this week. Thanks to you all for supporting this reinsurance webinar series. We look forward to seeing you at future ICMIF events, virtual or otherwise.  

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