Conversations around intellectual property (IP) on the farm has historically centered on the use and licensing of genetic traits and the companies that own them, writes Granular Co-Founder Mike Preiner in his latest blog post for the San Francisco-based ATP.
However, the concept of IP on a farm has rapidly expanded with the introduction of ag hardware and software tools. Sensor technology, equipment-based data and farm management software are creating a whole new class of agricultural IP: data and knowledge about the farm itself.
IP has always been considered an intangible asset that adds real business value to a business, even in industries that are considered commoditized. Trade secrets, custom processes, patents, and trademarks are all IP of a business that adds value beyond the hard assets, even when this value is often tricky to measure. When I ask farmers how they come up with the value of their business, they often simply add up the sum of their visible assets— land, equipment and buildings. This line of thinking reflects that no value is being placed on the IP generated by the operation.
Experts trying to accurately value a business often look at price-to-book ratios. Price-to-book ratios take the overall market value of the business (i.e. what people are willing to pay) and divide it by the book value (i.e. all of the hard, tangible assets). This is a strong indication that the market rewards something beyond than observable assets.
What is keeping farmers from significantly increasing value of their businesses through IP? Building business value through IP requires a significant investment. Farms (even large, professional operations) have historically invested very little in the right technology tools that would help them develop, document and share their IP.
To answer that question, let’s look at what other industries spend annually on information technology (IT). IT is considered a good proxy for the tools that allow business managers to create and capture IP. While some farms are investing in these areas, it is not yet the norm. As more data continues to stream off the farm, those that can capture it, analyze it, and make these learnings proprietary will greatly benefit. As a result, they will be able to use their labor more productively, utilize their equipment more efficiently and make more data-driven decisions (a topic at the heart of Danny Klinefelter’s Principles for Effective Farms).
A robust IT system has the potential to directly increase profit through improvements across all aspects of an organization by taking better advantage of the IP that is being created every day. Here are just a few of the ways in which we are seeing Granular customers significantly strengthen their bottom line by generating, storing and protecting their IP:
- Succession planning. Technology systems help generations pass down knowledge on the land, agronomic practices and management decisions with relative ease. This ensures that the lessons from years of farming the same land get passed on quickly and accurately. More importantly, accurate records can help younger, newer farm managers uncover efficiency gains and growth opportunities.
- Negotiations. Being able to show what has been done on the farm year over year reflects not only a farmer’s unique management practices but also his or her business objectives and ability to maximize resources. These factors can often result in substantially better terms on operating lines and land agreements, which have very real implications on a farm’s P&L (in the short and long term). Additionally, farmers are more likely to be able include their farm records as part of the overall farm sale and valuation if these records are accurate, professional and easily shareable. Anecdotally, a Granular customer sold some land a few years ago that had very complete field records, and he priced the records at $500 per acre. The buyer did not pay $500, but agreed to pay something around $150 per acre. The buyer felt that the value of trading info within a common platform where the records could be truly leveraged would make them worth it.
- Profit sharing from “Big Data” opportunities. With the rapid emergence and evolution of ag data companies, some of these will inevitably pursue the business of licensing data to industry suppliers and other third parties. Farmers will be faced with the responsibility—and choice—to partner with companies who properly manage this data and fairly compensates them for it. However, in order to do that, farmers first need to generate, organize and collect the data.
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