From P2P to agbots, farmers tackling tech head on

Australian farmers are no strangers to technological revolution.

From the impact of the railways which helped open up the modern wheat belt west of the Great Dividing Range in the 1870s to the development of steam-powered and then oil-fuelled machinery before and after Federation, the industry has been at the forefront of constant change.

These days, it’s the digital revolution being firmly felt. Remote-controlled agricultural drones are likely to be as common as tractors by 2025, Agbots (agricultural robots) have the potential to reduce the use of weed-control chemicals by 40 per cent and radio frequency identification livestock collars are set to transmit real time information about individual animals within the next three years.

“Disruption is occurring across countless sectors – with agriculture no exception,” a 2016 report from KPMG notes, adding that Silicon Valley entrepreneurs were increasingly targeting the “immense potential” to make changes in agribusiness, a sector that was “vital” to Australia’s future prosperity.  

While Australian farmers have long been revered as some of the best operators in the world, it’s hard for farmers to adapt as farms have grown larger and the demands for food and allied products have expanded to cater for an ever-increasing domestic and global population.

But it’s also needed to survive.

Following the rise of fintech players in the financial services industry, so-called “Ag-Tech” operators are increasingly leading the disruptive winds of change. These aren’t always developers of technological machines and equipment such as drones or robots but innovators in the field of financial products and processes which promise – on the face of it – to improve and help the way that farmers do business with or through institutions.

In credit and lending, which has always been critical for farmers, Australia’s largest online “peer-to-peer” lender, SocietyOne, is scaling up for growth as its AgriLending operation moves out of pilot stage and plots a bigger assault on the bank-dominated agri market.

In the past three years, SocietyOne – which is part-owned by Reinventure, a venture capital fund seeded by Westpac – has advanced $70 million in finance to agents and farmers to purchase 100,000 cattle, about a quarter of SocietyOne’s overall loan originations since inception.

Around 300 farmers are accessing the funding at an average loan size of $85,000 which is provided via agents such as Ray White Rural’s network from SocietyOne. Notably, there have been zero loan defaults, despite parts of the country being ravaged by droughts and storms.

“Our vision is to disrupt traditional lending practices through the use of technology and alternative funding that provides innovative products that are tailored to the payment structures of the agricultural industry sectors,” says Dean Nelson, chief executive of SocietyOne AgriLending.

Elsewhere, the possibilities offered by blockchain technology, for example, are also changing management approaches in the global food and agribusiness industry that McKinsey&Company estimate is worth $US5 trillion. Last year, a proportion of the wheat harvest was processed and sold through software developed by AgriDigital, an AgTech company. As well as allowing farmers, buyers and site operators to manage invoices, payments, inventory and deliveries in one place, the cloud-based Agri-Digital platform can also process the settlement of transactions of physical commodities such as grain through a blockchain, a much hyped but complex technology that allows a number of different parties to share data and trade with each other via automatically synchronising ledgers.

For farmers, this can help manage cash flows better and therefore make better decisions about the direction in which their businesses are heading. For those they do business with it can lower transaction costs and reduce the risks involved with transactions across multiple parties.

However, more innovation is likely to be needed, as McKinsey flagged in 2015: “Although sizable productivity improvements over the past 50 years have enabled an abundant food supply in many parts of the world, feeding the global population has re-emerged as a critical issue. If current trends continue, by 2050, caloric demand will increase by 70 per cent, and crop demand for human consumption and animal feed will increase by at least 100 per cent.”

P2P is a new business model that is more commonly associated with personal consumer loans and works by connecting borrowers directly with investors, stripping out the middle man. Amid a competitive broader P2P market, SocietyOne is one of the only players to have delved into the Australian agri lending market dominated by banks.

And while other global P2P lenders offer business loans, there are very few specifically targeting the farming sector, other than Kiva, a not-for-profit lender based in San Francisco that operates more of a crowdfunding and micro-finance model aimed at supporting individual subsistence farmers around the world.

Piloted in March 2014, the SocietyOne AgriLending solution provides a drawdown facility to agents who then offer it to their farmers to help them buy livestock which are then raised for future sale.

SocietyOne takes security over the livestock and doesn't require repayments until a sale of the animals is made, a different model than banks which typically take security over “hard” assets such as land and equipment.

With an initial loan term of up to 12 months, this allows farmers time to fatten up their stock while investors like the relatively swift turn on their funds and the returns they can earn over the same period.

SocietyOne targeted the cattle market because of the opportunities offered to carve out a particular financing niche in what is a $30 billion a year market. Traded cattle make up annually just over a quarter of the current 26 million-strong nationwide herd and with the government encouraging future growth, it is estimated this part of the market could increase in overall value to $10bn.

This makes it an attractive proposition for digital disruptors offering new forms of financing – a need that was highlighted in the Federal government’s Agricultural White Paper two years ago.

With cattle firmly established in the SocietyOne portfolio, the company has since turned its focus to other parts of the agri-sector and last March expanded the pilot to sheep and lambs. Further expansion looks likely after these successes.

SocietyOne sources its funding for loans from institutions, fund managers, mutual banks, credit unions, high net worth individuals and self managed super funds (SMSFs) who have received annualised returns of 8.75 per cent net of fees and losses from the agri portfolio.  

For stock and station agents like Carter Lindsay & Weber, which operates out of Dubbo in central western New South Wales, the SocietyOne facility offers them and their farming clients a new way to grow their respective businesses.

Working in partnership with Westpac Agribusiness, who are the main bankers to Carter Lindsay & Weber, the stock agents were among the first to take out the SocietyOne lending facility. The facility has since tripled in size as farmers take advantage of the financial flexibility it offers them.

“This product gives us the opportunity to provide a funding solution to our selected customers without tying up significant equity in our own business and landed security,” says Carter Lindsay & Weber principal Matt Weber.


The views expressed are those of the authors and do not reflect the Westpac Group.