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Does the Implementation of Technology Improve Farm Profitability?

by | Mar 14, 2019

Agriculture and Technology

By:  C. Robert Holcomb and Joleen Hadrich

In 2017, the Minnesota State Colleges and Universities Farm Business Management Program, the Southwest Minnesota Farm Business Management Association (SWMFBMA), and the University of Minnesota Extension conducted a survey to identify management skills and tendencies of highly successful producers. 

This month, we will discuss how the use of technology in the farm operation affects profitability.  (Previous articles in the Top Farmer series can be accessed here and here.) Only 6% of all farms considered themselves innovators, adopting technology at its earliest availability.  Forty-five percent of the respondents consider themselves early adopters, making investments in new technology once proven by a small number of success stories.  This group does not consider themselves innovators though. 

Technology Adoption Rate

Rate of technology adoption by producers played a role in profitability of the farming operation.  When considering the adoption rate of all types of technology in the farming operation, the innovators and early adopters (those willing to adopt new technologies once proven) have a statistically higher adjusted net farm income ratio.  Here the adoption of all forms of technology was considered, from computer specific to agronomic, like seed treatments, genetics, etc.  The technologies receiving the highest frequency of responses were the use of: (1) computer, (2) internet, (3) email, (4) accounting software, (5) smartphone, (6) online purchases, and (7) GPS technology.

The use of these technologies by crop producers was analyzed to determine if their use was advantageous for the farming operation’s profitability.   Crop farms were separated into five quintiles (five, 20% groups) based upon the individual producer’s adjusted net farm income ratio[1].  For comparison purposes, the top 20% of producers was compared to the bottom 20% to determine results

Type of Technology Adopted Matters

Producers using computerized accounting software, email, and online purchasing options had higher levels of profitability.  Using these types of technology by producers demonstrates higher management acumen, leading to higher profits.  In general, most producers use a computer and the internet.  Therefore there is no competitive advantage to having these commonplace technologies at work in today’s farming operation. 

Summary

In conclusion, is an investment in technology a worthy investment for the farming operation in times of tight margins?  There is a profitability advantage to those taking a risk and adopting technology early on.  Yet, every investment in the farming operation needs to have a business purpose with a reasonable rate of return on investment. 


[1] Adjusted NFI ratio = Net farm income / Value of farm production

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