PRISME - 09Economic bulletin - July 2015

DRONES P. 15

DRONES AND AGRICULTURE: BEYOND THE BUZZ... DRONES ARE ON THE UP The use of unmanned or semi-autonomous aircraft in agriculture is nothing new. Some are used for spraying. In France they are used mainly for surveying and data collection. The emergence of a new generation of cheaper drones that are easier to operate now offers fresh perspectives for application in precision agriculture. Out of the 1,380 civilian drone operators in France, almost 270 are service companies specialising in agricultural applications, making French agriculture a pioneer in the use of such equipment, thanks in particular to the planned implementation of a regulatory framework clarifying the rules of their use. Although we are still in the early stages of the development of drone-based agronomic services, and costs and satellite competition remain high, this market looks promising and is set to enter a phase in which the offer will be structured and developed.

PATENTS: The European Patent Office is paving the way for the patenting of conventional plants in Europe.

OBSERVATORY ON FORMATION OF FOOD PRODUCTS PRICES AND MARGINS (OFPM): For the first time ever, the OFPM recorded falling prices.

AGRICULTURAL CONSULTING: Google Ventures invests in Agricultural Big Data.

TRADE: China - Sweeping changes at public agricultural companies.

TRADE: The former Canadian Wheat Board taken over by Bunge and a Saudi Fund.

POULTRY: Terrena in exclusive negotiations to take over Doux.

AGRICULTURAL BIOTECHNOLOGY: US firm Monsanto tables a USD 45 billion offer for Switzerland's Syngenta group.

P. 2KEY

GRAINS P. 6

GLOBAL GRAIN: WHAT OF THE IMPACT OF OIL PRICES? Grain prices continued their decline, which began in 2013, and only the euro's weakness has led to a recent rebound in favour of European producers. This comes in the wake of record crops in 2014/15, and this abundance might just persist if the relatively stable weather continues. Demand is not expected to rise strongly, in spite of low prices; stocks should remain high and prevent prices from rising, bearing in mind that nothing is certain as the harvest is still some way off.

FOCUS Oilseed and protein crops: the rise of proteins Wheat: decent outlook after all

P R I S M EJULY 201509Agriculture and Agri-food, a matter for experts

Agriculture and Agri-food economic bulletin

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2PRISME - 09

Key

On 21 April, the French observatory on formation of food products prices and margins (Observatoire des prix et des marges - OFPM) presented its Report to Parliament for the fourth year running. For the first time since these exercises began, the following were registered in 2014: a decline in farm gate prices (down 5%), a decline in agri-food industry prices (down 2%) and, at the end of the chain, a decline in consumer prices (down 0.7%).

Under the leadership of Philippe Chalmin, the OFPM relies primarily on the work of France AgriMer. Its mission consists in informing the economic actors and public authorities on price formation in the distribution chain. The purpose of this body in France is to create a culture of transparency between these actors, from agricultural producers through to the retail trade, while trading relationships between the various suppliers within the industries are currently a matter of power relations.

The figures mask very wide disparities between products, even within the same industry. However, virtually all actors are talking about a deflationary spiral. The fall in agricultural prices, which was the largest, suggests an improvement of downstream margins. Even so, it is difficult to be sure with regard to supermarkets as their sales accounts only relate to 2013.

At the end of the chain, the consumer is benefiting from lower prices in the retail trade, at least in the short term. As the retail sector becomes increasingly competitive, consumer prices are based on sophisticated calculations, incorporating aggressive market share strategies at the level of supermarkets.

The OFPM recorded falling prices for the first time ever

COMMENTS

ON PAGE 2

COMMENTS

On 25 March, the European Patent Office ruled in favour of disputed patents for broccoli and tomatoes, patents covering a selection process and also the plants themselves. For years, these patents have been disputed on the grounds that naturally occurring organisms should not be patentable.

Unlike GM crops, plants (and animals) derived from conventional selection processes are generally considered to be outwith the scope of what is patentable. A variety of seed is thus covered by the plant variety certificates system, which asks users to pay royalties, but does not restrict the genetic use of this variety to continue selection and develop new strains.

This is why the recent decision of the Patent Office is an attack on the foundation of the controversial barrier to the patentability of living things. The issue at stake is the exclusion from the market of all players who do not have the necessary capacity to file patents and to make access to perfectly natural genetic traits subject to fees. The case law thus established would validate many patents already filed, in the face of numerous appeals from both NGOs and competing seed producers. The European Seed Federation has thus expressed its misgivings about this decision,

which is based on a strictly technical interpretation of the law. Its opponents are calling for political action on this subject. At the same time, at the end of 2014, 11 seed companies (including some that had expressed their opposition to patentability) set up a platform called ILP (International Licensing Platform), whose members include such major players as Ciba, Syngenta and Bayer. It operates in the vegetable industry and is intended to facilitate its members' use of patented varieties. This is one way of covering all the bases.

The European Patent Office is paving the way for the patenting of conventional plants in Europe

Patents

KEY

Prices and margins of food products

3PRISME - 09

Agricultural consulting

Google has invested USD 15 million (via its Google Ventures investment fund) in the US start-up Farmers Business Network (FBN), alongside other financial partners such as Kleiner Perkins Caufield & Byers and the investor DBL, bringing FBN's venture capital to more than USD 28 million. In so doing, the web giant is following in the exploration of this new virtual universe already embarked upon by more traditional players in the agricultural world such as John Deere, with its APEX software, and most of all Monsanto, through its acquisitions in the area of agricultural analytics since 2012 (Precision Planting, Climate Corporation, Solum, etc.).

In France, these developments have not gone unnoticed by the InVivo group, which has also decided to invest in agricultural Big Data, with the aim of becoming the European leader.

All avenues must be explored if global agriculture is to respond to its main challenge: continuing to be able to feed a global population that could, according to the FAO, exceed 9 billion by 2050, while preserving our planet's resources.

At the same time, technological advances now facilitate the collection and processing of ever-increasing quantities of data (see article on drones in this edition of PRISM), and the agricultural world is no exception: information regarding soil fertility, rainfall, types of planting, yields, etc. has until now been managed in a generally ad hoc and diverse manner.

One of the most promising areas is the intelligent exploitation of these masses of data in order to extract reliable models, using Big Data technologies that have already proven their worth in other areas. Hopes are pinned to the aggregation of data available in large quantities, to which appropriate analytical processing is applied using massive parallel computing technologies that are now technically and financially more accessible.

However, looking beyond the plethora of solutions proposed and fine rhetoric (e.g. Google's Don't be evil), there are sensitive issues concerning the ownership, protection and use of the data collected, where matters are less than clear cut. This data can be used to obtain a more or less complete snapshot of a farm at a given moment, as well as its development in near-real time. Will it be sold on to third parties? Might this data be used for other ends (competing operations, bespoke insurance, supplier pricing, etc.)?

In the USA, the American Farm Bureau Federation raised the alert on the topic last year, considering that data collected from owners of individual farms must remain the property of the farmers, and recommending the introduction of compensation for farmers whose private data is shared with third parties that exploit this data.

So how can we reconcile data aggregation and the fair use of the information? The solution could be based on the open source movement, already well established in the IT field. This is also the approach recommended by the Open Ag Data Alliance.

Google Ventures invests in Agricultural Big Data

COMMENTS

COMMENTS

Cofco wants to create an international agribusiness company from its Chinese grain business and the international trading companies that the group bought in 2014 (Nidera, Noble Agriculture), to be called Cofco International. It will be set up in partnership with China Investment Corp.

Two state-owned Chinese companies, Bright Food Group and Shanghai Liangyou Group, have announced a merger that will create one of the country's largest agri-food groups.

The state-owned China National Cereals, Oils and Foodstuffs Import and Export Corporation (COFCO) is looking for a new direction. China's largest agri-business company, originally set up in the 1950s to handle China's foreign agricultural trade, has sales of around USD 60 billion. It is active in both grains and branded consumer goods, and has diversified into real estate and finance. It is now looking, with government support, to become more international and to join the ranks of the world's leading traders like Cargill, ADM, Bunge and Dreyfus. This should lead to an IPO. One of the objectives is to broaden China's range of activities in the food supply chain.

Backed by the sovereign fund CIC, which invests China's foreign exchange reserves and would take a 20% stake in Cofco International, the latter will be able to draw on substantial financial resources. Cofco is looking to dispose of certain assets and acquire others, in particular Nidera and Noble Agri. However, the creation of a new international trader requires know-how going far beyond that of the import-export trade. Cofco has hired a manager from the ranks of ADM to run the new entity.

Cofco was selected in 2014 from the six public Chinese groups that the government is looking to reform through mergers, partnerships and opening up to private investors. Of these, it was the only agri-food group. But moves are also afoot at regional level in China, as demonstrated by the merger of Bright Food Group and Shanghai Liangyou Group, which both belong to the municipality of Shanghai: it has adopted a policy similar to that of the national government as regards its industrial and commercial assets. Like Cofco, the group will trade in grains, oilseeds and consumer products, with sales of around USD 20 billion.

China - Sweeping changes at public agricultural companies

Trade

KEY

4PRISME - 09

COMMENTS

COMMENTS

The Canadian Wheat Board (CWB), former holder of the wheat marketing monopoly in Canada, which was lifted in 2011, will be taken over by a partnership called Global Grain Group. Global Grain Group is based in Winnipeg but majority-owned by agro-industrial group Bunge, and by Salic Canada Ltd, a subsidiary of the Saudi fund Agricultural & Livestock Investment Company. These investors hold 51%, the remaining 49% being assigned to a trust comprising agricultural producers, with a squeeze-out option for the majority shareholder after 7 years.

The CWB was one of many marketing boards set up in English-speaking countries that have been gradually privatised. The CWB, whose monopoly was lifted by the conservative government in Canada, was to be sold off before 2016. The shares will be delivered to 3G in exchange for an investment commitment of USD 250 million.Opinion is divided on the CWB's balance sheet. Some farmers have demonstrated in protest against the loss of commercial liberty and insist on the need for competition, whereas others emphasise the reassurance and stability provided by this system, its logistic advantages and the preservation of the quality of Canadian wheat. Opponents of liberalisation have taken the matter to court, but have not obtained a favourable outcome so far. A takeover offer by producers was rejected in 2014.The new system clearly offers new opportunities for local and international traders on the Canadian market. It remains to be seen whether this will also benefit producers, as the competition thus created is being increasingly limited by the concentration downstream and the power of the traders. The Salic fund forms part of the resources put in place by Saudi Arabia to supply the country, which is scaling back cereal production (but not livestock rearing) in order to preserve its water resources. Saudi funds of this type have bought land, especially in Eastern Europe and Ukraine. The aim of the investment in Canada is to secure a stable resource. Saudi Arabia was one of the CWB's principal outlets prior to deregulation.

In a press release on 19 May this year, Sala Terrena group announced that it was in exclusive negotiations with D&P Participations, a subsidiary of the Calmels family's holding company, concerning the acquisition of its majority 52.5% stake in the Doux group. It would be accompanied by Sofiproteol (April group) as a minority shareholder; the current minority shareholders, the Doux family (22.5%) and the Saudi Al Munajem group (25%) would also retain stakes in the company. The deal should be completed in the next few months.

With a 2014 turnover of almost EUR 900 million for its Gastronome subsidiary, cooperative group Terrena is France's second largest poultry producer, but is far behind the leader LDC (2014-15 sales EUR 3 billion, of which its poultry division accounts for EUR 2.1 billion).

Doux group, number 3 in the sector with sales of EUR 457 million in 2014 has divided its business into two divisions: major frozen chicken exports (around 80 per cent of sales) and Pre Dodu brand finished products, after closing down the Metropolitan fresh chicken branch in 2012. Arnaud Marion has turned the group around in just three years through a series of restructuring programmes and by modernising its production facilities, and in spite of European subsidies for chicken exports to Near and Middle East countries ceasing in 2014. The group also benefited from a favourable EUR/USD exchange rate and the fall in the price of grains.The tie-up between the two groups would constitute a further step in the consolidation of the supply chain in France, after LDC's takeover of April group's poultry business at the end of 2014. This would place Sala Terrena in fifth position in Europe, by offering it access to promising, sustainable export markets in which the Doux brand enjoys a good reputation, and by strengthening its positions in manufactured products, especially in the French retail market, with its Douce France and Pre Dodu brands.

Former Canadian Wheat Board taken over by Bunge and a Saudi Fund

Terrena in exclusive negotiations to take over Doux

Trade

Poultry

KEY

5PRISME - 09

Agricultural Biotechnology

The shareholders of Syngenta, born of the merger of Novartis' and AstraZeneca's agro-chemical businesses, have rejected Monsantos proposal, claiming that the price was too low, and emphasising the risk of this deal being blocked by the monopolies commission. In an attempt to push the proposal through, Monsanto offered to pay USD 2 billion in compensation if the deal fell through because of the monopolies commission. Syngenta announced that it would accept no less than 10% of the purchase price in compensation, i.e. almost USD 4.5 billion.

Monsanto (turnover: USD 15.9 billion) has had an eye on its rival Syngenta for a long time (turnover: USD 15.1 billion) Indeed, by joining forces with Syngenta, the world's leading manufacturer of herbicides, insecticides and fungicides and third largest seed producer (8% of the global market), the American group Monsanto, the world's leading seed producer (with 25% of the global market) would create a world leader in the seed and phytosanitary industries. This tie-up would also allow it to strengthen its position in Europe and to carry out tax inversion. This is when a US company transfers its headquarters to a country with lower tax rates (e.g. the United Kingdom), a phenomenon the US Treasury is now seeking to limit.

In areas where research is essential but costly, a merger between the two giants would lead to substantial economies of scale.

If ever it sees the light of day, the new group will bring together USD 31 billion in revenue. However, Syngenta is putting up stubborn resistance in order to retain its independence, and its specificity.

As a result, the tie-up will not go ahead without major concessions. In this respect, Monsanto says it is ready to tidy up the two companies' portfolios to get the green light from the competition authorities, by focusing on pesticides, Syngenta's main area of business, while chemicals currently account for less than one third of Monsanto's sales.

It has thus committed to:

disposing of Syngenta's entire seed business and its GM deals, a division that accounts for almost 21% of sales, i.e., USD 3 billion. Investors value it at EUR 8 billion, and cite BASF as a potential buyer.

disposing of certain herbicide businesses that overlap between the two companies. Monsanto, which sells a well-known herbicide, glyphosate, under the Roundup brand, would be willing to sell a similar product in Syngenta's range.

If it comes to fruition, the merger of Monsanto and Syngenta would be the largest-ever takeover of a European company by a US group. But it could also run into strong opposition from public opinion. Following on to numerous other actions in recent years, a worldwide march against Monsanto was held in May 2015 in protest against the US giant's domination of global agriculture. In March this year, glyphosate was classified as probably carcinogenic to humans by the International Cancer Research Centre.

Monsanto has just embarked on a campaign to clean up its image in France. France is its biggest market in the global region that includes Europe, Middle East and Africa. However, it accounts for only 13% of its global business. Its principal French subsidiary is Dekalb.

After eyeing each other up for years, the issue is still undecided, with a prognosis of around 50% as to the success or failure of the operation.

US firm Monsanto tables a USD 45 billion bid for Switzerland's Syngenta group

COMMENTS

KEY

6PRISME - 09

GLOBAL GRAIN: WHAT OF THE IMPACT OF OIL PRICES?

KEEPING GRAIN PRICES LOW: THE END OF A CYCLE?

Overall, grain prices continued their steady erosion, a trend which has prevailed from 2013 into 2015. In dollar terms, prices today are virtually where they were in 2009, albeit briefly, as the violent rebounds of 2010 and 2012 were just round the corner.

In euro terms, the picture is very different (2nd chart): the euro's fall against the dollar, from 1.37 to 1.1 USD/EUR over one year, gives the impression of a rebound and has enabled Europe to maintain production values.

Did oil's spectacular fall, which accelerated in November, interfere with this development? Should we be concerned

that agricultural prices, which have not fallen in the same way (except for sugar, albeit somewhat more gradually) will follow suit? Oil has recovered slightly since January and non-agricultural commodities, which had also fallen sharply, have done so to a lesser extent overall, with the exception of iron (down 20% since the CRB metals index's 2014 plateau, as compared to oil's 40% fall). Above all, the link between oil and agriculture has become highly complex, as we shall see.

Grain prices continued their decline, which began in 2013, and only the euro's weakness has led to a recent rebound in favour of European producers. This comes in the wake of record crops in 2014/15, and this abundance might just persist if the relatively stable weather continues. Demand is not expected to rise strongly, in spite of low prices; stocks should remain high and prevent prices from rising, bearing in mind that nothing is certain as the harvest is still some way off.

Oil's recent fall, much more brutal than that of most other commodities, shows the extent to which the correlation between oil and agricultural prices has weakened. Energy is one of main variable costs of agricultural production, with more than 60% of purchases depending on it closely. But its economic impact remains indirect, varies depending on crops, regions and years, and is not necessarily linked directly to the oil price. Agrofuels, an outlet that has played a major role since 2007, now play a reduced role because their consumption has stabilised and is governed primarily by regulatory framework. Both oil and foodstuffs continue to depend on the economy, but cheap oil can be as much a factor in purchasing power as a sign of weak demand.

the link between oil and agriculture has become highly

complex

Wheat, maize, soy and oil prices

OilRouen soft wheat Gulf maize

Soybean Rotterdam

0

200

400

600

800

1000

1200

01/06

01/07

01/08

01/09

01/10

01/11

01/12

01/13

01/14

01/05

01/15

USD

/t u

Sources: World Bank, Agreste.

Wheat and maize prices

US SRW wheatDelivered Bordeaux maize US maize

Rouen soft wheat

0

50

100

150

200

250

300

01/05

01/06

01/07

01/08

01/09

01/10

01/11

01/12

01/13

01/14

01/15

EUR/

t u

Sources: World Bank, Agreste.

GRAINS

7PRISME - 09

The bumper crops continue2014/2015 production has finally matched or even exceeded the 2013/2014 record yields in the main types of crops (wheat, maize, soy, rapeseed, etc.). Most of the producing countries gained from this. The few falls experienced (in Australia, Canada, the USA for wheat, Ukraine, China for maize) were more than offset by impressive records: the EU for wheat, maize and rapeseed; China and Russia for wheat; the USA for maize; and all the major soy producers, which include the USA, Brazil and Argentina.

The first estimates for 2015/2016 point to a fall in volumes, albeit modest. The figures came out in April/May and are of course strictly indicative, as anything can happen in the last few months before the harvest, especially with regard to maize, which is only sown in May.

Forecasters have opted to reduce yields slightly from 2014/2015's exceptional levels. The CIC (used for world totals in the charts) is somewhat more prudent than the USDA. Overall, surface areas are expected to be as before (with slight increases for wheat and soy) and meteorological conditions give no specific cause for concern.

Another El Nio episode is expected, as in 2014, which eventually turned out to be fairly mild. This year, the anomaly persisted until April at least (at a minimal level) and there is an estimated 80% probability that it will continue until the end of the year. However, the scale of the phenomenon if it occurs is quite random, as are its potential effects,

especially for grains (drought in Australia and China, but beneficial in the West?) For the time being it is difficult to foresee a precise impact.

At any rate, wheat production is expected to fall in Europe, with less exceptional yields, as well as in Russia and Ukraine. There, yields are expected to fall in addition to a loss of surface area as a result of the harsh winter. The 2014 crop was very good, but this year's conditions were somewhat less favourable. The political and economic situation in Ukraine, which remains turbulent, is having a moderate effect on production. It may have a greater impact on other crops, with foreseeable shortages of fertiliser supplies.

Russia has scrapped the taxes on wheat exports that it introduced at the beginning of 2015, and replaced these with a new tax regime. The objective remains the same, namely to avoid driving up food prices and breeders' costs as a result of the weaker rouble, as well as to prevent the potential diversion of wheat to more profitable exports. This tax is now very low, but could rise depending on price levels and the strength of the rouble, which has now recovered a little.

A record crop is also expected in Morocco, and Egypt is also set to have a good year, reducing requirements in these predominantly importing countries.

Enthusiasm for maize is limited: only China is expected to increase its production significantly, with other countries remaining below their records but it would still be the 3rd largest harvest after 2014 and 2013.

2014/2015 production has finally matched

or exceeded the 2013/2014

record yields in the main types

of crops

World wheat production and consumption

ConsumptionProduction Exporting countries stock

Closing stocks

0

100

200

300

400

500

600

700

800

Mt u

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5e

15/1

6p

Sources: IGC, USDA.

0

100

200

300

400

500

600

700

800

Mt u

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5e

15/1

6pBlack Sea

USACanada, Australia, ArgentinaIndia EU 27

China

Sources: IGC, USDA.

World maize production and consumption

0100200300400500600700800900

1000

Mt u

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5e

15/1

6p

Consumption Production Closing stocks

Sources: IGC, USDA.

0100200300400500600700800900

1000

Mt u

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5e

15/1

6p

Brazil USAUkraine EU 27 China

Sources: IGC, USDA.

GRAINS

8PRISME - 09

Demand is expected to ease off significantly

According to initial forecasts, the 2014/2015 rise is unlikely to be repeated: up 0.2 to 0.3% for wheat, as compared to 1.5% over 10 years, down 0.1 to 1.3% for maize as opposed to around 3.2% over 10 years. In spite of low prices, forecasts do not indicate heavy use as animal feed (the CIC even predicts a fall), and US ethanol production is not rising.

The expected slowdown in China is clear: less than 2% growth for maize in 2015/2016, as in 2014/2015 (the CIC is forecasting a 3.8% rise, which is modest for China); the forecast for wheat is a fall and a return to 2011/2012 volumes.

In fact, China has been importing barley and sorghum for a number of years now, both for brewing and animal feed. Imports of these two grains amounted to 14 million tonnes in 2014/2015 in total, which the USDA expects to be repeated in 2015/2016, as compared to 4 million tonnes of wheat and maize. This is one of the consequences of China's decision to stop importing US maize and maize dregs in 2013, because they were unauthorised GM varieties. Some of these were authorised at the end of 2014, but others are still not, and maize importers now face additional conditions requiring them to buy grain from government stocks.

Moreover, since the end of the year, China has lagged behind its growth target for the year: manufacturing output up 5.9% by April, as compared to the target of 7%. The government has so far been implementing largely ineffectual support measures (interest rate cuts), and could adopt more tax-based, targeted and ultimately coercive measures. In any event, there are no great expectations for agricultural consumption.

Stocks are expected to remain high overall

Uncertainties persist as to the global grain situation: a 1-2% deficit as claimed by the CIC, or fairly balanced as per the USDA? In fact, the market is reacting calmly, because

stocks are expected to be at a level that has generally been regarded as healthy over the last three seasons: 27-28% of wheat consumption, 19% for maize.

Global maize stocks have been solidly boosted by the 2013 and 2014 harvests. But in comparison to the consumption growth rate, and above all in terms of exporters' available stocks, the level remains limited. The wheat position has not really changed in recent years. As usual, it is China that is deemed to hold the lion's share of reserves, and if the global stocks forecast by the USDA rise, it will be in China, both for wheat and maize, given the good harvests that it is expecting. These stocks have little impact on global prices as long as they are not drawn on significantly. If, as might be expected in view of China's political situation, they start to be used, it would probably push prices down (fewer Chinese imports). But this is not the situation at present.

The anticipated situation is one that is more or less balanced, but may also include a surplus if crop forecasts turn out to be too conservative. Although this crop abundance is relative, prices are not expected to take off in the short term, especially as financial investors are unenthusiastic about wheat and maize. Short-term speculators, whose positions are at or near all-time lows, are accompanied by index investors whose positions, held for the long term, tend to erode after six months, especially in wheat. However, these positions, more of them short than in 2009, did not drag prices below the levels seen at that time.

TO WHAT EXTENT DO ENERGY PRICES CONTRIBUTE TO LOW AGRICULTURAL PRICES?

There are three areas in which oil and foodstuffs are linked: costs in agricultural production and within the industry; the energy consumption of agricultural products (primarily agrofuels) and lastly, general demand and the overall economy.

Production costs: high weighting, but imperfect correlation. Energy is required mainly in three areas in large crop farming: fuel, fertiliser and chemicals. One can also include freight, whose cost is also particularly low at present.

The weighting of energy-related consumption in farm production (fuel, fertiliser and pesticide) is significant: it accounts for around one third of total production costs, both in France and the USA (using comparable crops, both of which are intensive: wheat in France, maize in the USA).

In France, these three costs account for 80% of variable costs, but only 60% in the USA, where maize seed takes up a larger proportion of the variable costs.

Fuel is not a major cost component. It constitutes a minor share of mechanisation costs (15-20%, or up to 35% for maize in the USA).

In both cases, it is fertiliser that accounts for the lion's share of variable costs, with nitrogen-based fertilisers in the lead (around three-quarters of all fertilisers). For these, natural gas makes up their primary cost (70-90% of their value, depending on price and country of origin). With regard to pesticide, the weighting of energy in the sale price is lower, but significant nonetheless.

Global maize stocks have been solidly

boosted by the 2013 and 2014

harvests

GRAINS

9PRISME - 09

USA maize production cost2011: total USD 1,515 per ha.

FertiliserFuel and other energy

Other fixed costs

PesticidesSeeds

Other variable costsPaid workforce and other expenseEquipment (depreciation)Land

68

364

80

65

208

10363

221

341

Source: USDA ERS.

France wheat production cost2011: total EUR 1,552 per ha.

FertiliserFuel and other energy

Other fixed costs

PesticidesSeeds

Other variable costsPaid workforce and other expenseEquipment (depreciation)Land

217

171

78

62

62

264

171

155

372

Source: Arvalis.

Energy thus constitutes a major component of the total costs. But its impact is indirect, varies depending on crops, regions and years, and is not necessarily linked directly to oil prices.

For example, fuel costs have risen significantly in Ukraine recently, as a result of the exchange rate.

Its gas price varies depending on the region. In the USA, in this shale gas era, fuel costs have not risen since the peak of 2008 and their subsequent fall, and are now lower than in 2006. But US nitrogen fertiliser prices, after slipping in 2009 and 2010, have picked up again. In France, the cost of inputs varies less than the prices of the underlying materials.

Overall, production costs as they are monitored in the USA show fairly steady growth, which does not truly reflect the real cost of energy (especially gas), in spite of its major role. Producers' margins (net of subsidies) depend above all on the sales price, i.e. the grain market and markets in general.

US maize production cost and margins per hectare

USD

/ha u

0

500

-500

1 000

1 500

2 000

2 500

2007 2008 2009 2010 2011 2012 2013 2014

Variable costFixed cost

Margin on variable cost Net marginIncome

Source: USDA

In France in 2014, as with maize in the USA, the wheat sale price did not cover its total production cost, even after taking government subsidies into account.

Producers are also able to react to costs. The elasticity of agricultural fuel consumption in Canada is estimated at 0.24%: a 10% price fall results in a 2.4% fall in consumption (better equipment maintenance, less cultivation, etc.)

The choice of crop may also depend on energy costs. But these reactions are not necessarily the most intuitive. Maize has a much higher per-hectare production cost than soy, mainly because it requires more nitrogen fertilisers (USD 364 per ha for maize as compared to USD 56 per ha for soy in the USA). As these crops compete with each other in the same regions, maize may be boosted by the prospect of lower costs: but this year, on the contrary we are expecting more soy, because low prices in the market encourage farmers to incur lower cultivation costs, especially as soy margins appear better than maize in terms of their respective sale prices.

A new link between oil and agricultural products appeared in the 2000s, with agrofuels. This energy outlet was supposed to boost agricultural prices, as it constituted a new demand which was indeed the reason for creating it, from the view of agricultural sector organisations, in the face of price stagnation.

From 2007 onwards, the oil price and agricultural product prices were strongly correlated. Agrofuels helped to drive up agricultural product prices: their production then increased significantly, without taking into account the pressure on the resource at that time. The sector's expected success stimulated interest from financial investors, who began buying actively.

In France in 2014, as with maize in the

USA, the wheat sale price did not cover its

total production cost

GRAINS

10

PRISME - 09

The oil to agricultural products correlation diminished after 2012 and has remained low since oil's recent fall. Indeed, as most agrofuel consumption is linked to regulatory provisions imposing its use (it is subject to regulated consumption rather than a genuine market), elasticity remains limited. It is almost a matter of regulatory elasticity: when prices fall, some countries increase the mandatory quota of agrofuels, as in Brazil with cane sugar ethanol in recent times.

At present, this energy outlet is shoring up agricultural prices as it is a significant component in consumption. However, this outlet is more or less stable, as the authorities have become far more prudent on the matter. They are in particular concerned by the tensions that an increase in this area may provoke, especially if climate problems reduce production, and by the resultant direct or indirect deforestation.

The third component of the oil to agricultural products link is made up of general demand and the state of the economy. Purchasing power is of course boosted by lower oil prices except in producer countries. At the same time, the simultaneous fall by oil and other commodities may be a sign that the overall economy is flagging which is partly the case today.

The next question is whether the current weakness is a sign of a supposed commodities super cycle. Various analysts believe that this is not the case, at least for agricultural products, in view of the growing population, its food requirements or wants and the limits on farmland.

This is beyond the scope of this article. Let us end rather by saying, as was suggested at the recent Cyclope conference, that lower oil prices are not necessarily a blessing. The necessary measures relating to the fight against climate change (in this conference year considered crucial in Paris at end 2015), should have the effect of disconnecting the market price of oil from its retail price by introducing appropriate carbon price measures.

GRAINS

11

PRISME - 09

As with grain, oilseed and protein crop prices have been slipping gradually since 2013, an effect that has been mitigated in euro. Demand is growing somewhat more steadily than for grains, but prices have inevitably been weighed down by the rapid growth of soy harvests, especially as production is set to maintain existing levels in 2015/2016. However, rapeseed production is set to slip after a peak in 2013/2014.

Within the oilseeds and proteins group, there has clearly been a rebalancing in favour of proteins, probably linked to weaker demand for agrofuels.

Focus - Oilseed and protein crops

FOCUS OILSEED AND PROTEIN CROPS:THE RISE OF PROTEINS

STEADILY FALLING PRICES

Vegetable oil prices have been falling almost without interruption since 2013. Prices are almost back where they were in 2009, although they have not fallen to their 2006 low. In 2014, soy oil caught up with palm oil, which had tumbled faster.

Expressed in euro, the slide has been limited since the end of 2014 by the euro's fall against the dollar. This largely explains rapeseed's better performance recently, as shown in the second graph.

Soy production certainly looks abundant. The three leading producers (USA, Brazil and Argentina) enjoyed a record 2014/2015 crop, capping a steady rise since the trough of 2011/2012. Stock projections for the end of the season (including seed, oilcake and oil) are up, which corresponds to weaker consumption.

For 2015, the USDA is working on the assumption of stable production, which would further bolster stock levels.

Palm oil production and stocks, on the other hand, are in decline, hence the price catch-up. The prospect of an El Nio episode, even a moderate one, is shoring up prices as South East Asia (where over 80% of the world's palm oil originates) would be the first to be hit.

Soya bean: production and stocks

Argentina

China

0

50

100

150

200

350

250

300

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

15/1

6p

14/1

5e

Brazil

USAProductionSeed, oil and oilcake stock

Mt u

Source: USDA

Prices of main oilseeds

Soya oilSoya bean Soya oilcake

Palm oil

0200400600800

1000

1800

120014001600

01/06

01/07

01/08

01/09

01/10

01/11

01/12

01/13

01/14

01/05

01/15

USD

/t u

Source: World Bank.

Rapeseed prices (oil, seed and oilcake)

Rapeseed oilcakeDelivered Rouen rapeseed

0

200

400

600

800

1000

1200

01/05

01/06

01/07

01/08

01/09

01/10

01/11

01/12

01/13

01/14

01/15

Rapeseed oil

EUR/

t u

Sources: Public Ledger, Agreste.

Soya: the three main producing countries (USA,

Brazil and Argentina) had record harvests

in 2014/2015

GRAINS

12

PRISME - 09

Rapeseed production is expected to ease off. It has enjoyed two exceptional years, in Canada in 2013/2014 and Europe in 2014/2015. Cultivated surface areas are set to fall in Europe. The moratorium on neo-nicotinoid insecticides

is being challenged: UK producers claim that rapeseed cannot be farmed without these products. But there is increasing evidence that they are harmful to bees.

Rapeseed: production and stocks

Canada

China

0

20

10

30

40

50

80

60

70

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

15/1

6p

14/1

5e

India

EUProductionSeed, oil and oilcake stock

Mt u

Source: USDA

DEMAND IS VEERING INCREASINGLY TOWARDS PROTEINS

Overall, global demand is easing off, even if China is still importing substantial volumes. Consumption of soy and oils in general is still growing faster than grain, especially for oilcake (up around 4%-6%), again led by China. There is less demand for rapeseed overall.

For some years now, protein has been valued higher than oil: for rapeseed, which is 40% oil, for a long time this accounted for around 75% of its value. Since 2013, this has been closer to 65%. For soy, (20% oil content) this figure has fallen from 40% to 30%.

Oil component in rapeseed and soy values

% Oil in soy seed value

0 %10 %20 %30 %40 %50 %60 %70 %80 %90 %

01/05

01/06

01/07

01/08

01/09

01/10

01/11

01/12

01/13

01/14

01/15

% Oil in rapeseed value

Sources: Public Ledger, Agreste, World Bank.

This is probably linked to the levelling out of biodiesel production, which now consumes around 12% of vegetable oil worldwide (10% of palm oil, 13% of soy oil and 23% of rapeseed oil).

The limitation of this outlet, which exists mainly in Europe and for rapeseed, is contributing to the fall in seed prices. The popularity of Europe's favourite oilseed may wane in the rest of the world, as it is mainly rich in oil with a lower quality oil cake than soy. For the time being, however, demand remains sufficient to avoid this.

Meanwhile, demand for fodder protein is recovering in the USA (a recovery in the number of pigs in particular), but avian flu may have a dampening effect on consumption.

In France, the 2014/2015 rapeseed crop was particularly good, in terms of surface areas and yields, after the drop in 2013/2014. Surface areas are set to remain stable for the 2015 crop and if yields remain average, production may drop slightly.

French rapeseed data

Rapeseed productionDomestic use Biodiesel production

Oil production Total exports

0

1

2

6

3

4

5

08/09

09/10

10/11

11/12

12/13

13/14e

07/08

14/15p

Mt u

Sources: FranceAgriMer, FOLicht, Oil World.

Focus - Oilseed and protein crops

global demand is easing off,

even if China is still importing

substantial volumes

GRAINS

13

PRISME - 09Focus - Wheat

QUALITY ISSUES TO BE RESOLVED

French wheat had a record harvest in 2014, but unusual quality problems were also of grave concern to the industry: low protein levels protein and starch deterioration resulted in a low Hagberg falling number. Baking quality wheat was thus very much reduced on average, and a lot of wheat was downgraded to fodder.

The outlook was thus rather poor, with export forecasts down, at less than 16.8 million tonnes in October 2014 (other countries: 8 million tonnes) and stocks rising to 4.4 million tonnes.

On the other hand, domestic use was set to increase, especially in animal feed. However, this was not the case, due to the competition from maize, the price of which was knocked down by an even more extraordinary harvest.

The volume of wheat earmarked for bread making is expected to increase slightly (in any case it accounts for only 8% of the crop), but obtaining supplies has not been

particularly easy. Nevertheless, millers were able to obtain relatively regular deliveries overall thanks to the efforts of the storage agencies, following investments in densimetric tables and the reconstitution of more homogeneous lots.

During the season, quality wheat was in high demand in the milling industry, which paid a premium of EUR 30-40 per tonne, well above that of the previous year. These price differences are not reflected in the Euronext Milling Wheat (no. 2) futures price, which is why a new Premium Milling Wheat (no. 3) Euronext futures contract has been introduced, which began trading in March. Its volumes are not yet significant, however. Elsewhere, the new euro wheat futures contract to be traded in Chicago, announced for April 2015, still has not been launched as the US operator (CME) announced in March that its launch was still to be confirmed.

Exports to Europe have not been brilliant either, as a result of internal competition (Germany, Poland, Lithuania, etc.).

ONCE AGAIN, EXPORTS SAVED THE DAY

The current forecast was raised to 10.6 million tonnes for third countries, down on the previous year's record, but much higher than originally expected.

French soft wheat situation

0

10

5

15

20

25

40

30

35

00/0

1

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2

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9

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1

11/1

2

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3

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4

14/1

5e

Production

Domestic use

Exports third countries

Total exports

Mt u

Sources: FAM, Agreste.

FOCUS WHEAT: DECENT OUTLOOK AFTER ALLThe serious quality problems affecting the 2014 harvest have been neutralised in part, especially by increased major export efforts. Uncharacteristically, exporters have been able to develop sales of wheat fodder and find new and distant destinations, while North Africa's usual customers looked elsewhere for their milling wheat except Egypt, whose main supplier this year will be France. This is due to the euro's weakness, Russia's partial withdrawal from the market and very low freight costs. The final stock is thus lower than originally anticipated, but it will be added to a future crop that could be very abundant, given the record sowing levels. The industry is putting a variety of measures in place to improve future quality.

... a large amount of

wheat ended up as fodder

GRAINS

14

PRISME - 09

But neither exported products nor their destinations conform to the usual pattern. The storage agencies have been innovating, France has exported a large amount of wheat fodder and it has found a series of new destinations (each for small volumes), notably in Asia, Thailand, Bangladesh, Japan, the Philippines, Turkey, Mexico, etc. Also worth mentioning are the remarkable exports of barley to China.

On the other hand, exports to the usual destinations in North Africa (Algeria and Morocco) have declined, due at least in part to their quality requirements, particularly in Hagberg numbers, and in the face of competition from other European countries. Perhaps in the case of Algeria, this fall is also due to the effect of lower energy prices on its resources.

On the other hand, France managed to become the leading provider of the GASC, Egypt's national import agency, whereas the Egyptian market had been very reticent in the past. By 5 May, it had sold more than 2 million tonnes (compared 660,000 tonnes the previous year), overtaking Romania, Russia and Ukraine.

French exports were boosted by three factors, the first being the euro's fall. Europe has benefited overall, with exports even exceeding the 2013-2015 record, which was in itself considerable. The price of French wheat was very competitive from the start of the season until May.

This is a key factor for Egypt, which looks for competitive prices in particular and whose qualitative requirements are somewhat lower than Algeria's. Another advantage for French wheat was the drop in Russian exports, traditionally very well placed (and offering particularly advantageous protein levels): restrictions on exports, and then the tax introduced early in 2015, weighed heavily on Russian milling wheat.

Finally, particularly low freight rates have made it possible to ship further afield and dispose of certain lots.

FOR 2015: RECORD SOWING

According to FranceAgriMer, the end of season stock forecast thus stands at no more than 3.6 million tonnes in May. Nevertheless, this would put it at its highest level since at least the year 2000, and the stocks will contain a large amount of wheat with qualities that are difficult to value, something that will not help the seasons results.

Especially as the harvest may be copious again: according to initial estimates, wheat sowing may be at record level (exceeded only at the beginning of the last century), at 5.2m ha.

In this context, the industry is looking closely at quality, with several initiatives to raise it, because French wheat is frequently criticised for it gradual deterioration. It is criticised for its low protein levels, as well as its humidity content and low density. A new classification has been developed, with more accurate quality descriptions and corresponding to the new Euronext futures contract. This year, producers have announced that they have chosen to sow varieties with higher protein levels, and farm programmes are underway to optimise nitrogen fertiliser use.

particularly low freight rates have made it

possible to ship further afield

Focus - WheatGRAINS

15

PRISME - 09

DRONES AND AGRICULTURE: BEYOND THE BUZZ... DRONES ARE ON THE UP

FRANCE'S BENEFICIAL REGULATORY FRAMEWORK

Airborne drones are autonomous or semi-autonomous unmanned aircraft. They are equipped with an on-board system for pre-programmed or disengaged manual mode flight (controlled by the UAV pilot ).

Just recently, the USA proposed opening up its airspace to commercial drones2, but France is still the only country in the world to have introduced a strict legal framework to regulate the use of these devices.

If images are exploited for purposes other than leisure flights or a competition, the flying of drones is subject to airspace regulations, including in particular the certification of UAV pilots and the compulsory declaration of flights to the General Civil Aviation Directorate (Direction Gnrale de lAviation Civile DGAC).

The circulars issued by the DGAC from April 2012 thus impose quite restrictive provisions3. The unauthorised overflights that have been in the headlines recently do little to encourage a relaxation of these rules.

SURVEY-ORIENTED USE

Worldwide, drone usage can be classified in two main categories: crop treatment (usually spraying), and surveying (compiling geo-referenced data on the crop conditions).

These two branches involve technological differences in terms of the architecture of the drones:

for crop surveying, the device carries the appropriate sensor (visible or infrared light) at an altitude high enough to avoid all obstacles, and can cover large areas quickly, as is the case with fixed wing (mini-plane type) drones;

for crop treatment, the device must be capable of stationary flights, with a larger payload, while avoiding obstacles close to the ground, which is the case of the rotary wing (multi-rotor type) drones.

In France, the aerial spraying of pesticides is prohibited, and the trend is more toward the closing of existing loopholes, given the risk of contamination of homes and watercourses in particular. This also applies to drones, helicopters and ultra-light aircraft.

The use of unmanned or semi-autonomous aircraft in agriculture is nothing new. Some are used for spraying. In France, they are used mainly for surveying and data collection. The emergence of a new generation of cheaper drones that are easier to operate now offers fresh perspectives for application in precision agriculture. Out of the 1,380 civilian drone operators1 in France, almost 270 are service companies specialising in agricultural applications, making French agriculture a pioneer in the use of such equipment, thanks in particular to the planned implementation of a regulatory framework clarifying the rules of their use. Although we are still in the early stages of the development of drone-based agronomic services, and costs and satellite competition remain high, this market looks promising and is set to enter a phase in which the offer will be structured and developed.

1 - According to F Barr (INRA), B Solan (Arvalis).

2 - http://bfmbusiness.bfmtv.com/entreprise/le-ciel-americain-s-entrouvre-enfin-aux-drones-884683.html

3 - Order of 11 April 2012 relating to the design of unmanned civil aircraft, the terms of their use and the requisite capacities of persons using them, consolidated version of 22 April 2015.

DRONES

France is still the only country

in the world that has intro-duced a legal framework to

regulate the use of these devices.

16

PRISME - 09

FROM DATA HARVESTING TO AGRICULTURAL RECOMMENDATIONS

The drone collects land dataAfter take-off and automatic positioning via GPS, the device saves the images taken at regular intervals over a pre-programmed route. After landing, the data is retrieved and a mapping of the plot of land is produced by cross-referencing the data and the GPS coordinates.

According to Franois Barr of Inra and Benot de Solan of Arvalis, producing an ortho-map requires, on average, one hundred crossings of the plot in order to obtain effective image coverage.

There are other data collection methods: directly on tractors, by plane or ultra-light aircraft, or by satellite. The image obtained using a drone does not differ structurally from a satellite image. But the images are accurate to the nearest centimetre and are superior to those from a satellite, as a result of the lower altitude. Above all, drones are not bothered by clouds.

The most advanced manufacturers operating in agriculture offer specialised sensors: advanced capturing systems, infrared, multi-spectrum or reflectance sensors, and thermal cameras. The choice of on-board sensor depends on the measurement required: biomass, chlorophyll level, foliage density, water stress or simple imaging (estimated pest damage, for example).

However, the collection of raw data is only part of the equation, as this information must be analysed and interpreted in order to develop concrete strategies that can be used directly by farmers.

These measurements are integrated in a set of reference data

Help for decision-making is based primarily on the geo-referencing of the data measured on the crop. Experts operate by comparing this information with measurements already taken, as well as with other databases. These data are supplemented in part by public meteorological, topographical and geological information (open data). Experts also use private information, generated by each farmer, which is secured and only shared by the consulting firm with its customers (historical data stored, data of the co-op to which the farmer belongs, data of the seed and phytosanitary supplier).

The information is then processed by the consulting firms

In addition to measurements, added value derives as much from the use of reference and field data as from biological, agronomic, zootechnical and ecological models that are intended to aid in the decision-making process. It should be borne in mind, however, that the interpretation of the images obtained is still at the experimental stage and is not effective for all types of crops.

This work entails specific expertise, often gained through collaboration with agricultural research institutions such as Arvalis.

The originators may be companies exploiting the data obtained from satellites such as Farmstar (developed by Arvalis, CETIOM and Airbus Defence and Space). Also, the companies using the satellite cover the entire processing chain, from measurement through to drawing up a report that may take the form of online decision-making tools or recommendation charts.

This integrated consulting sector already exists, as nearly 25% of cultivated land today has been signed up for satellite imaging. According to Alcimed, the precision agriculture business is growing at 14% per year, with global turnover projected to reach USD 3.7 billion by 2018.

The agronomic consulting industry

the accuracy obtained comes

down to the nearest centi-metre and is

superior to that of a satellite

Cooperatives, Chambers of Agriculture, consulting

Distributors AdvisersDistribution, advice,

use, technical assistance, etc.

FarmersDevelopment of toolsAlone or in collaboration

Private companies(Yara, GPN, Astrium, etc.)

Source: SupAgro Montpellier, Irstea.

Information, disclaimer, etc.

Technical institutesAssociations

(Arvalis, CTIFL, Comifer, etc.)

DRONES

17

PRISME - 09

Agricultural applications remain limited, while progressing towards precision farming

The use of agricultural drones and other data collection systems is pushing the sector towards precision farming. The aim is to obtain maximum, steady yields, while making intelligent use of inputs, which fits in logically with advances in environmental requirements. The new eco-phyto plan maintains its goal of halving pesticide use, even if this goal has been pushed back to 2025.

The key factor in precision agriculture is indeed information, and all the methods available for obtaining new data. These data and their interpretation make it possible to fine tune the application of inputs on only those areas that need them.

For example, we check the nutritional state of the plant at various points to calculate fertiliser or phytosanitary applications and their frequency. In addition, samples and measurements of soil temperature taken as the device passes by can be combined to complete image-based plot analysis.

Variations within plots is a major problem. Yields may vary by 20-30% within very short distances, hence the advantage of being able to adjust treatments on this scale.

In practice, the application depends on the performance level of the mechanical equipment, which must have the required level of accuracy. The main equipment that contributes to this

is used in soil preparation, sowing, spraying of phytosanitary products and fertiliser application.

This entails, for example, in addition to steering, having automatic section control equipment, with differential closure of the nozzles on the sprayer and an automatic hatch opening device for the centrifugal fertiliser spreader.

The agri-machinery sector now offers, on most new equipment, automatic steering based on the mapping of plots, with precise localisation of rows of seedlings. Nowadays there are machines that spray less than 3cm above the ground, making it possible to apply precise dosages resulting in a real reduction in phytosanitary volumes.

TOWARDS AN INTEGRATED OFFER

Agronomic consultancy firms rely entirely on the product ranges of general-purpose drone manufacturers for the equipment component of their offer.

The French drone manufacturing sector has around 50 DGAC-registered manufacturers, but few of these have reached mass-production level. One of these is Parrot. In the agricultural sector they operate through specialized subsidiaries: Delair-Tech (Parrot subsidiary), Delta Drone, Fly-n-Sense (Viva Sant group).

Foreign manufacturers include Lehmann Aviation, DJI Innovation, Honeycomb (Agdrone model), PrecisionHawk (Lancaster), 3DRobotics, Agribotix (Hornet) and AgEagle (Rapid System).

To operate in the agricultural sector, drone manufacturers must work with agronomic consultants. This is where most of the added value and margin is to be found. Usually farmers and cooperatives buy a subscription rather than equipment.

In this way, in the wine sector, which is the best suited for this type of precision farming, the Vitidrone partnership includes manufacturers Vitivista and Fly-n-Sense, and Australian imaging company Specterra.

According to operator Redbird, which specialises in providing services to professionals, only 10% of operators are today equipped to deliver comprehensive solutions that combine data capture and processing to fulfil a specific request. These companies are then both drone operators and originators.

Different models exist, such as that of Airinov, which has put in place Agridrone, a network of local operators, consisting of farmers looking to operate an additional business. They run flights over their farms in order to identify agronomic problems, using eBee drones supplied by Parrot, which has invested EUR 1.6 million in the company. They can also work for other clients in the region. Once the flights have been completed, the operator sends the data to Airinov, which processes and interprets the data, after which it sends the customers the maps and recommendations.

The new eco-phyto

plan is maintaining its goal of halving pesticide use

Plot analysis of a field by drone.

DRONES

PRISME - 09

Satellite competition and costs are hampering the market's growth

Drones are in open competition with satellites, which currently represent the primary source of data used in decision-making tools and the models used in precision farming.

For the operator, a drone together with a kit suitable for agricultural needs, including equipment, sensor and flight planning software, requires an investment in the region of EUR 28,000.

For users, satellites offer a more attractive economic profile. According to Farmstar, satellite services allow you to generate a gain to the tune of EUR 25 per ha for an annual service subscription outlay of around EUR 15 per ha.

Imaging obtained with a drone costs around EUR 45-80 per ha per year (piloting, image capturing, interpretation). The cost is set to fall in the next few years as the number of suppliers increases. Airinov has announced a rapeseed fertiliser recommendation service based on two drone flyovers, for EUR 15 per ha plus EUR 1 for the modulation maps; in this regard, the service must be accurately defined in order to judge performance.

The cost of using a drone is particularly justifiable for certain types of crops that require particular inter-row precision, such as market gardens, beet cultivation and high value-added crops such as grapevines (especially grands crus). According to Benoit Solan of Arvalis, the cost remains prohibitive for grains.

A hybrid method is a possibility, with data from drones used in conjunction with satellite data. The recent collaboration between Airbus DS/Arvalis and manufacturer Delta Drone with a view to supplying the Farmstar Expert solution, is a shining example and could provide images at lower cost.

A promising but immature industryThe French sector is developing and business models are becoming more refined, thanks in particular to the introduction of one of the world's first regulatory frameworks. The presence of competent players relying on cutting-edge agricultural research also represents a significant asset for the development of drone-based agricultural applications.

However, if a promising outlook is to mature into an economically viable market, changes must be made:

firstly, the positioning of drones in the entire information flow that feeds precision farming, in order to exploit the potential of collaborative working with satellite data;

Then, the structuring of the sector, from the manufacturer down to agronomic recommendation consultants, while strengthening integration, which would reduce costs and develop innovation in the development of new applications.

All this highlights the importance of data in agriculture: how it is produced, how it is stored and used, who implements it and who controls it. We will cover this in greater detail in a future edition.

Drones are in open

competition with satellites,

which currently constitute the

primary source of data.

Elsewhere in the worldDrones have long been used for spraying in Japan and the USA, where the regulations on phytosanitary product dosages are considerably less stringent than in Europe and in France.

The Japanese authorities have been confronted with the two-fold problem of the ageing of the rice farming population and the growing isolation of farming plots amidst new real estate developments, limiting the traditional use of helicopters for phytosanitary treatment. The demand for a more precise solution and easy implementation resulted in Yamaha's Rmax series drones, available since the late 1990s. The combination of a 246cm3 petrol engine and a main rotor more than 3 meters long means the craft can load more than 30kg for treating the soil, and even a fertilizer spreading boom. But the main interest of the device is the integration of a miniaturised control system for easy steering. Nearly 2,500 of these are in service, mainly in Japan, Australia and New Zealand.

In the aerial spraying sector, new outlets are also expected following tests in the Napa Valley vineyards in the USA, as drones can cover up to 5 ha/hour, instead of 0.5 ha/hour by tractor.

Economic bulletin - July 2015PRISME - 09

Publication director: Franois MOURYEditor: Isabelle JOB-BAZILLEDrafters: Brigitte Helaine, Nol Isorni, Chum-Kau Ly, Catherine Mollire, Claudine Rousseau, Vronique Vigner

This publication reflects the opinion of Crdit Agricole S.A. on the date of its publication, unless stated otherwise (external contributors). This opinion is subject to change at any time without prior notice. It is provided for information purposes only. Neither the information nor the analyses expressed herein shall in any case constitute an offer of sale or a commercial solicitation and shall not give rise to any liability on the part of Crdit Agricole S.A., or of any of its subsidiaries, or of a Regional Bank. Crdit Agricole S.A. does not warrant the accuracy or completeness of these opinions nor of the sources of information upon which they have were based, although such sources of information are considered reliable. Neither Crdit Agricole S.A. nor any of its subsidiaries or a Regional Bank shall therefore be held liable for any disclosure or use of the information contained in this publication. Production: Art6 - Photos: 123rf / Goodshoot.

DRONES

Agriculture and Agri-food economic bulletin - July 2015PRISME - 09

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KeyGrainsFocus: oliseed and protein cropsFocus: wheatDrones