Innovation requires courage from entrepreneurs and banks

The agricultural sector is under great social pressure in terms of animal welfare and the environment. Innovative machines, digital applications or process improvements offer important solutions to respond to this pressure.

There is no shortage of creative inventions, according to the annual presentation of the Agribusiness Award van Boerenbusiness, and the alternative revenue model Product-as-a-Service also lowers the threshold to deploy these innovative solutions.

A weeding robot, electric haulm killing or the Cowtoilet. The Agribusiness Award traditionally focuses on innovative solutions that take the sector a step further. The nominees lead the way with innovative solutions that make a proven contribution to arable farmers or livestock farmers. Some of these innovations are already widely used, others come from still young companies that want to further refine their invention and sometimes use a new revenue model.

Andela Technology & Innovation was the proud winner of last November's Agribusiness Award. The company developed a weeding robot that recognizes and removes weeds using artificial intelligence. This is a solution for organic arable farmers who still do a lot of manual work and responds to the social call to use less crop protection products. Nominee Nufarm offers an alternative to chemical haulm killing in potato cultivation: electrical haulm killing. It Piglet Treatment System, also with a nomination, can track and register an animal at an individual level, which improves reporting on animal welfare, health and vaccinations given.

Last year's presentation was mainly devoted to innovations that offer a solution to the nitrogen problem, such as the well-known Lely Sphere. Then Hanskamp Cow toilet and the JOZ Gazoo, a nitrogen cracker. in Ovoc – another last year's nominee – has a machine that quickly screens eggs to determine the sex of chicks early and thus prevent the culling of newborn roosters, about 6,5 billion eggs worldwide per year. In addition, In Ovo's revenue model is also innovative.

Innovations important for the agricultural sector
Innovative power is important for the sustainability and competitiveness of the sector. The government also thinks this. In 2020, the Ministry of Agriculture, Nature and Food Quality (LNV) indicated that it is at least 10% of agricultural companies want to see innovations. The government stimulates an innovative agricultural sector with the help of subsidies, among other things. According to Wageningen University, the share of agricultural companies with innovations is increasing, but according to the latest measurement in 2020, the government's target number has not yet been achieved. So something still needs to be done.

A reason for agricultural entrepreneurs not yet to invest in new machines or housing systems may be the high investment costs. With newly developed machines there is an additional risk that they may malfunction or that extensive and relatively expensive specialist maintenance is required.

A new machine and a new revenue model
To ensure that the farmer or market gardener does not have high investment costs and at the same time receives support for technical improvements and maintenance, it can be useful for the producer to use a different revenue model. For example, with Product-as-a-Service (PaaS), the machine remains the property of the producer and the user – the dairy farmer, arable farmer or hatchery – can use the machine for a relatively low and periodic fee. The subscription then also includes service, maintenance and possibly other services.

Customers can pay for their PaaS product in various ways. This can be done, for example, for a fixed amount per month or a payment per time the product is used. PaaS constructions are used in many different sectors. For example, more and more machine builders derive part of their turnover from providing services to industry or construction. ABN AMRO wrote a step-by-step plan for entrepreneurs who want to offer their machines or products in this way. In Ovo also uses such a Product-as-a-Service revenue model. They ask the hatcheries where they test the eggs with their machines, a fee per test. The machine can then be used with a low threshold and In Ovo remains responsible for the management and maintenance of the machine.

Lower entry threshold
A PaaS proposition lowers the entry barrier for customers, but manufacturers must take firm steps before they can get started with such a revenue model. After all, providing services means that the manufacturer of the machine has to deal with higher operational costs. The incoming data must be analysed, maintenance must be carried out regularly and investments must be made in the ICT infrastructure. In order to be able to do this profitably, not only good personnel is needed, but a certain scale must also be achieved. This can be done by thinking as much as possible in the design phase about how the condition of the installed machines and products can be read, monitored and diagnosed remotely. Remote maintenance via video calls and the use of holo lenses or other virtual reality technology (VR) also ensure scalability.

An additional advantage of Product-as-a-Service is that the products or machines last longer, because maintenance takes place more actively and producers benefit financially from making recycling possible. In this way, this Product-as-a-Service model can promote the circular economy.

Other revenue models require other forms of financing
A different revenue model also means a different way of financing. It is generally difficult for banks to finance such new revenue models. For example, in a 'PaaS company' the revenue comes in gradually, while the financing must take place in advance. Moreover, the capital position of a PaaS company differs from a company that has had a linear revenue model for years, because products are owned and therefore remain on the balance sheet. Moreover, banks often look at proven past success in order to make better forecasts for the future. A startup, especially if it has an alternative revenue model, is often more difficult to finance as a result.

Nevertheless, the financing with the startup In Ovo succeeded. This was because the quality of the management and the contracts concluded with hatcheries were closely monitored. Furthermore, a lot of time has been invested in a good understanding of the revenue model, the technology and the specific problem to be solved, in the case of In Ovo, the prevention of the killing of roosters. With the help of ABN Amro's PaaS expert, the financing was eventually established by means of a 'vendor lease'. In the coming year, In Ovo will be expanding the team considerably and the company will become internationally active, among other things in converting the entire Swiss poultry sector to laying hens without broilers.