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Vegetation Control: Profitable Investment

Agricultural complex has always been one of the most significant propelling forces of the Ukrainian economy. Agriculture provides for 8% of total GDP, covering about 71% of the territory and 17% of working population employment. Meanwhile, in comparison with their foreign peers, the performance indicators of domestic agrarian companies demonstrate disproportion in operating results. Thus, if we scrutinize developing countries with agricultural specialization, Ukraine will demonstrate the highest rate of territory used for crop production (0.71 hectares per citizen) with a relatively small contribution to the GDP (-3−8% to the other countries level).

This correlation is reflected in the grain crop yield, which ranks Ukraine far behind the majority of leading grain-producing countries. Extensive management methods have led to the degradation of the black soil and thus – to the increase in expenses required per unit of cultivated area, fertilizers in particular.

It is impossible to improve  productivity performance in Ukraine without a substantial growth in mineral fertilizers use. However, global (reduction of the discrepancy between demand and production capacity) and domestic (deficit of phosphate fertilizers, potash fertilizer production standstill, increasing natural gas price) factors lead to constant rise in fertilizers prices for Ukrainian farmers and as a result lead to the profitable investments.

In addition, it should be noted that prices for agricultural machinery, fuel and pesticides have significantly increased. Even despite the fact that crop prices in 2011 have risen on average by 15%, the increase in prices for machinery and other accompanying expenses was more substantial.

The human capital costs have changed in a similar manner: the average nominal wage of an agricultural worker has increased by 25.9%during the last year. Still the Ukrainian agriculture industry employs +5-10% more population as compared to the European countries, while every employee produces 2-5x times less quantity of the added value.

In 2011 the expenses for fertilizers, POL and wages constituted almost 40% of crop production cost, thus during only one year the price jump caused spending spree by 15% and even more for specific crops. Let alone the cost of spare parts and materials for the repair of machinery and buildings (+0.3% in the total cost structure) and the rising costs for seed grain. In other words, such a scenario allows to catch up with the price increase tendency, but arouses the necessity to renovate obsolete production capacities, agriculture machines fleet, which also become less affordable, especially in terms of “price-quality” ratio. For example, some items from leading international equipment producers which are available in Ukraine have raised in price by 10% and even more in comparison with the analogue machines from the CIS.

Thus the problem is to find internal sources of production cost reduction to compensate the cost increase, which is beyond the agricultural holding control (fuel and metal prices, fertilizers deficiency, etc.). Global agricultural products prices do not depend on production cost in Ukraine, so it is the agrarian’s business to reduce it by cultivation cost-cutting. For this reason, developed countries opt for the use of precision agriculture system based on computer analysis of remote crops sensing data (RSD). Some Ukrainian farms already use such agricultural technologies as geologic information systems (GIS) and global positioning system (GPS). But in such a limited format these technologies are rather used to control equipment fleet maintenance, fuel input rationality and adequate farm maps creation. In the course of our cooperation with the agricultural companies management, we have discovered that a maximum allowable innovation is considered to be the purchase of expensive foreign equipment, its GPS monitoring installation and the creation of interactive maps of soils of rather satisfying quality. But precision agriculture implies exactly the efficient usage of every single asset. Even a large fleet of tractors can not effectively cultivate the fields without additional instructions on problem areas, non-rational heavy fertilization can be harmful and interactive maps do not allow to understand the current field condition in a real-time mode. It proves to be a real problem for the large farms as they simply fail to control the vegetation on their fields, and thus to identify in time the causes of low crop yield in different regions.

The main condition for the high-efficient GPS and GIS deployment is close cooperation with the system of constant remote vegetation control of field crops. Altogether, this forms the organizational strategic units . This scheme enables to attract fewer workers to control vegetation, field works planning and maintenance of communication between individual units and subunits of agro-enterprises. The vegetation control system performs constant monitoring of agro-enterprises soils irrespective of the distance among the fields and of the crops planted. Upon the abnormal “spot” appearance on the field, the person in charge receives a message and the agronomist makes appropriate decisions regarding fertilization, irrigation or other cultivation arrangements. We have to admit that other methods of soil monitoring (driving around the fields, installation of special observing equipment on certain areas, taking soil pieces for laboratory analysis, etc.) are less informative but consume more time and funds. In addition, each of the observations is far more difficult to organize and to hold than to download all required current and historical data (with its automatic interpretation) from any computer connected to the Internet.

As the conducted research have revealed, the cost of the each service on average starts from $1.5 a year per hectare, depending on the total farm area the system maintains. At the same time, this service allows to save $3-5/ha and to make profit from efficiency performance increment (e.g. for winter wheat) starting from $13/ha. In other words, every invested dollar gives an opportunity to earn 18 times more by reducing costs and increasing the efficiency of crops cultivation. For instance, if 10 largest domestic agricultural holdings have a land domain of more than 150,000 ha each, the application of RSD satellite analysis will bring a profit measured in tens of millions US dollars.

Nowadays, only a few domestic companies in Ukraine render services of crop vegetation control. However this derives from a low demand due to conservatism of the most agrarians, their general aversion to high technologies and short period of presence of such services in the domestic market. On the other hand, internal trends in the agricultural sector indicate that the next steps of the businessmen in agricultural field will become optimization of assets and search for sources to improve their operation efficiency.

Source: IEASSA (http://ieassa.org/en/vegetation-control-profitable-investment/)

Vegetation Control: Profitable Investment обновлено: December 9, 2013 автором: admin

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