EEP101:Challenges and opportunities

David ZilbermanZilber@are.berkeley.eduUniversity of California

Berkeley

Overview• Major challenges

– Energy– China and india

• Opportunities– New IT– Biotech

• Lessons of adoption in ag• Implication

Energy income growth and increased demand

• The good new- income world wide is growing

• The bad news- so is demand for energy

• Current unutilized capacity of oil are at less than 5 percent

• One million barrel reduction in production of oil generates immense pressure and raises prices

• Should the upper price gasoline be $3,$3.50 or what?

Fuel choices -from bad to worsetype Positive Negative

Oil cheap Non renewable

dirty

Gas Clean Non renewable

Nuclear No climate change

Dangerous

Non renewable

Wind Cheap clean Birds, location

Solar Clean renewable Need development

Biofuel renewable Needs land

Hydro Cheap renewable Fish, investment

Hydrogen clean Need R&D

AustraliaAUS 5,974. CanadaCAN 7,999.5FranceFRA 4,458.6GermanyDEU 4,263.5GreeceGRC 2,622. JapanJPN 4,091.5Korea, RepKOR 4,131.8KuwaitKWT 6,956.NorwayNOR 5,920.6PortugalPRT 2,465.1SingaporeSGP 7,103.0SwedenSWE 5,762.3.United KingdomGBR 3,993.8United StatesUSA 7,920

Energy and Resources — Energy Consumption : Consumption per capitaUnits: Kilograms of oil equivalent (kgoe) per person per year

FactorsIncomePopulation densityFuel price

AngolaAGO 662.1BangladeshBGD 144.9EthiopiaETH 284.9GeorgiaGEO 461.9HaitiHTI 257.4IndiaIND 514.3IndonesiaIDN 710.5YemenYEM 190.9ZambiaZMB 607.7ZimbabweZWE 774.

Energy and Resources — Energy Consumption : Consumption per capitaUnits: Kilograms of oil equivalent (kgoe) per person per year

1979 1984 1989 1994 1999 2004 2009 2014

0

20

40

60

80

100

120

China

World

China’s pork production

300

350

400

450

500

550

600

650

2000 2010 2030 2050

100 Million Metric Tons

Available Water ResourcesWater Demand, Best CaseWater Demand, Worst Case

China water situation

-120

-100

-80

-60

-40

-20

0

20

40

60

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004

Million Metric Tons

China from exporter to importer of petroleum

New Waves of Information Technology

• Communication—Internet, video• Enhanced computing• Remote sensing/ Geopositioning• Networks—Web• Wireless• Miniaturization—Micro and Nano

Expanding Capabilities: Meeting Latent Demand

Identification and Tracing:in regulation and marketing

• Who did it ? Identification of source of pollution, etc. Transition from non-source to source-point pollution control policies.

• Who made it ? Identity preservation and product differentiation. Value capture in retailing and biotechnology.

Differentiation: Discriminatory Treatment in

Production• Transition from uniform treatment of

heterogeneous elements within the system to a precision system, where heterogeneity and variability are recognized and treated over space and time.

• Enhancement of productivity by– Improving quality– Increasing yield– Reduced cost

Aggregation: Creating Markets

• Building a critical mass for differentiated products.

• Match-making• Resale• Cooperative buying and selling• Enhanced price discovery

E-marketing is in its infancy and worth $150 billion annually.

Overcoming Barriers of Space and Time:

in production management

• Video conferencing• Remote monitoring and treatment

of living system applications in– Veterinary medicine– Pet control– Wildlife management– Water resource systems

Elements of Agricultural and Environmental IT Packages• Package: Multicomponent

• Requires multidisciplinary cooperation in– Information science– Natural science– Decision science– Engineering

Monitoring Diagnosis Prescription Application

Determinants of Technology Specification

1. Technological feasibility2. Cost3. Demand

• High quality premium --> investment in sophisticated quality control system

• Low value of saved inputs / minimal gain in output --> reduces incentives for precision

You can guess the use, impact, and value of a new technology ahead of time …

but you cannot know it.

Research on adoption aims to understand

Who adopts and when

How to market new technologies

How policies affect adoption

On the Adoption and Impact of Information Technologies in

Agriculture, Resources, and the Environment

Adoption-Dynamics Process:S-Shaped Function of Time

Adoption within Diverse Populations

• Early adopters have most to gain from technology, tend to be younger and more educated.

• Adoption is triggered by crises, higher prices, or regulation.

• Credit constrains adoption.

Lessons of Low-Volume Irrigation:

Drip, Microsprinkler

• Diffused very slowly over 20 years, currently covers less than 10% of farmland.

• High adoption rates on high-value crops, fruits, and vegetables, and in landscaping.

Gardeners are farmers too.

• Spurts of adoption following droughts.• Adoption is higher in locations with high prices of

water, sandy soil, and steep land—locations where the technology is most profitable.

• Drainage problems trigger adoption.

Lessons of CIMIS• Benefits in the early 1990s were estimated to be

15 times the cost.• Agricultural water savings, 10 to 40%; • Yield effect, up to 10%.• Led to adoption of advanced management. • Unintended major uses were also in

– Urban water use– Pest control– Legal procedures

• Spawned a private network of weather stations with software management strategies.

Computers in Agriculture

• Slow adoption rates: only 25% in 1990, today close to 75%.

• Early adopter characteristics: – larger, with multicrop integrated operations– younger, more educated,

• Adoption enhanced recently by: – Lower cost, user friendliness – network externalities– “fun factors”

• Most adopters used word processing, billing, and business applications; much less use of managerial application.

Technology leaders• Small number of leaders push frontier

– DRIP,Computers,varieties,crops– Innovation is tough– Mostly in high value crops

• Automation – Saves labor,chemical water– Increase quality– Reduce risks-physical financial

• Cheap inputs reduce incentives to innovation• Regulations enhance adoption-• Timing matters

Agricultural Practices in the Information Era

• Software and remote sensing ease compliance to pesticide-use registration requirements.

• Electronic water markets.• Web and e-purchasing of inputs.• Cooperative electronic purchasing.• Electronic consulting.• E-marketing of flowers and other high-value

output.• And that’s only the beginning.

Precision farming potential in irrigation of cotton

Water price

Output price water Yield Profit

less water

Extra yield

Extra profits

40 0.7 4.82 1186 638 0.85 179 159

40 0.9 5.08 1224 899 1.01 141 314

60 0.7 4.36 1105 512 0.39 260 428

60 0.9 4.65 1159 764 0.68 206 449

40 0.7 5.01 1232 662 0.89 185 313

40 0.9 5.28 1271 933 1.16 146 326

60 0.7 4.53 1147 531 0.33 270 444

60 0.9 4.83 1203 793 0.71 214 466

40 0.7 5.56 1369 736 0.96 206 346

Realizing the potential requires perfect information & application

Factors affecting gains from precision

• Ability to monitor the variables that count• Correct reading of information- 5%

misdiagnosis may lead to losses• Timeliness• Effective and diverse response options-

e.g.heterogeneous field conditions may benefit from diverse genetic choices (Biotech and Precision may go hand in hand)

• Ability to replace or reduce polluting inputs

Gains from qualityPrice ofpeaches

Midseason Time

Low quality

High quality

Quality measured by sugar content flavor and size can triple prices. Seasonality matters

$.30

$1.00

Willingness to pay for green and clean

• >10% of consumers will pay >25% for pesticides free crops

• Prime markets(Japan) reward minimal chemical and biological manipulation of foods

• Yard care industry grosses > $40 Billion annually nation wide

• Golf courses gross > $6 Billions in California annually• Stigma effect of contamination reduce price of a unit

of housing by >$50K • During next decades

– Several Billions are planned to be spent animal waste

– Tens of Billions on water quality

Complementarity of IT and new Biotechnologies

• New biology will increase varietal choice

• Need capacity for changing variety and treatment within fields

• Need documentation of treatment,state of plants and immediate response to changes

GMO, Separation and tracability

• Consumers discriminate between products and desire purity

• Need to separate different varieties- in particular GMO/Non GMO

• GMO increases costs of traditional varieties -worry about separation

• Gain from Gmo need to be bigger than cost of extra treatment

• Some Gmo products may be less desirable- others, fortified food, more desirable- producers will look for differentiation

Putting it together• IT and biotech will provide opportunity to

– Increase productivity to allow bio fuel– Conservation of resource

• If we double or double or triple farm productivity - we can use part of our land to grow fuel

• If we reduce energy consumption in US and developing world by 50-70% we can accommodate increase demand elsewhere

Policies and incentives

• Aggressive R&D

• Incentive for conservation

• $2 fuel tax on non renewable

• Reasonable regulation ( replace fear with reason)

• Awareness - small is beautiful

Product differentiation and tracability

• Separation is not sufficient- you need to know who made it to assign liability

• Tracability is needed to address concerns about food borne diseases

• It is crucial for supply chain management-– Following products throughout the chain– Paying producers for what they actually produced-

rather an average price

• It is crucial for environmental friendly high quality agriculture

• It requires new application of It for food and ag systems

Think Locally act Globally• Ag and environmental IT will provide export

opportunities- most ag and resource problems are outside the US

• With or without Kyoto CO2 emission reduction and sequestration will be rewarded- monitoring will be required

• Transition from water extraction to improve water efficiency- source of new global demand

• Development increases demand for environmental amenities- It will allow to provide them cheaply