How Much is Your Farm’s Intellectual Property Worth?
By Mike Preiner, 06.04.2015

Historically, debates about intellectual property (IP) on the farm have centered around the use and licensing of genetic traits, and the companies that own them.  New ag hardware and software tools have quickly expanded the concept the IP on a farm. Sensor technology, equipment-based data, and farm management software are creating a whole new class of agricultural IP: data and knowledge regarding the farm itself.

In other industries, this is nothing new.  Intellectual property, which typically includes trade secrets, custom processes, patents, and trademarks, has always been regarded as an intangible asset that adds real value to a business, even in industries that are considered commoditized. The value of IP can often be hard to measure, but it can be conceptually thought of as value above and beyond the “hard assets” of a business.  For example, if you sold your farm and the purchase price was simply the sum of the value of your hard assets (land, equipment, buildings, etc.), then clearly no value is being placed on the IP generated by the operation.  When I ask farmers about how they think of the value of their business, they almost always still think of it as the “sum of the parts,” with parts being something you can touch, feel, and see.

Figure 1 (2)
What is keeping farmers from doubling the value of their businesses through IP?  Building business value through IP requires an investment, and farms (even large, professional farms) have historically invested very little into the right tools that would help them develop, document, and share their IP.  Figure 2 below shows how much some comparable industries spend annually on IT, a good proxy for the tools that allow business managers to create and capture IP, as a fraction of their total revenue.  To put these numbers in perspective, spending 1.5% of revenue on IT for a farm growing commercial corn ($4/ bushel and 200 bu/acre) equates to spending $12 per acre – a number that would make most farmers laugh.

Figure 2 (2)

While some farms are investing in these areas, it is not yet the norm.  As more data continues to stream off the farm, those that can capture it, analyze it, and make these learnings proprietary will use their labor more productively, utilize their equipment more efficiently, and make more data-driven decisions (a topic at the heart of Danny Klinefelter’s Principles for Effective Farms).  A robust IT system has the potential to directly increase profit via lower input costs, lower borrowing costs, and higher revenue from more effective crop marketing plans, building real value in a business in an increasingly competitive industry.

 

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