ROI and Accuracy in the Horti-Tech Industry

This article is jointly written by Dr. Saber Miresmailli and Gavin Schneider

There is an old story about a handyman hired to fix an engine in a factory.?

The engine was critical to the factory’s output, and when it broke, nobody on site knew how to fix it. Production came to a halt until they got a hold of the handyman who installed it. He came to inspect it, hummed, and hawed for a moment before tapping it with his hammer three times. All of a sudden the machine worked like new again.?

The foreman was thrilled and asked the handyman how much the repair would cost. He was taken aback when the handyman explained his fee was $10,000. “How could that be?” he exclaims, “You only tapped the machine with your hammer three times. It took less than a minute!”

“Yes,” the handyman explained, “the tap was worth $1, and knowing where to tap was worth $9,999”.

While this is just a story, it sheds light on how we as growers should be viewing the ROI of insight and actionable intelligence. It’s often difficult to assign an actual monetary value to something as intangible as knowledge.

What is the ROI of getting a cancer diagnosis months in advance? What’s the ROI on the convenience provided by a smartphone? What’s the ROI on knowledge as a whole?

In the greenhouse industry, much of what we do has a tangible ROI. For example, you can pay for X amount of fertilizer, and expect to get Y amount of yield out of it. However, more innovative technology often doesn’t work with such a simple input/output equation.

Instead of growers seeing knowledge-generating technology as something that will directly increase profit, it should be a tool you can use to increase profits yourself. The variable here is how willing you are to trust this technology, and what it is trying to tell you.?

With many new technologies, growers act like the foreman of the plant from the parable. However, in this scenario, while the installation of the technology is worth $1, the potential knowledge to be gained is worth $9,999.?

Just because something doesn’t outright increase the value of your business overnight, this doesn’t mean it won’t become invaluable to your operation over time.?

Another mistake growers make is expecting technology to be 100% accurate, or in other words, perfect. What I would like to put forth is that perfection is impossible to achieve and that we should never sacrifice the opportunity to do something better, because it is not “perfect”.

Trust the process, and understand that genuine improvement and innovation takes both time and effort on behalf of the innovator.?

While I’d like to encourage growers not to focus entirely on ROI when implementing new technology, there does come a point where you should begin calculating the monetary return a solution has given you. However, to do this effectively it’s crucial you keep all those intangible factors in mind. Therefore, we will also be covering how to calculate ROI on new technology while not losing sight of the big picture.?

Knowledge + Human Action = Results

Knowledge in and of itself is useless without the desire to implement it.

A grower could implement a new technology that gives them countless data points about details in their greenhouse, but if they do not choose to use that data to their advantage, it is meaningless.

If this is the case, problems will go unaddressed and the grower will assume they are not getting a positive ROI on that technology. However, if the grower trusts the technology to tell them where to hit the hammer, so to speak, the ROI could potentially be massive.?

A grower could assume that a major problem in their greenhouse is pest infestation, and spend thousands of dollars on pest control measures. But what if the actual issue is humidity? What’s the ROI of having that knowledge?

Not only could the grower save money on pest control, but they could also increase their productivity by adjusting their humidity levels. While it’s not a simple input/output equation, having this knowledge has a clear positive impact on the operation as a whole, especially over multiple growing seasons.?

For whatever reason, I’ve noticed some growers are hesitant to trust the data provided by innovative technology and act on what the data is telling them. This hesitation makes it difficult to have widespread adoption because there is less empirical data to support the value of the knowledge.

Knowledge in horticulture, unfortunately, is only relevant in a relatively short time. Growers need to act quickly with data provided to them for it to have a maximum impact.?

If you only learn of a problem once it’s already wreaked havoc in your greenhouse, there may be no action strong enough to counteract it. However, if you know of a problem well before it becomes catastrophic, you have the opportunity to stay ahead of the curve.?

What I would like to get across, is that knowledge about a problem in and of itself is virtually worthless. But what you can accomplish with that knowledge may be priceless.

Perfect is the Enemy of Better

Many of the innovations coming about in the Ag-Tech world revolve around monitoring and data collection. Unfortunately, many growers are making the mistake of rejecting these innovations because they do not provide “perfect” data.

What I would like to posit is that “perfection” is a construct and something that can never truly be achieved by any human. Not to get too religious, but if there is a perfect entity out there, it’s not us.

However, as humans, for thousands of years, we have constantly been deepening our understanding of how things work. When there is a major step forward, it is often met with uncertainty and doubt, which makes progress difficult.

Nothing in life is perfect or guaranteed. Nothing is 100% accurate either. Therefore, we shouldn’t avoid innovation just because it isn’t perfect, because nothing is.?

When you expect that perfection is a possibility, you are more likely to convince yourself that what you have is already perfect, instead of trying to continue pushing forward.?

With technology, because something has been good enough for so long, instilled habits can very easily create the illusion of perfection. People can very easily pass up on great innovation because it involves taking a risk.

Years ago, 45kg of tomatoes out of a square meter of plants was a record-breaking amount. Did we then assume our growing methods were perfect? No, instead we kept innovating and pushed to the point where we could grow more than 100kg per square meter. So now that we’ve doubled the previous record, should we assume our growing methods are perfect? Hell no.?

The fact that we can never achieve perfection means there is always room for improvement.

I challenge you to view new technology not as a perfect solution, but as something that could simply be better than what you had before. In making this simple shift in perspective, you may open yourself up to all kinds of innovation that you never would have found if you were seeking perfection.?

As an aside, think of the opportunities that arise when you engage with innovative technology when it is still in its deeply imperfect infancy. By doing so, you have the opportunity to work alongside the creators of the technology and work to shape it to your specific needs.?

If you instead reject it because it’s “not perfect”, the technology will continue to advance without your input, and may very well leave you behind.

Innovation requires experimentation, and although a new technology that’s rough around the edges may not provide you with an immediate ROI, within several years of development and tweaking, that innovation may just become your secret weapon.?

But if you must calculate the ROI, this is how you should do it

Although I don’t believe immediate ROI should be a grower's top priority when implementing new technology, investing in technology that has a long-term ROI gives greenhouse growers a financial advantage over their competitors. This will allow them to operate more efficiently and at a lower cost for years on end.?

For example, every modern greenhouse tomato grower has purchased an automated climate control system that adjusts temperature, light, and humidity levels in the greenhouse. By using this technology, the grower reduces the need for manual labor and improves crop yields, resulting in higher revenues. While this technology is ubiquitous today, at one point the value brought by automated climate control faced opposition simply because of the financial outlay required for the equipment.?

Today, no greenhouse questions the positive ROI that a climate computer provides. Leaders in the industry take the long-term view and invest in equipment that will have as big of an impact as a climate controller did twenty years ago.?

How Much Are New Opportunities Worth? Consider All the Intangibles

Getting a positive return on investment means making sure that the results of the technology are equal to or greater than the cost of buying it. However, you can’t always see ag-tech ROI in the form of a dollar value. Things get complicated when the ROI isn’t immediately visible in monetary terms.

When calculating horticultural technology ROI, companies need to consider not just the money they’re saving from a new investment but the non-tangible benefits too. New technology can bring substantial returns in other intangible ways.

For example, a software system might not make you money directly, but it may save you costs on things like employee productivity, efficiency, and team alignment.

For instance, if your employees save 20 hours a week in productivity because of a new digital monitoring system, you’re not just saving on the costs of employment. You can also think about the potential value added by the 20 hours that your employees can dedicate to other activities within the greenhouse.

To calculate the ROI of investing in such technology, the grower would need to consider the upfront costs of the technology, such as the purchase price and installation costs, as well as the costs they incur today associated with labor and crop inputs. The grower would also need to consider the potential benefits, such as increased yields and reduced input costs that technology enables.?

By comparing the costs and benefits, the grower can determine whether or not the investment is likely to be profitable in the long term.

Calculating the Return on Investment of Technology

The formula for ROI is typically written as

ROI = (Net Profit Gained From the Investment - Cost in Investment) / Cost of Investment) x 100

With net profit gained, it can be difficult to fully capture all the variables impacted in the greenhouse. Net gain may also be seen as the amount gained by replacing manual processes with automated processes.?

Here are some of the variables you should consider when doing this calculation for an IPM and Yield Forecasting Platform in your greenhouse:

Profit Gained from Input Reduction:?

• Pesticide input reduction ($/m2)
• Biological control agent reduction ($/m2/yr)
• Fertilizer reduction ($/m2/yr)

Profit Gained from Labour Reduction:

• Scouting efficiency increase ($/hr x hr/yr)
• Administrative time decrease ($/hr x hr/yr)
• Treatment application time decrease ($/hr x hr/yr)

Profit Gained from Increased Yield:?

• Yield Increase from Pesticide Reduction ($/kg/m2/yr)
• Yield Increase from Less Pest and Disease (kg/m2/yr)
• Yield Increase from Reduced Time to Action (kg/m2/yr)

Profit Gained from a Better Forecast:??

• If the actual harvest is greater than the forecast
• Revenue Increase = (Agreed Price × Forecast)+(Forecast -Harvest)×(Agreed price)/10
• If the actual harvest is less than the forecast
• Revenue = (Agreed Price × Harvest) - (penalty)

For each week the total profit increase from a better forecast can be totaled for a $ / year calculation.

Calculating the cost of investment should include all costs associated with the technology, deployment, and ongoing maintenance. Total the upfront installation costs and monthly service fees over the expected timeframe.?

As a simple example, let's assume that the technology of interest costs $40,000 per year and the grower expects to see a profit of $100,000 from an increase in yields and better forecast and a $100,000 reduction in labor and input costs as a result of using the product.?

Total costs for the technology in one year: $40,000

Total savings in labor and input costs in one year: $100,000

The total revenue increase from increased yield and a better forecast = $100,000

So the net profit for the year will be: $200,000 (Total revenue increase) - $40,000 (Total costs for software) = $160,000

Now, to calculate the return on investment, divide the net profit by the total investment and multiply by 100.

ROI = ($200,000 - $40,000) / $40,000) x 100

ROI = 400%

In this scenario, the tomato greenhouse grower can expect to see a 400% return on investment in one year by using the technology. It's important to note that this is a simplified example and in reality, the calculation will be more complex. Many of the variables at play are difficult to assign a clear monetary value to, so the grower will have to consider all the potential costs and benefits and use realistic values for their operation.

Overall, technology can be a powerful tool for commercial greenhouse growers looking to increase yields and reduce input costs. Because of all the factors at play, I don't believe an immediate ROI should be the driving factor behind implementing new technology. However, by keeping track of all the different variables at play, and using a calculation for the return on investment, growers can get a better idea of the value new technology is providing as a whole.

Don’t Obsess Over ROI, and Never Expect Perfection

The main takeaway I want you to have from this is that sometimes it’s easy to lose sight of the big picture when you get caught up in numbers.

This is not to say numbers don’t provide valuable insight, but they often don’t tell the whole story.

There does come a certain point where growers should begin seeking a positive ROI from the technology they’re investing in. Just keep in mind that there are many factors at play when determining this ROI, and when you factor in savings on labor, or the value of knowledge gained, the ROI may be higher than you expect. While ROI shouldn’t be the ultimate deciding factor behind trying new technology, it is a valuable metric for determining how well new technology is working.?

With this being said, just because a new technology doesn’t give you a huge ROI in the first year doesn’t mean it won’t in the next 5 to 10 years. Also, just because a monitoring tool isn’t 100% accurate doesn’t mean it’s not 50% more accurate than your current method.?

Have patience when taking risks, because all great innovations take time. And never seek perfection, because you’ll never achieve it. Don’t let this discourage you though, because this means improvements are always, always a possibility.?