07 November 2019
Big data and automation are proving to be new cash cows for China’s dairy farmers.
One of the biological challenges of industrial dairy farming is that a typical cow’s three-week estrous cycle includes only a narrow two-day window during which she can be successfully fertilised and impregnated - a precondition for producing milk.
Farmers traditionally rely on their own judgement and experience to determine when this window arrives, but this leaves ample margin for error. And missing the so-called estrus window can be costly, resulting in an estimated $250 of foregone milk production per cow.
Enter the era of cloud-connected bovines, or ‘smartcows’. A new wearable tracking device developed by Huawei can boost the accuracy rate for identifying a cow’s conception window to 95 per cent according to the company, up from 68 per cent previously. Based on average milk prices this translates into estimated increased revenues of more than $60,000 for every 1,000 cows under assessment, a significant financial boon to large-scale dairy operations. Hundreds of thousands of these devices have already been sold in China. The devices can also help diagnose illnesses and assist in planning feedings and treatments.
Data is the key driver
The potential market for connecting farm animals to the cloud infrastructure is massive. In addition to China’s 15 million dairy cows, technologies like these are gaining traction in other countries around the Asia-Pacific and Latin America regions, and can be applied to other animals like horses, sheep and pigs. Together, they are just one example of the China-made innovations we are seeing in the current fourth wave of automation.
Simply put, automation means creating technology to perform tasks that were previously carried out by humans or animals. In the past few centuries, the use of automation grew by leaps and bounds, but this came in several distinct waves. The first was the industrial revolution in the 18th century, and its key inputs included steam power and coal. Then came the second wave, powered by electricity. The third wave came in the second half of the 20th century, with the digital revolution driven by advances in silicon semiconductor technology.
Now we are arriving at the fourth wave, featuring autonomous machines, big data/analytics, and the Internet of Things. In this wave, the key driver is data.
In the previous waves of automation, China lagged the US and Europe. This time, China has a good chance to lead the way, because it has lots of data and the means to leverage it.
Specifically, China is at the leading edge of 5G development globally, and market penetration is likely to proceed faster than what we saw with 4G. Besides the clear economic benefits, other likely drivers for the expeditious rollout of 5G include national pride and a push to embrace homegrown technologies, lack of data capacity on the existing 4G network, and the rising incomes and expectations of China’s more than 1 billion mobile account subscribers.
An emerging hotbed for automation and robotics
In addition to the expanding data network, China’s demographic trends will underpin the long-term growth in automation and robotics. In the last 20 years, the average annual salary in China rose eightfold to RMB 80,000 as of 2018 (or about $11,300 at current exchange rates). Meanwhile, the working age population is projected to fall from 800 million to 720 million between 2017 and 2025, a pace of about 10 million per year. That’s why despite factory jobs moving to Southeast Asian countries like Vietnam, wages in China have steadily increased. China needs more machines to replace the dwindling worker population.
And there is ample scope for long-term growth in manufacturing automation, judging from the low levels of industry penetration. China has fewer robots per human industrial worker than South Korea, Japan, the US and Germany, but it builds as many industrial robots as those four countries combined. The cost of adding a robot to a production line is falling every year, and many factories now have more robots than human workers on the assembly lines.
For example, I recently visited a carmaker that has a mobile order-taking app where buyers can customize cars to their liking, with over 10,000 choices that feed automatically into the production line. The company is working to move this functionality upstream, so that their parts suppliers would know which parts to build and adjust in real time. Eventually, orders would be routed through a blockchain system, so that every participant can extract their profit with ease and transparency. Other exciting developments we’ve seen in China include breakthroughs in technology related to self-driving cars, and even the advent of autonomous drones that can carry people through the air.
From cloud-connected livestock to factories of the future, Chinese companies are developing an impressive array of products for the next wave of automation, helped along by big data sourced from the 5G network. Considering still-low penetration rates, demographic factors, government incentives, and other drivers, we think China is primed to lead the world in automation developments over the next five to ten years.
This document is for Investment Professionals only and should not be relied on by private investors.
This document is provided for information purposes only and is intended only for the person or entity to which it is sent. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This document does not constitute a distribution, an offer or solicitation to engage the investment management services of Fidelity, or an offer to buy or sell or the solicitation of any offer to buy or sell any securities in any jurisdiction or country where such distribution or offer is not authorised or would be contrary to local laws or regulations. Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. The research and analysis used in this documentation is gathered by Fidelity for its use as an investment manager and may have already been acted upon for its own purposes. This material was created by Fidelity International.
Past performance is not a reliable indicator of future results.
This document may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organization that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice based on individual circumstances.
Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German Institutional clients issued by FIL (Luxembourg) S.A., 2a, rue Albert Borschette BP 2174 L-1021 Luxembourg.
In Hong Kong, this document is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, Independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road., Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C Customer Service Number: 0800-00-9911#2 .
Issued in Australia by Fidelity Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). This material has not been prepared specifically for Australian investors and may contain information which is not prepared in accordance with Australian law.