• Digitalisation of the agrifood sector: what does Twitter tell us?

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    Technology is advancing at a frenetic pace and offers the agrifood chain a large number of opportunities to make its production more efficient and sustainable. Moreover, the arrival of COVID-19 has shown that the most digitalised companies were able to continue their activities more readily than the rest. In this article we examine the degree of popularity of the different digital technologies used in the primary sector and agrifood industry based on a text analysis of over 2 million tweets on Twitter. All these technologies are essential to create a connected ecosystem that will make up the Food Chain 4.0 of the future.

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    The unexpected arrival of the pandemic has shown that the most digitalised companies were more prepared to adapt to the new situation and were able to continue to operate much more smoothly than the rest. There is no doubt that, in this new environment, the digital transformation of companies is now unavoidable in order to boost their competitiveness.

    Big data, robotics, the internet of things and blockchain are just some examples of the new digital technologies gradually being adapted by firms, particularly in the agrifood sector. Technology is advancing at a frenetic pace and is offering the agrifood chain a large number of opportunities to produce more efficiently and sustainably. However, statistical information on the degree to which such technologies have been taken up, and the most comprehensive official statistical source1, does not provide information on the primary sector. Below we present a novel analysis of the «popularity»  of new digital technologies in the agrifood sector based on data from Twitter.

    • 1. Survey on the use of information and communication technologies (ICT) and e-commerce in companies, compiled by the National Statistics Institute.
    Twitter as a source of information to detect future trends

    Data from Twitter can be extremely valuable in detecting new trends as it allows us to analyse the popularity of certain terms according to how frequently they appear in tweets. However, it is true that «talking about something» is not the same as successfully implementing the various digital technologies in a company's recurring operations. For this reason the results presented below should be interpreted simply as an indication of new trends that may be taking root in agrifood companies.

    Data from Twitter allow us to analyse how popular the different digital technologies

    are in the agrifood sector according to how often they are mentioned in tweets.

    For this study, data was processed from over 24 million tweets sent by individual users and digital media during the period 2017-2019. Among these, 2 million corresponded to the agrifood sector. Using natural language processing techniques, the tweets were categorised according to mentions of different digital technologies and to the business sector.2 The key to obtaining relevant data from social media is to first define «seed» words or phrases to identify texts corresponding to each of the business sectors, as well as «seed» words or phrases related to the different digital technologies of interest.3 Using a machine-learning algorithm, other words and phrases related to the concept in question that were not initially included were also identified, thus broadening the spectrum of texts analysed. At this stage, it is important to carefully screen for polysemous words (i.e. those that have more than one meaning, such as the word «reserva» in Spanish, which can be used to refer to a hotel booking as well as an aged wine).

    • 2. This analysis was carried out in collaboration with Citibeats, a company specialising in unstructured natural language processing.
    • 3. For example, the «seed» woods and phrases used to identify big data were: analytics, arquitectura de sistemas (system architecture), data mining, database, inteligencia empresarial (business intelligence), Python and SQL, among others (as well as the term big data per se).
    What is the degree of digitalisation of the agrifood sector according to Twitter?

    To assess the agrifood sector's degree of digitalisation according to data from Twitter, we first need to know how common tweets about digitalisation are in other business sectors. The most digitalised industry according to our analysis is the information and communication technologies (ICT) sector: 3.2% of the sector's tweets contain terms related to digitalisation, a result that is not surprising given the very nature of the industry. Next comes finance and insurance with 2.7% of the tweets.

    This percentage is obviously lower in the primary sector at 0.6% but it is similar to the 0.7% for professional, scientific and technical activities. In the case of the agrifood industry, the percentage of tweets on digitalisation is only 0.3%, very close to the basic manufacturing sector (which includes the textile, wood, paper and graphic arts industries), with the lowest percentage among the sectors analysed, 0.2%.

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    Which digital technologies are most popular in the agrifood sector according to Twitter?

    The wealth of data obtained from Twitter allow us to identify the most popular digital tools in each business sector according to how frequently they are mentioned in the tweets examined. According to our analysis, a large proportion of the primary sector's tweets about digitalisation tend to include issues related to big data (45% of all tweets about digitalisation). One clear example of the application of big data in the sector can be found in «precision agriculture» techniques which require large amounts of data to be analysed to optimise decisions and thereby increase production and, in turn, ensure sustainability. These techniques are used, for instance, to calculate the irrigation requirements of crops by taking into account climatic conditions (sunlight, wind, temperature and relative humidity) and crop characteristics (species, state of development, planting density, etc.). To carry out this calculation, real-time updated meteorological data, a large computing capacity and fast data transmission speeds are all required for an automatic irrigation system to be properly adjusted. This technology helps to use water more efficiently, a highly relevant aspect in areas with a Mediterranean climate that are extremely vulnerable to climate change and where water is in short supply.

    Big data, the internet of things and robotics are the most popular technologies in the primary sector,

    indispensable for advancing the application of precision agriculture techniques and smart automated farming.

    Other popular technologies in the primary sector are the internet of things (16% of tweets) and robotics, including drones (10% of tweets). The new digital technologies promise to revolutionise the field of agriculture and stockbreeding by the middle of this century, the same as the mechanisation of farming in the xxi century. Agricultural Machinery 4.0 (which is closer to the robots in science fiction films than to the tractors we are used to seeing on all farms in the country) helps to increase productivity whilst also improving working conditions in the field. This trend towards more automated agricultural tasks has become stronger in the wake of the coronavirus pandemic, as the difficulty in recruiting seasonal workers due to international mobility restrictions has led to increased interest in robotics and agricultural automation. In fact, companies that manufacture robots for agriculture have seen a sharp increase in orders, such as robots that pick strawberries while removing mould with ultraviolet light.14 

    The use of drones warrants particular attention as this has grown exponentially in recent years and applications are increasingly widespread: from the early detection of pests and the aerial inspection of large areas of crops to locating wild boar with heat-sensitive cameras to prevent the spread of African swine fever to domestic pigs.5

    • 4. See Financial Times Agritech «Farm robots given Covid-19 boost», 30 August 2020.
    • 5. See http://www.catedragrobank.udl.cat/es/actualidad/drones-contra-jabalies

    The popularity of various digital technologies in the agrifood sector

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    Blockchain is the technology that stands out most in the food sector (30% of the total number of tweets on the sector's digitalisation) and this comes as no surprise as it has many different applications for the food and beverage industry. Producing a chain of unalterable, reliable records, blockchain makes it possible to guarantee the complete traceability of products throughout all the links in the food chain. Simply scanning a QR code provides access to all the data regarding the origin, production method, veterinary treatments received, ingredients used, etc. A large number of agrifood companies are already experimenting with blockchain as it offers clear benefits in terms of transparency regarding origin, product quality and food safety, aspects that are increasingly valued by consumers. Blockchain technology is also being used to limit food waste, another essential challenge for the sector.

    Blockchain enables the digital verification of food products,

    making them traceable throughout the links in the food chain.

    Compared with other sectors, which tools are particularly significant for the agrifood industry?

    There are some digital technologies that are not very popular across all economic sectors, perhaps because they have a more limited or specific range of application. These are technologies that, despite having a low percentage of tweets in absolute terms according to our study, may be relatively popular for a particular sector compared with the rest.

    To detect such cases, we have calculated a new metric, namely a concentration index which takes into account the relative popularity of technologies in a sector compared with the rest of the sectors.6 By using this methodology, we have found that the primary sector continues to stand out in terms of big data. Specifically, the primary sector concentrates 9.2% of the total number of tweets mentioning big data made by all sectors, a much larger proportion than the 3.1% share of primary sector tweets out of the total number of tweets analysed (as can be seen in the following table, in this case the concentration index is 3). We have also determined that the sector is particularly interested in the internet of things, as already mentioned, but have discovered that nanotechnology is also a relatively popular technology in the primary sector. In other words, although only 3.8% of the tweets in the primary sector deal with nanotechnology, this percentage is high compared with the 1.7% share of nanotechnology tweets out of the total (in other words, this technology is not very popular in general across all sectors but is slightly more popular in the primary sector than the others). This find is not surprising since genetic engineering is one of the fields in which technology has advanced most in order to boost crop yields. For example, by optimising the yield of vines it is possible to develop plants that are much more resistant to extreme weather conditions and pests.

    • 6. The concentration index is calculated as the ratio between (1) the percentage of tweets related to a particular technology and sector out of the total tweets for this technology, and (2) the percentage of tweets by a sector out of the total tweets of all sectors. Values above 1 indicate the technology is relatively more popular in that sector.

    Concentration index for tweets related to each technology in comparison with the other sectors

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    Finally, virtual and augmented reality is also a relatively popular technology in
    the agrifood industry.
    Specifically, the agrifood industry concentrates 6.2% of the total virtual and augmented reality tweets made by all sectors, a percentage that more than doubles the 2.5% share of primary sector tweets out of the total number of tweets analysed (the concentration index is equal to 2.5 in this case). This technology uses virtual environments (virtual reality) or incorporates virtual elements into reality (augmented reality) that provide additional knowledge and data that can be used to optimise processes. At first it may be surprising that this technology is relatively popular in the agrifood industry but its uses are spreading as the industry implements digital technologies in its production processes, in the so-called Industry 4.0. One specific example of how this technology is used is in repairing breakdowns. When a fault occurs, operators can use augmented reality goggles to follow the steps contained in virtual instruction manuals that are projected onto the lens to help resolve the incident. The glasses recognise the different parts of the machine and visually indicate to operators where they should act to solve the specific problem.

    There are numerous examples of new digital technologies being applied in the agrifood sector. We are witnessing a revolution that is destined to transform the different links in the food chain: from the exploitation of data and the use of drones to make harvesting more efficient to implementing blockchain technology to improve the traceability of the final products that reach our homes. In short, the future will bring us the Food Chain 4.0, a totally connected ecosystem from the field to the table.

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The e-monetary policy of the new digital economy

Digital technologies permeate the debate on the future of the economy. Monetary policy and its main vehicle, money, are no exception. More and more products are sold over the internet and cash is used less and less. This new digital economy creates new demands on the financial sector and digital money emerges as a new means of payment that appeals to consumers. How does all this affect monetary policy? What can central banks do (and what are they doing) about it?

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Private digital money, monetary policy and financial stability: constraints and risks

In simple terms, digital money is the «digital» representation of physical forms of fiat money (such as a 1-dollar bill or a 2-euro coin).1 But its extensive integration into our «digital lives» (think of a Facebook or Instagram profile), its low transaction costs and network effects (companies that are considering launching digital money, such as Facebook, have a huge user base) make it attractive for consumers and businesses.2

However, users of digital money issued by private issuers face four major sources of risk:

1. Liquidity: for example, if each unit of a cryptocurrency is backed by a set of assets denominated in euros, will the issuer have the capacity to sell these assets and convert the cryptocurrency into euros, for those users who wish to do so, even at times of high demand or financial stress?

2. Default: if the private issuer fails, what happens to the cryptocurrencies held by the users?

3. Value: let us imagine that the assets which back the cryptocurrency (for example, sovereign bonds denominated in euros) suddenly lose value. De facto, the issuer will have issued more digital money than it would owe (given the new value of the assets that back its supply). As a result, it could be forced to «devalue» the cryptocurrency (exchanging it for fewer euros than what it had initially established), which could lead to losses for its users.

4. Market power: the nature of money leads to network effects (the more players there are using a currency, the more attractive it is as a means of payment), which can lead to a natural monopoly: one currency to «rule» all exchanges. Thus, in the absence of adequate regulation, the issuer could set entry barriers and extract incomes from the users of its cryptocurrency.

These individual risks for the user also lead to other risks affecting society as a whole. In particular, from the point of view of economic policies, these include the following two risks:

1. Loss of control over monetary policy: if a cryptocurrency issued by a private issuer prevails over the central bank’s currency, it would erode the central bank’s ability to influence the supply of money and interest rates that really affect consumers, savers and investors in the economy. Some examples:

  • «e-dollarisation» of the economy: this substitution would be similar to that suffered by some economies in which the US dollar, rather than the local currency, is the main means of exchange due to the population’s lack of confidence in their institutions. In the same way that the financial conditions of these economies move to the sound of the US Federal Reserve, in a world of digital money the financial conditions would be influenced by the private issuer of cryptocurrencies.
  • Procyclicality (a risk associated with stablecoins): most stablecoins, such as Libra, would be backed by a selection of currencies and low-risk assets (such as US or German sovereign bonds). Thus, in an expansive phase of the economy, players in the economy would demand more stablecoins, resulting in an increase in purchases of the assets that back them. According to some authors,3 this would apply downward pressure on their interest rates, which in turn could provide feedback for the expansionary phase and hinder the implementation of the desired monetary policy.

2. Financial stability risks:

  • Source of systemic risk: if a private cryptocurrency were to dominate a significant portion of transactions, a potential failure or weakness of the issuer would affect the entire international payments system.
  • Disruption in the banking system: digital money offers an alternative to bank deposits for households and companies to store their savings. Therefore, widespread use of digital money would oblige the traditional banking sector to compete for deposits and to seek alternative sources of funding (no doubt, less stable). This could increase the cost of credit and encourage greater risk taking.
  • 1. In this article, when we talk about «digital money» we do not include deposits and bank accounts.
  • 2. See T. Adrian (2019). «Stablecoins, central bank digital currencies, and cross-border payments: a new look at the international monetary system», speech at the IMF-Swiss National Bank Conference. Furthermore, in countries with fragile institutional systems, it is common for the population to have greater confidence in multinational companies supplying digital money than in their own institutions.
  • 3. See M. Pettis (2019). «Facebook’s Libra: Does the World Need Frictionless Money?». Carnegie Endowment for International Peace.
What can central banks do?
    Ilustración de George Washington con gafas de sol con el símbolo de bitcoin.

    Central banks will play a key role in defining the new macrofinancial environment: which digital money is adopted and the extent to which it affects the financial system as we know it.

    In the past, central banks ended up monopolising the issuance of banknotes and, to date, have guaranteed a single and secure payments system that is accessible to the entire population. Therefore, a natural alternative to private cryptocurrencies is the central bank issuing its own digital currency.

    Broadly speaking, a central bank digital currency (CBDC) could involve the central bank opening up current accounts directly to households and businesses: for the consumer, this would be similar to the current system of bank deposits and transfers, with the difference that their current account would be held in the central bank.

    While this might seem a natural step, this option would require the central bank to play an abnormally active role: attracting customers, checking their personal details and interacting with them, developing technology, etc. These are tasks in which a central bank lacks experience and which could also put their reputation at risk.

    For this reason, some proposals for a synthetic CBDC have emerged:4

    The central bank would develop an infrastructure for the CBDC into which private issuers of digital money (which could include traditional financial institutions) would incorporate their payment methods:

    • By allowing access to multiple issuers, this would ensure competition in the market.
    • To ensure the security of the currency and maintain control over the monetary supply, the central bank should require issuers to back 100% of their currency with reserves in the central bank.5
    • This would make the most of the competitive advantages of both the private sector (e.g. customer management and innovation) and the central bank (supervision and regulation, reputation and trust).

    A CBDC would offer a direct channel for the transmission of monetary policy:

    • As an example, if the central bank saw fit, it could issue a digital currency to pay interest costs and adjust such payments as part of its monetary policy.
    • In addition, a CBDC that replaces cash entirely would allow the central bank to cut interest rates to more negative levels than what is feasible today.

    However, a CBDC would also entail risks at the macrofinancial level:

    • Deposit flight: as in the case of a private digital currency, the CBDC offers an alternative to bank deposits. In periods of stress, the CBDC could be perceived as being safer, because although it would not necessarily be safeguarded by something like a deposit guarantee fund, it would be backed by reserves deposited in the central bank. This could encourage the outflow of deposits from commercial banks towards issuers of CBDCs and, therefore, indirectly towards the central bank.6
    • International coordination: digitisation removes physical barriers, thereby making it easier for a user to choose the CBDC that suits them the best, regardless of jurisdiction. In other words, it creates greater competition between CBDCs and, therefore, requires greater international coordination on monetary policy.
    • 4. See T. Adrian (2019). «From Stablecoins to Central Bank Digital Currencies». IMF Blog.
    • 5. With a reserve coefficient of 100%, these providers would not grant credit: they would be limited to processing payments.
    • 6. In this scenario, the central bank could stabilise the system by injecting liquidity into commercial banks (injections that would be balanced by the increase in reserves that the central bank would receive due to deposit flight).
    Central bank initiatives

    Faced with the current reduction in the use of physical currency and the emergence of private initiatives that could entail different risks, some central banks have already assessed the possibility of issuing digital money:7

    • Sweden: the central bank of Sweden (Riksbank) was among the first to study the possibility of issuing its own digital currency, following the collapse in the use of cash (it is common to find businesses that do not accept it). It has made considerable progress in the e-krona project and has presented it to the Swedish parliament, which must decide on the need for the central bank to «mint» a CBDC. The Riksbank has not yet decided on its design (whether users could open an account in the central bank itself or a version closer to a synthetic CBDC).
    • Uruguay: in 2017 the Central Bank of Uruguay launched its digital currency (e-peso) in a six-month pilot test which limited the number of e-pesos that could be issued. The e-peso had the characteristics of a synthetic CBDC, but only a private issuer could access the platform. For this reason, there was no competition between different issuers, with all the benefits in terms of innovation that this would generate. Nevertheless, the conclusions that the central bank drew from the project were relatively positive.8

    As these examples illustrate, central banks have begun to explore the possibilities that digital technologies offer for money and, therefore, for monetary policy. The emergence of private proposals like Facebook’s Libra highlights the importance for central banks to uphold their historic commitment to the proper functioning of the payments system.

    • 7. The ECB and the Fed have not submitted their own proposals, although their various officials recognise the potential of the technologies related to digital money and highlight the importance to monitoring their development.
    • 8. M. Bergara and J. Ponce (2018). 7. Central Bank Digital Currency: The Uruguayan e-peso case, in «Do We Need Central Bank Digital Currency?» n° 82.
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