Upstream Ag Insights - January 29th 2023

Essential news and analysis for agribusiness leaders

Jan 29

Welcome to the 153rd Edition of Upstream Ag Insights!

Index for the week:

2022 Global Food & Agribusiness Annual M&A Review
Greeneye Technology Precision Spraying System and FBN® Announce Strategic Collaboration: FBN to Invest in Greeneye and Partner as a Sales Channel
NuWay-K&H Cooperative Invests in Greeneye Technology System to Offer Precision Spraying for Members
Global Farmer Insights 2022 from McKinsey
Farmer Panel: Climate-Smart Program Rewards Must Outweigh Risks To Earn Grower Participation
A Conversation with Maarten Elferin, CEO of Vosbor
Netflix and 10x Talent
Other Ag Articles

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1. 2022 Global Food & Agribusiness Annual M&A Review - Verdant Partners

Once again, the Verdant Partners have curated an excellent summary of the 2022 M&A activity across the entire agribusiness landscape. From agtech, to seed, to biologicals and global activity in agriculture there is insight no matter your area of interest.

As a part of the Verdant advisory group, I contributed commentary to the publication surrounding ag retail M&A from Canada to Brazil.

2. Greeneye Technology Precision Spraying System and FBN® Announce Strategic Collaboration: FBN to Invest in Greeneye and Partner as a Sales Channel - Globe Newswire

Greeneye Technology, the pioneer of AI precision ag spraying technology, and Farmers Business Network (FBN®), the global AgTech platform and farmer-to-farmer network, today announced they have entered into a long-term strategic collaboration agreement to help farmers reduce weed control costs and drive profitability by combining Greeneye’s retrofit precision spraying systems and FBN’s Precision Spraying Packs–customized crop protection and nutrition plans which FBN is developing for use specifically with the Greeneye technology–and financing offerings. The program will launch first in the U.S for the 2024 growing season.

News of FBN collaborating and identifying a new product offering to take to the market is not surprising. They have shown since their founding in 2014 that they are not going to stick to norms when it comes to building their business. Couple this with the fact that FBN announced a strategic collaboration with Solinftec and their smart spraying autonomous robot last summer and it makes a lot of sense for FBN to pursue a novel service and product selling approach.

Greeneye is a smart spraying after-market product for sprayers. For more on Greeneye, I highlighted them in July of 2022.

Two years ago was the first time I meaningfully touched on smart spraying. In See and Spray Technology Implications for Agribusiness I suggested all input agribusinesses should be identifying novel ways to differentiate for a future market where smart spraying is the default. Through that lens, this is a great initiative from FBN.

How FBN is positioned as an integrated, direct to farmer company (for a breakdown on this see this February 2022 edition of Upstream) makes this offering interesting too. In the implications to agribusiness article I highlight the potential for previously too expensive of herbicide products on a field wide application to be used to manage resistance or tough to kill weeds in a smart spraying setting. For a traditional herbicide manufacturer this can still be tough to justify in the initial stages of smart sprayer adoption as they are far removed from from the data and practical use cases. But with FBN being integrated from the farm gate to the active ingredient sourcing, it theoretically gives them the insight and agility to be able to identify active ingredients that are a fit to bring out. This is a potential win for FBN.

In one of the most popular Upstream articles of 2022, John Deere to Crop Input Companies: “Your Margin is My Opportunity”, I discussed margins and “choke points”:

In 2002 Joel Spolsky identified and began highlighting the pattern of companies commoditizing their complement. Companies would seek to own a “choke point” in the value chain where they were a necessity and they could commoditize the layers above or below them in the value chain.

Note: For brevity I will not re-write or copy and paste the entire “Your Margin is My Opportunity” article, but to fully understand the concept give it a read.

In the article I illustrated the fact that smart spraying technology commoditizes the herbicide, leading to the point of differentiation not occurring at the herbicide, but at the equipment application layer which leads to more value accruing to the equipment company with the differentiated smart spraying hardware/software.

The only way under these circumstances for the herbicide company, or FBN, to dodge this risk to volumes and margins in the herbicide segment is to re-bundle their offering.

There is a famous line from Jim Barksdale, co-founder of Netscape, who on his way out from an investor meeting one time said that “there’s only two ways to make money – bundling and unbundling”.

I hit on this subject in The Bundling and Unbundling in Ag Retail. FBN has taken their integrated offering and identified a novel bundle that starts with the FBN Acre Packs (for clarity, this is FBN’s branded way to say “crop plan”). What’s notable within their Greeneye offering is that there is a required “pack” purchasing for two years according to their website (along with a requirement to run trials):

two residual herbicides (one pre-plant, one post-plant)
one non selective herbicide (eg: glyphosate)
one biological
two adjuvants
either an insecticide or fungicide

The bundling makes sense for FBN’s business, but the farmer then limits their optionality to purchase products elsewhere for the following two seasons. How this will be perceived by farmers will be interesting. FBN has been adamant about not using rebates in their business and being transparent about pricing. While this isn’t a rebate, and it is transparent (they up front state the requirements), it comes from the same realm of business tactics:

a bundled program with the aim of accessing a greater share of the farmers annual input expenditure.

This bundled effort is unlikely to be purely for direct monetization efforts either. Given the bundling of product types along with the requirement to do trials and experiments, FBN and Greeneye are working to leverage the smart spraying asset and sensors on the equipment to identify and train the technology for future use cases beyond weeds. Think about nutrient deficiencies, disease etc.

While my above commentary paints the opportunity in a generally positive light, there is no doubt that it won’t be easy.

What is maybe the most notable aspect here is that Greeneye seems to be putting the bulk of their eggs in the FBN basket. From The Daily Scoop coverage of the announcement (emphasis mine):

Greeneye says its market is to farmers and ag retailers. The first systems will be sold via the FBN partnership will be for 2024 application season. And Nadav Bocher, Co-founder and CEO of Greeneye Technology, says he plans on FBN being the primary go-to-market channel for machines in just a few years.

I incorrectly assumed that Greeneye’s natural route to market would be through AGCO dealerships (AGCO invested in them in Greeneye in 2021). Going through FBN as the primary route makes for an interesting install and maintenance/service approach. This isn’t impossible to manage, but has challenges initially when Greeneye doesn’t have product use density in a specific location (eg: where do I hire and put staff?).

Overall, a compelling offerings from FBN and Greeneye. The ramp up won’t be rapid, but by 2025 it sounds like Greeneye has it’s eye on hundreds of their units in the US via FBN.

But FBN isn’t the only input seller to announce a relationship with Greeneye recently:

3. NuWay-K&H Cooperative Invests in Greeneye Technology System to Offer Precision Spraying for Members - Crop Life

NuWay-K&H Cooperative has announced a major extension to its agtech offering following the purchase of a Greeneye Technology precision spraying system. NuWay-K&H will use the Greeneye system to offer selective spraying-as-a-service initially to its farmer members in Southern Minnesota and Northern Iowa, enabling them to significantly reduce herbicide use, increase the efficacy of their weed management programs, improve crop yields, and support sustainability initiatives.

Focusing on offering a “selective spraying-as-a-service” is the natural opportunity for traditional retails. Even though it’s a natural starting point, it doesn’t make it an easy decision to evolve to for traditional retailers so kudos to Nuway for identifying the right in and moving forward with it.

This in my mind naturally goes back to my comments surrounding Nutrien and Deere last week where I was extrapolating the potential of smart spraying in conjunction with their integration efforts.

What does smart spraying service look like at the retail level?

An integration between Deere Ops Centre and Nutrien’s Digital Hubs means potentially a more seamless experience for the farmer in purchasing a smart spraying service, ability to access the recommendation as well as opportunity to decrease uncertainty after the spray (eg: deliver maps and product sprayed by area in field) that might be in the back of any farmers mind in leveraging a new technology.

For all of these organizations, from Greeneye to Deere, going to the source of one of the most natural points of objection (the retailer) and delivering value to them is a smart way to consider the entire agriculture ecosystem to enable the most seamless route to adoption.

In one of my favourite business books (and maybe one of the most under rated) “The Wide Lens” by Ron Adner there is a concept introduced called “adoption chain risk” with any innovation.

In the chapter of the book on adoption chain risk Adner starts it out with the following:
”A range of intermediaries stand between you and your end customer: the distributor who needs to agree to bring your product to market, the retailer who needs to agree to show-case it, and the salesperson who needs to agree to sell it. Your success depends on each of these partners adopting your innovation and seeing the value it will create for them. If any one of these partners if not on board, you will never be able to reach your end customer. When does the best product lose? When the customer doesn’t have a chance to choose it.”

With groups like Greeneye and (at least I assume based on my interpretation of the Nutrien announcement) Deere engaging the retailer, they can begin to mitigate the risk of the end customer (farmer) never getting the chance to “choose” their innovation.

Note: In my opinion, The Wide Lens is required reading for anyone interested in the industry.

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4. Global Farmer Insights 2022 - McKinsey

In 2022 McKinsey did a global farmer survey and from this survey they highlight five areas of interest regarding farmers:

Willingness to innovate despite macro uncertainty. 70% of farmers expect profits to remain stable or increase. Many intend to try new products to capture the current high crop price opportunity.
Strong preference for omnichannel experience globally, with digital commerce adoption varying by region. ~50% of surveyed farmers have already experienced online purchases; preference for repurchase can allow for cost reductions & penetration increases.
Growing traction of digital financing and payments. ~60% of farmers globally still use cash, but 30% already use digital payments – China leading adoption globally; South America is expected to grow significantly in this area.
AgTech growth to come from beyond farm management systems. North America and Europe lead in new technologies, Brazil in biological products; next wave of tech penetration may come from South America and Europe.
White space in the adoption of holistic sustainability practices. Global adoption of sustainable practices is still <50%. Brazil is ahead, followed by Europe; only 5% of farmers participate in carbon programs with Canada having the highest participation.

Nothing stood out as surprising to me. What is most interesting is the variability of adoption of different practices and technologies across the globe.

5. Farmer Panel: Climate-Smart Program Rewards Must Outweigh Risks To Earn Grower Participation - AgWeb

I am cherry picking some commentary from this article that doesn’t really address what the title is. I will say before getting into that part, the article itself does a good job shedding light on the challenges of some of the echo chambers we get built up in the industry at conferences with people who do not understand the short term challenges of farmers implementing systems based changes to their operation in search of carbon credits. There is value in having farmers contextualize the situation for those without the direct farm knowledge.

What I wanted to highlight was how much validity the large organizations like Corteva and Syngenta talking about the biostimulant space piques the interest of farmers and the rest of the input industry:

Barley said he’s encouraged that biologicals have a strong future in agriculture. He noted a number of large crop-protection companies are developing such products.

I have talked about the validity these organizations bring to the often wild west of the biological market. We can see from the McKinsey survey linked earlier, there is a lot of interest in the space, however, there is also still a lot of room to grow:

Source: McKinsey 2022 Global Farmer Insights Survey

Even though Corteva and Syngenta bring legitimacy, it is notable, specifically in instance of say Corteva and their acquisition of Stoller to more meaningfully enter into the biostimulant space is that if you look at the core Stoller products line-up today, many of their active ingredients and products are the same as when I entered the industry over a decade ago. The products themselves and companies like Stoller have been legitimately adding value to the industry for a while, but the mind share and influence the big four have on farmers and the industry is significant and delivers confidence in an area that has lacked it.

What else is notable is that if you look at Corteva highlighting the margin profile of Stoller, they highlight the larger margin structure than their current profile (25% operating margins vs. about 17% in the greater Corteva business). It makes sense for Corteva to position at least in part this way.

But news this week interests me and where these margins could go at the manufacturer and retail level depending on how other organizations participate in the space.

For example, this week ADM launched a biostimulant.

This is good for ADM. And one can argue reinforces that another big company is on the biostimulant train.

But what is ADM?

Technically they are a lot of things, but when it comes to their fertilizer business they are a commodity business. They sell straight fertilizer products without the people and infrastructure to best position when and where to derive the most value from biostimulant products. To be clear, that’s not inherently bad. Farmers can get good advice from independent agronomists or university professionals etc. It just signals that when farmers purchase these products directly from ADM price becomes the main driving factor.

If we think about it commoditization occurs when the latest innovations lose their luster, are undifferentiated and become a part of expected offerings. The result of this process is dropping prices and a rise in competition among those who provide the service or goods.

I am probably getting ahead of myself because as you can see above, there is still a large opportunity to even get farmers familiar with what a biostimulant is in North America. However, in a market that is difficult to understand, hard to differentiate and

This is where how companies approach their marketing and positioning becomes incredibly important - not just for getting adoption, but to ensure there isn’t a rapid commoditization in this space. I talk about how companies can approach this in The Sauce Paradox, The Funnel of Specificity and Dominant Logic.

It lends itself to the more rapid integration of biostimulants into other products as a key to minimize this potential commoditization: co-formulations/packages with crop protection products, seeds with biostimulants pre-applied and targeted nutrient + biostimulant combinations.

As legitimacy of a product segment rises, the need to differentiate becomes even more important. The race to do so is on.

6. A Conversation with Maarten Elferin, CEO of Vosbor - Commodity Conversations

I have been openly critical of marketplace companies in agriculture.

I have also been incredibly interested in companies that bring novel business models in the industry.

Vosbor is an interesting company in that it is a marketplace with a novel business model, which piques my interest:

Will you charge a transaction fee on trades?
No. We want to build liquidity quickly. If we charged transaction fees, we would become a digital broker, which is not our goal.
So, how will you make money?
When liquidity builds, we will automatically generate price benchmarks for the physical markets in grains and oilseeds. These benchmarks will be valuable for traders and anyone interested in agriculture, from farmers to financial investors. More specifically, they will enable us to build swaps and synthetic derivatives for, say, Black Sea wheat or Brazilian soybeans. The CME has tried to launch these products but failed to create strong liquidity.
Once we have launched derivatives, we must match bids, offers, and counterparties and collect margins. We are already building the infrastructure for this. When we take on this active role as an exchange, we will start charging commissions on these derivative trades — in the same way that futures exchanges do, but at lower rates!

I get out of my depths really fast in the world of commodity trading. So I can’t comment with any sort of confidence on the exact validity of this approach, but it is different than other marketplaces in the industry. There are also notable names involved, including the ex-CEO’s of Glencore Agriculture and Bunge.

Non Ag Article

7. Netflix and 10x Talent - Trung Phan

If you aren’t familiar with the Netflix culture deck, this is a worthwhile read. Even if you are, the author highlights some of the most interesting areas.

How Netflix thinks about performance, culture and challenges in their business is fascinating and something everyone can learn from.