Upstream Ag Insights - Aug 2nd

Essential news and analysis for agribusiness leaders for the week of August 2nd, 2020

Hi everyone,

I want to do a better job enabling navigation of the weekly newsletter, so I have added an index.

Below is the topic in order of appearance.

This week includes:

  • AgTech Investment Trends

  • Vive Technology Investment

  • BASF H1 Results

  • Microsoft and DTN Announcement

  • Product Strategy Article (my favourite)

  • How John Deere Got Good at AI

  • AgRetail and COVID-19 + Ag Retail Omnichannel Experiences

  • Biostimulants and Biopesticide Overview (most in depth portion)

  • Farmers and Data Usage

  • Brazillian Farmers and Digital Ag

  • Tech CEO’s Go on Defense

  • Other Ag Articles and Non Ag Resource of the Week

    I hope everyone has a great week!

Agrifood Investment Trends in the COVID-19 Era - Pitchbook

Agtech investment totaled $2.2 billion for the first two quarters of 2020; in contrast, our 2019 Report with PitchBook Data noted $2.7 billion was raised in 2019 FY and represented the highest year of funding on record.

Anecdotes from regular meetings with fellow venture capital firms (including Bayer Leaps, DCVC, Evolv, S2G, Lewis & Clark, Innovation Endeavors, Pontifax Agtech, TPG Circularis among others) indicate that syndicates with dry powder have moved quickly to extend the runway for their portfolio companies with bridge funding or round extensions intended to push drywell (or cash-positive) dates out to the end of 2021 and beyond. 

Valuations tend to be “sticky” so it will likely require a year or more for the true impact of COVID-19 to manifest in this metric. That said, we can see a clear delineation by stage impact. While pre-money valuations in early-stage investments across agrifood have decreased, valuations for late-stage financings have remained strong despite the current pandemic.

Late stage funding was huge in the first half of 2020 for agtech.

Worth noting:

  • ~38% of the funding was for the top two deals: Indigo’s $500M Series F and Manus Bio’s $340M.

  • The top 10 deals accounted for 70% of the total dollars of investment in H12020.

  • Deal count remained relatively flat on a quarter basis compared to the last few years.

  • Crop protection and input management was the biggest category in terms of dollar value of deals.

This move towards later stage funding is a trend we have seen in the space for the last few years (from 2019 Finistere Report):

This makes sense as there is start-ups that VC’s are continuing to invest in in the later rounds and the later stages tend to have increased dollars.

Agtech companies are likely to face a turbulent outlook for 2021. With farming margins already under pressure prior to the pandemic, the availability, cost and health of labor, trade conflicts and consumer/voter pressure for sustainability gains all pose meaningful headwinds. The venture investment consequence is likely to be that startups in this space are under a double imperative: to prove their return on investment to farmers and their agronomists that they are essential and will help drive better on-farm profit, while also showing they can scale to profitability.

I think we will continue to see consolidation and partnerships in the space as organizations look to scale, return $$ to shareholders and look to build out a viable service for farmers.

Vive’s Nanotech-Powered Crop Inputs Land $5.4m Funding - AgFunder

I’ve been following Vive for a while now and they seem to have an interesting technology that’s relevant in the market place, whether for their own product line up or licensing out the technology to other players in the space.

We haven’t seen much for funding in the synthetic chemical space, but this technology has cross segment applicability - fertilizer, crop protection and biologicals:

Essentially, this takes existing chemical or bio-based inputs that farmers are already accustomed to, but delivers them in a new way using nano-scale technology.

We take the existing product and wrap it in these small polymer particles. When we do that, those particles now control how the active ingredient interacts with its environment and how it behaves when it’s on the farm

Their technology can breathe life into old active ingredients as well as be supportive of other trends in the space, such as biological use and nutrient use in combinations with one another or crop protection products.

This is beneficial for numerous reasons:

Better tank mixability - Ensuring a farmer has a good experience with a product in their spray tank, or in the future drone tank, is key to having uptake. Strong active ingredients that are tough to formulate have been dropped specifically for their formulation challenges in certain geographies. This can mean a potentially better fit for active ingredients that have been challenging before or it can mean enhancing the tank mixing experience with current products that aren’t strong in that area, decreasing gelling or antagonistic activity between products.

Better viability of biologicals - Enhancing the viability of a biological product in general from a longevity of life in formulation/packaging or increasing it’s ability to be tankmixed with synthetics is hugely beneficial to biological products.

Technology to create better tandem products - We have seen an increase in many geographies with tandem products as well as the increasing interest in tandem cross segment products, such as micronutrients packaged with herbicides.

There could be other benefits including increase plant penetration even with difficult environmental conditions, or higher efficacy even under good conditions. This has benefits when we start looking at formulations that may be in lower water volumes, such as through drones as well as can even help to better manage resistance. Delivering a higher percentage of the active ingredient to the target plants ensures adequate dosage and uptake by the weeds.

BASF H1 2020 Results - BASF

The Agricultural Solutions segment recorded a slight improvement in sales compared with the first half of 2019. This was due to higher volumes, especially in North and South America. By contrast, sales were dampened by negative currency effects, particularly in the region South America, Africa, Middle East. Prices were on a level with the prior-year period. We slightly increased EBIT before special items. This was mainly driven by higher sales and lower fixed costs.

Sales for agriculture were up a total of 3% globally, similar with what was reported from Syngenta last week.

Agriculture Weather Insights from DTN Now Available in Microsoft FarmBeats - DTN

DTN, a leading data, analytics and technology company, announced today that the company’s highly-accurate agriculture weather forecasts and data will be available through Microsoft’s Azure FarmBeats. Agribusinesses leveraging FarmBeats will be able to access real-time weather information from the DTN global weather network.

This is a strong partnership for Microsoft as it will also give them access to the real time weather information, but the data that is geospatially tagged and relevenant to building out their modelling and predictive capabilities. Weather drives a lot in agriculture and with hyper local weather information to support the other soil and crop information, this is a strong partnership for Microsoft and their FarmBeats platform.

Strategic R&D Management VIII: How the Biopesticide & SMART-TECH Industries Create a "Blue Ocean" of Uncontested Crop Protection Market Space (Part I) - LinkedIn

Harry Teicher continuously puts out exceptionally insightful content surrounding product and R&D strategy.

In the globally competitive world of crop protection, long-term survival is increasingly dependent on a shift from conservative product portfolios (“Settler” and “Migrators”) to strategically balanced portfolios which include “Pioneer” products.

  • "Settler" products comprise the mainstay of generic portfolios, and the term is used to describe generic or copied products, for which the main competitive driver is cost domination.

  • "Migrators" are products with value improvements, typically in the form of formulation developments, for which the main competitive driver is improved efficiency.

  • "Pioneers" are products providing value innovations, such as the integration of technical advancements or novel technologies.

I often talk about this from a retail perspective and I think this can apply to product manufacturing companies or retailers looking to differentiate themselves in the market place with a strategic partner.

This for retails could be looking at adapting something in the market place to your specific needs, such as building out a co-package of products that you know will sell and increases convenience and ease of use or it could be looking towards the future identifying what a customer in the geography will need or something that is ancillary to what they are doing now, such as adjuvants or biostimulants.

I think as e-commerce and digital initiatives in retail begin to ramp up organizations will need to continuously look at their product line up and adapt it accordingly. This is something we don’t hear talked about often in regards to digital, but it is a reality in terms of positioning and counter positioning through a new medium. It’s also consistent with the message I ephasize that digital and e-commerce does not happen in a silo, it needs to be considered within the context of the entire go-to-market strategy - and that includes product offerings and positioning.

In order to differentiate you need to play in a different world, metaphorically a blue ocean vs. a red ocean:

How John Deere Got Good at AI - Fierce Electronics

We’ve learned that in order to preserve the entrepreneurial spirit of a company that we acquire, we need to treat the company like an innovation hub and give the team the space to stay creative.

If you were to look back 10 or 15 years, our technical workforce consisted mainly of mechanical and electrical engineers. But we are slowly transitioning from being just a manufacturer of hard iron to embracing bits and pixels.

For more around John Deere’s evolution with data and technology check out this article:

How Data-Driven John Deere Wins the Market

How Ag Retailers Are Feeling the Effects of Covid-19 - CropLife

The survey’s organizations like CropLife and Farm Journal do are always interesting to look at. I tend to focus on the digital aspects, so here are two take aways relating to that:

  • Almost 60% of retailers in the survey stated that more of their customers had taken up digital communication initiatives. Worth considering is what will that percentage look like and

  • Only about 35% of surveyed retailers agreed that their customers increased usage of e-commerce options. A caveat to this for me is trying to understand what percentage of those questioned actually offered an e-commerce transaction option.

Why Omnichannel Experiences Beat Transactional eCommerce in Ag Retail - AgVend

A McKinsey study found that when in the early research stage, 45% of growers prefer a digital experience over interacting face-to-face or on the phone. Whether browsing alternative fungicide options or checking the price and availability of urea at midnight, many of your customers will utilize an online channel.

This quote to me gets at the core of having a digital portal for ag retailers.

I often think of not having a digital avenue, or a route to get there planned out, as the equivalent of a bank that doesn’t have online banking as a feature or an app to send e-transfers, pay off a credit card bill, or check how my portfolio did that day. No matter how good my relationship was with that bank the inconvenience of not having those friction-reducing and time enhancing services would have me looking elsewhere.

Retails always refer to themselves as value add and service based. The focus of what a service is just needs to expand. Offering these sorts of tools are services and they are value adding - they don’t add value in terms of physically scouting a field or physically delivering a product, but they deliver convenience, time efficiencies and peace of mind. These aren’t just beneficial in consumer market places, but in farming too.

Related: From The Front Lines: Alexander Reichert (AgVend)

Biostimulants Continue Their Meteoric Rise - Agribusiness Global

In 2019 the biostimulant market edged past the $2-billion mark, according to study from DunhamTrimmer, a leading market research firm in the biologicals space…. U.S./Canada at $370 million

Biostimulants are anticipated to grow at a double digit CAGR. Significantly more than any traditional crop input product.

I find lots of confusion in the market place about these products, so I’d like to throw together a fundamentals start with some more commentary later.

What is a biostimulant?

a substance or microorganism that, when applied to seeds, plants, or on the rhizosphere, stimulates natural processes to enhance or benefit nutrient uptake, nutrient use efficiency, tolerance to abiotic stress, or crop quality and yield.

The terms biostimulant, microbials, biologicals, biopesticide, biorational etc all get lumped together.

Lets briefly define them for clarity:

Biological - living and naturally occurring (so encompasses all of the space, including biostimulant and biopesticide)

Microbial - very small naturally occurring organism, like a fungi, bacteria etc

Biorational is an all encompassing, catch all terms, meaning biostimulants and biopesticides.

Biopesticide - pest management agents and chemicals derived from natural sources such as bacteria, fungi, viruses, plants, animals and minerals.

Generally speaking, a biostimulant enhances plant health or plant production capabilities, as stated above.

What falls under the biostimulant category?

I’ve shared this image before, but it’s worth sharing again to help illustrate:

Solutions Provided by Biological Products: Biostimulants ...

Just like specific groups of herbicides and fungicides have specialties in what diseases they are active on or what weeds they kill - biostimulants have strengths as well, and just like we began seeing different groups and mode of actions packaged together, we see and will continue to see MUCH more of this in the biostimulant space.

These technologies and products obviously align very closely with other initiatives and trends within the ag industry: reducing carbon footprint, soil health, sustainable production and a reduction of synthetic pesticide use (all of these are intertwined of course). On top of this we know crop protection products have done an exceptional job of reducing biotic stresses (yield reduction from insects, disease, weeds) but there is a significant opportunity in managing abiotic stresses; heat stress, cold stress, drought stress, saline stress etc:

Shane Thomas on Twitter: "Abiotic stress has been shown to drag ...

This is a 20 year old image. I haven’t been able to find a newer one over the last couple of years, but even if the last two decades were really successful in mitigating abiotic stresses, we could see that there would be opportunity to reduce them further. If you look at some of the world record holders in each crops plan for that year, you’ll notice that they do an exceptional job of mitigating abiotic stress - through practices, nutrition and specialized product applications like bio based inputs.

Additionally, those biotic losses are so low because of synthetic crop input products - if there is a demand to decrease synthetic pesticide use while continuing to progress yields, biologicals and specifically biopesticides will need to be used to keep yield loss due to biotic stresses low. I do think digital types of technology will drive this too - artificial intelligence and modelling layered in with imagery to decrease insecticide use, see and spray technology to manage weeds and much more.

And just like with biostimulants, there are different types of biopesticides:

Biopesticide

Source

The focus of major manufacturers in R&D, corporate VC and numerous start-ups has enabled much progress on these:

  • better understanding of mode of action

  • unique use cases

  • better survivability in transport, jugs etc

  • higher efficacy

  • formulation with other molecules or in conjunction with varying biologicals

  • more targeted application methods (seed applied vs. foliar vs. soil applied)

The reality is we will not see a mass shift to biological based products over night. It will be a transition where we see them used in conjunction with one another, slowly integrating biologicals in as complimentary to synthetics. This might be in tandem first with a 1-2 punch of synthetic, then biological to manage weeds then on to a conjunctive approach where both are used in the same tank.

Where we will see this shift the fastest is in the holy grail of biologicals: nitrogen fixation. This is where there has been the biggest investment. The global market itself is >$100billion USD for Nitrogen fertilizer. If this gets solved effectively and performs, there will be rapid uptake. Nitrogen costs tend to be the highest input costs for farmers.

The last time I touched on this space I stated:

This presents a significant opportunity for retailers, agronomists and other organizations: What sort of assets need to be assessed to better support the growth of these products? What technology could be used to distribute them to the farm customer? What type of training is necessary for industry professionals? There is ample opportunity to be ahead of the curve, or before the chasm is crossed so to speak.

With them being a $2B market globally (biostimulants specifically) and growing significantly faster than many other products in the ag input space it presents a unique North American opportunity for organizations.

Every major crop input manufacturer is playing in this space. From Bayer to BASF to Koch to Yara to Nutrien to Corteva and everyone in between through either direct R&D dollars, M&A, corporate VC, JV or strategic alliance. With many big name upstarts in it as well like Gingko Bioworks (Joyn Bio JV with Bayer), Pivot Bio, Indigo Ag and Sound Agriculture to name a few.

Survey Results on Biological Products - Agribusiness Global

58% of responding suppliers and distributors from 43 countries say they are integrating biological products into their portfolios, and another 21% are looking into carrying them, and 21% said they are not developing a biological strategy.

The survey respondents represent primarily crop protection manufacturers and formulators (55%), distributors and trading companies (27%), and plant health suppliers and distributors (17%). About 42% do not originate any molecules, and 30% do not formulate any products, indicating that trading companies and non-formulating distributors still represent a significant share of the industry.

Will we see consolidation in the biological space?

We are seeing biological organizations pop up like crazy, some with very little to differentiate themselves and no route to market, while others are launching and then looking for other product lines to build out on top, such as Sound Agriculture or Indigo Ag. We are also seeing organizations going under, like Agrinos. I think a space we will see more consolidation and acquisition in the short term is in the biological space. There is a lot to be said for pooling resources and managing regulatory costs in the space. On top of this, there is a lot of redundancies in the market place (two slightly different bacillus subtilis strains that have similar efficacy for example) and only so many acres and routes to market that will be viable.

To me this indicates there is an opportunity to consolidate where there is overlap, but even that are adjacent to one another, say one focusing on biostimulants and PGPR’s joining forces with one focusing on the bio pesticide space. There is also a steeper climb to market in the row crop space versus the higher value horticulture or veg space and many of these organizations could achieve more scale and viability across a number of different crops and products over time by consolidating.

It's Up To Farmers' Advisers To Bridge The Data Divide - AgPro

71%

This number shows the “slice” of farmers from the survey who said their primary ag adviser or consultant has never suggested increasing on-farm data collection, data sharing or both

62%

That’s the number of farmers surveyed who did not use farm-level data software in 2019.

These numbers are surprising to me.

I wish there was data to show the numbers over the last 3 years to hopefully show there is a trend going in the right direction.

When you start to look at agtech uptake being relatively slow these numbers give a peak as to why. If the trusted advisors aren’t recommending the desire to adopt is low and if the desire to use one of, in my opinion anyways, the most fundamental agtech tools in a management system it shows there will be apprehension for other technology utilization.

Brazilian Farmers Approach to Digital - Mckinsey

This is a Mckinsey piece specific to Brazil. Brazil is a powerhouse in the world of ag and I talk about them relatively often in Upstream. While the culture is different than North America, and we can see some of the variances vs. the USA, it helps put things into perspective.

Digital penetration is higher in Brazil than in the United States – 34 percent of farmers say they make online agricultural purchases compared with 26 percent in the United States

70 percent use digital channels daily for farm-related matters beyond information searching. A third of farmers are willing to buy seeds, fertilizer, and other inputs online. Almost a third – and 56 percent in specific crops like cotton – say they are eager to sell their production online.

Three Concerns: cybersecurity, poor website user experience, and inadequate Internet connectivity at the farm level.

I think these three concerns are relevant to North America and while there may be other more pertinent I think this provides some insights for organizations:

  1. How do you instill confidence in data security to increase use and confidence?

  2. UX and UI cannot be overlooked. Product is important. Mitigating friction is important. This should be a priority, especially when onboarding customers.

  3. How to manage a short term lack of connectivity needs to be considered.

Related: CNH: Connectivity for All Brazilian Farmers Next Step - Future Farming

Tech CEOs Go on Defense

While not directly related to agriculture, the tech CEO hearings down in the USA are something to stay abreast of. The questions and subjects are very relevant to the digital aspects of agriculture as you see large organizations scoop upstarts, look to competitors for feature innovation and down the line own the route to market for other organizations.

Other Ag Resources

Bayer Announce Partnership with SproutX to Drive Innovation - SproutX

Keys to Agrochemical Sourcing in China in 2020 and Beyond - Agribusiness Global

Bosch and BASF Found Project House for Smart Seeding and Fertilizing Solutions - BASF

AgTech Replaces In-Person Strategies With New Tool - CropLife

WinField United Canada Partners with Country Farm Seeds to Expand Seed Portfolio - RealAgriculture

Selling Strategic Planning as a Service - Precision Farming Dealer

Mystery Seeds from China are Landing in Americans' Mail Boxes - CBS

AgTech startup RealmFive Revolutionizes Wireless Connectivity in Agriculture - Silicon Prairie

Non Ag Resource

Screenshot Essays

This is a unique resource that distills important ideas down to write ups the size of an iPhone screen. The site is just rolling, but has many relevant ideas for business already.

My favourite one so far is “Humble Giants are Unbundling the Internet”.

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