Upstream Ag Insights - August 22nd 2021

Essential news and analysis for agribusiness leaders

Aug 22, 2021

Welcome to the 81st Edition of Upstream Ag Insights!

Index for the week:

Corporate Venture Capital in Agriculture
Q2 2021 Earnings Summary for Agribusinesses
Regrow Raises $17 million
Did Silicon Valley Kill AgTech?
Farmers Are Not Guinea Pigs: 5 Mistakes AgTech Startups Make
Sound Agriculture Raises $45 million
Ag Retail Sales Questions

Have a great week!

Corporate Venture Capital in Agriculture - Upstream Ag Insights

Two weeks ago Trimble announced the launch of their $200 million corporate VC fund and I received a few questions surrounding it. On top of this CB Insights released their data showing a record H1 2021 for corporate VC investment:

This ultimately got me curious to look a bit more into companies corporate VC.

Many agriculture companies have had a VC division for years, but it seems there is growth in the number of funds from corporates along with a rise in activity.

In the link I dove into some CB Insights data along with AgFunder data surrounding corporate VC to do some broad industry comparisons to agriculture as well as discuss some of the underlying reasoning for the growth in corporate VC.

This weeks edition of Upstream Ag Insights was brought to you in partnership with GeoPard!

GeoPard Agriculture is a cloud-based powerhouse for precisionAg data analysis, prescriptions creation, smart scouting, and soil sampling. GeoPard Variable Rate (VR) prescription maps are used for fertilizing, crop protection, seeding, irrigation, desiccation, optimization of crop inputs, and yield while preserving resources. The GeoPard engine processes satellite imagery, soil sampling, yield, high-density soil scanners (EC/Moisture/Soil compaction), and topography data, building sophisticated multi-layer Field Potential maps and 3d models. GeoPard VR maps are compatible with most existing machinery and terminal brands. Moreover, there is a bi-directional seamless integration with the MyJohnDeere Ops center, which enables John Deere clients to receive GeoPard Rx maps, crop monitoring, and topography analytics wirelessly.

GeoPard produces precisionAg analytics at scale and provides it via API, widgets, web, mobile applications, and White label solutions for crop advisers, ag input companies, dealerships.

The GeoPard team has great experience of launching successful precisionAg software products since 2012 (Zoner.ag (powerZones) acquired by Bayer, then Xarvio).

Ag Companies Q2 and H1 2021 Results Summary - Upstream Ag Insights

With all of the earnings being released in the last few weeks I decided to compile highlights from all of the major agriculture companies reports. The companies included are:

AGCO
AGI
American Vanguard
BASF
Bayer
Bunge
CNHI
Corteva
Farmers Edge
FMC
John Deere
Nutrien
Lindsay Irrigation
Marrone Bio
Mosaic
Raven Industries
Valmont
Yara International

Cargill, Microsoft Join $17m Raise for Carbon Verification Platform Regrow - AgFunder

Ag software startup Regrow has raised $17 million in Series A funding as it proceeds with the US rollout of its monitoring, reporting, and verification (MRV) tool for carbon sequestration and monetization. New investors participating in the round included US agribusiness giant Cargill, US climate-focused VC Ajax Strategies, and Australian agrifoodtech VC Tenacious Ventures.
Regrow claims its MRV platform is “the first and only” such system that allows stakeholders across the emerging ag carbon credits industry to create, and cash in on, carbon strategies. It does this by enabling transparent reporting, historical analysis, and forward-looking projections of carbon sequestration and emissions reductions, with the hope of removing “the most critical challenges standing in the way of ubiquitous adoption of regenerative agriculture practices.”

Last week I overviewed the carbon stack:

Through this we can see exactly where Regrow falls in the carbon layers: Measurement, Reporting and Verification (MRV). Competitive with groups like Indigo Carbon and Cloud Agronomics for example. In terms of importance to the value of carbon coming to fruition, accurate and scalable MRV is one of the biggest hurdles to overcome for the industry.

What does “MRV” entail?

Through integrations with farm management software, leveraging satellite imagery and DNDC soil models they can create a baseline (starting point) for carbon in the soil and then offer a scalable, inexpensive approach compared to manual soil testing to continually monitor carbon levels within the soil and verify practices such as cover cropping or tillage for example.

In Regrow’s CEO Anastasia Valkova’s excellent post, Principles of a Scalable MRV System, she touches on three areas that are necessary to create a scalable MRV system:

Remote sensing
Biogeochemical analysis
Soil carbon analysis

I encourage you to read the post if at all interested in the MRV space. One quote that stood out to me was this in regards to leveraging modelling:

modeling lends itself well to scenario planning, meaning that a farmer can estimate how much profit a practice would bring before making the practice change

This ability to scenario plan also leads to gamification, a lacking aspect in all facets of agtech but one that I think will help to encourage and engage farmers and support staff for moving into new areas like carbon credits and changing entire practices.

The other beauty of Regrow’s model is that they can plug in and support any protocol, or organization, whether it be retail, crop input manufacturer or other allowing for a wide swath of partners. They are also not in the business of creating protocols or selling carbon offsets, which one can argue is a benefit because if you have organizations that are both in MRV and selling, we can see where it may fall into some misaligned incentives, such as with Indigo (not suggesting Indigo does anything nefarious, just raising the point with their business around incentives).

And what I specifically like about Regrow is that they are “selling pickaxes”.

There is a saying that “you can mine for gold or you can sell pickaxes.” This is alluding to the California Gold Rush where the most successful business people such as Levi Strauss didn’t mine for gold but instead sold supplies to miners – wheelbarrows, jeans, pickaxes etc. Mining for gold was the more glamorous path to riches but actually turned out, in aggregate, to be a worse return on capital and labor than selling supplies.

This isn’t to say there won’t be money in carbon for organizations, but it is a riskier bet. With MRV, it almost becomes a cost of doing business for anyone looking to create carbon credits, whether a credit is created or not and without the risk of permanence, carbon prices or government changes impacting revenues.

Related: Did Silicon Valley Kill AgTech?

One of the investors in Regrow, Tenacious Ventures, recently put out a must read article called How Silicon Valley Set Agtech Back a Decade. They have now followed it up with a podcast that is worth the listen as well called Did Silicon Valley Kill Agtech?

One of my favourite quotes was from Sarah Nolet where she stated:

Agriculture has been optimized to reduce risk and venture capital was built to embrace risk

This dichotomy is a keen insight that begins to show part of the friction with traditional approaches to VC in ag.

Matt Pryor also had a great comment:

There is a need to take a look at your position in the value chain and look upstream and downstream and separate out the user from the beneficiary. The innovation is targeted more at the user, but the business model needs to be targeted at the beneficiary. Otherwise it doesn’t have any prospect of self sufficiency.

This concept of thinking about who is using and who is benefitting is also a great comment. This is different than the traditional consumer space where they are typically one and the same. For example, we see this a lot in the Farm Management Systems. Who is using, who is benefitting and how can you actually increase that benefit throughout the entire supply chain. In the podcast Rob Trice, brought up Conservis and TELUS/Rabobank acquisition which is an example of an ecosystem that can begin to bring the benefits back down to the user level. This is also where we can begin to see actual monetary incentives to utilizing digital technology, one of the missing aspects in adoption today.

This also brings to mind the concept of mapping industry profits and identifying where the dollars accrue within the value chain and in the context of Michael Porter’s Five Forces, identifying the “bargaining power” of these specific groups to identify the positional strength and therefore opportunities for technology.

Highly recommend giving this podcast a listen!

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Farmers Are Not Guinea Pigs: 5 Mistakes AgTech Startups Make - WS

Two weeks ago I participated on a panel at the AgSmart event at Olds College in Alberta with Susan Groeneveld of WS and Steve Larocque of Beyond Agronomy where we discussed agtech on the farm. The discussions were broad, but we zeroed in on numerous key points including:

Not recognizing why previous innovations were successful
Being solution first instead of problem first
Using farmers as guinea pigs
Not understanding your technology within the context of the entire workflow
Taking an all or nothing approach

Check out the article for more.

Leaps by Bayer Leads USD 45 Million Financing in Sound Agriculture to Accelerate Sustainability Solutions for Food and Agriculture - Sound Ag

Sound Agriculture, a company that is tackling sustainability through groundbreaking advancements in both food and agriculture, announced today that it has secured a USD 45 million investment led by Leaps by Bayer, the impact investment arm of Bayer. Northpond Ventures, a leading science and technology-driven venture capital firm also participated in the round, along with existing investors Cavallo Ventures, Fall Line Capital,S2G Ventures, and Syngenta Group Ventures.

This raise brings Sound Ag’s total capital raised to $80 million USD according to Crunchbase.

For those unfamiliar with Sound, they have ambitious targets on two platforms:

Sound is advancing two novel technology platforms that leverage plant and soil biology to radically improve food production. The first is Sound’s on-demand breeding platform that offers a paradigm shift in breeding by accelerating plant trait development ten times faster than current technologies without the use of genetically modified organisms (GMOs). The second is a nutrient efficiency platform poised to replace 30% of global nitrogen fertilizer use — the equivalent of removing 200 million cars from the road, with patented technology that allows crops to access more nutrients from the existing microbiome

First their breeding platform:

On-Demand Breeding is the first breeding technology that uses epigenetics to enable natural plant differentiation more rapidly and economically than any other option. By targeting improvements in taste, nutrition, sustainability, and appearance, on-demand breeding enables a more agile food system. Whereas today it typically takes 7 to 10 years to bring new crops to market, Sound’s technology can cut that timeline in half.

The first word that might catch your eye is epigenetics. It isn’t a new concept, but is also not a commonly referenced one in mainstream agriculture.

So what the heck is epigenetics?

It is essentially how different environments influence the proteins and compounds that associate with DNA and ultimately genetic expression of those genes without explicitly altering the DNA with GM technology. Now we can know the chemical processes that can turn a specific gene on or off, and influence that gene, through methods such as methylated DNA, acetone methylation and RNA interference (RNAi). This can lead to knowing a specific plant gene that helps a plant overcome abitoic stresses and then triggering that gene to have the plant act as if it is under stress which can in turn have it epigenetically “primed” so that it’s offspring are more resilient in the face of say drought or other stresses.

This is a simplified overview because I am a layman with this science, but we can begin to see how a platform approach to epigenetics could be valuable for plant breeding and could more rapidly bring improvements to the genetics.

The specific approach Sound has is known as an oligonucleotide-based (methylated DNA) strategy for silencing individual genes.

I reached out to Sound Agriculture with a few questions and they were kind enough to send me some background.

The business model for the epigenetics platform intrigued me. They confirmed that they monetize the platform through a pay for use of the platform + licensing fee associated with any of the new products that go to market. This is consistent with other “platform” businesses, such as Gingko Bioworks. Today, they have 9 partner companies they are involved with in this model.

They did allude to the fact that they are also looking at other avenues to monetization, including that there could be a future where they consider a “Sound Ag” variety. In my mind, the approach they are taking is smart - work with partners and prove and improve the system and then look for other avenues for revenue in the future.

There are some aggressive timelines stated in their press release on this platform as well, bringing varieties to market in half the time of current approaches. I asked if they had executed on bringing products to market in their stated timeframe. They essentially confirmed they have:

The press release references breeding crops with desirable traits ten times faster than gene-editing tools and ultimately bringing new traits to market in half the time of traditional breeding (a few years instead of 7+).. While none of our on-demand breeding products are yet on the market, we have demonstrated our ability to meet these timeframes with a number of projects, including an heirloom tomato with extended shelf life and better flavor, non-browning potatoes, and several target traits in row crops.

Onto the biostimulant product side.

The Sound Ag original product is focused on enhancing nitrogen use efficiency:

The company’s first product, SOURCE™ is a bio-inspired alternative to synthetic fertilizer for corn and soybeans, with more crops currently being trialed. By activating the existing soil microbiome, SOURCE gives plants access to more nitrogen and phosphorus, increasing corn yields an average of 7.5 bushels per acre and giving growers a reliable option to reduce nitrogen fertilizer application by up to 50 lbs per acre. While there are an increasing number of microbial solutions being introduced, SOURCE is the only solution that stimulates the microbes already in the soil.

Sound positions their SOURCE product in two ways: either cut back your N by 50lbs and get the same yield, or keep your N rate and get 7.5 bushels more (or a combo):

The first value proposition is SOURCE increases yields (average 7.5 bushels/acre in corn) when a grower maintains their fertility program. The second value proposition, is SOURCE enables a grower to maintain their yields while cutting up to 50 pounds of applied N/acre. A grower can go in either route, and in some cases sees a dual benefit of yield increasing with a moderate N reduction.

Assuming carbon credits gain increased traction we can see another avenue for improved ROI too.

What is the active?

In corn the ingredient is maltol lactone and in soybeans the ingredient is polyphenolic flavanol which fall under the category of strigolactones:

strigolactones are signaling compounds which serve as endogenous hormones involved in the control of plant development and as components of root exudates which promote symbiotic interactions between plants and soil microbes.

The effects of maltol lactone are stated as such, according to this thesis:

Source is referred to as a microbial enhancer because upon entering plants, it sends a cascading signal to corn plant roots that stimulate N-fixing and phosphorus-solubilizing microbes in the soil to improve nutrient availability.

There is some work done on strigolactones increasing N availability in the soil due to increased activation and symbiotic relationships of arbuscular mycorhizzae, shown here. So there is some legitimate science backing claims from Sound Agriculture.

The costing of this product and their go-to-market was of interest to me and it seems they have priced the products well:

I asked “What’s the price per acre charged to the farmer? Do you sell direct to the farmer or through traditional channel means?”

For the 2021 season, the MSRP for SOURCE Corn was $14/acre and the MSRP for SOURCE Soybeans was $9/acre. The farmer will sometimes pay a bit less than that due to early order or volume discounts.

The majority of our sales are through independent dealers and retailers. We also sell directly when it is the best option for the grower and they’re large enough to justify direct shipment. We make a strong effort to direct growers to independent dealers and retailers whenever possible.

A month ago Pivot Bio raised capital where I covered their business and the dynamics of N fixation economics (for more on that, check it out here). In it I broke down some of the numbers regarding their product pricing along with the pricing of nitrogen. The costing was actually $20/ac for corn with Pivot Bio’s product, while Sound’s SOURCE product is $14. The other noteworthy point is that Sound claims 50lbs/ac of N availability, while Pivot Bio is just recently expanded to 40lbs/ac and SOUND also talks about increased availability of phosphorous! Assuming these claims check out, the ROI dynamic behind SOURCE would be superior along with the flexibility to apply the SOURCE product foliarly.

This is where I find the dynamics of the valuations to be noteworthy: Pivot Bio raised hundreds of millions of capital and now has a valuation north of $1 billion, while Sound has not raised even $100 million yet in totality and would be worth in the hundreds of millions, not billions. Yet, Sound has a seemingly superior product on the N fixation (according to publicly available statements) side plus a breeding platform. Pivot only has the N fixation products, however, has some scientific rigour to back them and future discovery.

On top of this, Sound now has relationships with major players like Mosaic and investments from the Wilbur Ellis VC team (Cavallo), Bayer (Leaps) and Syngenta Ventures. Pivot Bio on the other hand, doesn’t have any traditional crop input corporate VC funding or relationships, although this is likely more their desire to build a direct to farmer model than it is a lack of confidence in their technology.

The N fixation category will continue to be one of the most interesting areas of agriculture to follow and Sound will continue to be a company at the forefront of that space.

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Questions Ag Retailers Should Ask Their Sales Team - Growers

I really enjoyed this write up on questions to be asking your team. I do not think it is only applicable to retail either. This weekly, monthly and quarterly list of questions can be a framework for planning one-on-one’s, weekly calls, monthly meetings and quarterly planning.

Asking the questions shared in here on a consistent basis and having expectations set with staff for answers will go a long way to leading the market.

Non Ag Article

Kevin Kelly: The Case for Optimism - Warp News

Kevin Kelly is an individual I have long admired who is constantly thinking about, and accurately predicting, the future especially as it comes to technology. In this piece he talks about reasons to be optimistic and some of the drivers of this.

We should be optimistic not because our problems are smaller than we thought, but because our capacity to solve them is larger than we thought.

Upstream Ag Insights