Upstream Ag Insights - December 18th 2022
Essential news and analysis for agribusiness leaders
Welcome to the 149th edition of Upstream Ag Insights!
This is the final edition of Upstream Ag Insights for 2022.
The first edition of 2023 is scheduled to come out Sunday, January 15th (Note: If there are any major events or topics the first week of January I will send out the first edition January 8th).
I am fortunate to continue to meet readers, learn from founders and industry experts and get exposed to the individuals working to advance the agriculture industry each and every week.
I know everyone can spend their time doing a host of other things so I appreciate everyone that opens the emails, reads the editions and shares with their friends and colleagues each week.
Thanks to everyone for the continued support of Upstream Ag Insights in 2022! I don’t take your attention for granted and look forward to continuing to navigate the industry in 2023.
Index for the week:
Product Intros Highlight The Future of Meristem Crop Performance
Novozymes and Chr. Hansen to Combine and Create a Leading Global Biosolutions Partner
Get the Lay of the Land with the Ag Value Chain
Be Your Own Futurist
Semios Founder Steps Down as CEO
Trimble Agrees to Acquire Transporeon for $2 Billion
Change in Direction: Corteva’s Digital Future
Upstream Ag Insights Best of 2022
Why Competitive Advantages Die
To “Prove” the Future
Merry Christmas, Happy Holidays and Happy New Year to every one!
1. Product Intros Highlight The Future of Meristem Crop Performance - The Daily Scoop
Meristem Crop Performance continues to do innovative things within the industry. Not just in the technology within the products, but how they go to market and enable other players in the market. Specifically, they have launched an Advanced Concentrate System from Meristem Retail Platform Services, bringing adjuvant manufacturing closer to the point of sale.
This is a trend that is growing across the globe in all industries. Take The Production Boards company, Cana, a molecular beverage printer for the home focused on decentralized manufacturing as one non-ag example. I have talked about this trend within agriculture as well with distributed production of inputs like nitrogen, microbes and even synthetic crop protection products.
The benefits are multi pronged:
Lower shipping costs
Lower warehousing costs
Improved lead times
Improved efficiency of just-in-time manufacturing processes
Improved feasibility of mass customization through a tight feedback loop
Also, more sustainable because you are using less energy to ship across vast differences.
Joe Gednalske, Senior Product Development Strategist at Meristem, references the Coca-Cola bottling model in the article, which I love as an example. I talked about this being a viable approach in agriculture in a June 2021 edition of Upstream Ag Insights.
For those unfamiliar, Coca-Cola generates more of their profits from selling syrup concentrate than selling finished bottles of Coke. Coca-Cola primarily sells their secret syrup to outside bottling companies that do the work of manufacturing and distributing the final bottles product to consumers. This portion of its business is known as its "concentrate operations." A huge portion of Coca-Cola’s revenue (and profit) is generated by this unique selling of its syrup.
The key here is that this allows Coca-Cola to have higher margins in their business an ability to reach all corners of the market thanks to less hard asset needs and last mile leg work (distribution).
The way to think about this applied to our agriculture setting is that Meristem is the Coca-Cola company, selling proprietary adjuvant ingredients to retailers who act equivalent to the bottling companies, making the product into it’s final usable form and then selling to farmers.
The outcomes become:
Higher operating margins for Meristem and increased ability/agility to scale up growth across the USA.
Lower cost of goods for the retailer equalling potentially higher margins
And lower costs of finished goods (adjuvant) to the farmer. (For very large farmers with their own spraying assets, they could buy the ingredients directly as well. Though, the lowest amount of product that can be made in a batch is 2500 gallons which is a lot of adjuvant at typical rates for most farmers).
They have created a win-win-win scenario at all points of the value chain.
The article also talks about the BioCapsule technology, which I broke down in September for those interested in a deeper dive on the technology.
Meristem continues to impress me. I think a lot on the future of input sales, crop protection production and beyond, but what’s incredible is that Meristem is out there doing the hard work of creating the technology to enable this future, obtaining the patents and delivering it commercially into the market. No small feat and one surely worth it for retailers and farmers in the long run.
Related: 3Bar Biologics + Lainco Partner On Promising Microbial Strains - 3 Bar
2. Novozymes and Chr. Hansen to Combine and Create a Leading Global Biosolutions Partner - Globe News Wire
Novozymes and Chr. Hansen have entered into an agreement to create a leading global biosolutions partner through a statutory merger of the two companies. The combination is expected to unleash the full potential of biological solutions and generate significant value for all stakeholders and society at large.
Neither Novozymes or Chr Hansen are not pure play agriculture companies. But they do have portions of their businesses tied to agriculture, partnerships with leading agriculture companies and targets to grow their agriculture businesses in the high single digits to low teens annually. Both organizations have an emphasis on biologicals and enzymatic technology in the plant health and biocontrol space. This means this new company will be one we hear about in the industry in the future.
Novozymes is a global biotechnology company focusing on research, development and production of industrial enzymes, microorganisms, and biopharmaceutical ingredients. Novozymes had 12% of their total revenue come from agriculture based products in 2021. According to their Q1 2021 report they have relationships with the likes of Bayer, Syngenta, UPL and FMC:
This doesn’t even include the newer announcement with Novozymes partnering with Anuvia Plant Science to create a value added fertilizer product that includes microbes directly into the granule (to read more on the partnership and other novel efforts from Anuvia, check out this May 2022 edition of Upstream Ag Insights).
Chr. Hansen is a bioscience company that is a supplier of bacteria cultures, probiotics, enzymes and oligosaccharides. In going through some of Chr. Hansen’s investor materials, it’s clear they see agriculture as a growth opportunity, having partnerships with UPL and FMC to develop plant health products with their products totalling 5.2 million hectares applied in 2021. To date, the biological plant protection solutions Chr. Hansen has been applied on an accumulated area of 23.2 million hectares.
The strategic rational to consolidate makes sense outside agriculture as well, becoming a large player as one. Novozymes estimates the current addressable market for biological solutions to be around EUR 15 billion and growing.and according to the World Economic Forum, the economic impact from biological solutions is expected to grow 3-times by 2040.
Together these two Danish companies will create a leading global biosolutions partner with a broad biological capabilities and a diversified portfolio. The combined group would have annual revenue of approximately EUR 3.5 billion. Half of the portfolio will focus on “enabling healthier lives and producing better foods”. The other half “will address reducing chemical use and targeting climate neutral practices”. The combined group will operate 38 R&D and application centers and 23 manufacturing sites. With all of this, they are certain to be a formidable contributor to the future of agricultural inputs and likely to continue to support some of the largest agribusinesses with their technology.
3. Get the Lay of the Land with the Ag Value Chain - Top Soil
This week I found a new newsletter within the ag industry that got me excited. Two things stuck out to me about it:
The first edition was incredibly well written and did a great job of breaking down the complexity of the agrifood value chain, along with illustrating the oligopolistic tendencies at all different points (see the image clipped from the article below). There are great insights for those wanting to understand it better.
The second was actually in the introductory overview of the newsletter itself where the author, Ariel Patton, stated the following regarding new professionals getting into agriculture:
One of the biggest challenges that I hear over and over is “I wasn’t a farm kid. Where do I begin?”
That’s where Topsoil comes in. Frameworks to help you make sense of agriculture, at just the right depth.
Not being a “farm kid” myself, I can empathize with the “fish out of water” feeling coming into the industry. It takes time to get up to speed and can be uncomfortable because the industry does tend to emphasize the “growing up on a farm” experience and has an almost insider mentality surrounding it (next time you are participating in a round of introductions, listen for how frequently someone says “I grew up on a farm in x location” or “I didn’t grow up on a farm, but…” as they feel compelled to tie some aspect of their past to a farm so that they have a bit of legitimacy in the eyes of others).
In order to fill the demand for skilled professionals in the industry, we all know we need to attract from outside and increasingly these individuals will be looking for resources to rapidly climb the learning curve and develop foundational understanding of the industry itself. Newsletters like TopSoil can be an excellent resource for those individuals. On top, I think all of us in the industry will be able to pull useful insights from TopSoil if the first edition is any indicator.
I recommend checking out the first edition and subscribing.
4. Be Your Own Futurist - Country Guide
Given it’s the end of the year and 2023 forecasts will be prominent for the next 4 weeks, I thought this was a good article sharing a system for how to think about the future.
While I tend to subscribe to the Warren Buffett quote of:
Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.
I do see significant value in trying to think critically about the trends, headwinds, tailwinds, demand shifts and general Overton Window shifts in conjunction with the challenges being faced within the industry by agribusiness professionals and farmers to try and understand how the industry will look in the future.
Even if your conclusion about the future is wrong, your analysis of the possibilities sets you up to be better prepared for whatever may come at you and your organization.
5. Semios Founder Steps Down as CEO After Turning Vancouver Agtech into Global Player - The Globe and Mail
The founder of Canada’s largest agriculture technology company, Vancouver’s SemiosBio Technologies Inc., is resigning as chief executive after deciding he prefers to govern companies, not run them.
Michael Gilbert will step down on Dec. 31 to focus on his board positions including his roles at Semios and two Canadian startups in which he has invested, including seaweed farming company Casacadia Seaweed Corp. The medical researcher-turned-entrepreneur, who owns between 20 and 30 per cent of Semios, told the board of his desire for change in early fall.
Related: 5 Things Silicon Valley Gets Wrong About Agriculture - Entrepreneur
6. Trimble Agrees to Acquire Transporeon for $2 Billion - TT News
Trimble announced it has agreed to acquire Transporeon, a cloud-based transportation management software platform focused on connected supply chain infrastructure, in an all-cash transaction valued at $2 billion.
Consistent with its cloud software model, Transporeon has a strong financial profile with recurring revenue representing over 90% of total revenue, with extremely low churn and net retention consistently in excess of 110%, Trimble reported. Transporeon will be immediately accretive to Trimble’s revenue growth and margin profile, and has generated profitable growth over the past 15-plus years, through various stages of the economic cycle.
This is not directly related to agriculture. However, with Trimble’s involvement in agriculture through in-cab hardware and software along with carbon credit involvement there could at some point be some interesting cross over into the traceability conversation within agriculture along with furthering their greater sustainability initiatives.
7. Change in Direction: Corteva’s Digital Future - The Daily Scoop
This is a well done interview with Brian Lutz, Vice President of Agricultural Solutions at Corteva.
It confirms a lot of what I have talked about in these editions of Upstream regarding the new efforts from Corteva surrounding digital:
Upstream Ag Insights - November 12th 2022
Corteva Investor Day 2022 Highlights and Analysis
The theme from Lutz is using digital as an enabler of improvement across their business, from logistics, to farmer decision support, to sales, to marketing to R&D and more. This is the best way to think about digital. It augments the core of your business.
This has been a point of emphasis in Upstream since starting the newsletter 3 years ago. Here is a quote from 2020:
We often think of digital as a segment or a pillar. In my opinion, that’s incorrect. Digital is a part of the fundamental base that lifts AND connects the entirety of the business.
There are still challenges that Corteva will have to overcome. Specifically with the Granular Insights aspirations.
If they want to support farmer decisions, or Corteva staff to recommend their products effectively to farm customers, there is still a need for data and information regarding specific fields. There are companies out there that do have incremental pieces of information about the land, such as remote sensing companies, but it will lack much of the nuanced context surrounding historical product use, telematics information and specific practices - all of which are important to making an effective product recommendation. There is an argument to be made that it might not be about optimizing decisions, but reducing mistakes/poor recommendations and augmenting the human analysis of the data that Corteva does have more than perfecting a recommendation.
8. Upstream Ag Insights Best of 2022
I have traditionally done a Year In Review. However, this year I have opted not to. I will aim to have a 2023 Outlook in the first edition of 2023 though.
What I did want to share was a “Best of Upstream in 2022”, highlighting the most popular articles and editions of the year for those that may be new subscribers or for those that may have missed some of the more popular write-ups of 2022:
Top 5 Articles of 2022 (in order of most viewed)
1. Influence Erosion in Ag Retail
2. 22 Mental Hacks for Agribusiness Leaders
3. John Deere Leads InnerPlant’s $16M Series A: The Beginning of the Internet of Plants
Related: John Deere to Crop Input Companies: “Your Margin is My Opportunity” - Upstream Ag Insights
Related: John Deere Leaps Unlocked Event Highlights and Analysis - Upstream Ag Insights
4. Regenerative Agriculture Doesn't Have to Be Contentious
5. The Sauce Paradox, The Funnel of Specificity and Dominant Logic: Bringing to Life the Cultural Challenge of Biologicals vs. Traditional Crop Protection
Non Ag Articles
9. Why Competitive Advantages Die - Collaborative Fund
Another exceptional article from Morgan Housel. In it he delivers reasons that competitive advantage dies, including stories to bring to life. Here are the reasons he sees:
“Being right is the enemy of staying right because it leads you to forget the way the world works.”
Maintaining financial success takes precedence over traits that were vital to building the initial idea.
Mistaking a temporary trend for a competitive advantage.
Scaling a product requires scaling HR, which is monstrously complex and usually unrelated to your original skill.
The decline of paranoia that made you successful to begin with.
Reputational momentum is vicious and unforgiving on the way down.
Brands are hard to build and even harder to span across generations.
I think it is pretty safe to extrapolate these out to an individual person building a career or building personal wealth.
10. To “Prove” the Future - Medium
This article piggy backs on the previous, but I think it is especially pertinent to think about when organizational leaders are making decisions about investing in the future. Here are some quotes that stood out:
Future doesn’t exist, it is being created every second by effort of millions of people acting, mostly, independently. There are no “facts” about the future. We may guess, foresee, make forecasts, but we always must keep in mind that all the forecasts are always wrong.
Running a business is finding a balance between hard data and creation. When I work on strategy with my customers, we always collect a lot of information through customer interviews. But we don’t use it only as a statistic; customers’ fears, hopes, and beliefs are a powerful source of inspiration. Clients will never tell us what to do, but their worldviews and even superstitions can lead us to disruptive solutions and business models.
This relates to the article I wrote a few weeks ago called Finding Asymmetric Upside in Ag Retail and Agribusiness. If something is already held in general consensus, there is only so much upside for a business. Identifying and creating the future means investing in it to be the leader before it is clear, that is where the opportunities lie for agribusinesses.
An easy mental framework is to think about it like this:
What is something you do today or want that everyone is going to do in the future, and the market doesn’t know it?
Other Ag Articles
Transparent Innovation: Change Tomorrow Starts With Experiments on the Ground Today - Soil to Shelf
Smoke & mirrors, not worth the extra cost: 50 US farmers speak out on carbon markets - AgFunder News
What Are Your Best & Worst Precision Ideas? - Precision Farming Dealer
Why the US Government (Is Still) Obsessed with Corn - CNBC YouTube
CNH Industrial invests in Stout Industrial Technology - Globe News Wire
The Transformative Seven: Technologies that can drive Canada's next green revolution - RBC
Traction Ag Announces Partnership with Cropzilla - Traction Ag
Equinom raises $35M for new non-GMO plant protein ingredients - Food Dive
Morocco Fertilizer Firm Invests In Green Initiatives, Including Effort With U.S. Fund Forbes
AB InBev’s route to net-zero: there’s no ‘one-size-fits-all’ way to scale regenerative agriculture - AgFunder News