Upstream Ag Insights - February 12th 2023

Essential news and analysis for agribusiness leaders

Feb 12, 2023

Welcome to the 155th Edition of Upstream Ag Insights!

Q4 2022 agribusiness results have started to be released so next week I will aim to have a summary. 2022 10-K’s have also began to be released and 2022 Annual Reports will be out soon so expect write-up’s on those areas in the coming weeks and months.

Index for the week:

Progressive Productivity in Agriculture Production
Beyond Black and White in Ag
Hung Up on ESG And Your Value Proposition: You Don't Have To Be A Leader, Be A Fast Follower
John Deere Offers HarvestLab 3000 Grain Sensing for Combines
Farm Management Software Follow Up
Agtech: Breaking Down the Farmer Adoption Dilemma
Trimble's Precision Ag Products Now Available From Independent Dealer Partners For All Makes and Models
Q4 2022 Agtech Report
We Only Deserve a Styrofoam Cup

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1. Progressive Productivity in Agriculture Production - Simon Maechling Linkedin

This past week I read the above post on Linkedin from Simon Maechling who works with Bayer.

Simon posted what I think is a great visual that Bayer has referenced before in their investor materials. It does a great job illustrating how the agriculture industry has been able to increase production capacity.

However, many commenters did not see it in a positive way. One commenter stated the following:

Jean brings up a valid point - there are externalities. There are algal blooms from phosphorous run off to challenges with pesticide drift and a reduction in organic matter and overall soil health thanks to tillage (plus more). Increasing productivity over the years to supply products to a growing global population has been the most important emphasis. It’s notable though that a lot of other technological progress stands on the shoulders of agricultural innovation; these increased production abilities have been a catalyst for the division of labour delivering us many of the luxuries we have now (like the screen you are reading this on). In 1850 farming made up 3 in 5 U.S. jobs. By 1970 that number was less than 1 in 20. Today it is less than 2 in 100.

The world is full of trade offs. I don’t mean that in the sense that we should accept these externalities in their entirety - there is an obligation for the industry to minimize externalities. However, it’s easy to point the finger at the in-your-face, measurable challenges like GHG emissions from the Haber-Bosch method because they are more tangible. What is less in the face of people are stats like this from Our World in Data around what would have been:

Without the Haber-Bosch method we would have experienced much more starvation and malnutrition than we see today.

It’s also easy to say “annually grown monocultures are bad” (extrapolating Jean’s “loss of biodiversity” comment here). I think many in the industry acknowledge the benefits to intercropping and reducing tillage. The important part to remember and acknowledge is that we got to where we are with monocultures because of the need to initially produce more along with the need for scale and efficiency on farms plus a lack of technology to seamlessly do intercrop harvesting, sorting or storage etc. One could even fault groups like the US government to some degree for how they decided to subsidize corn or grain commodity companies who also emphasized efficiency and scale. Only in the last couple of decades have we seen engineering and technology make it easier to integrate on the farm, but the ag ecosystem is structured in a way still that makes it difficult to readily adopt many other practices. There is not only technology needed, but human knowledge to support production practice shifts.

I mentioned the obligation for improvement agriculture has. While it’s always possible to do more, the numbers below illustrate a directional arrow of progress.

I think frequently of this data from Phillips McDougall that is good context on the progress that has been made surrounding crop protection products:

Average application rates in the 1950s were 1,200, 1,700, and 2,400 grams of active ingredient used per hectare for fungicides, insecticides, and herbicides respectively. By the 2000s the average use rates were reduced to 100, 40, and 75 g/ha.

The decline is palpable (Note: I acknowledge the picture is incomplete because my assumption is this chart doesn’t consider total treated area, meaning less acres got treated in the 1950’s where as today EVERY acre gets treated leading to a higher total utilization of active ingredient when summed, just less on a per acre basis).

In the 1950’s the average corn yield per acre was below 60bu/ac. Rounding to 60 that means 148bu/hectare equating to:

8 grams of fungicide per bushel of corn
11.5 grams of insecticides per bushel of corn
16 grams of herbicide per bushel of corn

(Note: using corn as the default standard, it will vary by crop)

Using the 2021 corn average of 175bu/ac equates to 432 bu/hectare meaning there was:

0.23 grams of fungicide used per bushel of corn
0.09 grams of insecticide used per bushel of corn
0.17 grams of herbicide used per bushel of corn

Yields have nearly tripled on average, while crop protection usage as grams per hectare have reduced by 95% and grams per bushel have declined by >98%!

Not to mention, the relative safety of the active ingredients used has improved as well:

It should be noted, the metric for safety in this case is LD50 in humans and not explicitly environmental impact, but there is a quote emphasizing environmental improvements as well:

New and better pesticide active ingredients (more effective and less harmful to human health and the environment) have frequently been introduced while other active ingredients have been banned or voluntarily canceled by their manufacturers.

There will always be room to improve when it comes to environmental safety and crop protection products, but the improvements over the last ~60 years are impressive.

There is reason to be optimistic that usage will continue to decrease with precision agriculture adoption (such as smart spraying) and moves towards alternative ingredients to manage pests.

There is still more to the story that I do not have the answer to; I do not have nitrogen or phosphorous usage rate charts included, which are likely to have gone up along with organic matter reduction in many areas for example. I think ultimately this illustrates the complexity and nuance and both sides of the discussion will always struggle to paint the entire picture.

In my mind it opens the door to build on that image and illustrate carbon foot print by inputs per bushel, nitrogen use efficiency and other metrics to reinforce the incremental progress that has came from technology in agriculture.

Progress comes with trade offs. Im optimistic that we will continue to see the externalities of this progression improve.

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2. Beyond Black and White in Ag - Tenacious Ventures

My friend Sarah Nolet nails her write-up in an area I frequently think about: black and white thinking and it’s impact on the ag industry.

In Thinking in Grey and in 22 Mental Hacks for Agribusiness Leaders, I state the following:

We need to stop thinking in black and white. The world is grey.

Two great business thinkers have concepts surrounding this logic, which highlights the importance of overcoming black and white thinking.

Jim Collins in Built to Last talks about “The Tyranny of the Or” vs. “The Greatness of the And”. In short, his concept is that when we consider a decision and position it as an “or” proposition (we must choose A or B), we are confining ourselves to only one of two choices – and they are usually at opposite ends of the spectrum. Black or white. Yes or no. Right or wrong. When we substitute “and” in place of “or” we open up our range of choices or solutions to an infinite number of options that are between A and B. And in most instances, there is a sweet spot in the middle that does a pretty good job of meeting the needs on both sides, delivering a superior outcome.

In The Opposable Mind Roger Martin proposes integrative thinking as the thinking process for innovation and success. This approach is a discipline of considering two opposing ideas at the same time and producing a synthesis, or a new idea altogether, that is superior to both. Martin states this as “the ability to face constructively the tension of opposing ideas and, instead of choosing one at the expense of the other, generate a creative resolution of the tension in the form of a new idea that contains elements of the opposing ideas but is superior to both”.

The agriculture industry is incredibly complex and requires an opposable mind.

Sarah states the following illustrating the complexity:

But the reality is that food and agriculture is far from simple. We’re dealing with natural systems. Complex, global value chains. Rapidly evolving technologies. And human psychology, from farmers adopting tech to consumers deciding what to buy and eat.

In the “Non Ag Article” of the Week I highlight the fact we are cognitive misers. This can also be stated as reductionist and brings forth a constant reductive narrative in many areas of agriculture too. Sarah states:

Reductive narratives can serve a purpose, but they also come with high costs that must be acknowledged.
In the worst cases, they can lead to ill-informed business and policy decisions with devastating impacts. For example, about two years ago, Sri Lanka banned synthetic fertilizers. It’s not clear exactly what the government was solving for, but the result was undoubtedly negative: massive drops in production and a threat to food security across the country.
Even in the best cases, reductive narratives slow progress. They are more about dividing the pie than growing it (i.e., actually solving problems). They leave no room for listening. This is the antithesis of collaboration– a much needed ingredient to solve complex problems. And, they miss the fact that, more often than not, we’re often trying to work toward the same goals.

In the article Sarah highlights black and white thinking as it pertains to fertilizer and the opportunity to have a convergence of not only the chemical and biological, but digital and practice change as well.

I am bullish on biological N fixing products in agriculture. But that does not mean “the lights are shutting off” on Haber-Bosch plants anytime soon as I have witnessed Venture Capital firms state.

There is not only incredible power in the agronomic utility of synthetic fertilizer, but also structural dynamics currently set up across the entire value chain that act as powerful defaults - from how we train new agronomists to think about fertility, to assets on farm and at ag retails, to engrained farmer approaches, to big dollars being invested into the area by incumbents and current shortcomings of the incoming products. It’s not synthetic OR biological. It’s the unique combination of the right tools by geography, or farm.

There are several levers with Nitrogen to sustain or improve/protein/quality, enhance supply chain efficiency and reduce environmental impact:

Increase a plants nitrogen use efficiency - This can (and is) be done through selection, breeding and traits. A basic example is short stature corn being worked on today.
Give a plant the ability to produce it’s own nitrogen or augment it’s ability to extract nitrogen easier from the soil - This is done primarily through biological means, but could potentially be done through traits.
Evolve practices - This is broad, but tends to align with putting nitrogen on closer to the time of uptake (eg: top dress application), reducing tillage to increase microbial activity and therefor N mineralization as two examples or using a data driven approach to management plus precision tools to apply N more directly to where it’s needed.
Enhance the Nitrogen making process - Distributed production to minimize trucking or identify a more efficient catalyst in the Haber Bosch method at centralized factories used today as two examples.
Increase synthetic nitrogen product stability - This might be through N stabilizers (or other products) integrated at production, or coated on later, along with polymer coated products like ESN.

There is innovation at the chemical, biological, practice, engineering and data level. The power is in how they are married together.

While some approaches might be “at odds” with one another, the aim is to move the needle on output, efficiency and environmental friendliness. No one tactic or technology surrounding nitrogen management can effectively deliver the best outcome. The application of numerous of these in conjunction can.

The value of an opposable mind doesn’t stop at nitrogen management in agriculture. It can be applied when it comes to areas like regenerative vs. conventional, go-to-market strategies on the business front or what I talked about in the The AgTech Paradox: What Biology and Historians Can Teach Us About the Agriculture Industry with how venture funding comes into, or declines within the industry.

What can be challenging to grasp, but crucial to understand is that contradictory things can both be necessary. If we look at industry problems with an opposable mind and stop black and white thinking, there is nothing but upside for farmers and beyond.

3. Hung Up on ESG And Your Value Proposition: You Don't Have To Be A Leader, Be A Fast Follower - The Daily Scoop

As always, some great commentary from Brad Oelmann of The Farrell Growth Group. For myself, I am probably disproportionately focused on what the leaders are doing or will be doing so I always appreciate that Brad does a great job of bringing an insightful, pragmatic view:

You don’t have to be a leader. But you should be a fast follower. It’s not another thing on your to-do list. Rather, prioritize where these three things are in relation to everything else you’re doing. If you can tie those actions into your value proposition, that makes it even a bit easier.

One of the things that stands out to me regarding ESG/sustainability and ag retail is that ag retailers already have the core competency in this area and support farmers in being environmental stewards.

If we really consider environmental stewardship, a huge portion of anything related to the E in ESG pertaining to farmers is agronomically driven and supported. If you talk to most of the great retailers out there, they pride themselves on their agronomic service and knowledge meaning they are already helping farmers manage their environmental impact whether that be in absolute terms or in an output adjusted basis like per bushel (likely both).

The other, more complex component of the E is the data associated with that practice/output and navigating the programs.

The challenge then is two fold: understand the programs and data management.

These aren’t simple, but they can be managed and broken down into smaller components to identify where to start, who to partner with and where you might play in conjunction with the greater retail vision and strategy. It’s worth noting data savviness is unlikely to be constrained to just ESG discussions; it has an incredible power to help make more informed agronomic decisions and beyond.

4. John Deere Offers HarvestLab 3000 Grain Sensing for Combines - No Till Farmer

John Deere is now offering HarvestLab 3000 Grain Sensing on 2018 or newer John Deere S700 Series Combines. Grain Sensing continuously measures and monitors protein, starch and oil values in wheat, barley or canola in real time as the combine is harvesting. This site-specific data can then be viewed in the combine, or in the John Deere Operations Center.

Being able to get real time grain quality data brings a new depth of insight and ability to achieve better outcomes with precision technology, so this is an exciting function from John Deere and fuels their depth of insight about the farm and field.

Today, farmers on wheat for example in Canada are paid on two components: yield and quality. One of the factors that makes up quality is protein. What influences protein significantly are nutrients like nitrogen and sulfur. So if you are creating a variable rate nitrogen prescription, quality needs to be considered. If you don’t know the quality, it means you might not be optimizing the inputs (or farm profits).

On top of this precision insight, it could allow for strategic harvesting capabilities on farm, joining specific fields in a bin to maximize quality specs (if someone really desired).

Having quality information increases a farmers grain marketing capabilities as well.

When you start to look at the data layers Deere will be able to deliver to a farmer, the value created gets increasingly compelling with each of their announcements.

Now, Deere can measure quality and yield through the combine, with the sprayer they can deliver maps of weed outbreaks (and eventually things like stand counts, seedling mortality, nutrient deficiency and disease just to scratch the surface) and then you can factor in what they could do with soil sensing technology directly on the planter or seeder (or other equipment). Then consider what they could begin to deliver for decision making when they empower farmers to understand quality, yield, soil characteristics and nutrient levels? Deere’s equipment becomes an agronomic Swiss Army Knife.

When you connect ag technology to the current workflow and paradigm it becomes a lot easier to see where the starting point for real value creation in agtech can be. The challenge then becomes enabling the farmers and agribusinesses to leverage the data and insights to extract the value from this technology and workflow. I am optimistic Deere can deliver in this area moving forward.

5. Farm Management Software Follow Up

Last week I commented on Janette Barnard’s thoughtful article It's Time to Call It regarding farm management software.

It’s safe to say farm management software viability, business models and value creation is one of the most divisive topics I have had in Upstream. It’s also incredibly complex to capture the nuance and challenges in a couple thousand words and probably deserves an audio conversation with industry veterans at some point.

I received comments from numerous founders in the FMS space, industry executives, venture capitalists and seasoned industry experts on the topic. I won’t get into all of them because some requested not to share, but notably there were very differing opinions which shows just how complex of an area it is.

Some got into farmer complexity, a few blamed the industry incumbents approach to running the businesses, some said the assumption of winner take all as a driver was wrong, some said distribution problems (which I think the packaging with other assets begins to solve) and others said it’s important to break out data platforms from farm management software (which is a good call out) and many other variations.

It’s a topic I am sure to address more in the coming months. Thanks to everyone that shared their perspectives!

6. Agtech: Breaking Down the Farmer Adoption Dilemma - McKinsey

As all readers know many agtechnologies have not been adopted at rates previously expected. This is for a plethora of reasons. The McKinsey report highlights some of the high level challenges across the globe specifically at the farmer level.

This is an area that has a lot of nuance by segment of agtechnology and geography, but it’s good to grasp some of the major issues.

There are additional areas that McKinsey doesn’t explicitly call out (because it’s a grower survey focused report), but are still embedded into commentary like the psychology of the farmer beyond lagging trust not just in companies but the data itself, business models beyond the farm gate and more than interoperability but an embedded nature behind how technology gets layered into current workflows and equipment/tools used every day on the farm.

What is touched on briefly is UX/UI and how this has played into adoption, or lack thereof, with software related technologies. Two of the smartest product managers I have had the opportunity to work with mentioned the same fundamental principle to me: minimize time to value.

In social media for example the goal is to not only keep individuals coming back to the app as frequently as possible, it is also the aim to keep them there as long as possible (eg: Instagram’s endless scroll). In agriculture, saving time and being efficient is one of the emphasized value props, which means a farmer or agronomist should be able to not only get in and get out as rapidly as possible, it should also deliver more “served up” insights. This not only is good from a time saving perspective, but helps with true value (eg: insights delivered) plus dopamine responses from users. It’s an area I know many groups are working on.

I have touched on some of these areas in On-Farm Technology Adoption Considerations from last year and in collaboration with my friends at Tenacious Ventures The AgTech Adoption Dilemma: Irrigation.

7. Trimble's Precision Ag Products Now Available From Independent Dealer Partners For All Makes and Models - AgWeb

Trimble announced this week an evolution of it’s go-to-market strategy. From their earnings call:

With a product lens on Connect and Scale, we are now bundling our guidance hardware, software and our positioning services—providing both easier access to the technology and a better value proposition for our customers. With a go-to-market lens on Connect and Scale, users and customers are at the center of our strategyIn pursuit of this strategy, we announced this week that we are taking a different approach to our go-to-market relationship with CNH Industrial.
Moving forward, our distribution to aftermarket customers, after a 12-month transition period, will be done entirely through independent dealer partners, with the product bearing the Trimble brand. Less than 20 percent of our revenue in the Resources and Utilities segment goes through CNH to their dealer network today. We expect to maintain this revenue and address aftermarket demand and the needs of farmers through our direct relationships with our independent dealer network. This evolved approach to distribution will also enhance our ability to offer OEM brand agnostic solutions to customers to help them orchestrate their field operations with mixed fleets of equipment. Our new approach to aftermarket distribution will improve our ability to sell our full range of technology solutions to aftermarket customers—including guidance, selective spraying, variable rate application, water management and our Connected Farm works center software solution. Our evolving strategy will also enhance our ability to cooperate with OEMs across the industry for their needs for factory-fit equipment.

Even without the CNH acquisition of Raven this seems like a compelling move on Trimble’s part. My assumption is that in some ways the Raven acquisition empowered Trimble to do this. ~20% is large in some regards (eg: they wouldn’t want to disrupt the relationship with one of their largest routes to market with new points of emphasis), but it also means some focus in additional areas may deliver increased revenue opportunities.

8. Q4 2022 Agtech Report - Pitchbook

An overview of the AgTech Investing landscape for Q4 2022:

Investment activity was down 13.2% compared to 2021 with a total of $10.6 billion. Despite this, 2022 was the second-best year on record.

Q4 saw startups raise only $1.3 billion, down 34.1% compared to last quarter.
Exit activity saw a staggering 93% decline compared to 2021, amid a difficult global market environment.

Non Ag Article

9. We Only Deserve a Styrofoam Cup - Simon Sinek

As humans we are cognitive misers; we look for short cuts to get to the (hopefully) right answer while extending less brain capacity. This is well documented and translates in the business world surrounding the influence on our perceptions of competence, trustworthiness and leadership capacity. We look for easy ways to gain a quick and better route to the “right” answer.

We associate things like attire with competence. In fact, a 2007 study showed that about 70% of elections were won by the candidate whom people rated as more competent based solely on their appearance – even when they saw the candidate's photograph for only a tenth of a second.

We tend to associate height with safety and leadership capabilities which has the average CEO having above average height. Studies have shown, and authors like Malcolm Gladwell have written that over 68% of US Fortune 500 CEOs were over six-foot tall while just 15% of the general population is. 25% of CEO’s were over six-foot two inches, while just 4% of the US population exceed this height.

Then we have titles. We automatically view and treat individuals with bigger titles differently due to our hierarchal nature and perception that a big title (eg: Executive Vice-President) means higher competence levels or capacity. In many instances, those assumptions are correct, but what happens when we remove that persons title?

Simon Sinek is well known for his talks, books and stories surrounding leadership. My favourite story that he shares is a short one that is less well known than his others, but I think provides a great insight, a reminder and dose of humility:

We Only Deserve a Styrofoam Cup.