Upstream Ag Insights - Mar 8th

March 8th, 2020

Nutrien 2019 Annual Report Breakdown

Nutrien recently released their 2019 annual report. As I have highlighted in the past, specifically in my post, The Re-Engineering of Ag Retail, I look at their strategy as being one to watch. Below you’ll see some of the highlights from their annual report as it pertains to the retail arm of their business (Note: Granted one of the aspects that makes them strong globally is the integration of their entire business).

Nutrien Ag Solutions services over 500,000 customers and has >2,000 retail locations worldwide. They have over 30 locations for breeding and formulation production, with 7 facilities being specific to formulating proprietary chemistry. Almost 30% of their EBITDA comes from the retail space.

Their per store EBITDA generated is just shy of $1,000,000USD.

They launched their digital e-commerce strategy over a year ago with a portal for their customers to begin their purchasing journey through. In 2019 they had almost 12% go through their online portal, which is aligned with what data from the Farm Journal Survey came back in terms of farm customers interested in purchasing online. Their target is to get to >50% by 2023.

As of now, “the proportion of our products available for purchase online is 20 percent”.

Their ability to strategically “merchandise” their online platform is a powerful tool, helping manage inventory, and better manage product positioning and margin erosion. They will get to a higher proportion of their products online, including things like fertilizer, but right now have started out in crop protection.

The digital deployment is intended to “serve customers more efficiently, drive down costs, reduce working capital and grow market share.”

Aka decrease friction in the buying process, manage inventory, and increase sales through a more dynamic reach, better vision into the market and supply chain with their crop planning functionality (+other digital tools) and ensuring they have the correct financing in place for their customers. The ability to utilize data and be able to create dynamic pricing online based on demand, search history, previous purchases etc also is an interesting tool I believe they will look at. With their scale and distribution network, an online presence is powerful.

“Retail customers representing ~ $6.6 billion in annual sales are currently signed up on the platform. Payments made through the customer portal reached $336 million“

“We allocated approximately $1.0 billion to grow our Retail footprint and enhance our offering of higher-margin proprietary products in 2019. We expect to continue to invest heavily in this business over the next five years to expand our network in core markets”

Scale and efficient distribution are a powerful driver in Nutriens business, and they this moat can be dug deeper. I’d expect to see more robust retail facilities in strategic locations with large fertilizer storage and warehousing being initiated within Canada and the USA, further powering their scale and ability to service customers.

The term “digital” was mentioned 50 times. With that, the emphasis seems to be on their digital “eco-system”, including their online portal, labs, sustainability platforms etc vs. any one specific platform or product (Echelon, their precision business, was mentioned zero times).


BASF Outcome Based Business Models

Climate FieldView/Bayer get talked about a lot on the outcome based pricing front, but as we’ve seen with announcements since, they aren’t the only ones.

BASF will be following their lead, maybe not in terms of exact implementation, but in terms of having a unique business model for farmers to choose from. BASF is well positioned in terms of their product line to “own the acre” across many geographies in Canada and North America (stack all their products on an acre), and as xarvio gets built out further in North America they will have a tool to support that implementation. Xarvio has numerous partnerships, for example through Arable, which will feed their ability to make informed recommendations and other new digital products that others can’t.

More on the models in the future. On another note from the slide deck is R&D expenditure:

BASF Ag allocates 12% of annual revenue to Research and Development. This is similar to Syngenta who hover around 10.5%, Bayer is around 13% and Corteva who is just under 10%. (Note: Not including capex, M&A etc - just R&D allocation). BASF and Corteva both are allocating <10% of their R&D to digital initiatives, while I couldn’t pin down numbers for Bayer and Syngenta.

To put into context with a generic company, ADAMA allocates <2% of annual revenues to R&D. Where they spend those dollars changes too; ADAMA spends a disproportionate amount on formulation enhancements, the real areas generics attempt to add value.

Agriculture Vision: A Large Aerial Image Database for Agricultural Pattern Analysis

The future of crop scouting will start with digital technology. The capabilities through sensors and imagery capturing tech is going to revolutionize the role of the agronomist and the farmer. Imagery and sensors will be able to rapidly and accurately assess disease, insects and weeds with future ability to suggest products.

What needs to be considered:

We hear a lot about voice search in the consumer space and how that will change the way companies market to consumers vs. retail shelf space or Google/Amazon search bars. Now, think about this from a product recommendation perspective in the future of agriculture. Today, organizations educate, market to and position their products in front of farmers, agronomists, sales people, retail staff etc so they are top of mind. When the dynamics shift and the “gate keeper” starts with sensors and AI, that shifts the fundamentals of marketing, positioning and emphasis of strategic initiatives in a powerful way. This is one reason why large agribusinesses are focused on getting their digital tools on farm; it ensures they can be “at the gate” and able to influence. This will be where a lot of competition will occur in the crop input space in the future.

Making Sense of the 4 V’s of Big Data in Agriculture

Understanding data in farming and agribusiness can be intimidating. But, it doesn’t need to be complicated. Scott Speck has come up with an excellent framework in which to think about data.

  1. Volume

  2. Velocity

  3. Variety

  4. Veracity

The dynamics behind each are worth reading and understanding.

Bridging the Collaboration Gap: Four Tips for AgTech Startups

There is some great insight in this post from UPL CTO Adrian Percy.

  1. Do your homework

  2. Understand long-held biases

  3. Prove it

  4. Get creative about financing

Related: 4 Tips For How Agri Corporates Can Innovate By Working With Startups

Farmobile Patents Blockchain Tech to Protect and Manage Growers’ Data

“Farmobile received a patent for the blockchain technology it’s developed to help farmers keep track of who’s accessed their data and when”

Farmobile collects data through their passive up link connection (PUC) in equipment, and stores this data in the cloud specifically for farmers. Farmobile enables farmers to be able to sell their data to 3rd parties through the Farmobile DataStore, a market place for farm data where farmers data is listed and seed companies, chemical manufacturers, retails or otherwise can purchase the data.

“Think of it like a virtual financial ledger that has a series of rules around how people use it,” company CTO Chris Schibi adds. “In our case, a grower logs in to the DataStore and goes to a screen that shows all the orders he or she has had to view his or her harvest data. By clicking another button, he or she can see which orders he or she approved and disapproved and where the data went, such as an ag retailer or a seed company.”

Related: Trust is the New Currency in Agriculture

AgTech Startups With Big Data Solutions — Here Is How You Should Work With Farmers

Great layout from Walt Duflock who’s associated with THRIVE Agtech.

  1. Have data discussions early

  2. Work the data collection into the MVP definition

  3. Help the sales team have productive conversations with existing customers.

  4. When in doubt about how fast to move — go slower than you would like

  5. Figure out what is in it for the farmer

What It Takes to Scale an AgTech Startup

Background on the building of digital platform company, 30MHz.

“We were just looking for a solution for our technology—exactly the thing everyone says you shouldn’t do”

CIBC Innovation Banking Provides SemiosBio With a $25 Million Growth Capital Financing

This puts Semios at over $100 million in capital injection over the last few weeks. I wrote more on them and their business in the February 23rd update.

Farmers Edge and Nufarm Brazil Strike Landmark Partnership

“This partnership allows our representatives to work more closely with growers and use advanced analytics and predictive intelligence to provide specific recommendations for each field—from selecting the right crop protection products to determining the right rates to apply to each zone of a field to maximize yield potential.”

This is the second country that Farmers Edge and Nufarm have a partnership in, the first being Australia. I talk a lot about digital infrastructure for organizations in ag, and it is difficult to build robust tools in house, so these strategic partnerships can be a significant boost. Looking at other organizations that don’t have the scale of the big 4, following the Nufarm partnership approach makes a lot of sense - ADAMA has gone down a similar path in some countries.

Related: Lindsay Corp., Farmers Edge Partner in Integration and Our ‘Amazon Moment’ (I recommend checking out Farmers Edge CEO Wade Barnes commentary in this one) and Nufarm Gets Regulatory Clearance For Sale Of Nufarm Brazil

(*I am employed by Farmers Edge)

Major Ag Companies Take Step in Data Management

This announcement, DataConnect, was first launched at Agritechnica in November. For the farmer this has some positives in terms of decreasing issues with connectivity across mixed fleets; from a manufacturer perspective I will be watching closely the strategic implications of this for these organizations.

Related: Telematics Offers Value to Owners

Global Trends in Crop Protection Industry

Some highlights from this very informative crop protection/seed overview:

Validity of Marketplace Business Models in Agriculture

“The only place in the USA where there are B2B unicorns is in the agriculture space”

Alex Moazed, Platform Business Model expert and author of Modern Monopolies, talks market places - FBN, Indigo and challenges in creating a B2B market place.

Relevant Video - 10:25 to 16:00 min marks.

FBSciences and Yara Announce Collaboration Agreement to Bring Innovative Plant Health Solutions to Growers Across North America

This partnership today is focused on the high end crops in California using tough to mix with calcium nitrate based products (although more crops than high value have a fit for calcium nitrate).

This partnership should evolve further. FB Sciences is a leader in the biological space, with strong products and active ingredients that fall under the humic acid umbrella with their polymeric polyhydroxy acid (Transit) product. As I highlighted in the February 9th Upstream edition, Yara is very focused on growing in the specialty product space, that includes biostimulants. There are numerous types of “biostimulants” out there:

Yara’s biological products currently have an emphasis on the “extracts” area - seaweed based products. Where as this partnership with FB Sciences can enable them to access strong actives in the “acids” segment, and just like various herbicide groups perform differently than one another, it’s the same for biostimulant groups. Extracts are stronger in some areas, humates are stronger in others. There is power in combining them in products plus combining with targeted nutrients as well.

When you look at the image showing yield reduction due to abiotic stresses in the previous story, you can see one reason why there is a focus on this sort of partnership and it will further enable Yara to address abiotic stress mitigation in an a more meaningful way.

Related: Why Micronutrients Might Be Generating More Revenue for Ag Retailers Than You Think

Syngenta Expands NK Corn and Soybean Portfolios

Syngenta is launching over 30 new corn and soybean varieties for the USA in 2021. What grabbed my attention at the end though was this:

“The NK Seed Analyzer, a tool that taps into decades of data to provide unbiased, field-specific recommendations. The adaptability of the platform allows retailers and farmers to proactively plan for weather volatility, soil variability and planting specifications by seeing actual results from numerous sources”

This tools capabilities compared to that of other competitors will be something to dig into as well as how it may be used in conjunction with AgriClime.

Coronavirus: “Profound Impacts” On Fertilizer and Crop Protection

Related: How Coronavirus Could Affect NPK Prices

Other Relevant Ag Stories

15 Minutes with Kip Pendleton of Legacy Seed Companies - Global Ag Investing

Drone Spraying Takes Off as Regulations Relax Worldwide - Future Farming

BASF, AGCO Join Forces to Enhance Operation Weed Eradication - Crop Life

Bayer's Top Seed Faces U.S. Soybean Challenge from Corteva - Reuters

Topcon Agriculture, CropZilla Form Data Sharing Partnership - Crop Life

Farmers Fight John Deere Over Who Gets to Fix an $800,000 Tractor - Bloomberg

Digital Supercluster Backs Precision Fungicide Development - Ag Canada

Non-Ag Article

How To Be A Great Leader: Timeless Leadership Traits From Roman Emperors, Philosophers, and More

Ryan Holiday is a best selling author and a very well read individual. Check out his take on timeless lessons of leadership.