Upstream Ag Insights - May 3rd

Essential news and analysis for agribusiness leaders for the week of May 3rd, 2020

Syngenta Annual Report 2019

North America Crop Protection Sales of Syngenta decreased by 3 percent, 2 percent at constant exchange rates. Demand was impacted by extreme weather, which delayed the start of the season and a reduced planted area. Seedcare sales were reduced by the loss of a key account following the industry consolidation.

Margins declined thanks to an almost 1% increase in raw material costs for crop protection products.

Seed sales decreased by 21%, also at constant exchange rates. 2018 included royalties of $100 million under a change of control clause. Extreme weather and reduced acreage reduced market demand, while adverse ENOGEN® fuel economics and some product performance issues with parts of the corn range also reduced volumes.

Gross margin for seed was 46%.

Gross margin for crop protection was 45% equaling over 45% gross margin for these two segments combined.

It was a rougher year overall for Syngenta too with operating income decreasing in totality and as a percentage of sales (in 000,000’s):

This wasn’t much different than other competitors in the space.

Syngenta is still one of the top seed producers globally:

Syngenta R&D

“The total spent on research and development was $1,262 million in 2019 and $1,311 million in 2018 “

This is just over 9% of sales for 2019 ($13.6B) (Note: This includes $344 million of internal product development costs that were capitalized). This is down from 2018.

Sustainability

Syngenta has also been focusing on sustainability initiatives:

Cool Farm Alliance’s (CFA) Cool Farm Tool is now integrated with Land.db, the cloud-based software included with AgriEdge. This comes on the heels of an announcement I highlighted recently in Syngenta collaborating with the Land O’Lakes Truterra (LOL) platform. Syngenta talks heavily about their focus on sustainability, as all of the big 4 do, and is backing it up with some action. The interesting part about their initiative is that they understand the complexity of sustainability and are focusing on proper agronomic initiatives that benefit the farmer from a profitability perspective, as well as from a long term sustainability perspective. With their tool and in conjunction with organizations like CFA and Truterra they can begin to breakdown farms by chunks and assess biggest risks with a score and enable farmers the ability to see a report card and begin to make forward progress.

On top of this in other parts of the world they are working on traceability initiatives throughout their coffee and strawberries.

Syngenta today has one of the most fragmented strategies in the digital space; having AgriEdgeLand.dbStriderCropio, FarmShots plus pending seed selection tool NK Seed Analyzer. I don’t say fragmented in that it is poor. I say it in that they have acquired some strong assets and teams globally and have an opportunity to integrate these in a way that fits their longer term strategy. In reading their annual report, you can see cost increases at least partially attributed to increased expenditure on “digital programs and capabilities” and “in IT and digital platforms”. This reinforces their emphasis on digital tools moving forward with spending on acquisitions, internal digital development other resources.

They have also been enabling new risk mitigation tools for farmers in AgriClime in major countries like the USA and Australia. This is essentially a rebate back on Syngenta products used based on hitting certain weather based criteria (parametric insurance of sorts).

Syngenta Venture Portfolio

Syngenta has a strong venture portfolio with many companies that appear to have some strong products and technology behind them. This isn’t an elaborate overview, but a quick intro to their portfolio and corporate VC strategy.

Out of their 18 portfolio companies listed (not including their 2 exits in Blue River Technology or Marrone Bio nor their undisclosed investments) here is the categories their companies fall into:

8 include microbials, sustainable use technologies, pheromone technology, enzymes and essentially technology that would be considered bio based.

6 include precision, data, software, aerial or financial analytics based organizations.

2 are marketplace based (NinjaCart and Agrofy).

1 is grain sorting technology (BoMill).

1 is an accelerator (Agtech Accelerator).

This doesn’t include their acquisitions mentioned earlier either.

The Syngenta Venture strategy is worth looking at too.

There are a number of routes that corporate VC can go financial or strategic.

  1. Pure VC looking for returns (financial)

  2. Strategic support of their R&D in that it builds on their core business or looking to fill holes in their portfolio based on predicted future needs or R&D misses (essentially, strategically focused).

    Generally speaking, a focus towards strategic investments that support their core business, or the future of their core business, take priority in corporate VC.

Even within this, the strategy around how an organization exposes themselves to these groups can change.

Being focused on capital light initiatives such as partnering with accelerators is one tactic or it could be taking large bets and ownership in a company and influencing/learning while sitting on the board to where/when they tend to get involved (Early vs. Late stages) and to how they integrate these organizations into their business.

Syngenta has a focus towards strategic investments, with some that stretch beyond their direct business (eg: Ninjacart).

The Unit Economics of Corporate Venture Capital

“Instead of determining investment size based primarily on ownership requirements or other similar financially-focused criteria, a corporation should write the smallest check possible that buys enough attention from the venture to enable the exploration of a strategic relationship.”

Related: Radicle Growth and Syngenta Partner

ADAMA 2019 Annual Report

You can see ADAMA R&D spend is approx 1.55% of sales, a drop from last year that was 1.8% and significant variance to a discovery company like their cousin organization Syngenta. I like looking at the R&D expenditure of generic companies to put into context what amount of their sales they are reinvesting back into discovering or product/formulation improvement.

ADAMA sales in 2019 year were up by 3.0% over 2018 to $3,997 million.

Crop protection sales in the full year declined by 0.2% to $3,611 million. 

In North America, sales increased by 16.9% in 2019 totaling $786 million.

Gross margins worked out to about 35% for the generic manufacturer. Comparatively this is about 10% lower than Syngenta’s. Syngenta has significantly higher R&D expenditure, but oddly enough as a percentage of sales ADAMA and Syngenta have almost identical costs of marketing and distribution.

ADAMA also released their Q1 financials this week:

1st quarter sales declined by 3.3% to $973M. Crop protection sales were down 2.7% to $885M

Global fungicide sales went up 23.4% to $227M but herbicides down -3.7% to $441M and insecticides down -19.0% to $217M. Q1 EBITDA of $142 million.

Related: ADAMA's Marketing Director Talks About Pesticide Market in Brazil

2020 Farm Tech Investment Report from AgFunder

“Farm Tech startup investment has grown 370% since 2013, reaching $4.7bn in 2019 across 695 deals. That consistent growth bucks global venture capital investment trends across sectors where funding dropped year-over-year in 2019. It also bucks the trend for investment in agri-foodtech -- innovation across the food supply chain -- where investment levels have been more volatile over the years.”

Stay tuned for more on this!

China Pricing Index: Agrochemical Prices Fall During Lower Demand

This is a fascinating article that highlights much of what we’ve been hearing for supply issues and where those might occur:

“The clethodim (Centurion/Select in Canada) AI price rose 11% in March since the low operation rate and shortage of raw material supply”

“Triazole fungicides are still in short supply. Along with the limitation of operation, there is strong demand on difenoconazole and tebuconazole, which were widely made co-formulation with strobilurin fungicides like azoxystrobin, trifloxystrobin and pyraclostrobin. And some are key products in the portfolios of multinational companies as  mixtures and single formulations of triazole like Nativo of Bayer CropSicence, MIRAVIS from Syngenta and Bumper from ADAMA. Multinational companies’ supply cannot fully meet demand for the global production and distribution of these products.”

From a North American perspective, the majority of the actives should have been in place for 2020 season. But will this mean lower margins for crop protection companies when it comes to active replacement costs, for 2021 pricing, or will this turn into significant increases in product at the farm gate?

Glyphosate price fluctuation chart from the article:

UFA Co-operative Announces Partnership with Zone Startups Calgary

This is smart move by UFA. Zone Startups is a tech accelerator. I’ve advocated for retail organizations to partner with accelerator groups many times before because of the benefit to both the retail who gains access to technology and expertise in a capital friendly way and the start ups gaining access to customer know-how and a route to market (Note: UFA has other non ag businesses that this partnership can be beneficial to as well, I just highlight it from an ag retail perspective)

Zone Startups has a few companies in it’s portfolio today that are agriculture based - Skymatics, Stream and Intellicon to name a few.

Zone will specifically work with UFA to meet the challenges they see:

“ZSC looks forward to collaborating with UFA to source and curate technology companies that address UFA’s and its customers’ innovation challenges”

With all of this said…Partnerships are the easy part. The next steps are harder:

  1. How does UFA determine and prioritize their needs and customers needs now and in the future? Additionally, how is this synergistic to previous partnerships (Eg: Olds College)?

  2. How does UFA build out trialing initiatives and determine the viability of farm centric products for farmers?

  3. How does UFA integrate a company’s tech into their go to market? Or how do they integrate a start up acquisition into the company?

  4. How does UFA make money at it and more specifically integrate tech in a way that builds the entirety of business?

These are just the start. Even considerations like organizational structure can stifle successful implementation and execution of new product offerings.

Granted, some of the opportunity is in streamlining the current business. If this iniitative leads UFA to begin selling digital products, that’s a big change for them - digital products present new challenges. Digital products need to be sold much differently than physical farm input products. Physical product sales tend to stem from a one and done mind set. Digital products are more consistently a system. Product vs. system mindsets are very different mindsets from how you approach the sale, the time horizon of the ROI, the customer engagement level required and more.

“ZSC’s mandate and commitment to supporting the development of early-stage companies strongly aligns with UFA’s Innovation Strategy and our core purpose of serving our members with value-add propositions and solutions.”

There really is no outlay of UFA’s innovation strategy anywhere publicly nor is there a history of innovation at UFA on the Crop Input side of the business. Innovation shows up exactly zero times in both the 2018 and 2019 annual reports. Nutrien has it show up 25 times in their 2019 report alone for comparison. Obviously, anyone can talk “innovation” in a report, it’s the execution that matters, but without a history of implementation and a focus on innovation challenges can arise.

Lastly, being located in Calgary myself, I have to say this is good for the Alberta start-up eco-system. Along with Olds College this type of announcement puts confidence into entrepreneurs thinking of starting a businesses and supports already influential ag businesses in Alberta.

BASF Webinar “Precision Decision” and Herbicide Resistance

This webinar is from February, but is a good overview of herbicide resistance and the tools that enable farmers to overcome this growing issue.

I want to highlight the xarvio aspect. xarvio has a growing capacity to identify weeds through artificial intelligence. For now, it’s a fun tool for agronomists to play with in season, however, through this it gets continually more accurate and presumptively faster. That’s where the partnership with Bosch will eventually come into play. But like any good idea in digital, there needs to be iteration before achieving the ultimate vision. And so, before getting to true see and spray technology where total application amounts can be decreased 90+%, crop injury reduced, resistance managed more effectively and direct injection sprayer technology deployed, there needs to be a bridge to get there. This bridge is compelling. What BASF is doing in Brazil today is sending out a drone with sensor technology to identify weeds (resistance weeds more specifically) and creating a recommendation prescription based on where the weeds are, reducing resistance and total herbicide usage. There needs to be sufficient resolution imagery utilized (sub meter with sub foot showing best balance of effectiveness and cost to obtain) in order to execute on this initiative.

Top 10 Ag Retailers With the Most Revenue in Precision Ag Services

This is a nice list of the top selling precision retails in the USA. Some of these retails punch well above their weight class in terms of crop input sales to precision sales. There is no explanation of what counts as precision, unfortunately.

Using Dust and DNA to Trace Products All the Way Back to the Factory

“Bacteria, pollen, tiny fungi and—as the entire world knows all too well—viruses can be found in dust coating every object and floating in the air around us. What you may not know is that every place on the globe has its own unique signature of different kinds, amounts and combinations of these micro-organisms.”

Executing on traceability in the supply chain has many challenges today from connectivity, identifying the commodity and it’s origin to even management at the processing facility. To enable traceability in the supply chain in the future, Phylagen has a process to eliminate at least one of the above problems in agriculture.

I wrote about this two years ago, while overly simplistic, it has relevance today: SafeTraces and Blockchain

20 Benefits from Agricultural Genome Editing

This list is worth reading, understanding or refreshing. It’s amazing some of the things that have been achieved.

Indigo Ag's Plan to Compensate Farmers for Carbon Removal is Attracting Funders Such as FedEx

Carbon offsets and carbon credits are becoming big business.

“Indigo Carbon launched in June, and Perry said that it initially planned to have 3 million acres signed up in the first year. The company has sextupled that goal: At the time of writing, Indigo Carbon counts over 18 million acres signed up through its program. It takes about 12 months from the initial sign-up to the issuing of carbon credits, and Perry expects the first carbon credits to be issued later this year.”

The industry is continually buzzing around carbon and the future potential of it benefitting the industry, with CEO’s of major ag companies commenting on it week in and week out.

Tech Enhanced Irrigation

According to the new market research report by MarketsandMarkets, the Irrigation Automation Market size is estimated to account for a value of USD 2.8 billion in 2020 and is projected to grow at a CAGR of 18.5% from 2020 to reach a value of USD 6.7 billion by 2025.

Irrigation Automation Market Worth USD 6.7 billion by 2025

The market for automation and VR systems themselves in North America is still relatively small so this business does have significant room to run as sensor technology comes down in price and connectivity and system integrations continually improve.

Related: CropX Study Reveals Soil Moisture Probe Geometry Dramatically Affects Accuracy and whitepaper located here.

Pivot Bio raises $100m Series C to Meet Demand for Sold-Out Nitrogen-Fixing Microbe

Haber and Bosch developing a process that eventually scaled to derive nitrogen fertilizer was instrumental for agriculture. The next horizon for nitrogen is being able to consistently ensure that all plants can fix their own nitrogen like pulses. The capacity to deliver on this seems to grow every day. While I don’t anticipate bulk nitrogen facilities or nitrogen demand diminishing anytime soon, the ability for these types of microbes to be ancillary to nitrogen fertilization is compelling and something I think we will see grow.

One of the biggest challenges with them is logistics:

“Temperature controlled environments and time sensitivities mean farmers can’t exactly leave microbial-based products lingering at the back of the shop for too long. In March 2019, Pivot Bio partnered with 3Bar Biologics to combine PROVEN with 3Bar’s delivery system that allows a farmer to cultivate a fresh batch of microbes right on the farm”

This will continue to be a challenge, but there are tools being created like the above from 3Bar. I still wonder if a large manufacturering facility is the right place in the value chain to “brew” bacteria. My bias is showing here and fundamentally the logic has some flaws, but can retailers become the hub for cultivating these microbes on a just in time basis with a smaller scale production system? I haven’t dived into the economics and the core competencies required don’t fit traditional retail, but it has the potential to alleviate some of the challenges of centralized microbial distribution and simplifies for the farmer. As microbial products grow the distribution of them will be interesting to watch.

Bushel and Large Agribusinesses Form Technology Company That’s Transforming the Bulk Truck Freight Industry

“Initial charter members include five seasoned shippers—The Andersons Inc., Cargill, Consolidated Grain and Barge Co., Koch Fertilizer and The Scoular Company—and a leading agricultural technology company, Bushel. Together, they account for more than 1 million loads annually through their networks.”

These organizations are coming together to form an entity known as Roger. This is relevant not only for trucking companies, but everyone in the ag supply chain. The ability to remotely identify and understand where product is, where it’s been, when it is unloaded etc will play a significant role in traceability and provides a foundation for utilization of blockchain technology.

This is also a competitor of Indigo’s Transport business. In looking at the entities working together, and knowing at least part of Indigo’s mission is to challenge what the ag supply chain looks like, this seems like an even better play from these ag businesses.

Farm Data Collection and Farmer Use Analyzed

“Data collection among survey respondents was common; 82 percent collect yield data, 77 percent collect soil data, 73 percent create GPS maps from their data, and 47 percent of respondents collect satellite or drone imagery.”

“ Farms with more than 5,000 acres were 51 percent more likely to collect imagery data than farms of 1,000 to 2,000 acres.

“Privacy was not a big concern. That was really surprising especially in light of some current events that are going on. Clearly it’s the value proposition and the usability of data that’s the bigger concern”

“81 percent of producers making data-driven fertilizer report positive outcomes, 72 percent of those making seeding rate decisions report a positive yield impact and 85 percent of growers that use collected data for drainage decisions said the data helped the activity.”

Ranking the 5 Levels of Ag Data Transparency

Data privacy has never been a bigger topic in agriculture. Check out this take on the levels of transparency.

Agriculture’s Transition to Remote Working

“What we are seeing is that the ‘kitchen table discussion’ has become virtual, practically overnight out of necessity, and that most growers are now interacting virtually with their employees, agronomists and other advisors. Will the kitchen table discussion move back to pre-covid times once this pandemic is over? I don’t think so; technology will remain part of this discussion moving forward and support the efficiency and scalability of all businesses under significant pressure for the foreseeable future.”

The way farmers and trusted advisors are utilizing digital tools to communicate observations, crop plans, needs, actions and more to me shows this will be the case. The trend was already there, and as I’ve stated, has simply been sped up. The one thing we know about progress is that we typically do not go backwards - especially when the progress makes something more efficient and cost effective. With digital tools and technology these two implications are significant.

Channel Management in Ag: The Channel Isn’t the Challenge, Change Is

Who owns the farm customer? Some good perspective in this post.

“This challenge is seemingly so large that within it, there are many sub-challenges, including:

  • An inability to form and nurture a direct relationship with the farmer customer for fear of offending the retailer (for the farmer customer is really their customer, after all)

  • An inability to effectively leverage a “farmer pull strategy” (given the belief that retailers will push the products they want to push regardless)

  • An inability to collect and analyze comprehensive customer data for timely insights (given that the retailer captures and owns much of the transactional data, and may not share it as fully or as quickly as desired)”

Other Ag Articles

The Fertilizer Industry Creates Digital Campaigns to Overcome COVID-19 - IFA

Clean Seed Capital to Electrify the Ag Industry with EXRO Technologies - Clean Seed News Release

Digitizing Global Commodities Trading Will Take “A Lot Time.” Covantis is Set to Start in Brazil - AgFunder

Conservis Accelerates Client Adoption of Machine Integration - Yahoo Finance

Funds for Agricultural Innovation - Country Guide

Bayer Ties Up with AgroStar for Home Delivery of Agri Inputs - Economic Times

Canadian AgTech Startup Raises $2.2M to Allow Beer to be Brewed from Any Plant - Global Ag Investing

The Short and Mid-Term Impact of COVID-19 on Ag Technology - Lessing Flynn

Non-Ag Article

The Hierarchy of Engagement

This article/presentation gives a great framework for thinking about product design.