Upstream Ag Insights - November 21st 2021

Essential news and analysis for agribusiness leaders

Nov 21, 2021

Welcome to the 94th edition of Upstream Ag Insights!

Index for the week:

3rd Quarter Agribusiness Results Summary
Microsoft and Bayer Crop Science Platform Partnership
Farmers Business Network Raises $300m + ADM Partnership Announcement
GROWMARK and CHS VC Partnership
Autonomy as an Evolution
Building an AgTech VC Firm - What did we learn?

Thanks for reading and for sharing!

Q3 Agribusiness Results - Upstream Ag Insights

This week I summarized results from Q3 reports for the following companies. Some are simply highlights and quotes, while some companies I added a bit of commentary into.

Fertilizer

Nutrien
Yara
Mosaic
CF Industries

Seed and Crop Protection

Bayer
Corteva
BASF
Syngenta
FMC
UPL
Bioceres
Benson Hill

Grain and Processing

ADM
Bunge

Equipment and Manufacturing

John Deere
CNH
Raven
AGCO
Lindsay

Other Ag Companies

Farmers Edge
Trimble
Marrone Bio
American Vanguard
Deveron

Note: Nufarm - annual report will be in November 28th edition of Upstream Ag Insights

This week’s edition of Upstream Ag Insights is brought to you by EFC Systems!

Thanksgiving. What a great time to pause a moment with family and friends to reflect on the many blessings we have because of where we live and the industry we are part of.

On behalf of the team at EFC Systems a big Thank You to our customers we’re proud to serve and extend best wishes for a great.Thanksgiving in this season of Gratitude.

Speaking of Gratitude a shout out to the team at Ag Retailers Association who have lined up what appears to be the hallmark Agribusiness event of 2021 in San Antonio starting Nov 30th.

The Ag Retail Association team continues to be a strong advocate in Washington for Ag Retailers. You don’t need to be a member to attend, though membership is a great value in so many ways.

The EFC team looks forward to seeing you in San Antonio.

ARA Conference Schedule

EFC Systems Information

Bayer Crop Science and Microsoft Enter into Strategic Partnership -AgFunder News

Bayer announced a strategic partnership with Microsoft to build a new cloud-based set of digital tools and data science solutions for use in agriculture and adjacent industries, bringing new infrastructure and foundational capabilities to accelerate innovation, boost efficiency and support sustainability across value chains.

There is a lot that is notable with this announcement. And I think it’s worth first stating: this isn’t simply an announcement where “Climate is now using Microsoft Azure for their cloud services”. In fact, it is the opposite. I confirmed with Sachi Desai, Digital Farming Strategy Lead for Bayer Crop Science that Climate uses, and will continue to be a multi-cloud service consumer.

What this is is Bayer and Microsoft jointly developing a platform with a suite of capabilities and services designed specifically for use cases in agriculture and across the ag and food value chain. This could be a catalyst for a growing trend that we have seen with the likes of Leaf Agriculture and be a sort of ‘AWS moment of Ag technology services’.

Let me elaborate.

When an organization, let’s say Intelinair (using Intelinair for no particular reason other than they have imagery services to fit my hypothetical tooling examples…this is purely hypothetical) picks a cloud provider, there is still a need for them to use developers so they can seamlessly access imagery for their platform, ingest the imagery data, manage field borders, use cloud masking capabilities, analytics applied to the imagery etc. All this basic infrastructure and data movement is necessary to get an agribusiness/farmer facing product started by developers who may not have an understanding of agricultural nuance. Then there is a need to actually begin to deliver insights and differentiated products, but so many of the resources are being allocated to the basics. Today that’s the reality for many companies, which means ultimately less value gets delivered to the farmer and agribusiness. This can go beyond an imagery based company too. Consider the challenges of managing messy telematics data and this platform having the ability to manage it? Or, access to weather data or predictive models.

A metaphor I’ll use to illustrate is building a website.

In the early 2000’s you needed to literally have a skill set in coding, HTML etc just to get a basic webpage up. Today, I can go to Wix.com and have a customized and beautiful website up and running by “dragging and dropping” basic templates and app add-on’s that allow for features like email acquisition, sharing a blog, selling a product with the ability for money to flow directly in my bank account. This literally can be done within a couple hours today. In 2001, it would have been impossible for me personally and taken months, not to mention the up keep, for even the most skilled developer…and it wouldn’t have been as user friendly as what is built today with Wix. Wix gives me more time and more money to allocate towards marketing, creating new products, improving old products etc. We have seen this play out in many other industries as well, from gaming (Unreal Engine) to drug discovery (Moderna).

That’s what this partnership appears to be doing, but with agriculture specific tools. Companies can come onto this platform and hypothetically access cloud masking tools for imagery, data ingestion tools, yield prediction models and more. This can cut coding time, add development capabilities without adding staff, deliver flexibility and allow for using sophisticated tools, I assume more affordably (though I am uncertain of pricing). It also removes the hurdles for companies to get started, and can allow for established companies to reallocate resources to where there is value: delivering insights and a differentiated offer.

I should clarify, I am not a computer scientist so I may be over simplifying. I also do not have the details on exactly how and what the Bayer/Microsoft tools can do currently, or will do in the future.

Here is a framework image from my write up earlier this year called “The Amazon Web Services of Agriculture”:

If we look at this image (again, over simplified), the shared infrastructure is the traditional “cloud” services - Azure, AWS etc. The platform is what Microsoft and Bayer are collaborating on.

This announcement also seems to go beyond the farm gate.

It can allow for collaboration downstream in the value chain. Take a CPG company that wants to connect further upstream and access farm data, specifically as there are pushes on them from government, shareholders or just differentiating amongst consumers. This platform can be a conduit for that. It also could allow for CPG companies to more seamlessly interact with breeders for example to meet the specs and demands. Consider a CPG company, like PepsiCo, might want a specific type of oil characteristic for their chips. They could potentially work with Corteva to develop specific varieties for this, via the platform announced. Whether that will come to fruition or not is unclear.

Microsoft

This seems like a win for Microsoft. I suspect all cloud computing companies, like AWS and GCP (Google) are wanting to begin offering tools like this to the ag industry in time. However, now Microsoft has direct access to collaborate with the Climate team to help steer the development from one of the leading ag and digital ag companies. This is likely to be be a boon for their Azure cloud business (Teams as well) as well as develop a new revenue stream for them too. Microsoft’s sales force and consulting team will be the group to selling the platform to a customer pipeline and I think a big driver of this platform.

It should be stated as well that this is separate from FarmBeats currently, but is likely to be rolled under the same umbrella over time.

Bayer

A few weeks ago I covered Bayer’s Investor Presentation, highlighting their emphasis on future monetization of Climate FieldView. This is the first exposure we are seeing to one of their revenue pillars.

Liam Condon stated:

We have a partnership model. We have over 70 partner companies, and depending on services provided to the grower, we can also take a portion of the value that we help create on the farm. That’s the part of the model that I would say is probably least developed today, but the potential is there.

I went on to state the following:

This becomes a platform-like, Apple App Store-esque business model where the partners pay Climate FieldView for access to their tools/system, and they pay FieldView because being associated with FieldView enabled them to create more value for the customer and access revenue from that customer.

I wasn’t entirely accurate. Companies will be accessing tools, but it appears they will be paying Microsoft and Bayer for access to the infrastructure tools to support their product offering. This becomes a new revenue stream for Bayer.

Final Comments

Is it good for the industry? Fundamentally, it appears to be yes.

There is still the question of execution: Will they build the right tools that attract organizations to the platform? Will these tools equal to or best in class compared to what can be built on their own or elsewhere? Will the fees make sense? What companies will jump first to participate? How well will it work? What will the AWS, GCP response be and could they partner with companies like TELUS? Among others.

I have had a bunch of comments come in about this announcement. Some saying just a glorified cloud announcement, some saying just a way for Microsoft to get more cloud business, some saying Bayer must just be trying to get more influence in the industry. While there is probably some truth to the latter two things, there is also a need to acknowledge what this could enable and signals for the industry:

Some of the most consistently talked about challenges with agtech have been interoperability, a lack of company collaboration, accessing developer talent that “gets” ag and a call to move beyond creating “walled gardens” which lack interoperability.

This platform can begin to allow a standard approach to tooling across the industry and begins ease of data flow from upstream to downstream or vice versa. This means there is not only easier ability to add value to farmers and agribusinesses, but also the ability to connect the value chain and work to accrue more dollars to the farm gate. I suspect that over the next 24 months this announcement will prove to have been a catalyst for more collaboration and announcements along these lines and if not it should at least spur other organizations to look at an offering along these lines.

Last year we seen Microsoft and Land’O Lakes announce a partnership. I suspect Truterra to be able to benefit from this platform and I suspect CPG companies to be reaching out in interest, especially as we are seeing interest in carbon.

I mentioned more moving and shaking coming from the Microsofts, Google’s and Amazon’s in the agriculture space as a prediction for 2022 on this podcast with Margy Eckelkamp. I think this is just the start and the initiatives from the massive tech companies through agriculture company alignment will continue, focused on empowering agribusinesses, not disrupting them.

Overall, I think this is setting a positive stage in the industry.

My friend Mark Johnson wrote on this too:

Bayer+Microsoft: A digital platform for agriculture?

He touches on some of the dynamics of not just Bayer and Microsoft, but FBN and ADM along with other recent ag related news.

Related: Bayer is Not For Breaking Up - Reuters

With the breaking up of conglomerates like Johnson and Johnson and GE into separate companies, there has been questions over companies in other industries, including Bayer. Bayer breaking up has arisen for the last few years, specifically since the Monsanto acquisition because of value destroyed throughout the company consumer health and pharmaceutical divisions. However, the Bayer CEO has stood firm that there is more value with the three businesses together.

The Monsanto acquisition annihilated the Bayer stock price. I think one of the areas of Bayer that will need to pull more weight moving ahead will be Climate.

Farmers Business Network (FBN) Announces $300M in Series G Funding Round - Financial Post

Farmers Business Network ® the global farmer-to-farmer network and ag tech company, today announced the closing of $300 million in Series G funding. The round was led by Fidelity Management & Research Company LLC with participation from LN Mittal Family Office, ADM Ventures Investment Corp., Colle Capital Partners, Walleye Capital, and Tudor Investment Corporation.
FBN will use the capital for general corporate and working capital purposes and to fuel the growth of both its FBN Direct and FBN Financial platforms. FBN intends to hire over 350 new team members in the next year and make significant investments in technology and data science.

This Series G, and 9th funding round according to Crunchbase raise puts the FBN valuation around $4 billion. Over double what they were valued at in their previous round 15 months ago. They have raised over $870 million USD now.

If I was betting, I would have bet their next step was an IPO. I am sure it is still planned for the near future.

The priorities for this funding include building out better logistics and distribution infrastructure for their inputs business. This has been a priority for them for a while now and will continue to takes mountains of investment as FBN has a bold target to be as effective at delivering crop inputs as Amazon delivers consumer goods. The last mile in input distribution is much more expensive than in the consumer space. They anticipate the ADM partnership (more below) to be supportive of this endeavour moving ahead.

They also plan to develop more insurance and financial products via this funding. Given there have been other parametric and plan based insurance products coming out, between aspects of FBN like their trial initiatives and access to data, this seems to be a logical area for them to launch something in the short term.

One comment that caught my attention was using some of the funds to invest in their “robotics segment”. I wasn’t aware of their robotics segment, but that is something to keep an eye on whether that is something they continue to mention or do anything around.

What was most interesting about the announcement for me though was this:

ADM, FBN Announce Expanded Partnership - World Grain

Archer Daniels Midland (ADM) and Farmers Business Network (FBN) on Nov. 18 announced that ADM has made an equity investment as part of FBN's latest capital funding raise, and that the companies have signed a letter of intent to expand their existing relationship through a wide range of potential future areas of cooperation.

This is another notable aspect, directly related to the FBN raise. This marks the first time an incumbent agribusiness has invested in FBN. This is also the first time that there has been an expanded partnership announcement from FBN with an industry incumbent.

This signals to me the final nail in the coffin of “disruption mindset” in agriculture. Shubhang Shankar of Syngenta Ventures called this last year, my friends at Tenacious Ventures reinforced it earlier this year and I have been adamant that technology is about enhancing outcomes for farmers and traditional channels do in fact play a pivotal role in that. I don’t mean this as a knock on FBN, I think it is a smart decision for their business moving ahead. It signals that an even greater aspect of the FBN business will be focused on supporting agribusinesses, because that’s what is good for farmers. Direct to farmer as a stand alone go-to-market has proven difficult for almost every agtech company. There are still organizations going that route in the field crop space, like Pivot Bio, but just like Indigo and now FBN have now evolved that approach, I suspect that will be the norm.

If you want to help the farmer today, you need to understand and work with the oligopolies that make up every layer of the ag value chain. Particularly on the grain front and downstream from the farm as new initiatives, like carbon and sustainability take off.

How these two organizations execute on this partnering endeavour will be worth watching.

Take this wording for example:

ADM and FBN said they have agreed to examine several areas of collaboration

Partnerships and collaborations even at the best of times with concrete plans do not workout. Let alone when it is simply to “examine areas of collaboration”, which doesn’t in-still a lot of confidence that it’s a priority.

Those areas include the following:

Enabling FBN’s 30,000 farmers to conveniently sell grain to ADM’s extensive network of origination facilities with full digital transactional record-keeping, sustainability tracking and payments through FBN’s Gradable Platform.
Advancing research to develop new biologicals, seed traits, fertilizers and crop protection products.
Enabling FBN farmers to conveniently and transparently purchase ADM products such as fertilizer and animal nutrition with FBN's leading e-commerce and finance platform.
Increasing farmer convenience and input product access by leveraging ADM's substantial physical distribution network for FBN farmers.

At their core, these businesses have been successful in their own rights in very different ways: In part, ADM has thrived off information asymmetry while FBN has attempted to use technology to breakdown the barriers of information asymmetry. Very different cultures, but for ADM at the core of this I think there is a sustainability emphasis that they do not want to miss out on and they need a partner to help them get there. That’s the big opportunity for both: ADM needs a company who can help them digitize their business and participate in sustainability programs and FBN needs access downstream.

If there is anything that comes from this partnership with FBN leveraging some of the ADM foot print, that will be a notable outcome.

Other Implications:

Bushel has come up often within Upstream, most recently when they acquired Grainbridge, a Cargill and ADM joint venture. In that write-up I had assumed that acquisition indicated ADM would become an exclusive partner to Bushel. I mentioned this gives Bushel more scale and brings about network effects. As it turns out, there was still an opening for ADM to partner elsewhere, especially on the grain front as this was more emphasized in the release (Gradable).

This is by no means a travesty for Bushel, but Bushel with ADM is in a much more powerful position in going to the industry to sign up more partners along with coming from a position of strength in negotiating with other commodity organizations in the future. The more groups using their platform, the more value there is for their network aka network effects. And like I mentioned earlier, this announcement is more likely to be the start of more partnerships for FBN, not a one off so there could be some more competition headed for this area if incumbent organizations come around on working with FBN.

In my conversations, there is still skepticism towards FBN for incumbent organizations because of the “anti big ag” emphasis for the last 7 years. I suspect there will be a lot of calls into ADM over the coming months from interested parties in how the relationship with FBN has been going.

Growmark and CHS Partner to Create Cooperative Ventures - Successful Farming

Growmark, the Illinois cooperative, and CHS, the Minnesota-based cooperative, have partnered to form Cooperative Ventures, a new capital fund that focuses on creating advancements in breakthrough technologies for the agriculture industry.

I personally love this announcement. I have advocated for retail organizations to join accelerators, create an innovation group within the organization or start their own venture funds to get early access into companies and technology coming into the industry so this is directionally a great thing for these organizations in my opinion.

This can also be a win for start-ups. Distribution is king. And when your investors give you access to ~1000 ag retail store fronts, thousands of trials, thousands of agronomists, thousands of customers, millions of acres and an entry point into other areas of the value chain, like fertilizer production (CHS) and grain origination, it can be a pretty powerful pull for start-ups. Start-ups need distribution and retails need innovation. Nice match.

For these organization, it is also beneficial to participate in some of the upside as well as alleviate some “will you be around in the future concerns” for any technologies they deploy into their networks. On top, having some skin in the game helps further engage the companies to give the start-up organizations and their products/technologies a shot.

They will focus on three core areas:

The fund has identified three core investment areas, or “Fields of Play,” to maximize the impact of each investment:
crop production
supply chain
sustainability

These are broad, but are right in the wheel house of where it can be supportive and strategic to their core businesses.

I will be curious to hear what their investment thesis itself looks like and what world view they are taking that will help them identify companies to invest in. I suspect given the size of the fund it will be focused on earlier investment rounds.

Lastly, the fact that these organizations are collaborating is a positive for the industry.

Overall, really great announcement to see.

This announcement comes the same week as this well done article from Successful Farming:

How Connecting with AgTech Start-Ups Can Shape the Future of Agriculture - Successful Farming

The rise of ag tech in recent years has introduced a host of new possibilities in agriculture. It also poses unique challenges and opportunities. By enhancing and deepening interactions with start-ups, major ag companies are elevating technologies that can truly add value for farmers. Their active involvement is defining the future of agriculture.

This article highlights Wilbur-Ellis taking a leap 6 years ago into the VC world. I am purely speculating, but I suspect there has been fruit from this initiative for the Wilbur-Ellis organization:

To date, Cavallo Ventures has invested more than $60 million in about 25 start-ups. In nearly every investment, the group has either collaborated on research or partnered with a start-up to commercialize an idea.

The article also highlights leaders from Corteva, Syngenta, Trimble and Bushel with their takes.

Smart Approaches to Autonomous Farming Deliver Targeted Value - Crop Life

The really encouraging thing to see with these systems now is how they are really going after the true pain points in the crop production process. Rather than focusing on the big prize of “Level 5” full autonomy, manufacturers are tackling scalable issues that bring incremental efficiency and agronomy improvements.

I talked about autonomy in the August 8th edition of Upstream, highlighting Raven’s Path to Autonomy and the journey to “Level 5”. I like the framing of levels of autonomy because it emphasizes autonomy as a continuum where as we tend to talk about it as a black and white monolith of “no autonomy” or “full autonomy”.

There is a long way to go before technologies like OMNIPower become ubiquitous in large acre row crop markets. But making a significant dent in core retail challenges such as efficiency and employee retention will only help move the evolution and adoption of autonomy forward, and that alone is great progress.

I agree with the above and that reinforces the need to breakdown the tasks and actions on farms and at the retail level when looking at automation as well as AI.

Companies need to continue to look for incremental automation to manage costs as well as deliver better outcomes for farmers removed from human emotion, bias and error. This doesn’t mean entirely removing the human, but automating redundancies, tediousness and high risk error points in managing equipment or doing fundamental agronomy tasks.

Lets break it down:

At the retail level there are specific jobs. Location managers, facility assistants, agronomists, sales people, equipment operator etc.

Every one of these jobs is made up of a number of responsibilities that are made up of numerous tasks and then micro-actions once broken down to the smallest possible components.

An “agronomist” is a job, that has responsibilities (eg: sell product, support relationships, solve problems etc) that are executed via tasks (eg: scout field, make fertilizer and chemistry recommendations etc) and are made up of actions (eg: drive to field to acquire information to inform a recommendation).

This can be the same for a sprayer or floater operator at the retail.

Jobs don’t just get “automated” or better stated, automation doesn’t just happen. It’s a progressive, evolutionary process.

In a softer skill and knowledge based job like agronomist, the job itself doesn’t get “automated”. Small actions get eaten up by technological capabilities, then the full tasks until eventually the responsibilities can be fully automated and the responsibilities of the job change . This is the same with machinery, for example with a sprayer. We have been seeing automation of driving (autosteer), boom height, pressure, overlap control etc. Automating specific actions that were previously taking concentration and brain power from the individual running the unit.

Thinking about jobs through the responsibilities > tasks > actions framework allows us to ask the following:

What actions can be automated/replaced remotely or otherwise today?
What is the frequency of the actions?
Is the automation as effective as the human?
What is the timeline to automate other actions?
What tasks and actions can’t be automated? There will be some aspects that simply cannot be eliminated.
What new tasks and responsibilities are created as this plays out?
What high value tasks can an individual now take on once other tasks have been automated?

Today there is still a requirement for a human. And I don’t anticipate this changing because we are all human and have a natural skepticism towards it. Heck, IBM’s Watson diagnoses heart disease better than cardiologists do! But patients still prefer a human doctor. People view their situations as unique. People see AI providers as inflexible and standardized — suited to treat the “average” but inadequate to account for the unique circumstances that apply to an individual. Farmers will still prefer to be in control of their operation, and agronomists will still prefer to make the ultimate call. This will show through in how equipment/autonomy companies move forward with autonomy initially, likely leading to “tethered” equipment first for example because now you can take valuable and necessary actions, like being in the field and driving, and 2x the output while not forgoing safety or anything like that. It also may mean tighter integration into digital systems to better understand the decisions that need to be made, as signalled by the FieldIn acquisition of Midnight Robotics this week.

Change happens slowly, then all at once.

Related: Agricultural Robots Market to be worth $11.9 billion by 2026 - Markets and Markets

We Built an AgTech VC — what did we learn? - Tenacious Ventures

There is a lot to take out of this insightful article from my friends at Tenacious. This post has a ton of learnings for those wanting to understand the venture world, but I think what stood out to me the most isn’t what was written, but what their learnings show: You can learn and accomplish a lot in three years if you take action day in and day out. I have had many conversations with the Tenacious team and learn something every time. In fact, had I not known they were “rookie” VC’s, I wouldn’t have guessed it.

I personally find their starting hypotheses and views of the future of ag to be compelling and noteworthy:

Climate Impact. Our food and agriculture system is facing unprecedented pressures due to climate change, and we desperately need commercially viable solutions to transition to a carbon-neutral (or better) and climate-resilient future
Digitally Native Agriculture. Emerging technologies are breaking established paradigms and creating opportunities along the value chain
Sector-specific, high conviction, high support. Startups are the key to unlocking the future enabled by (1) and (2) above, but they cannot do it alone. A sector specialist, high conviction, high support partner is needed.

Non Ag Article

Experts From A World That No Longer Exists - Collaborative Fund

This is an exceptional article that does a great job of highlighting the need for an open mind and being capable of acknowledging that the world is constantly evolving.

The important thing is that when something that previously didn’t work suddenly does, it doesn’t necessarily mean the people who tried it first were wrong. It usually means other parts of the system have evolved in a way that allows what was once impossible to now become practical.
One takeaway from this is that no age has a monopoly on insight, and different levels of experience offer different kinds of lessons. Vishal Khandelwal recently wrote that old guys don’t understand tech, but young guys don’t understand risk. Another way to put it is: everyone has something to teach.
The moment one gets into the ‘expert’ state of mind a great number of things become impossible

This article is a great reminder of the concept of “the half life of knowledge” heuristic:

the amount of time that has to elapse before half of the knowledge or facts in a particular area is superseded or shown to be untrue.

In a rapidly changing world, the “half life” of information, experience and facts changes at a high velocity. I think it is crucial to acknowledge this within agriculture.

Upstream Ag Insights