Upstream Ag Insights - September 11th 2022

Essential news and analysis for agribusiness leaders

Sep 11, 2022

Welcome to the 134th Edition of Upstream Ag Insights!

Index for the week:

Regenerative Agriculture Doesn't Have to Be Contentious
Meristem Announces Two New Tech Delivery Systems top Boost Biological Performance
There is no Spoon - The Real Idea Behind Digital Native Agriculture
Changing the Risk Profile of Agriculture: A Farmers Perspective on Parametric Insurance
Cropin Launches Cloud for Agriculture
Taranis Raises $40m Series C
LatAm News
a. Agrifintech in LatAm
b. BASF Creating LatAm Ecosystem
The Dog, the Hare, and the Power of a New Lens

Thanks for reading, sharing and subscribing!

1. Regenerative Agriculture Doesn't Have to Be Contentious - Upstream Ag Insights

I frequently get asked “what do you think about regenerative agriculture?” and then this week I read an article on how it is a “contentious” term.

I don’t think it has to be contentious and I think the better way to approach “regenerative ag” is to break it down into the components and practices that create this “bundled” agriculture system.

For more on practices that go into regenerative and a beginning framework of how to assess them, check out my write up this week. As a bonus, at the end of the write-up I go into just how much more efficiently we produce crops today on a per gram of herbicide perspective compared to the 1950’s and 60’s.

2. Meristem Announces Two New Tech-delivery Systems Designed to Boost the Performance of Biologicals - Oklahoma Farm Report

Meristem announced here today the commercial launch of two patent-pending biological delivery systems - BIO-CAPSULE™ and MICROBILIZE™ - building on their effort to bring real productivity gains to farmers.

This announcement from Meristem Crop Performance, a company that sources, formulates and delivers crop inputs to farmers (primarily) outside the traditional channel retail channel, has a couple interesting aspects to it.

The first:

The BIO-CAPSULE TECHNOLOGY™ Planter Box Delivery System, is a revolutionary packaging system designed to carry, protect, and dispense a multitude of biologicals into a seed lubricant blend plus micronutrients. It will be launched commercially in crop-year 2023

Traditionally, we have thought about applying inputs through three main mechanisms:

On seed application
In soil liquid application
Foliar application

This goes for all different types of crop protection products, fertilizers and biologicals. There is now a 4th mechanism for formulating and applying crop inputs that I haven’t heard of and that’s as a “seed lubricant”, used to increase flowability through a planter. The compelling part here is the ability to have the nutrients and biologicals being applied immediately near the seed to help with plant uptake while the new patented packaging allows to not have to worry about microbe viability and streamlining the number of product jugs to manage for a farmer. Really notable innovation.

This quote stood out to me:

Another BIO-CAPSULE will be charged with a microbial team proven to fix nitrogen and solubilize nutrients.

Last week Pivot Bio announced their new formulation and I touched on their distribution reach and potential distribution synergies between the likes of a Pivot Bio and Meristem. This quote is an illustration of where this could potentially be that coming to fruition to create meaningful value for the farmer and for both of these organizations.

The second announcement is on a product called MICROBILIZE:

MICROBILIZE™ Microbe Technology Delivery System, the second patent-pending product announced, covers a liquid formulation technology that enhances microbe health, increases vigor, and speeds reproduction at the target. MICROBILIZE uses a surfactant system, fulvic acid and other ingredients to increase the shelf life and performance of microbes.

The biological space gets thought of in terms of active ingredients that have some specific physiological response on a crop, such as bacillus subtilis. However, there are products that do not always work directly on the crop, but work directly on or in support of other microbes to augment performance, shelf storage or in soil viability as just a few examples. MICROBILIZE falls into the category of a horizontal product:

This announcement has two important implications for the Meristem business:

Meristem can derive a new revenue stream from licensing this “horizontal” IP out to other biological companies looking to increase performance and shelf life of their product. For example, if a biological company like Marrone Bio (now apart of Bioceres) viewed MICROBILIZE as a strong product and wanted to augment their products, they could become a customer of Meristem.
Meristem can attract more companies to bring their biological products to them for both the BIO CAPSULE and MICROBILIZE IP which Meristem can layer into their distribution channel. The Pivot Bio example from above is relevant here as an example.

Overall, this is a super compelling announcement that makes Meristem look even more impressive. In August Meristem and Stoller announced a strategic partnership, laying the initial signal that new partnerships were on the horizon for Meristem.

3. There is No Spoon - The Real Idea Behind Digitally Native Agriculture - Tenacious Ventures

At Tenacious Ventures, we invest at the intersection of digitally native agriculture and climate solutions. But when we talk about digitally native agriculture, it is easy to assume we're talking about the digitization of farming. While the digital transformation of farm operations is happening and will be impactful, what we mean by digitally native agriculture goes well beyond this.
Like many other industries, agriculture will benefit greatly from increased efficiency, accuracy and speed of digital technologies. We would characterize digital farming as things like:
Satellite and drone-derived imagery will provide better, more actionable information to farmers
Software-based farm management system will improve decision-making and increase collaboration
Connected machines and sensors will ensure that we only use what is needed, lowering inputs and increasing yields
Digitally native agriculture however is far more than just digital farming. It is about reimagining how systems can work and challenging the current structure of core elements of the agrifood value chain.

I have highlighted a similar article from Matthew Pryor of Tenacious Ventures in a previous Upstream, but the perspective is an important one.

It’s important to think of digital beyond things like software like farm management software and imagery and re-think how bits can re-shape the physical dynamics of the industry. I call this a digital first mindset vs. an analog first mindset, the former being key to thinking about digitally native agriculture.

Evolving to this digital first framing sets us free from physical constraints, and opens up doors of opportunity, unshackled from previous approaches.

An example I come back to to “prime” my mind to think in a digital first way is from this article regarding airports and airlines: Digital-First: The Essential Modern Business Mindset

This mindset can help re-imagine business models and customer experience, like Matthew points out. It also helps deliver better farmer outcomes because underpinning digitally native agriculture are other “agricultures” like “connected agriculture” (“IoT” or sensors collecting data) and this enables “computational agriculture” where better decisions can be made across the value chain.

Tenacious Ventures Raising Fund II - Sarah Nolet Linkedin

My friends at Tenacious Ventures are raising a second fund which I think is notable in itself, however, the fact Sarah Nolet and Matthew Pryor have decided to share the process I think is incredibly interesting. Sarah and Matthew are two of the individuals who have been incredibly generous in helping me learn more about the the Venture Capital world, a world as Sarah alludes to as being a “black box”. Now they are going to publicly share their experiences regularly.

I eagerly look forward to reading more about their endeavours in not only raising the fund, but continuing to learn from their investment notes and industry insights.

To learn more about their Fund II, check out here.

4. Changing the Risk Profile of Agriculture: A Farmer's Perspective on Parametric Insurance - AgTech So What

This is an insightful podcast with farmer, Tom Ferguson, who has a deep understanding of his business, going through understanding costs and revenues on a per millimetre of rain basis and how that sort of understanding helps him manage risk more effectively. In it he breaks down some ways in which he thinks about parametric insurance as well as an example of business scaled index insurance, at the grain originator level that in my mind has value at the ag retail level as well.

Parametric insurance, or index based insurance can be thought of as products paying out based on the value of an “index”, not on losses measured in the field. The index is a variable that is highly correlated with losses and that cannot be influenced by the insured. Indexes can include rainfall or temperature as basic examples. For example, a heat blast parametric insurance product would trigger once the specific high temperatures were triggered; no adjustor, no assessment, just automated. Good for the farmer and scalable for the insurance company.

I previously mentioned the deep understanding Tom has of his operation. The lack of desire to go deep into the numbers and data of a farm business potentially hinders some of the uptake of parametric products. This is interesting to me because one of the paradoxes of technology in ag is that it helps farmers and ag professionals more deeply understand their business, but you first have to want to go deep into the numbers and operations of your business to identify where many technologies have a fit and then implement it effectively. Those are the eager groups who get the disproportionate benefit from technology and it’s likely to be the case beyond the obvious aspects such as maximizing production and managing operations, but also managing risk.

Where there may be some simplifying is in bundling.

There is an opportunity to re-bundle index insurance products with seed or fertilizer or crop protection products. I talked about this being a likely trend last year and there is precedence for it too; parametrics.ag made an announcement with Corteva around canola last year - obtaining heat blast insurance with the purchase of canola seed.

This can be extrapolated out to other products like fungicide or even fertilizers as well too, obtaining parametric insurance for rainfall for example with the purchase of specific products. This could even be something we see with specific services, or programs such as carbon for example.

Catalyzed by AgTech So What’s previous insurance in agriculture podcasts with my Canadian friends Matt Coutts and Damon Johnson, I put together this image to break out the different types of insurance products out there:

To read more on insurance in agriculture, check out the June 19th 2022 Edition of Upstream Ag Insights (“Insurance Corner”).

5. Cropin Launches the World's First Purpose-Built Industry Cloud for Agriculture - Cropin

Agritech pioneer Cropin announced the launch of Cropin Cloud, the world's first purpose-built industry cloud for agriculture. Cropin Cloud is a multi-tenant, secure, scalable, flexible, intelligent cloud platform enabling agri-businesses, development agencies, governments, and allied industries to accelerate digital transformation across their business value chain.
Cropin Cloud is an integrated platform of applications for digitization, clean and contextual data pipelines for enhanced decision-making based on data analytics, and globally proven crop-specific, crop and geography-agnostic machine learning models. It aims to advance technology adoption to solve real-world agricultural problems and deliver value to every stakeholder in the food value chain, from the farmer and agribusinesses to the consumer.

This announcement from Cropin has similarities to the Bayer-Microsoft deal announced last November, but in a cloud agnostic way (beyond Microsoft Azure).

One key take away for me in talking about the announcement with Sachi Desai is that this reinforces (including Bayer-Microsoft) we are seeing the emergence of a B2B cloud layer that can sit on top of and support all cloud tools out there, increasing optionality for agribusinesses and streamlining time to value added digital tools in the industry.

I highlighted the Bayer-Microsoft announcement in the November 21st 2021 Upstream Ag Insights.

What is worth your time though is Rhishi Pethe’s analysis of the Microsoft-Bayer deal in Software is Feeding the World. The frameworks and models he presents provide a good lens for thinking through what Cropin is doing and how it relates to the industry.

6. Taranis Raises $40 Million Series D to Advance Crop Intelligence and Unlock Growth Opportunities for Agribusinesses

Taranis, the leading AI-powered crop intelligence provider, announced today that it has raised $40 million in Series D funding. The round was led by Inven Capital, a European climate tech fund, with participation from new investors Seraphim Space Investment Trust ('SSIT') and Farglory Group, and strong backing from existing investors. This latest round brings Taranis' total funding to $100 million.

Biggest thing of note to me with this investment announcement is that the leading investor is a climate driven organization and the other two new investors are non-ag specific investors.

In June, I talked about the crux of the remotely sensed analytic companies value proposition. Yet companies with imagery and data analytics capabilities do still provide a value to their customers and continue to access capital.

In fact it’s interesting to look at some of the notable players in this space and how much capital has been raised. According to Crunchbase:

Ceres Imaging has raised $58.5 million
Intelinair has raised $25 million
Sentera has raised $54 million

With Taranis, that’s almost $250,000,000 between four companies.

There have been other companies in this category too like Prospera, Hummingbird Technologies and Terravion, which have either been acquired or filed for bankruptcy.

So far, it seems in-roads to viable unit economics have been challenging in this sector of agtech. We will find out if more capital can deliver technological break thru’s or scale gains to improve this dynamic.

When reading the Taranis announcement I thought there would be a more pointed emphasis as to where the funds were going to go:

The new funding will allow us to accelerate our 3-year plan, rapidly expand our operations, and deliver transformative technology to the market faster. We are delighted to welcome our new investors and continue to be grateful to our existing investors for their support.

I haven’t seen a public statement about what the “3-year plan” entails, but it will be interesting to see what announcements come out of Taranis in the near future.

7. LatAm News (level set toN orth America)

a. Agri Fintech in Latin America - AgriFinTech

Niall Haughey does a great job covering whats going on across the financial technology landscape in agriculture. Recently, he brought together some LatAm fintech experts to talk about what’s happening with fintech in the southern hemisphere. For those interested in learning where fintech could play in agriculture, you will find some nuggets in here.

In Niall’s article and the corresponding video conversation “sustainability linked finance” comes up. One of the areas that I noted in my 2022 Upstream Ag Insights Outlook was “green lending”. We can talk about premiums for growers for sustainable practices all we want, but the reality is premiums will likely be challenging long term, as highlighted here in “Carrots and Sticks”.

Where the opportunity really is is in sustainability is where incentives align across the value chain. In the financial lending side of things, part of getting better rates is where the lender can more confidently underwrite that risk. In order to underwrite that risk, they need access to data. And when that data reinforces that strong agronomic practices are being used, the lender could more confidently lend at a better rates, lowering the cost of capital to the farmer. The risk to the lender is also decreased and depending on the organization, could appease shareholders where they are beholden to sustainability KPI’s. Win-win.

Instead of relying on someone in the value chain (eg: consumer) to pay more and then get that increased dollar through numerous stopping points on the value chain, in a green lending example risk reduction could be incentive enough.

FBN and the Environmental Defense Fund have began piloting an initiative like this in the USA.

For more fintech related insights, check out Niall’s article.

b. BASF Creating a LatAm Ecosystem - Linkedin

(Note: The below was translated on Linkedin from Portuguese)

Connection is fundamental, whether in business or between people. In order to connect several links of the chain, BASF Agricultural Solutions announces a great novelty for the Brazilian agricultural market. In partnership with Vertem, we will move forward in creating an unprecedented ecosystem. The conecta.ag will offer products, services, tools and agronomic content to help in decision-making of farmers, distributors and strategic partners.

Many new features are coming, with new partners coming and expanding the services offered. The initiative demonstrates BASF's commitment to innovation and customer experience. We are contributing to an increasingly connected, efficient and productive agro.

I could not find a press release on this announcement, however, there was a lot of buzz around BASF establishing a relationship with Vertem to create "conecta ag” in Brazil on Linkedin.

As best as I can decipher, it appears to be BASF’s answer to Bayer’s Orbia. That would make it an answer to another platform in LatAm is Agrofy, who Syngenta Ventures has invested in.

In LatAm, Bayer has apparently connected Orbia with FieldView:

It would make sense for BASF to do the same with xarvio. Integrating the input planning with agronomic insights into the purchasing journey is one of the tactics I have highlighted in Upstream continuously since 2020.

There is a noticeably bigger emphasis in Brazil than North America on this concept. We can find that rationale in understanding the differences in infrastructure between North America and Brazil and the psychology of the farmer:

A recent McKinsey study out of Brazil and then compared to a USA McKinsey study:

In the Brazillian study, there are more farmers willing to buy online and the ones that currently don’t, do not because they “don't trust the self-service purchase process” and “can’t access customized recommendations on what to buy” meaning that what BASF is seemingly looking to do, along with Bayer and Orbia, is access a more trustworthy source and tap into an “ecosystem” of agronomic intelligence which should further increase the uptake of these platforms, at least in theory.

Tying into the agfintech theme above, another notable take away from the survey out of Brazil was this:

35% of farmers still use cash as their main source of payment and 32% use store credit and bank financing

Platforms for purchasing along with a connection into farm management software provide a unique opportunity for embedded finance and with “more than 92% of farmers considering interest rates as the main challenge in obtaining financing” platforms could provide a haven for some farmers struggling to obtain credit.

We have begun to see something similar in the USA with Bayer announcing ForGround, albeit it is starting from a different place (sustainability) than transacting around inputs.

For more on Orbia, I highlighted them in Bayer Crop Science: Business Models for the Future of Farming.

Exciting Opportunities for Second Generation N-Fixing Products in Latin America - Agro Pages

8. The Dog, the Hare, and the Power of a New Lens - AgTech Marketing Insight

This is a great write up from Dan Schultz:

Marketing is the practice of building new lenses that enable our customers and our companies to see the world in a new way and improve their lives.

I love the fact that Dan defines how companies market based on different approaches, like “product-led”, “sales-led”, “customer-led” and “problem-led”.

I actually defined customer-led companies how he defines “problem-led”. This meant I was missing the importance in peeling apart what I’ll call “customer acknowledged problems” and “unrecognized problems” which is important, especially in the area Dan talks about, category creation.

Non Ag Article

McKinsey Technology Trends Outlook 2022 - McKinsey

Technology continues to be a primary catalyst for change in the world. Technology advances give businesses, governments, and social-sector institutions more possibilities to lift their productivity, invent and reinvent offerings, and contribute to humanity’s well-being. And while it remains difficult to predict how technology trends will play out, executives can plan ahead better by tracking the development of new technologies, anticipating how companies might use them, and understanding the factors that affect innovation and adoption.

Upstream Ag Insights