Upstream Ag Insights - September 12th 2021
Essential news and analysis for agribusiness leaders
Welcome to 84th Edition of Upstream Ag Insights!
I have to apologize, last week I stated that I would be going through the Syngenta Prospectus this week. However, I had some unforeseen opportunities pop-up within my consulting business leaving me tight on time to get it out this week. There is enough of it completed that I am confident it will be in the 85th Edition of Upstream on the 19th of September.
As follow up from last week, I received a lot of questions regarding the Amazon news in India. As I mentioned, I lack a depth of understanding of the market. However, my friends Rhishi Pethe of Software is Feeding the World and Venky Ramachandran of Agribusiness Matters did an excellent job of covering the dynamics and implications of the announcement in Tail wagging the dog? from Rhishi and Unbound Agriculture from Venky. If interested in learning more, those are two great resources.
Index for the week:
NFT’s in Agriculture
Considering the Future of Agriculture Tradeshows in a New Era
Inflection Points and Tech Adoption
Consolidation in AgTech
Seed E-Commerce Growth
Smartwyre Secures $10.5M Series A to Connect Agricultural Inputs Industry
Moving Beyond “Sustainability”
Thanks for reading and sharing! Have a great week!
NFT’s in Agriculture
I am far from an expert in NFT’s (non-fungible token), but the topic has piqued my interest over the last couple months, even as it pertains to agriculture. Carl’s post reminded me of one particular organization when I read it.
The only company I have talked to actively looking at NFT’s in agriculture is Bx out of the UK. They are creating NFTs out of a parcels of land where farmers are implementing regenerative agricultural practices.
These NFT’s would be sold to organisations who are looking to secure future access to all carbon removal credits generated on that parcel of land. The grower would receive the revenue generated from the sale of the NFT once there was verification that these practices and land improvements have occurred.
For the buyer of the NFT, this gives verified impact from their investment and the grower has then clear financial incentive and resources for making the changes to benefit the land. Recently, there have been many global investment funds to be found short of their ESG claims, making NFTs like this even more attractive.
After these changes have been implemented, the land has the potential to start generating annual carbon credits, and the organization who owns the NFT get first refusal to purchase the carbon credits generated. With 96% of Carbon Credits being actually carbon aversion credits not removal, Bx believes there is going to be a shortage of high quality supply carbon credits.
As with any NFT they can be traded and exchanged. Bx believes these NFTs will increase in value and become an important asset for corporates to hold to meet their ESGs goals. There is also a royalty mechanism embedded, which kick in on any NFTs eventually traded at profit. This royalty revenue is then re-distributed to all growers on the Bx platform. An ecosystem which continues to reward growers improvement to the land and ecosystem services they provide.
For any land on Bx’s platform, they would be the group responsible for the soil sampling and protocol, behind it and getting the farmers and the carbon offset companies onto their platform.
The challenges behind carbon credits and greenwashing may have some potential to be alleviated by the capabilities behind NFT’s. We could extrapolate this beyond carbon too, where we see organizations like Farmobile utilizing blockchain patents along with data stores, might we see this same future of NFT’s with other on-farm data?
On a related note to carbon, I noticed a new web page this week from Deveron* which I think is smart and I hadn’t seen any organization focusing explicitly on before:
Positioning themselves as a full stack soil testing and data company for “the worlds leading carbon programs”:
Deveron’s vertically integrated soil health and sampling service provides a scalable, tailorable support package for your carbon program.
Our package includes:
Trained soil technicians
Logistics management, including dispatch and equipment
Status updates and transparency throughout the process
API data connections to soil laboratories
Quality Assurance and Control on lab results supported by leading soil data scientists
Everything starts with the soil. Whether talking carbon or crop production, there is a need to understand it. I think we will see more soil testing companies go the route of positioning themselves within carbon. After all, like I mentioned when covering the Regrow raise: soil testing/MRV to carbon is the pick axes to the gold rush.
There is more for Deveron too. They have been acquiring independent consulting organizations across North America which positions them and their agronomy teams well to be able to support farmers on getting into carbon credits. Most recently expanding this week with the acquisition Agronomic Solutions in the central US.
On top of this, we have recently seen Rabobank leverage Continuum Ag, a boots on the ground soil health consulting company, to launch their own carbon pilot.
*Disclosure: I am an investor in Deveron.
This week’s edition of Upstream Ag Insights is brought to you in partnership with AGI
Unsurpassed Grain Supply Chain Visibility
Digital technology is transforming the efficiency and visibility of the entire grain supply chain from sourcing and pricing to monitoring and delivery.
With AGI SureTrack, grain buyers can easily source specific grain characteristics, reducing the time and complexity of crop procurement. In a single platform, users can find growers and identity preserved grains with easy-to-use tools to source, purchase, and manage inventory.
Grain buyers can schedule logistics direct to facilities, track facility inventory levels to ensure continuity of commercial operations, and (with farmer permission) remotely monitor bins for peak condition. Fueled by data every step of the way, AGI SureTrack is an all-in-one support system for the entire grain supply chain.
Considering the Future of Agriculture Tradeshows in a New Era - Real Agriculture
Tradeshows have long been a staple in agriculture and other industries. For exhibitors they have been a way to access customers, network, and grow a business. For farmers, they have served a strong social function and business aspects.
During COVID we have seen them squashed, while agribusiness has trekked on.
The entire 2021 crop marketing crop cycle happened without in-person events, which has, predictably, forced exhibitors to ask whether farm shows and conferences are providing the marketing return once assumed.
The blame gets placed on COVID, but tradeshows return on invested dollars for exhibitors have long been declining (note: anecdotal to my conversations) thanks to new digital avenues: the internet and mobile connectivity at large, but more specifically new routes to the customer like Facebook and Google for example.
The social function behind trade shows I believe will still be desired by farmers and that will be enough to keep them around.
The challenge is that tradeshows are a platform: a two-sides market of sorts where having large (in revenue size and marketing budget), well known exhibitors act as an anchor to attract smaller exhibitors and ultimately attendees. No different than a shopping mall. If we begin to see hesitation to participate from exhibitors, attendee engagement declines. This creates a negative fly wheel of less value to the attendee, which means less value to the exhibitor which means less dollars to the organizer of the event.
The key driver of this negative momentum in my opinion is a declining return on marketing dollars for large exhibitors.
They question the dollar spend vs. alternatives and as Shaun Haney points out in his article, “the old adage of “if we are not there as an exhibitor, people will notice” is not good enough anymore.”
How could they provide value to exhibitors?
Metrics. Data. Quantifiable and tangible implications for exhibitors participating so that marketing decision makers can justify the 5, 6 or 7 figure spend (and opportunity cost) of participating in the trade show vs. alternatives such as online advertising or hiring a few extra staff to build a direct relationship with farmers. And ideally? Deliver outcomes.
In a digital world, stating an event summary of “20,000 farmers” won’t cut it anymore.
Here are some of what we may see coming from ag trade shows moving forward:
Heat maps of traffic.
Quantification of traffic within booths (numbers, acres, geographic location). This could also go into facial recognition which gets to emotional scoring and mood detection, which may be controversial, but is being done in other industries. And goes to deriving numbers similar to a web page traffic data set: average time in booth, conversion to leads etc. I have even heard of audio capture with AI to assess the conversion potential of the conversation.
Digital infrastructure to support lead generation, order management etc right at the trade show itself that can connect into ERP’s or other online ordering systems via API along with the “who” from the attendee making the order, delivering a higher resolution understanding of product demand.
More long term value props thats allow for tradeshow efforts to be built on via integrated media outlets beyond the 2 or 3 days the show occurs.
Session tracking (where applicable) for events with presentations so that number of attendees, who the attendees are, where they are from etc can all be mapped.
This also would act as strong first party data for these tradeshows and media organizations themselves.
Datafying trade shows and conferences will be something I think we can expect to see more of in ag to keep them being a desirable place for marketers to allocate budget. Of note, trade shows are all different and serve a different purpose: some smaller and some are much larger which leads to different niche’s to fill.
If we think to how a trade show in agriculture is different today than what it was in 2011 or 2001, we begin grasping at straws: sure there might be an app to help navigate and an iPad to sign up for a coinciding presentation session…But there isn’t much for incremental data or value delivered to exhibitors. Providing the infrastructure to have better insights will be a need for trade shows in the future.
There is more to trade shows than the booths themselves, the evening events and random run ins that occur but the point is that there is a need to bring an incremental level of information to exhibitors.
(Note: There is of course a need for each company to have a coherent marketing strategy for both outside tradeshows and at them to be able to derive value, so there is some onus on the exhibitor marketing teams themselves too.)
Inflection Points and Tech Adoption
The fertilizer market has been haywire this year thanks to hurricanes, logistics constraints and commodity prices (and of course COVID-19).
Here is a look at price comparisons year over year from DTN for Urea Ammonium Nitrate (28-0-0):
and some of the pricing numbers surrounding dry macronutrients (USD/short ton):
Even with commodities at high levels, fertilizer is still a significant up front cost on an absolute basis to farmers.
When costs begin to rise it leads to an appetite for alternatives.
This brings me to inflection points. An inflection point is defined as:
an event that results in a significant change in the progress of a company, industry, sector, economy, or geopolitical situation and can be considered a turning point after which a dramatic change, with either positive or negative results, is expected to result.
And fertilizer prices lately have been a significant change as of late!
When I look at the agtech landscape two areas stand out when it comes to having a tight relationship with fertilizer: variable rate technology (or VR fertilizer specifically) and biological based products.
While there are many challenges with tech adoption and biological product shortcomings, in part there hasn’t been significant economic pain when it comes to fertilizer to drive farmer adoption of these two areas (as much as it is already a high percentage of variable expenses on a relative basis). The relative price of $5-$15/ac for variable rate capabilities or $5-15/ac fertilizer use efficiency products has still been a tougher pill to swallow for the last 10 years, when company and technology capabilities began to ramp up.
In July I highlighted the economics of Pivot Bio, an N fixing bio based product:
At their 25lbs/ac fix level, that’s expensive nitrogen equalling about $0.80/lbs. A $600 per metric tonne price of urea (46-0-0) equates to about $0.60 per actual pound of N. If we look at their new 40lbs fixing level and assume a consistent $20/ac cost, they are at $0.50/lb. This gets to be competitive even with $500/MT urea. This still isn’t an ROI slam dunk for the farmer though.
I noted it not being necessarily a slam dunk from an ROI perspective. But if urea continues to rise, their ROI looks pretty positive!
The same can be said for another company, Sound Agriculture and their SOURCE product. On top, SOURCE doesn’t just support nitrogen availability, but phosphorous availability as well, which is also up around 70% year over year.
These products do not allow for a cold-turkey boycott of nitrogen and phosphorous from fields, however, when costs rise in the short term and there are alternatives, that’s when interests get piqued.
Applying fertilizers where it has the best chance of a positive economic response is always a good idea and the value proposition of VR increases when fertilizer prices rise rapidly. On top, using a biological product that costs ~$15/ac when it fixes 40lbs of nitrogen and N costs >$0.70/lbs gets to be compelling.
Sometimes inflection points are artificially manufactured by altering the incentive landscape, such as government regulation. Other times economic realities force changes in real time to account for the new constraints.
Will the wild fertilizer prices coupled with the buzz and evolving maturity of areas like biologicals and VRT be the inflection point for farmers to try these products in larger swaths in 2022? My money is that organizations in these spaces are swinging for fences over the next 4-6 months in terms of getting their message and their product to farmers in an attempt to seize the opportunity and make the 2021 fertilizer pricing an inflection point for their respective areas and their businesses.
This same question about inflection points can be asked about all technology. One other example that stood out to me as of late was the emphasis on labour shortages and how that relates to autonomy.
A recent Daily Scoop article talking about labour shortages on pork farms stated this:
If the labor shortage is not addressed, it could lead to farms and plants shutting down, causing serious financial harm to the communities in which they operate
I am not an animal expert, but this can be extrapolated out to cropping too. Labour shortages have been talked about as a pain point at a high level, but when the pain starts to be felt to the point of shut downs or lower returns it tends to lead to action. This is where we could see inflection points for autonomy as well, fueling adoption of commercially available products like OMNiPOWER and OMNIiDRIVE from Raven as well as incentivizing groups like John Deere to bring their products to market faster.
Related: Can we reduce fertilizer use without sacrificing food production? - Our World in Data
Preparing Your Dealership to Sell & Service Autonomous Equipment - Precision Farming Dealer
Consolidation has been occurring at a rapid clip in 2021. At Upstream Ag Insights, I keep track of agtech acquisitions, investments and partnerships and have hundreds of lines summarizing them, with over 20 notable acquisitions this year. In fact, in my Upstream Ag Insights Outlook 2021 I focus on consolidation as being one of the areas of agtech to watch. And the reality is the consolidation is just starting. We are seeing many redundancies in the market along with a continued interest from incumbents to access innovation and farmers demand less fragmented solutions.
That’s where my friends at Agthentic come in with their recent post highlighting the venture capital angle driving consolidation along with their nice summary of the types of acquisitions we will see which I think they captured nicely:
The disruption antidote
The expansion play
The land and expand
Related: Data Snapshot: 2021 set to break new record for agrifoodtech investment; $24bn raised in H1 - AgFunder News
This article focuses in on Farmers Business Networks approach to the market.
E-commerce is only one aspect of a digital experience for farm customers and a novel channel to farmers. I think e-commerce will grow, however, it’s about managing all routes to the farmer for agribusinesses.
We can first look at consumer commerce for a lay of the land. USA based commerce is still kicking around the 15% mark across all segments on average according to Statista:
(Note: sub segments will vary)
This is still very small in absolute terms. What is more noteworthy is that even the largest online companies and “direct-to-consumer” brands (aka D2C, selling solely online) are building out their own physical stores such as Amazon and Warby Parker as two examples. Accessing customers via all channels is the surest path to growth and meeting customers needs.
The actual percentage of dollars spent on crop inputs through online purchases is likely below 1%, but Farm Journals 2020 online purchasing behaviour survey showed that 15% of farmers bought something online that year.
There will be a percentage of customers that want to purchase online. But the characteristics of these individuals needs to be looked at through the lens of on farm infrastructure (warehousing, application capabilities), external support (eg: paid crop consultants), in season crop dynamics and their psychographic.
When we consider the complexity of farm inputs in conjunction with the baseline using traditional consumer numbers, it seems unlikely to have a year in the next decade where online crop inputs sales via online mediums without ancillary services even gets close to 15%. The definition of this is tricky, because organizations like AgVend* and Nutrien allow for a digital channel to augment or enable customer relationships and transact, but in my opinion is still subtly different than pure-play e-commerce.
The way I define true “e-commerce” in agriculture is that of going to a website with crop input products and seeing a price for the specific SKU of glyphosate I am looking for, selecting a delivery date/pick-up time and *completing the transaction online without interaction with a human being*.
If it doesn’t meet that criteria, it is digital sales enablement or augmentation, which to me seems like the route that we will see the biggest uptake in the coming decades. A route where there are tools focused on progressing the relationship of the farmer and the agribusiness, just like the phone and cell phone did. This is where everyone has different definitions and they tend to be predicated on every organizations/individuals world views, so I do not want to get too deep into the semantics on the above (if you have a different take I’d love to hear it).
I do believe both true e-commerce and digital sales enablement are going to grow and be a part of all agribusinesses strategy in the next decade. It simply comes down to organizational focus and prioritizing the mechanism by which you wish to grow your business: some will use e-commerce as a way to expand their customer reach, others to manage segments of their customer base in unique ways including making staff more efficient and others will avoid commodity based e-commerce all together and focus on building an augmented channel to enhance their understanding of their customer base (eg: Nutrien).
Cox (FBN executive) sees exponential growth in ag e-commerce happening during the next few years. He predicts the major seed and chemical companies will eventually employ e-commerce as a channel they want to take advantage of, just as consumer companies like Kimberly-Clark and Procter and Gamble did.
To me this is accurate, and there is already precedence set with this by Canterra Seeds in Canada using online capabilities that allow farmers to order seed and access novel programs (but still transact with the retail).
I have talked about influence erosion numerous times lately and a natural progression for manufacturers is leveraging more digital channels to establish a better understanding of demand and move towards online booking.
These subtle shifts incrementally move information, control of conversations and understanding of customers towards the manufacturers. This isn’t going direct, this is basic business incentives driving customer related initiatives.
To me, this is why retails need to have a coherent strategy regarding e-commerce and digital sales augmentation. And it goes beyond an online store front; it goes right down to organizational design and staff expectations: do you want to have your business be paperless? do you want to expand the reach of each agronomist? do you want to create new services for customers? All of this is associated with digital capabilities. The entirety of the business needs to be considered when adding new capabilities into the mix. Operational execution is directly tied to organization design, employee expectations and and how decisions regarding digital are made. Digital business augmentation and e-commerce can’t be looked at in a silo, it needs to be looked at throughout the entirety of the business.
(Note: Manufacturers need to be considering this in depth as well. For example, online aggregating platforms can commoditize brands. It’s why Nike won’t allow their products on Amazon, the control of the brand experience can erode and the relationship becomes not that of Nike with their customer, but that of the customer with Amazon, leading to an undifferentiated product along with the inability to further differentiate their products in the future because they lack access to zero party and first party data about their customers. Ag is more nuanced, but it brings up a relevant example.)
*Disclosure: I am an advisor to AgVend
Smartwyre, a secure digital platform that connects agricultural input manufacturers, distributors, and retailers with the commercial insights they need to price with confidence, announced today it has secured $10.5M in Series A funding. Led by High Alpha Capital, the funding was supported with participation from existing investors Anterra Capital, Fall Line Capital, Revolution’s Rise of the Rest fund and Cavallo Ventures.
Related, but slightly different than the above, Smartwyre is focused on building connection throughout the value chain:
For the agricultural inputs industry, which accounts for nearly $400 billion in annual purchases by the world’s farmers, Smartwyre is the first platform to provide end-to-end insights from cost management to commercial pricing, improving industry profitability and preventing mismatches between production levels and the actual farmer demand.
The ag value chain is complex when it comes to input sales down the chain:
manufacturer > distributor > retail > farmer
To top this off there are purchasing programs/rebates at all levels for products, a lack of systems integration and numerous players at all layers.
The starting point of Smartwyre according to their investor, High Alpha, is the rebate program market. This puts organizations like AgData and TKXS (acquired by TELUS) squarely in their targets. These are groups who, as one aspect of their business, calculate out rebate programs for input manufacturers. There is a time lag for this to get executed on from in season all the way to the end of the year, leaving many retails to operate with unknown or negative margins for much of the year and for farmers to have long delays in receiving their rebates. It puts financial constraints on organizations, but also shortens up their ability to react in season or earlier out of season.
The shorter reaction time and real time insights would enable manufacturers to presumably create more customized programs that are able to incentivize action in a much tighter time frame, as well as have groups access the rewards of those actions quicker which could be dependant on the conditions that year or specific to a week long time frame.
Smartwyre’s focus to date is more upstream from the farm within the channel. There is a ton of value connecting data from the retail up to the manufacturer and back, but I would anticipate a future where they do move downstream toward the farmer once further established, which is where you can really “see demand” and incentivize action. This is in conjunction where I see a natural progression for many organizations who have focused on digital sales enablement for the retail to the farmer to move further upstream.
There was mention earlier of the increase agtech consolidation. A first step is owning your core value proposition and then expanding in the direction that most naturally adds value to that model. I think we will see some intersections of this not only in farm-centric agtech companies, but those supporting agribusinesses as well.
“Sustainability” brings out many emotions to people in agriculture. This article does a good job of highlighting them and why sustainability is a “fat” word, along with a lazy approach to positioning a company.
Marrone Bio Prepares to Submit Registration for Next-Generation Crop Protection Product in North America - Marrone Bio
What’s quickly noteworthy on this bioinsecticide announcement if true is this:
MBI-306 and its variants have been proven to perform as well as synthetic counterparts both in terms of efficacy and return on investment (ROI) to growers.
Non Ag Article
The Changing Venture Landscape - Both Sides
Over the last few years I have grown increasingly interested in the VC world. This article paints a good picture of the changes and challenges in the VC world.
To be a great VC you have to hold two conflicting ideas in your head at the same time. On the one hand, you’re over paying for every investment and valuations aren’t rational. On the other hand, the biggest winners will turn out to be much larger than the prices people paid for them and this will happen faster than at any time in human history.
The author predicts that in the next 10 years we will see more VC investing in sustainability and climate investing along with more investing at the intersection of biology and technology. Both of these bode well for dollars continuing to flow into agriculture, or agriculture adjacent companies.
Other Ag Articles
John Deere Industry 4.0 Lead: ‘5G is really important to us’ - Enterprise IoT Insights
Indigo Pays 267 Farmers for Carbon - Successful Farming
Time to hit ‘Print’ for that machinery part? - Country Guide
Burlington Capital Ag-Venture Launches - Burlington Capital