Upstream Ag Insights - September 26th, 2021

Essential news and analysis for agribusiness leaders

Welcome to the 86th Edition of Upstream Ag Insights!

This week it seems like carbon and sustainability came up numerous times as I was writing, as it seems to every week as of late.

Because of this I thought it would be interesting to do a basic comparison of three things for September 2020 editions of Upstream Ag Insights to September 2021 editions:

  1. How many times on average did I write “carbon”?

  2. How many times on average did I write a variation of “sustainability”?

  3. How many stories were focused on carbon or sustainability?

Of note, this is highly anecdotal and subject to my biases, however, it feels representative of the news, announcement emphasis and my conversations at large.

The numbers:

In September 2020:

  • carbon showed up on average 4 times per edition

  • sustainability variations showed up on average 3 times per edition

  • on average one story was underpinned either subject.

For September 2021:

  • carbon showed up on average 16 times per edition

  • sustainability variations showed up 6 times on average

  • on average 3 stories were focused on either subject (and there somehow feels like an angle to it in almost all of them!)

Around 3x the emphasis from an Upstream Ag Insights perspective.

Index for the week:

  • Precision Agronomy Services Will Factor Heavily in the Future of Ag Retailing

  • 2021 Carbon Market Survey Ag Retailer Participation

  • Soil Health Through the Lens of the Tech Stack

  • Is Cyber Security a Black Swan in Ag?

  • Micro-climate predictions: Enabling hyper-local decisions for agriculture and renewables

  • Intelinair Raises $20m Series B

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Precision Agronomy Services Will Factor Heavily in the Future of Ag Retailing - Co Bank

This new report from CoBank is highly accurate in my opinion, and extremely consistent with messaging I deliver to agribusiness clients along with messaging I have talked about in Upstream, most recently last month.

Some highlights from the report:

We see a path forward for ag retailers: expand their delivery of precision agronomy tools, services and processes, and earn fee income for doing so. Putting technology and information to work to help farmers manage their inputs and production is where farm supply co-ops excel.

These services need to be looked at holistically too. Adding precision services is important and can be made even more valuable in my opinion in two ways:

  • integration of the services with the input products and other services at the retail. One avenue of differentiation at the retail level stems from products offered. Today, many of those products have been commoditized, but the best retails I work with and talk to use their precision services to better illustrate the value of unique to them input products, specifically on the crop nutrition and biological front (which then feeds carbon for example too, a key driver of precision and tech adoption) but can play into other areas too like fuel or grain for integrated players. These services should therefore support higher loyalty and share of wallet. It also goes hand in hand with another topic I’ve talked about in marketing via digital hub.

  • there are more services to offer beyond precision. For example, risk mitigation is a “service” that can be offered to to farm customer leveraging unique relationships. Recently, Growers Edge announced a partnership with Farmers Cooperative Society focused on backing adoption of sustainable practices. This even lends itself to carbon related support as well - more on that in the next story. One of the key factors with carbon or insurance companies is customer acquisition costs and speed to access distribution, these organizations are going to want to work with retailers to support their endeavours.

Part of the reason for retails to adopt a focus on services is this:

This is related to what I call influence erosion at the retail level, which really stems from Porters Five Forces that I wrote about last year.

  • Manufacturers increasing their influence via smart, farmer centric support and tools as illustrated here:

  • Increased farm consolidation

  • Influx of precision specific organizations and independent consultants working with farmers

    And what underpins all of this is complexity. In 2010 it was reasonable for retail agronomists to be able to grasp the fundamentals of the traditional products on the shelf and crop production practices, but over the last decade we have seen a huge influx of the following:

    - Generic chemistry products

    - Increased number of manufacturer and internal programs

    - Increase of digital technology available across numerous practices/systems

    - Increase in specialty products (eg: micronutrients, biologicals, surfactants)

    - Increase in number of concepts to understand, such as carbon programs or insurance needs as examples.

Humans only have capacity to be experts in so many areas. There has been a desire in many instances to have the same individual be an agronomist, tech specialist, sales person etc, but the reality is that the winners in adopting a heavier service model and executing service as new revenue, are going to require more over head - more individuals, more specialist expertise, access to technology and incremental training costs.

To accommodate this, an emphasis of the division of labour, new organizational structure and in-house alignment/incentives and expectations all needs to be looked at. Services can’t be added in a silo.

This even gets into where we will see the barbell effect play out in ag retail, as I talked about in May:

In business, it’s the middle that gets squeezed and this gives rise to the phenomenon known as “the barbell effect.” The idea is that businesses on either side in a given niche will survive; it’s the group in the middle that disappears. And for further clarification, usually the ends are lower cost providers (large) and the highest costs providers (smaller targeted and niche providers).

Identifying exactly where you want to play is important. Are you playing a scale game? Are you focusing on a niche? Venky Ramachandran of Agribusiness Matters got into this topic in his piece this past week called The Studio Era of Agriculture Begins.

Are ag input retails positioned to lead in precision?

A good call out in the report, that to me reinforces my comments on integration of input products and services beyond precision:

Another growing risk is the blurring of the lines between farm equipment dealers and agronomy providers as larger farmers demand advanced digitally enabled precision tools and services. Two recent examples of this include CNH Industrial’s acquisition of Raven and Deere & Co.’s acquisition of Bear Flag Robotics. Both will help the original equipment manufacturers accelerate their offerings of autonomous and precision farming services, something that will compete with traditional agronomic advice provided by ag retailers.

This leads me into business models. Simply adding on fee for service per acre shouldn’t be the north star.

I think the winners are going to build up novel revenue models; they will align their revenue models with upside or even yet, the savings. This could get into variable rate systems or downstream partnerships. How farmers view this in aggregate today seems generally neutral to slightly negative, but I think this will be the trend to watch for. For example, when combining seed sales with the ability to identify plant stand counts and seedling mortality through remote sensing tools, it opens up novel approaches to pricing. Couple this with smart spraying savings structures or outcome based fungicide usage and you can begin to see how revenue models could shift.

What other services are there?

The report lists the following, consistent with what I talked about in the aforementioned August write up:

• Carbon Monetization • Crop Diagnostics, Imagery, Scouting and Monitoring • Guidance and Positioning Systems • Robotics and Automation • Soil Health Analysis • Variable Precision Rate Nutrient, Crop Protection and Microbial Applications

(There is likely increasingly opportunity in the hardware retailing aspect to input retail)

However, the integration of these is the most compelling: decisions-as-a-service and ambient ag commerce.

The services and technological capabilities lead to better data and understanding of customers, leading to better decision support for the farmer and therefore better outcomes as a whole to both parties. If you think about any personal service you personally acquire today, almost unanimously the more the service provider knows about you, your situation and expectations, the better the experience. The same is true in farming.

The winning mindset opportunity I see to successfully navigate towards higherservice revenue is a shift to capital expenditure beyond physical infrastructure. The highest return on capital in the coming decade will be the investments made in digital infrastructure; supporting the delivery of services. Just because you can’t touch it, doesn’t mean you won’t get a compelling return from it. The world is increasingly digital and the assets leveraged to acquire these returns will increasingly be digital in nature.

Overall, highly recommend checking out the report!

Related: Understanding the Rebate Landscape - Proagrica

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2021 Carbon Market Survey Ag Retailer Participation - Axiom

This survey brought up some good points, especially considering the CoBank report shared above.

Of note, this report has to be taken in context too, only 40% of the responses were retail management which means there might be more to the story of what’s expected by retails and being looked at by their management teams.

Some of the notable take away’s from the survey:

50% of retailers are unsure if they’ll participate in Carbon Markets

The question may be challenging to answer here because participating in carbon markets directly (selling offsets) is likely not the way many retailers want to participate in the markets.

70% are uncertain how to “verify” carbon

Again, carbon verification is extremely complex. And verification itself might not be the most natural entry point for retails.

For further context, in reading the Soil Enrichment Protocol from Climate Action Reserve, their soil testing protocol is 5 pages in length alone (and the document itself is 143 page).

65% of retailers think growers will require more than $10 per acre (to participate in carbon markets)

For context it helps to understand what it costs to implement a practice that might qualify as additionality for a carbon offset.

For example, in a cover crop instance, according to Sustainable Agriculture and Research Education it costs on average (median) $37/ac. This likely doesn’t include some of the support necessary to navigate new practices and all the other changes that may need to be considered within.

69% of retailers expect to be paid more than $5 per acre

If the price of carbon is $20/tCO2e and a farmer is successfully sequestering 1tCO2e/ac (likely on the high side in many instances) and 25% is going to the project owner, that leaves about $15 for the farmer and $5 for the aggregator.

The likely opportunity for the retail is to participate in three points in a small way: selling product (eg: cover crop seed) to the farmer, providing a data management and/or agronomic service for the farmer and extracting a piece of the soil sampling side out of the aggregator themselves. This is where there is flexibility for agile retails to quickly identify their fit and focus and own it, especially for those that have other integration aspects (eg: fuel or grain).

Of course, for organizations like Nutrien they have bigger ambitions in being the aggregator, input seller and service provider.

A final note, just this week Barclay’s released an ESG report where they forecasted the price of carbon by 2030 could be as high as $147/tCO2e! And in theory, demand for the offsets should increase over time.

The biggest take away for me is that there is opportunity at the retail level to do three things:

  1. Identify someone to lead the carbon strategy focus. What I have seen is this fall on one of two people: agronomy manager or digital/precision manager. It’s understandable that that’s where it starts, but I do think there is a better opportunity in having an innovation manager (or something like this) looking at this space and identifying how it plays into the bigger picture of the retail business and who should be looked at as a partner (reinforcing carbon services as part of the strategy per the 1st story this week).

    It’s unlikely to me that in 24 or 36 months from now we will have less emphasis on carbon, sustainability or soil health. Regardless if there is ample opportunity to monetize today, having someone understand the space is going to position you well for other opportunities.

  2. This has likely been done by most, but connecting with current partners to identify how to support or participate as a foot in the door. Organizations like Corteva or Bayer Cropscience or Yara (Agoro) have had a focus and emphasis on it for some time now. The ability to align seems like a good entry point.

  3. As someone attempting to learn the space myself, I have found the best resource to be reading the protocols themselves. Highly recommend it as a starting point.

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    Soil Health Through the Lens of the Tech Stack - AgFunder News

In the August 15th Edition of Upstream Ag Insights I included what I looked at as the “carbon layers”; a starting point to understand the needs and capabilities to participate in carbon credit programs.

One of the major short comings was my own framing: “carbon layers”. This is itself limiting and misses the scope of what is involved in carbon markets and crop production at large.

Seana Day at Culterra Capital took a much more holistic approach and viewed it through the lens of a “soil health stack”. This is a much better frame, and more useful visualization that she has developed (as are numerous of her visualizations).

The three layers: measurement, core layer and software layer I think further frame how one can think through not just how and where organizations can operate within the carbon landscape, but how they are involved, and connected, in much larger discussions of soil health, variable rate technology and crop production. This is especially important because everything starts with the soil. This fact is often over looked, but without a depth of understanding of the biological, chemical and physical parameters of the soil, everything else becomes infinitely more challenging: sustainable production, profitable production, quality of production and the list goes on.

The Culterra Capital Soil Health Tech Stack (image above) illustrates the interdependence of technology, science, and economics in connecting suppliers of soil carbon credits and soil health outcomes to buyers. 

When the various layers get framed in such a way that Seana has done, it allows us to breakdown companies core competencies/technology offerings and position them according to how they have modularized within this “stack”.

From there we can actually see how firms vertically integrate, whether through acquisition or launching their own initiatives, or partner to enable data to flow from end to end in support of carbon offsets/insets, soil health management or otherwise. For example, Deveron* had an announcement this week that I highlighted below which works well for an example:

Deveron has agreed to a partnership to “provide its carbon program to a large multinational agribusiness”. Deveron in this instance with their agronomy team, soil testing labs and digital capabilities to share data can plug into an organization that is acquiring customers for their own carbon offset program, such as Corteva, or Bayer Cropscience for example. From here we can see where an organization like Indigo integrates at the top of the stack working towards a transaction, so there might be a three-way collaboration for example in a Corteva / Indigo instance with Deveron working within there to support on the soil testing aspect.

Overall, the image is a very useful tool for navigating this space.

*Disclosure: I am an investor in Deveron (TSX.V: FARM).

Deveron Launches Agriculture Carbon Product with Initial Enterprise Customer Engagement in United States - Stockhouse

In the September 12th Edition of Upstream Ag Insights, I highlighted Deveron’s new webpage positioning their soil testing services around carbon which I thought was smart. They have officially announced this now along with a first commercial customer, as alluded to above.

This week’s Upstream Ag Insights is brought to you in partnership with AGI:

Creating Digital Acres

The ability to automatically create a digital acre has come of age. With the 2021 acquisition of Farmobile, AGI is transforming how agriculture interacts with interoperable data.

Farmobile fuels AGI SureTrack and other ag systems and software with comprehensive, point-by-point, agronomic and machine data gathered in real-time across farm and ag retail machines. Data is automatically standardized into visual, shareable Electronic Field Record for every field activity.

Combined with SureTrack’s smart bin platform, AGI delivers a digital “system of record” to tell a year-over-year crop story with an unparalleled data set -- sensor-sourced; user-controlled; export-ready; optimized for farm-fleet ROI, and certifiable for emerging markets.

Lean more about Digital Acres

Is Cyber Security a Black Swan in Ag? - Upstream Ag Insights

The more high-tech we become, the more vulnerable we become. And farms and agribusinesses are becoming ever reliant on digital technology.

David Kohl, Professor Emeritus of Agricultural Finance, Virginia Tech University, has said:

Cyber attacks on agricultural technology could be a black swan facing the agricultural industry over the next decade.

This week there were two news items related to cyberattacks on USA based farm cooperatives.

The first was Iowa based co-op, New Cooperative:

An Iowa grain cooperative has been attacked by a Russian-linked hacker seeking a multimillion dollar ransom, just as the state's farmers are rolling into corn and soybean fields to begin the fall harvest.

New Cooperative, a farm services business with headquarters in Fort Dodge, was targeted by a Russian-backed ransomware group called BlackMatter who was demanding a $5.9 million ransom. 

The second was Minnesota based Crystal Valley Co-op:

Crystal Valley Cooperative, a farm supply and grain marketing organization, was hit with a ransomware attack that has infected computers and disrupted operations.

These events lead US agriculture secretary John Vilsack to urge ag cooperatives to “harden” defenses against cyber attacks.

This news comes on the heels of the JBS cyberattack in June that seen JBS pay out $11 million to a “likely Russian based” ransomware group.

For a deeper look, check out my write up highlighting what ransomware is, how cybersecurity spend in ag compares to GDP contribution, a story on John Deere’s cyber security spend/gaps and why agribusinesses might be continued targets.

Intelinair Closes $20m Series B to Rapidly Scale Digital Agronomy Product, Expand into Carbon - AgFunder News

Aerial imagery and agronomic intelligence platform Intelinair has closed a $20 million Series B round of funding in its second-ever external round of funding, AFN can exclusively reveal. Data-focused growth-stage investor Regulator Group invested alongside biosciences firm Scientia Ventures, farmland-owning family office Takiff, and Canada’s SDMC Ag. Various ag industry and artificial intelligence industry senior executives including the ex-CEO of Dow AgroSciences Tim Hassinger, who is on the startup’s board, also invested.

The below is an interesting note on usage of Intelinair, while anecdotal, is consistent with what indicates a company has potential. In order for a start-up to be successful they have to integrate into their customer organizations day-to-day operations. If the organization implements process and invests surrounding them, that’s a good sign:

A large farming client that manages a very large area of land told me that they start each day looking at the results of AGMRI to determine where their agronomists should go that day, which results in many miles of driving saved

Intelinair has some notable traction:

While Intelinair’s current footprint is not to be sniffed at — the company currently brings in millions of dollars in revenues (not tens of millions, according to CEO Eisaian) across nearly 5 million acres, which it expects to increase to over 8 million next year

Within the AgFunder article they also address how Intelinair views their opportunity in carbon.

Micro-climate predictions: Enabling hyper-local decisions for agriculture and renewables - Microsoft

Weather underpins almost every decision on the farm. Therefore accurate forecasts in the short term and longer term can better inform decisions. However, the resolution of those forecasts can be challenged.

That’s where Microsoft comes in:

To address this problem and others, we developed DeepMC, a framework for predicting micro-climates, or the accumulation of climatic parameters formed around a relatively small, homogeneous region. Micro-climate predictions are beneficial in agriculture, forestry, architecture, urban design, ecology conservation, maritime and other domains. DeepMC predicts various micro-climate parameters with over 90% accuracy at IoT sensor locations deployed around the world.

They do so by focusing on four different parameters:

  • Accuracy

  • Reliability

  • Replicability

  • Adaptability

This is huge for farmers, and is also consistent with my comments from July that every agribusiness will be using high resolution weather and climate prediction to inform business decisions like forecasting or seed genetic emphasis along with even informing decisions surrounding parametric business insurance.

Exciting capability from Microsoft.

Farmer Values Matter to Your Marketing Message - WS

In a 1997 study of 680 farmers in New Zealand, researchers identified 50 goals in 10 categories and asked farmers to rank them in order of importance. Each goal category was associated with a value. These values included individual success, the welfare of others, or environmental management.  The study found that 43% of farmers had goals relating to profitability and maximizing production, a goal category associated with individual success. Accordingly, these farmers also took pride in producing the highest quality product and getting the best price for it at market. 

People are nuanced. And farmers, as people, are nuanced too. As much as we want to approach farm sales or marketing as purely a B2B situation, it simply isn’t.

This is a good article highlighting the nuance of farmers.

Autonomous farming startup Blue White Robotics Raises $37m Series B funding - AgFunder News

Blue White Robotics’ self-described “robotics as a service” platform combines robotic tractors with management software so that one human can control a fleet of autonomous vehicles to fulfill a number of different farming tasks: spraying, harvesting, disking, and seeding, to name a few.

We continue to see investment in robotics. And while it may seem like this trend is still far away, I am continually reminded that the future is here, it’s just not evenly distributed. For example, just last week Raven sold the first autonomous OMNiPOWER unit to a commercial business.

For more on my autonomy take, see my write up surrounding it here.

Related: Agtonomy Launches Out of Stealth to Address Farm Labor Crisis with $4 Million Seed Round from Grit Ventures, GV and Village Global - PR News wire

Non Ag Articles

History's Seductive Beliefs - Collaborative Fund

A great article with several take aways. Here are a few of my favourite quotes:

My deepest forecasting belief is that you can better understand the future if you focus on the behaviors that never change instead of the events that might.

A seductive belief that exists in almost every field is that things will keep operating like they always have. It’s an almost necessary belief in a world where you have to base a prediction off something. But as Stanford professor Scott Sagan says, “things that have never happened before happen all the time.”

This is why having internal expectations on certain teams and individuals to look beyond the status quo and placing probabilities at the intersection of trends and events is critical to long term success.

If interested in where to start to look at themes of humanity throughout history, this is my favourite book on the subject and has been one of the most influential on my my world view: The Lessons of History by Will and Ariel Durant.

Other Ag Articles

AI will soon end disputes: farmers can now assess grain quality with phones - AgReads

EarthOptics helps farmers look deep into the soil for big data insights - Tech Crunch

BASF Digital Farming Commits Finding to Olds College Smart Farm to Support HyperLayer Data Concept - BASF

Nestlé investing $1.29B to support regenerative agriculture - Food Dive

Wells Fargo Innovation Incubator and Farmers Business Network Launch Technical Partnership - Business Wire

Seaweed innovation unlocks next generation of biostimulants - Farmers Journal

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