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AgTech Breakdowns: Azotic Technologies Inc.
Bringing to life the most innovative agtech companies for agribusiness leaders.
Company Overview
Azotic Technologies is a UK based company, incorporated in 2012 where it secured a license to Gluconocetobacter diazotrophicus (GD) from the University of Nottingham.
Over the course of more than a decade, the concept of taking GD, initially found in sugar cane, and creating a product that one could inoculate and fix nitrogen in other non-N fixing crops was appealing to the market place. GD is commercially sold as Envita in North America.
In 2013, Ray Chyc, who was the owner and operator of Engage Agro (a product distributor) in Canada and the USA, initiated a purchase of the North American rights to the technology from Azotic in the UK as well as acquiring shares within the Azotic Technologies Corporation itself.
As the science evolved out of the UK, GD was showing good activity within many crops, including corn and by 2015 it became clear the company needed commercial partners of scale in order to grow.
In 2016, Ray Chyc sold Engage Agro to Belchim Crop Protection, but kept the Envita asset which started Azotic North America Ltd in Canada to commercialize Envita in North America.
By 2018 the North American company had a commercial product ready for the North American market, albeit, limited sales to just corn growers in the USA who had participated in a Market Research Project that Azotic had commissioned in the fall of 2017.
In 2018, Azotic sold just under 1,000 acres of Envita to less than 100 corn growers in the Midwest. Azotic worked with them, and focused on learning more about the product, the customer and ultimately the performance of GD.
As Azotic grew and experienced working direct with the farmer, they chose to partner with the channel (traditional retail and distribution), and since have began to sell 100% of their product through the traditional channel and have positioned themselves as one of the premier N fixing biological companies in North America and beyond.
Market Overview
The global nitrogenous fertilizer market is expected to grow from USD 64.6 billion in 2020 to USD 105.23 billion by 2030, at a CAGR of 5% during the forecast period 2021-2030, marking a significant opportunity globally for a nitrogen fixing microbe.
The holy grail of biologicals and within the agriculture industry has been identifying either a microbe, or a specific trait, for non-legume crops like corn or wheat to be able to fix a portion, or all, of their nitrogen needs. There have long been hopes of microbes from the Azospirillium family, or otherwise, would be able to meet this need.
In order to grow a 60bu/ac wheat crops, around 130lbs of nitrogen is necessary, or about 2.2lbs of N per bushel grown according to Taurus. For a 180 bushel corn crop, the number is around 180lbs of N. When prices for nitrogen are ~$0.50/lbs, that’s an expensive portion of the crop input bill for farmers. When N prices are ~$1/lb, it becomes a significant up front cost and risk to farmers.
This isn’t just expensive and capital intensive for farmers, it is operationally challenging to get product applied at the right rate at the right time, typically leading to more fills of an air seeder during a time crunched seeding season, or requires extra passes across the field with a floater at various times throughout the season, further increasing custom application costs, and even soil compaction.
Older research has shown that nitrogen use efficiency (NUE, the amount of N applied that gets into the crop) is around 35% in cereals with a newer report from the European Union stating that 50% - 90% is something to target.
Not only does a low NUE make growing a crop more expensive for a farmer, it can be detrimental to the environment - nitrogen leaching can contaminate ground water and when nitrogen volatilizes, it does so in the form of nitrous oxide, a gas that is 300x more potent than carbon dioxide in terms of heating the environment.
Currently, the average nitrogen use rate per acre hovers over 80lbs per acre in the USA, though would be much higher in traditional cereal row crops like corn:
The economic and environmental pain points in regards to nitrogen have created an arms race between numerous companies to create a crop agnostic, nitrogen fixing microbe to alleviate the reliance on synthetic nitrogen created through the Haber-Bosch method.
Interesting Link: Our World In Data: Global Fertilizer Use by Country
Competitors
Due to the opportunity in crop agnostic N fixing microbes (or microbe stimulants) there have been numerous organizations working to compete in this space, many of which I have covered within Upstream Ag Insights before. To read on these organizations check-out the links:
Sound Agriculture and their strigolactone based products.
Pivot Bio and their γ-proteobacterium (KV137) based product.
Corteva and their partnership with Symborg with the microbe Methylobacterium symbioticum.
Joyn Bio, a Bayer Crop Science and Gingko Bioworks joint venture.
Product and Technology Overview
Today, Azotic is a one product company focusing solely on Envita.
Envita is a gram negative bacteria that, when colonized within a plant, will multiply and grow within the cells of the plant. It is a true inoculant that, when applied to a crop and colonizing the crop, it enables plants to draw in atmospheric N for the plant to use.
In exchange, the bacteria has a place to live and a food source (the sugars of a plant). There are also benefits to water management (in that nitrogen brought in at the leaf from the air doesn’t then need to be translocated from the soil).
This is important in that GD is right at the site in the plant where Nitrogen is needed – and being right there (in the leaf) it is able to draw in nitrogen from the air, after which point the conversion to photosynthate happens. The mode of action has been documented extensively in peer reviewed journal articles for decades, reinforcing a strong scientific rigor underpinning the product.
Azotic has numerous patents around the world including one for “plants containing nitrogen fixing bacteria with the bacteria being located intracellularly in living plant cell”.
Their patents don’t stop at GD either but also IP around other N-fixing microbes and even have patents in China and their recently announced patents in Australia and the Philippines.
The Envita product itself is a liquid formulation at a rate of one gallon treating 40 acres (3.78L)
The application method is flexible which is one of the exciting aspects about this specific product: you can apply it up front in-furrow (compatible with starter fertilizers) or as a foliar application on the crop in season which is a massive benefit for farm risk mitigation or simply attempting to target different outcomes (eg: protein in wheat vs. yield). About 90% of their product gets applied foliarly today.
Azotic states that growers can reduce their N by around 25% in corn and maintain yield if this was the route the grower wanted to choose. This signals to me that there is an N fixation level of something likes 30lbs of N per year per acre, though this would be variable and isn’t how Azotic positions the product.
Most of their customer keep N rates at their standard levels and apply Envita with the intention of achieving a yield bump, which their data shows can range from 7-10bu/ac.
One of the interesting aspects with biologicals is that based on different environmental conditions they can change the outcomes. In a drier bias year, significant applications of N can use water to breakdown the nitrogen source, such as urea, and mass flow (primary method N uptake occurs) can slow down. Plus, the plant has to actively search for more nitrogen via the roots. If the plants have a symbiotic relationship the Envita product, they can more seamlessly ensure they have adequate nitrogen, saving photosynthetic resources and water, so I could anticipate seeing yield bumps occur from other factors as well.
The fact they could reduce nitrogen rates brings novel future opportunities on the carbon credit or low carbon grain side of things.
The product is priced at $15/ac to the farmer, a competitive price especially this year given nitrogen prices getting beyond $1/lbs. This pricing aligns with price sensitivity studies that have been done within the industry. It also aligns with the belief that a grower needs at least a 3x payback coupled with a successful infield experience in the year of application. In trials, they are seeing an 80% “win” rate as it pertains to ROI. A significant number.
Azotic has been using a guaranteed payback program to increase interest and from 2019-2021 have had “minimal claims” while achieving rapid growth in acres (see traction section).
Geography
Today, the focus has been on North America, however there is an intention for global expansion. Globally, the target is to sell where regulatory isn’t required (or is more limited).
Growth is happening quickly in the USA and in Canada, and across many different crops.
The main focus has been on corn in the USA as initial results were promising and the sheer size of the corn acres. About 70% of Envita goes on corn, but there is an expectation for wheat and canola acres to rapidly grow. Given the sheer N utilization of a canola crop on a per bushel basis (3+lbs of N/bu), there is a significant opportunity there, lending to growth in Canada in coming years.
In the coming couple of years there will be a focus to start the process of building Azotic’s own manufacturing facility, likely in the UK.
Traction
The traction for Envita has been meaningful for Azotic.
In 2021 Envita was on ~500,000 acres in the USA and 250,000 in Canada.
For 2022, Azotic anticipates just under 1 million in Canada and 3 million in the USA – on many different crops.
Using the 2018 initial 1000 acres to end of 2021, that’s a CAGR of ~400%!
They see the growth hitting ~3 million in the USA in 2022 and 1 million in Canada, with 2023 expectations set towards 10 million total acres. Given the dynamics in the market today, this seems like a reasonable target.
For comparison, Pivot Bio, a competitor mentioned earlier that has raised $617 million was on “over 1 million” acres in 2021. They have been around since 2011.
On a revenue basis using their $15/ac price, that puts Azotic 2021 numbers at somewhere around $11,250,000 USD on a “product on ground” (PoG) basis, but likely somewhere around $4,000,000 as sales into distribution (where they transact). The interesting aspect of this is that a company like Pivot Bio going direct would have significantly higher margins, pocketing the entire PoG value. There will always be trade offs between speed of growth and margin.
Business Model and Go-to-market Approach
The business model for Azotic is very simple:
Produce gallons of Envita and sell at a specific mark up into the traditional crop input distribution channel and support their channel partners in creating awareness and demand for the Envita product at the farm level.
It’s notable how their acre numbers have grown rapidly, in all likelihood stemming from the route to market they chose vs. going simply direct to farmer.
Azotic goes through the traditional channel for 100% of their business. They have open discussions with most of the major US distributors (Winfield, GROWMARK, Nutrien) and intend to grow the channel partnerships globally.
In Canada they use NexusBioAg as a key distributor that sells into the main retailers in Canada.
In the UK Azotic has a deal with ADM, although sales are limited at this point, but will also push them further into the EU too.
Other players in the N fixing microbe space, such as Sound Agriculture and Pivot Bio, have opted to go direct to the farmer. Going direct allows them to manage their message and increase their margins. It has shortcomings though too, such as finding farmers one by one means a need for better marketing capabilities and unique distribution capabilities and staffing.
The other aspect that comes to mind with me in using the traditional channel like Azotic, is that they can integrate directly into the fertilizer and soil sampling conversation beyond nitrogen with retail agronomists. Nitrogen needs to be considered in the context of the entire fertilizer and nutrition plan, not as an aside.
Notable Partnerships
Beyond the distribution partnerships, Azotic has just began to work on more partnerships. One worthwhile mention is an announcement that came out earlier this year with AMVAC to produce Envita that is compatible with the SIMPAS technology.
Founders and Staffing Background
The founders are no longer with the company, having retired last summer. At that time, Ray Chyc bought out their shares.
CEO Ray Chyc is a lifelong entrepreneur starting a seed treatment business initially. before identifying a an opening in the market to start another business, licensing 3 products from an established chemical manufacturer that were deemed to niche or small to commercialize. That was the start of Engage Agro. At one point, Engage Agro managed 70% of all turf pesticides in Canada for Syngenta, Valent, etc., and also helped grow horticulture products for many of the manufacturers including both Syngenta and BASF, etc. Engage Agro filled a hole, and helped major manufacturers (and others) bring niche crop protection products to Canada (and some in the USA from 2010-2018) for 23 years - from 1995 until I sold in 2016-2018 (phased sale). Since then the focus has been Azotic.
Azotic has 15 staff in the UK and 8 in North America, however they also have contracts with AgCall to increase presence at the retail level in the USA. Staff numbers are now ramping up monthly on an as needed basis with global regulatory being the most recent addition and a focus on increasing Sales, Marketing and Production staffing over the coming quarters.
Funds Raised and Investors
Azotic has taken on minimal venture capital, which is different than other major competitors in the N fixation space like Sound Agriculture and Pivot Bio mentioned earlier.
The major shareholders are Ray Chyc and the Kopperts of Koppert Biologicals Last summer, Virya LLC (a global VC which is managed by Chris Anderson of Ted Talks) also invested.
From 2022 forward, Azotic will be operationally profitably, funding their business endeavours solely from sales and profits, and should have all debt paid down within 1 year.
Fun Company Facts
In 2019 when Azotic was in its first full year of sales, there were floods in parts of the USA. They were focused solely on corn in-furrow, as some of their own scientists from the 2015 era did not believe even that would colonize a plant. That year they had strong bookings, around 200,000 acres and then flooding hit.
Azotic managed to get 50,000 acres applied in the USA but had significant inventory that only had a shelf life of 6 months. They decided to work with a few hundred growers to try Envita by foliar application, split fields.
This experiment proved to Azotic that one can colonize a crop with a foliar application of Envita.
By the end of that year, they also then had hundreds of field scale side by side trials, some of which were on beans, cotton, potatoes, etc. It worked.
It generated extremely beneficial results.
Since then, Azotic has been open about just trying anything.
Personally, I think this is a great take away, especially in ag where we typically talk about “following the science”. Often our preconceived notions hold us back, but because of an unlucky flood situation, Azotic was essentially forced into trying something new: foliar applications.
Today 90% of their product would be applied foliarly. A significant contributor to their acre growth and success.
Further reading
Envita Nexus BioAg - NexusBioAg
An overview of PivotBio and the dynamics of N fixation.
Final Comments
I continue to be bullish on the microbial side of agriculture and agtech. One of the biggest opportunities continues to be nitrogen fixation and given the geopolitical dynamics and market fundamentals as of late, and the anticipation that the market will remain challenging for a number of years, reinforce the opportunity for Azotic. Given that Azotic is currently a one product company and has aggressive expansion plans with that same highly desirable product, it makes them a likely target for acquisition by numerous companies.
A major take away with Azotic is how much focus can drive the success of a business. It would be easy to get into other areas of Nitrogen efficiency (eg: nitrogen stabilizers) or into other fertilizer efficiency microbes (eg: P solubilizers), but they have stayed focused on making Envita a significant player across numerous crops and numerous geographies.
I look forward to watching the growth of Envita in the next couple of years and seeing how they will come out of these challenging fertilizer markets with a deeper penetration in the North American market.