Clockspeed and Capital Allocation in Ag: Are food and agriculture giants sleepwalking into irrelevance?

Are food and agriculture giants sleepwalking into irrelevance? - AFN

To answer the question in the above article: No, they aren’t.

I don’t disagree with the sentiment in this article. In fact, there are some great points and recommendations. However, it’s important to highlight that the author is the Managing Partner at AgFunder with ~$300 million AUM across multiple funds, all in the ag and food space, which means he REALLY wants to see some portfolio companies get acquired. In making some of the points there are examples used that I believe are oversimplified in grander context.

(I encourage you to read the article before reading the below.)

In the article by AgFunder’s Rob Leclerc, the major emphasis is that incumbents should invest more in R&D and make more acquisitions, or else they will get left behind.

To make the point he highlights a need for M&A and increases in R&D expenditure.

But I think capital allocation for major agribusinesses is much more nuanced than “do M&A and increase R&D = increased stock price”

I agree that innovation is important, but there are a few points in the article need further contextualization.

For example, Rob Leclerc writes:

The technoptimist in me agrees, but the business side of me looks at this point differently.

Comparing agriculture to tech is not quite the same, specifically because of business/industry economics (eg: margins, cash flow), and particularly because in the context of the large language model/AI race— when there is an innovation or technology that is a consensus bet with a coherent story of how it drives future returns and opportunities, significant investment makes sense (sometimes a lack of investment is penalized even) because investors are bought-in.

The AI race is in some ways like the 90s in biotech and seed — Monsanto was investing nearly 15% of revenue into R&D, they spent ~$8 billion in acquiring seed companies, DuPont acquired Pioneer Hi-Bred and everything else going on with the likes of Agrevo, Ciba-Geigy etc.

The sector, and Wall Street, viewed biotech as the right place to allocate capital. Just like has seemingly been the case for Alphabet, Meta, Microsoft and the entire “Mag 7” when it comes to AI.

Monsanto’s stock grew through the mid-1990s as each acquisition added scale in germplasm and distribution. In the book “Lord’s of Harvest” by Daniel Charles it is reinforced how Monsanto was rewarded by Wall Street at that time. On top, there were specific capabilities being worked on, with a large total addressable market and a vision for the future with those capabilities (genetic modification, “NutraSweet-esque” business model etc) that made investment accepted by Wall Street.

In agriculture, I think most of us agree that “innovation” and “technology” are crucial to success for the likes of John Deere, Corteva, Nutrien, etc, but picking the specific technology and companies out there that have adequate traction and the directional arrow for long-term growth while fitting naturally into an incumbents core business is more difficult.

Recent Consensus Bets in Agriculture

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