Upstream Ag Insights - December 11th 2023

Essential news and analysis for agribusiness leaders

December 11, 2023 • Read Time: 20 minutes

Welcome to the 196th Edition of Upstream Ag Insights!

As a note, this will be the 2nd last edition of Upstream Ag Insights for 2023. Next week’s December 17th Edition will be the final one of 2023.

The first edition of 2024 will be on Sunday, January 7th.

Index for the week:

  1. Theory of Innovation Adoption in Agriculture: An Application

  2. One (Three) Upping Indigo Ag: New Initiatives from Farmers Business Network

  3. Highlights from the CropLife 100 for 2023

  4. Follow-up on The Implications of FTC Suing Corteva and Syngenta and Motion Dismissed

  5. Green Brain Acquired by CropX

  6. Pairtree Intelligence Secures Investment from SVG Ventures

  7. 2024 Digital Advertising Benchmarks For Agriculture

  8. Gene-Editing Startup Ohalo Emerges From Stealth as Dave Friedberg Takes the Helm

  9. BASF to Give Increased Autonomy to Agricultural Solutions Business: What it means for the future

  10. Serenity Prayer for Agritech Founders and Investors

  11. Regional Growth Opportunities in the Crop Protection Industry

  12. 2023 Tenacious Ventures Impact Report

This week’s edition of Upstream Ag Insights is brought to you in partnership with Schultz Collaborative:

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Three months ago, I published Predictably Irrational: The Dilemma of AgTech Adoption, which was intended to bring to light that we often oversimplify agtech adoption and underappreciate important aspects of innovation adoption within agriculture.

This led me to begin talking more with founders and farmers, reading 3rd party research, and being retrospective on my experience to find more concrete considerations.

There has been a lot of work done surrounding innovation adoption within agriculture.

In fact, what is not often acknowledged is the fact that the “Innovation Adoption Curve”, made popular by Geoffrey Moore in the book Crossing the Chasm, was based on corn hybrid adoption research in Iowa done in the 1940s to learn about the diffusion of innovation.

The adoption research has been known to have shortcomings, such as the fact that the context of each individual is always different.

Digging into contextual considerations led me to research from Geoff Kaine out of New Zealand.

He applies many consumer-driven insights to technology adoption within ag, something I have been adamant about within farming. We think of farming decisions as a B2B scenario— dollars and cents driven. But farmers have much in common with the decision process of a consumer, such as a desire for simplicity or being socially accepted and signaling specific attributes to friends or neighbors. This is distinct from generally accepted B2B business considerations.

Consumer Driven Dynamics

Broadly speaking, there are three sources of consumer-driven adoption - interest, sign, and hedonic.

Interest concerns the performance of the product or activity in utilitarian, economic and functional terms. Sign concerns the contribution of the product or activity to how they view themselves and impression management (signaling). Hedonic is the extent to which the product or activity satisfies pleasure or experiential goals.

This can similarly be applied to farmers.

In The Adoption of Agricultural Innovations, Kaine introduces five important considerations from previous research that can be used to identify a farmers willingness to adopt:

  1. The relative advantage of the innovation over the current standard or other options.

  2. Compatibility of the technology within the farmer's operational context.

  3. The level of complexity of the innovation.

  4. Trialability of the innovation.

  5. Observability of the result.

I would add a 6th, based on the work of Ron Adner— adoption chain risk, or value chain incentives that considers how an innovation makes it to the farm.

At a high level, these all make sense, and they are worth breaking down to consider how agribusinesses and agribusiness professionals can leverage these insights as a framework for improving the uptake of their innovations.

To gain access to the full Upstream Ag Professional exclusive article breaking down farm innovation adoption, including access to a PDF framework and examples, become a member today:

Upstream Ag Insights is a reader-supported publication.

A premium membership provides you access to a growing archive of leading agribusiness insights and analysis. For more about the benefits of a Professional membership, please see here.

The FBN overview has been made available to all Upstream Ag Insights subscribers.

Last week, I read the linked interview with FBN’s Head of Data Science & Analytics, Kit Barron, and Vice President of Global Procurement and Supply, Tom Lyons.

The interview took place during an FBN “Roadshow” which “attracted the participation of many Chinese agrochemical enterprises” that I get into below.

First, some interesting numbers on FBN’s business:

  • FBN now has over 75,000 members.

  • The FBN membership base has grown 42% from its 20,000 members in Q1 2021 to more than 75,000 in Q3 2023.

  • Cropland owned by farmers who are FBN members, reached 139 million acres, accounting for 29% of cultivated land of the US.

  • FBN says they have analyzed 100 billion field data points from across North America, covering 31.5 million acres of land, 6,800 seed varieties, and 150,000 purchase invoices for agricultural inputs.

The aspect that stands out about these numbers is that none of them emphasize the current engagement or activity of the member base.

Becoming an FBN member is low friction: there is no cost, and all it takes is an internet connection and an email address.

What indicates a healthy business are customers, or users, taking business actions; what percentage of those members purchased a product from FBN in the last 365 days, what percentage of those individuals grew their business with you in the past 365 days, and on the lowest of ends, a membership activity metric, such as an L28 (members that took an action within the app or on the website in the last 28 days).

If those KPIs, or variations of them, were positive, they would be stated because that illustrates a highly engaged member base. This, to me is a red flag regarding the health of the FBN business.

For the full breakdown, check out the link in the heading.

3. CropLife 100 for 2023 - Crop Life

Back at the start of the 21st century in 2000, the nation’s top ag retailers had overall revenues of $10.9 billion. According to the 2023 CropLife 100 survey, this figure has skyrocketed over the past 23 years, now topping out at $46.7 billion – more than $35 billion higher!

Over the course of the last 23 years, ag retail revenues have grown at a 6.5% compounded annual growth rate. For context, the US economy grew at around 4% over the same period, and net farm income grew at about 5%, according to the Federal Reserve Reserve Economic Data (FRED) Note: Revenue and ‘net’ farm income are not apples to apples.

Other Interesting Takeaways:

  • CropLife top 100 Ag Retailers represent ~75% of all the Ag Retail locations in the United States.

  • 82% of Ag Retail’s total revenue is from Crop Protection and Fertilizer.

  • 75% of retailers experienced an increase in biological sales.

  • Custom application was up at 68% of retailers.

  • 86% of the Ag Retailers provide custom applications.

It is challenging to derive deep insights from the CropLife numbers as they do not contain exact revenues or margin numbers, for example (not CropLife’s fault). However, one number that stands out to me is custom application. Organizations with a higher custom application percentage should be better positioned to reduce the churn of their fertilizer and crop protection business, potentially driving higher margins too.

In 2022, the FTC brought anti-trust allegations against Corteva and Syngenta surrounding exclusion payments to distributors keeping crop protection pricing to farmers artificially high.

Syngenta and Corteva deny these allegations.

The suit focuses on several active ingredients, including:

  • azoxystrobin (Syngenta fungicide)

  • mesotrione (Syngenta herbicide)

  • metolachlor (Syngenta herbicide)

  • rimsulfuron (Corteva herbicide)

  • acetochlor (Corteva herbicide)

  • oxamyl (Corteva insecticide and nematicide)

More recently, the defendants filed a motion to dismiss (Syngenta and Corteva). The outcome of that motion was that “the Court should deny Defendants’ Motions to Dismiss.”

This means the complaint is ongoing and unlikely to be dropped in the short term:

Defendants’ motions to dismiss misapprehend the applicable law, ignore the allegations in the Complaint, and introduce disputed issues of fact.

There are several allegations within the case, but the big one is “exclusion payments,” which are where Syngenta or Corteva pays distributors to limit their business with generic pesticide manufacturers.

Join leading agribusiness professionals for exclusive access to an analysis of the implications from the FTC lawsuit along with a deeper overview of what the lawsuit entails.

CropX Technologies, a global leader in digital agtech solutions, including the CropX agronomic farm management system, announced its acquisition of Green Brain, a prominent digital irrigation management solutions provider based in Australia. The acquisition significantly expands CropX’s reach in Australia and strengthens its position as a global leader in digital precision agriculture.

GreenBrain marks the 5th acquisition for CropX, making them one of the most active start-up companies in M&A:

Source: Crunchbase

CropX has continued emphasizing a buying strategy centered on precision agricultural and irrigation technology, combining complementary technologies, expertise, and geographies, including Europe, New Zealand, the United States and now Australia. They have raised over $55 million in venture capital since 2013.

It’s unclear how CropX is doing overall, but the acquisition strategy seems to be focused on a roll-up type effort where they acquire stand-alone irrigation and precision point solution businesses with a strong customer base and then being able to consume that revenue at what is likely a palatable multiple and then upsell incremental CropX services to those customers to grow their business.

Pairtree simplifies the complexity of farm data management by providing seamless integrations with over 100 leading AgriTech companies. It combines data from previously incompatible digital sources, offering valuable reporting and insights to agribusinesses, government and researchers. This capability positions Pairtree as a leader in transforming agricultural data into actionable insights, enhancing farm management and decision-making.

Pairtree aims to integrate disparate data sources into a singular view for farmers or agribusiness professionals, essentially becoming the one-stop hub.

The goal of the business makes sense, and I can see why they have some traction.

There are two reasons their focus and position in the data chain could run into challenges.

For an overview of the challenges, become an Upstream Ag Professional member today.

For more on API-first businesses, check out the March 5th 2023 edition of Upstream.

Think Shift put together a great summary of marketing costs within the industry which is worth checking out.

A nice summary of the numbers can be seen here:

I can’t help but note the Objectives emphasized are Traffic and Awareness. No doubt these are objectives in the marketing world today, and they have their value in a brand-driven world, but no business in agriculture makes money from website traffic or awareness.

Unequivocally, agribusinesses make money from selling goods. Not impressions.

Marketing dollars that directly generate revenue are the best expenditures of marketing dollars. There is ample opportunity to deliver precision and performance marketing in an industry that generates hundreds of billions in transaction volume annually supported by hundreds of millions in marketing budgets.

The real objective is and will always be revenue generation— whether it’s via selling physical product, novel services or digital systems. For every dollar spent in a specific spot, what revenue did I generate?

Where is that metric measured? It’s generally unattainable.

The real value and real opportunity is in a marketing channel that is connected to the transaction.

For more on why precision marketing is the direction the ag industry is going, along with what companies are enabling this capability today and what that means for marketing in the future, become an Upstream Ag Professional member today.

Dave Friedberg, founder of The Climate Corporation and The Production Board (investor/incubator of Ohalo) announced his new role as the CEO of Ohalo Genetics, a gene-editing-focused startup.

Ohalo, which has been operating in stealth mode for four years within TPB, is transitioning to a more public phase after gaining approvals in the United States. Ohalo is making strides by using gene editing to develop new plant characteristics, particularly in potatoes today, to enhance storability and nutrient density.

The company recently had major breakthroughs, highlighted by the successful outcomes from the USDA’s Regulatory Status Reviews for their gene-edited potatoes. They have two different potatoes that received approval:

  1. a potato that produces an increased concentration of beta-carotene for altered nutritional value. Beta-carotene is an antioxidant that can give an orange, yellow, or red color to carrots and other foods. There are similarities here to Monsanto’s Golden Rice, which had a narrative challenge with “GMO.”

  2. a potato with an altered sugar profile to reduce glucose and fructose content in the potato. This enhances the storability and quality of the potato.

We often talk about consumers paying more for “sustainably grown” food. I am not certain that is true in the aggregate (certain segments of customers, not others). But there are two areas where I think many consumers will pay more or prioritize purchasing because there is enhanced value for their dollar or there are more immediate and tangible upsides to the food, both of which hit on Ohalo’s initial approvals:

a. Reduced spoilage, saving the consumer money. This is also significant for the farmer, where storage losses are a significant issue every year in potatoes, and storage management can be expensive and time-consuming.

b. Increased nutrient density to improve health. Additionally, there could be more demand for a specific product from geographies that are deficient in that specific nutrient, such as Asia for a beta-carotene augmented product, reducing child blindness issues, for example, or, say, zinc in India.

Given the potential of gene editing, the starting point for Ohalo, and the fact David Friedberg came back into an operating role after 7 years in an investing chair makes this business one to watch.

For Agricultural Solutions, we see a clear trend toward pure-play competitors that cater to the specific needs of the respective industries and customers they serve.

The changes aim to allow the Agricultural Solutions segment to operate with more flexibility and increased industry focus.

The Investor Presentation emphasized the following for the agricultural solutions unit:

Moved from producing crop protection products to providing farmers with agricultural solutions that connect crop protection, seeds and traits as well as digital solutions.

Generates new business models by leveraging digital solutions and increasingly integrating data and mechanical hardware.

Seemingly, this means there will be more flexibility to remove the shackles of legacy business models to transition towards novel, systematic and holistic business models that integrate multiple segments of the ag solutions business. My interpretation of this is that there is a desire to move in a direction similar to what Bayer is doing with the Preceon Smart Corn system, integrating services, digital systems, and physical products into a farmer-centric offering. This means an effort to increase margins and further differentiate the product offering, something not as core to other aspects of the business.

The effort ultimately raises the question of whether BASF does spin off the agriculture solutions divisions entirely. The trend used to be towards more conglomerate-type businesses— now investors want focused businesses; they want to diversify for themselves, and they do not want that to be done by the business itself operating across various industries. This means, not only are there benefits internally for BASF to move in this direction, but there is opportunity to derive better multiples from investors, increasing stock prices.

Bayer will announce in March if they are going a similar route, potentially spinning out the Crop Science division as a stand-alone entity.

Of the big four crop protection and seed manufacturers, BASF has been the most challenging to derive meaningful insights into from their public investor documents and presentations because of the conglomerate-type nature of the business. Moving forward it seems likely that there will be an ability to glean better insights under the hood of BASF as they move forward in a more stand-alone nature.

The crucial insight is this: While marketplaces have to provide thickness, they also need to facilitate decongestion and make it safe for the participants to reveal the information they have to reveal to get efficient transactions.

This is a great analysis by Venky Ramachandran on Thick vs. Thin markets in agriculture, what that means, and why it’s important for agribusinesses to understand.

This is a really broad and interesting overview of various pieces of crop protection information globally, including:

  • Resistant weed numbers

  • GM utilization by crop

  • Herbicide application rates and pricing

  • Drone acre treatment growth in Asia

It’s worth checking out.

12. 2023 Tenacious Ventures Impact Report - Tenacious Ventures

Tenacious Ventures recently shared its first-ever Impact Report.

What I liked the most about the report was the overviews of their portfolio companies that included some company progress information such as customer base, geographic reach, and other interesting pieces of information, including on Regrow, RapidAIM, and SwarmFarm.

Tenacious also shared their 2023 Wrap on Ag Tech So What that is worth listening to.

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