Upstream Ag Insights - December 18th 2023

Essential news and analysis for agribusiness leaders

December 18, 2023 • Read Time: 22 minutes

Welcome to the 197th Edition of Upstream Ag Insights!

This is the final edition of Upstream Ag Insights for 2023.

The first edition of 2024 is scheduled to come out on Sunday, January 7th.

Typically, I have done an annual review; however, instead, I will kick off 2024 with areas of the industry I am watching most intently for 2024, so expect that in the first edition of the year.

Thank you for continuing to be a subscriber to Upstream Ag Insights! I appreciate you being a subscriber and look forward to navigating the agribusiness landscape with you in 2024!

Upstream Ag Professional Upgrades for 2024

The aim for Upstream Ag Insights and the premium Professional version is continual improvement. Three key areas launching in the New Year for premium members include:

  1. Beta Launch of Search Functionality - I have partnered with an organization to take all editions of Upstream and create a searchable database to ease navigation of previous editions. The search is equipped with LLM summarization, along with links to the specific editions with the topics you are looking for. Access will be made available for all Upstream Ag Professional members in January 2024. Whether you want to find information about a previous agtech announcement or do a competitive analysis in a segment of the industry, the new search functionality will support those endeavors.

  2. Audio Summary of Each Edition - Upstream Ag professional members already receive three key takeaways surrounding each story in every edition. Many have mentioned an interest in audio to stay up on what’s happening in the industry, so moving forward, I will highlight some of the most important events from the week via an embedded audio recording to help you stay informed while you are on a daily commute, or while you do chores around the house.

  3. Improved Agribusiness Earnings Analysis - Finance is crucial to navigating the real value of ag company strategies or what’s possible from a strategic perspective (eg: acquisitions). I have hired a Chartered Financial Analyst to help me with quarterly earnings breakdowns and annual report analysis, which will improve the comparisons and insights from these company reports. I will also expand the company coverage to more than 30 publicly traded agribusinesses. A full list will be made available in the New Year.

There has never been a better time to upgrade and become an Upstream Ag Professional member! Upgrade before the end of 2023 and receive a 10% discount:

For Upstream Ag Insights subscribers in 2024:

  1. Regular Podcast - Over the past 3 years, I have had regularly scheduled conversations with my friends Sarah Nolet and Matthew Pryor of Tenacious Ventures (and the AgTech So What podcast), where we talk about big ideas in agriculture. We have often said, “We should have recorded this conversation," and in 2024, we will do so on a regular basis, making it available publicly.

Merry Christmas and Happy Holidays to everyone!

Index for the week:

  1. Bayer's Crop Protection Product Development Report Highlights and Analysis for the Broader Industry

  2. Root Architecture Company Cquesta Raises $5 million Seed Round

  3. European Commission Clears Novozymes, Chr. Hansen Merger

  4. Structure Input Data Consistently with Leaf's New 'Input Validator'

  5. Startup valuation correction will continue in 2024 but worst may be yet to come, say a third of agrifoodtech VCs

  6. EY Food and Agriculture Navigator EY Global Agribusiness 2023 H2 Semi-annual Report

  7. Strategy Tax with Shane Thomas

  8. SFTW Startup Spotlight: TrAIve

  9. Top Ten Articles of 2023

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

Yes, there is a small group of people who control everything. They run businesses, get elected to boards and public office, and make decisions the rest of us have to live with.They’re not evil geniuses or power-hungry villains; they just know something the rest of us don’t yet – they know how to make and shape movements around their businesses and ideas. They have decided that the future isn’t going to look just like the present and have unlocked the secret to creating lasting change.So, the big question is this: how can entrepreneurs like us, who are running businesses shaping the future of agriculture, who are building at the intersection of atoms and bits, how do we market in a way that lets us cut through the noise and build a movement for change? That is the question, and this course will give you the answers.

My name is Dan Schultz; join me to kick off 2024 with my course “A Message that Moves.”

Bayer recently released its report on how they approach product development, from initial R&D all the way to commercialization, including everything in between.

The area of the report I want to highlight is what Bayer calls “the evolution of the discovery process at Bayer”:

  • New and Selective Modes of Action

  • Profile-based design of new molecules

  • Biologicals

  • Formulations

  • Open innovation, partnerships, and collaborations

Become an Upstream Ag Professional member and gain access to all the above points pertaining to Bayer. I also share charts, images, and insights that spread across the industry to Bayer competitors, start-ups, and future events, such as acquisitions and collaborations in the biological and crop input formulation space.

Cquesta has licensed technology from the Salk Institute to enable plants to develop deeper roots and express suberin, a carbon-dense, indigestible compound.

The technology is notable for two reasons:

  1. Agronomic Upside: Deeper roots enable a plant to be able to access moisture and nutrients, nitrogen specifically, from deeper in the soil profile potentially increasing yield under drier or nitrogen-short conditions. There can also be some benefits from breaking up soil compaction, as well.

  2. Carbon Sequestration Ease and Durability: Increasing root mass and increasing the depth where those roots are in the soil profile means the potential for increased durability and permanence. The “ease” factor stems from the potential for additionality without a significant systems change to farm operation— simply the farmer opting for a variety with the Root Trait technology in the seed.

In my conversation with CEO Michael Ott, he stated the aim is for yield and quality parity when the trait is used within a variety. Anytime a plant uses more resources to on anything that isn’t the fruit/grain (yield producing), there is a risk of a drag, which will be interesting to watch as this technology is worked on (more below).

That also indicates a key monetization driver of this technology is carbon related.

Carbon offsets and insets have remained challenging to monetize at scale because of measurement issues, permanence risk, and durability. Microsoft underscored this in one of their carbon whitepapers:

Forestry and soil carbon removal face sobering challenges in quality. Challenges with nature-based solutions underline the fact that removal is not a uniform commodity that can be compared easily across project types. They are also the most vulnerable to climate risks and human disruptions.

Said another way, one tillage event and years of storage can be undone, which makes for lower demand for farm-driven soil credits.

On top, often, the way to increase sequestration means farmers need to implement a systems change to their operation— no-till or cover crops, for example, which is complex to adjust to initially.

Working to overcome those challenges is what makes Cquesta unique:

  1. Deeper roots mean the carbon storage is lower risk because a tillage event would not have the same permanence risk.

  2. The trait would be embedded within a typical seed that farmers already use, meaning no adjustment to their efforts while still leading to additionality.

This gets at the Cquesta go-to-market and business model that CEO Michael Ott told me they are looking at:

Cquesta develops a commercially viable root architecture trait and then licenses the trait to a seed company, for example, Corteva or Bayer.

The interesting part is that Cquesta wouldn’t charge the farmer. The goal would be to keep the cost of the seed the same (and ideally the yield), but have the farmer qualify for a carbon credit that gets them x number of dollars per acre for selecting that trait with their seed decision. Essentially, part of the seed selection process expands to include total revenue from beyond yield, as discussed in The Future of Seed.

Cquesta would then forward sell carbon credits and split the carbon revenue with the farmer, retailer, and seed manufacturer, with the farmer receiving the bulk of the offset.

This means Cquesta also needs to develop an MRV capability where not only can they understand the amount of incremental carbon stored per plant with their root trait and where in the soil that storage is occurring, but then how that aggregates up to a per acre basis, depending on the seeding rate and be able to verify that at scale in a way that would meet any certified protocol.

Cquesta has to be a trait company and MRV company at the same time.

Crops

Over the next 18 months, Cquesta has the ambition to establish an R&D program focusing on developing Root Architecture traits in target crops CoverCress, sorghum, canola, soybean, rice, and corn. The aim is to have something commercially viable in 3 years.

CoverCress and Canola are notable as early focuses.

For one, much of the work has been done on, as with most plant research, Arabidopsis thaliana or thale cress, which makes it closely related to other brassica family plants, CoverCress and Canola, potentially leading to faster commercial viability.

The other reason is that Bayer’s biofuel/cover crop efforts have been centered around commercializing CoverCress in mid-west US rotation. Additionally, Corteva’s biofuel efforts have been emphasized on winter canola.

The question then becomes, how much deeper will these roots go, and is it enough to make a difference on the carbon sequestration front? And is zero yield drag possible?

There are numerous studies on this subject, but a relatively recent study shows that, on average, most commonly grown crops in temperate climates do not have more than 50% of their root mass deeper than 18 cm or 7" inches (for US readers, there are approx. 2.5cm in 1”):

For canola and oilseed crops, the top 50% of root mass rarely gets below 10 cm or 4”.

Cquesta aims to drive the bulk of root mass deeper than 30 cm or 12” and ideally to 50cm (20”).

The depth is important, as the image in the full article illustrates, deeper tends to lead to longer soil storage and less ability for a farm practice to affect the permanence.

For the full overview of Cquesta, along with its challenges and opportunities, become an Upstream Ag Professional member today:

Related: S2G Ventures Carbon Market Report - S2G Ventures

Today we are excited to introduce a new, automated way to match inputs from field operations to input databases. Introducing Leaf Input Validator, now available for inputs used in the United States.

This may not be a sexy announcement on the surface, but it is an important offering for the industry.

It’s essential to have correct names for seeds and chemicals input in digital systems. The accuracy matters for product program tracking, complying with regulations, managing sustainability, records for crop insurance, and other important aspects.

Currently, product names are typed in by hand or manually selected by farmers and agribusiness professionals, which can lead to mistakes such as spelling errors, use of internal codes, or incorrect names altogether. These errors can make it hard to connect products with key information such as their active ingredients, where it's legal to use them, and the correct application amounts.

Previously, tech providers had to manually link these product names to standardized IDs in their databases, or sometimes they didn't do it at all.

The new Leaf validator solves this in two ways:

  • From the start: a type to search API that links to a product list, cross associated with the leading product databases in the industry. This allows correct input names to be entered before an operation happens.

  • Retroactively: For historical data, or when input names are manually entered, Leaf’s validation model matches the input used with known inputs sourced from leading input databases (CDMS, Agrian). Associations can be created, removed, and updated on an account or user level, which gives users a customized experience, and Leaf’s validation model uses these adjustments to improve predictions further.

Leaf's Input Validator takes inputs from field operations and compares the product names against external databases like CDMS and Agrian (as well as John Deere). Leaf’s comparison algorithm then assigns a ‘match score’, indicating the likelihood of a product match. The higher the score, the more confident you can be in the accuracy of the match.

The ultimate decision is still in human control; however, automation options exist. In talking to Bailey Stockdale, CEO of Leaf, he shared the following with me:

Each product match includes a confidence score, and then we let our users decide how to best handle this. For example, a company could set logic that any matched product with a 90%+ score will be automatically accepted, and for anything below that they will prompt their user to choose which product they meant. 

We also included the ability to auto assign product names with input db entries. For example, if a farmer always types "RUP", a company can choose to map that to a specific database product and that product will return each time automatically. This way, the farmer doesn't always need to get asked about the same products over and over again. This allows our users to create their own custom, private mapping tables on a farmer by farmer basis, or all the farmers in their account.

This is a nice feature.

The product landscape is disparate, CDMS, Agrian and Greenbook do their best, but not every product is included which means there are still some gaps there. The Leaf functionality provides a great starting point and something that many FMS, and equipment companies will surely be interested in.

The European Commission has approved, under the EU Merger Regulation, the proposed merger between Novozymes A/S (‘Novozymes') and Christian Hansen A/S (‘Chr. Hansen'). The approval is conditional upon full compliance with the commitments offered by the parties.

Neither Novozymes or Chr Hansen were pure-play agriculture companies. But they both have portions of their businesses tied to agriculture, partnerships with leading agriculture companies, and targets to grow their agriculture business units in the high single digits to low teens annually.

Both organizations have emphasized biological and enzymatic technology in the plant health and biocontrol space. That means this new company, which will be known as Novonesis, will be a player within agriculture moving forward, albeit likely behind the scenes, partnering with other agribusinesses more than being a farmer-facing business:

Novozymes, as a stand-alone company, was a global biotechnology company focusing on the research, development, and production of industrial enzymes, microorganisms, and biopharmaceutical ingredients. They had 12% of their total revenue come from agriculture-based products in 2022. According to a 2021 report, they have relationships with the likes of Bayer (BioAg), Syngenta, UPL, and FMC.

Chr. Hansen is a bioscience company that supplies bacteria cultures, probiotics, enzymes, and oligosaccharides. When going through Chr. Hansen’s investor materials, it’s clear they see agriculture as a growth opportunity, having partnerships with UPL and FMC to develop plant health products and their products totaling 5.2 million hectares applied in 2021. To date, the biological plant protection solutions Chr. Hansen has been applied on an accumulated area of 23.2 million hectares.

The strategic rationale to consolidate makes sense outside agriculture as well, becoming a large player across all of these areas, as well as agriculture. Together these two Danish companies create a leading bio solutions partner with broad biological capabilities and a diversified portfolio.

The combined group will have an annual revenue of approximately EUR 3.5 billion. Half of the portfolio will focus on “enabling healthier lives and producing better foods”. The other half “will address reducing chemical use and targeting climate neutral practices”. The combined group will operate 38 R&D and application centers and 23 manufacturing sites. With all of this, they are certain to be a formidable contributor to the future of agricultural inputs and likely to continue to support some of the largest agribusinesses with their technology.

The market correction for startup valuations in agrifoodtech, which is taking place across tech industries too, will continue into 2024, according to all but one agrifoodtech venture capital investor surveyed by AgFunderNews.

I do not think this survey surprises anyone, but I am glad AgFunder did the work to get perspectives from agtech investors.

Across the broader VC ecosystem, the capital raised in the first nine months of 2023 was only 24.7% of the share raised in the first nine months of 2022. Everything I have read on the mainstream VC market states the same: This will continue into 2024, and agtech is no different.

What I liked most from the AgFunder survey was the comments from agtech VC’s, including Seana Day from Culterra Capital, who stated her pet peeve as the following:

Entrepreneurs who haven’t realized the importance of focusing on business fundamentals versus focusing on raising VC. They still have blind optimism that VC will keep the business going.”

Along with Mark Kahn, partner at Omnivore, stating his pet peeve:

Endless bridge rounds, forestalling the inevitable.

Mark highlights an astute point. I increasingly hear of bridge rounds, a way to give a startup enough cash runway to make it to the next funding round, in hopes that the small injection gives the business the cash it needs, which has been keeping some entities on life support, but as Mark alludes to, it is simply delaying the inevitable in many instances.

The other thing that seems to be keeping some of the valuations propped up and giving companies another life is that most agtech companies identify as “climate tech”, which is one segment of the venture capital that has grown over an otherwise rocky environment, as highlighted in Illustrative AgTech Insights: AgTech Investment on the Decline and What that Means, bringing in non-agtech investors. “Dumb money” from government funding is likely a small contributor too.

I don’t think this is a reason to be bearish on all agtech, but eventually, companies have to stand on their own merit— revenue coming in exceeds dollars going out, not relying on VC dollars indefinitely. There will be plenty that survive and many more that don’t. And that’s a good thing, as I highlighted in The AgTech Paradox: What Biology and Historians Can Teach Us About the Agriculture Industry:

What venture capital should be is the catalyst behind the growth of a strong business, not a business model for the organization to merely stay alive or a government Ponzi Scheme to create more jobs.

Companies that can manage their burn and generate steady revenue control their own destiny. These companies will continue to access venture funding if needed; however, later-stage companies with unpalatable unit economics will cease to be relevant.

EY always does a good job with these reports. The H2 2023 report focuses on the following topics:

  • Sustainability and decarbonizing the value chain

  • Combatting food waste

  • Leveraging artificial intelligence (AI)

What stood out to me was the structured frameworks they shared surrounding AI, which I think can be really useful for deriving a deeper understanding of how different areas of AI are better suited for different tasks.

7. Strategy Tax with Shane Thomas - The Pacesetter Podcast

Recently, I was on The Pace Setter Pod with Joe Mosher.

Joe’s unique perspective and insights made it a fun conversation, bouncing thoughts and ideas around the following topics:

  • Understanding "strategy tax" within your agribusiness

  • Risk-Taking, Innovation, and the "incumbent's dilemma"

  • The green shoots under cloudy skies of AgTech

  • The "precision problem" vexing the self-proclaimed disruptors of ag

If you haven’t, I recommend checking out recent installments of The Pacesetter Pod, too - Joe brings on unique guests and dives into the operational side of agribusiness and it has quickly become one of my must-listen podcasts each week.

8. SFTW Startup Spotlight: TrAIve - Software is Feeding the World

Rhishi Pethe has done a wonderful breakdown of Traive, a Brazillian Fintech company that is worth the read.

9. Top Ten Most Read Articles of 2023 - Upstream Ag Professional

In case you missed any of these, here are the top 10 most-read articles from 2023:

  1. Indigo Ag: Analyzing What Went into their $3.5 billion Valuation and What Went Wrong

  2. The Theory of Innovation Adoption in Agriculture: An Application

  3. Solinftec and the Solix Autonomous Platform: Reimagining Farming from First Principles

  4. Bayer Crop Science 2023 Innovation Summit Highlights and Analysis

  5. Corteva 2023 R&D Innovation Update Highlights and Analysis

  6. Synthetics, Biologicals, Systems Agronomy and Weak Link Problems

  7. Tracking Biostimulants Farmer Survey from Stratus Ag Research Highlights and Analysis

  8. Highlights and Analysis of AGCO Acquisition of Trimble Ag Assets and Joint Venture

  9. InnerPlant, John Deere Expand Ecosystem to Include Syngenta, Focusing on the Evolution towards Plant by Plant Disease Management

  10. Winning in the Ag Machinery Space: Integrated Tech Stacks and Precision Technology

Non-Ag Article

10. AI, and Everything Else - Benedict Evans

Every year, technology analyst Benedict Evans produces a large presentation exploring macro and strategic trends in the tech industry. For 2024, he called the presentation ‘AI, and everything else’.

Other Ag Articles