Upstream Ag Insights - November 6th 2023

Essential news for agribusiness professionals

November 06, 2023 • Read Time: 20 minutes

Welcome to the 191st Edition of Upstream Ag Insights!

Index for the week:

  1. Agriculture – On the cusp of a rapid evolution (guest article!)

  2. Level Setting the AgTech Landscape

  3. Ten Common Challenges to Overcome in Digital Ag

  4. Hefty Seed Company Selects Meristem’s Patented BIO-CAPSULE Technology: What does this mean for the future of Meristem?

  5. GROWERS Debuts Two Native Apps, GROWERS and GROWERS Retail with substantial updates to enhance farmer, retailer, and manufacturer relationships and The Plight of Marketplaces in Agriculture

  6. Corteva Updates Expectations for Third Quarter and Full Year 2023 and Follow-up on FMC from Last Week

  7. FieldView and Combyne Platform Integration Helps Farmers Better Manage Grain Marketing and Build Profitability Insights

  8. Bayer Crop Science ESG Investor Webinar Sustainability Update: Biodiversity & Crop Protection

  9. Empowering Agribusiness Growth Using Private Equity

  10. Funding Innovation for Ag: Getting Tactical, Part 2 - Redeemable Equity

This week’s edition of Upstream Ag Insights is brought to you in partnership with Imagine Content and Consulting!

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Upstream Ag Insights is a happy customer of Imagine Content and Consulting.

Not only do they do great work creating visually compelling materials, such as video clips like the one below, where I talk about the evolving digital infrastructure battles:

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If you are interested in seeing a full video design done by Imagine Content, I have made the September 2023 Upstream Ag Professional Video Summary open to everyone, which includes a breakdown of the following:

  • Indigo Ag’s $250 Million Raise

  • Rantizo’s $6 Million Raise and Future Ambitions

  • Psychology and AgTech Adoption

  • AGCO Acquiring Trimble Ag AssetsIf you are looking for a group to level up your content and design game, I encourage you to reach out to them!

1. Agriculture – On the cusp of a rapid evolution - Upstream Ag Professional Guest Dan Northrup

This week marks the first-ever guest-written article within Upstream!

Dan Northrup of Galvanize Climate Solutions has written a thoughtful article on what is coming together to catalyze change within the agriculture industry— from technology to geopolitics to government investment and beyond.

Below is a portion of the article, with the full article available to all Upstream Ag Insights subscribers at the above link.

Every sector of industry is expected to make dramatic transformations to meet net zero emission goals and mitigate climate change.  The agricultural sector is expected to increase productivity while reducing its emissions, which make up 10% of US emissions[1].  In addition to mitigating emissions, agriculture has a unique potential to remove large amounts of carbon from the atmosphere and generate carbon-negative energy.

Significant transitions in agriculture are difficult because modern agriculture is an interlocking, complex system of genetics, chemistry, equipment, and agronomy.  The component technologies operate as a system, and improvements to one of the categories are only effective if the new capability is met by synchronous improvements to the other categories.

Significant near-term emission reductions from agriculture can be achieved by increasing efficiency[2].  Precision agriculture is a set of technologies and methods with the potential to boost productivity using fewer inputs.  Given its economic alignment and climate potential, precision agriculture could have many benefits, but despite large investments and research into software systems, sensors, and data tools, adoption of precision agriculture tools remains limited[3].

In our view, slow adoption created a mistaken impression that the agricultural industry is incapable of change.  In fact, valuable technologies are adopted faster in agriculture than many sectors owing to the annual cropping cycle.  The rate of adoption of genetically modified crops[4] and auto-steer tractors[5] rivals the uptake of the fastest technologies in any sector[6].

The difference between new agricultural technologies that saw rapid adoption and those seeing slow adoption is their position in the ecosystem.  While GMOs and autosteer enhanced the existing system independently, precision agriculture is an ecosystem shift that requires advancements in each technical category to create value.  For example, gathering data for decision support requires durable sensors and field access, and generating value with this data requires a capacity for timely reactions which to date have been limited by field access, crop genetics, and legacy equipment.  Without each system component, the potential efficiency and productivity gains derived from precision insights were limited.

Despite the frustration, research and investment in component technologies is beginning to bear fruit.  The substantial maturation and productization of critical technologies has occurred against the backdrop of global events, market forces, and customer sentiment that significantly change the value proposition for precision ag technologies.  The convergence of technical maturity and shift in business models put agriculture in a position for rapid and dramatic transformation over the coming decade with significant economic and environmental benefits.

2. Level Setting the AgTech Landscape - Upstream Ag Professional

I often hear that there are “too many agtech companies.”

The Mixing Bowl released their 2023 Biological Landscape, where they stated they found over 1,200 bio companies.

Better Food Ventures released their Farmtech Landscape most recently in 2020, listing over 600 companies.

There are a lot of companies in the space. But it’s important to contextualize things.

Recently, the 2023 Marketing Technology Landscape was released with a whopping 11,038 companies.

Fintech is another popular area, and recently I was reading about the Australian Fintech landscape, where KPMG identified 775 fintech companies based in Australia alone. The USA has a GDP about 22x the size of Australia— so imagine the size of even just a North American company list.

Navigating that number of companies sounds challenging; however, as I talked about in The AgTech Paradox: What Biology and Historians Can Teach Us About the Agriculture Industry, numbers are important:

In evolutionary biology it is well accepted that having a proliferation of off-spring is required for a species to thrive. There is a need for lots because that brings variation to a population in an uncertain world and environment and gives the best chance of having the right traits that keep the species thriving for the long term (you never know what trait might find a use). The aim of all life.

If we take this biology concept and think about it in agribusiness, it illustrates that we need new ideas, new technology, new businesses and the entrepreneurs that have the vision and the guts to take the risks across a variety of verticals to add value to farmers, ensure food security and ensure positive environmental outcomes, no matter the events and challenges thrown at us. The agriculture industry relies on this.

In other words, we need to have many ideas and companies started to identify what will work and what will not.

Given the current environment, we are likely to see some atrophy of agtech companies, as highlighted in Illustrative AgTech Insights: AgTech Investment on the Decline and What that Means.

Nothing is perfect, and there are shortcomings to every scenario— too much capital, too little capital, too many companies, too few companies and everything in between. However, I think it is a good thing we have seen a lot of companies founded within the agriculture industry, and when you compare to other industries, it almost seems like there hasn’t been enough!

This is a well-written article by Patrick Honcoop overviewing challenges within digital ag.

The article establishes a nice “checklist” for digital ag companies to think through and manage.

There is nuance to each point, depending on the type of digital ag product. That’s what stood out to me in the comment section of Patrick’s article. The comments ranged from “farmers aren’t entrepreneurial” (which I do not agree with) to “we need more funding” (which I do not think is a main problem either) to “scope creep” (which I think is an accurate comment) along with a host of others.

The comments illustrate a macro challenge to the problem: the complexity of farming systems.

The complexity of adoption for many digital products is incredibly high, something Dan Northrup articulated well in his article above:

The difference between new agricultural technologies that saw rapid adoption and those seeing slow adoption is their position in the ecosystem. While GMOs and autosteer enhanced the existing system independently, precision agriculture is an ecosystem shift that requires advancements in each technical category to create value. 

Next week I will be sharing some thoughts from reading through Geoff Kaine’s The Adoption of Agricultural Innovations and one of the takeaways is that speed of adoption and likelihood of adoption is correlated to the complexity of the innovation:

The third characteristic of innovations that influences their rate of adoption is ‘complexity’ which is the degree of effort needed to understand and use an innovation (Rogers 1995). The more complex innovations are, the more difficult are the tasks of understanding the principles underpinning them, implementing them and of anticipating the consequences of adopting them. Hence, more complex innovations place greater demands on the learning and implementation skills of decision-makers. The rate of adoption of an innovation is negatively related to complexity.

This is why ROI is only so important if innovation is complex and implementation support is lackluster— something I emphasized in The Dilemma of AgTech Adoption.

To access next week’s full highlights and analysis surrounding adoption and the diffusion of innovation in agriculture, become an Upstream Ag Professional member today:

Meristem Crop Performance Group, LLC and Hefty Seed Company today announced a strategic alliance and supply agreement focused on increasing the impact of beneficial biologicals on crop production and return on investment (ROI) for American farmers.

With this new alliance, Hefty Seed will gain access to Meristem's patented BIO-CAPSULE for the delivery of its proprietary blend of microbes and micronutrients. This agreement is a first of its kind for the technology.

This is compelling news from Meristem Crop Performance. I think it’s notable for all individuals and companies interested in biologicals, the evolution of crop inputs, and technology adoption.

To read the entire analysis on why the news is significant for Meristem’s business, what it means for biological companies in the industry, what Meristem’s current sales and growth aspirations are along with why there is a high likelihood of adoption of Meriswtem technology, become an Upstream Ag Professional member today:

GROWERS, a leader in digital technology for agriculture, has announced enhanced farmer and retailer features within two new mobile apps. The company’s flagship product, GROWERS, is a FREE app for farmers enabling them to work directly with their retailers to request farm input products digitally, streamlining, and organizing the entire process. In addition, GROWERS Retail allows retail counterparts to respond to farmers’ requests creating new ways for retailers to drive customer loyalty and sales growth as more farmers embrace technology.

I have talked about the GROWERS endeavor ad nauseam in 2023, including in The Instacart of Agriculture (a specific dive into the GROWERS App) and the January 8th 2023 Edition of Upstream Ag Insights.

We have experienced the continued struggles of multiple marketplaces within agriculture, and we have to call the GROWERS App what it is: a marketplace.

Their recent effort reinforces that they have a similar endeavor to what Agro.Club was doing in North America (I highlighted why it failed here).

I admire what the team at GROWERS is trying to do— their mission is to improve the digital tools and lives of farmers and ag retailers, something I think is necessary within the ag industry. However, the route they have taken is a difficult road to go.

To read the full analysis, along with previous write-ups on marketplaces in agriculture, GROWERS challenges moving forward and why they will have a difficult road moving forward, become an Upstream Ag Professional Member today:

Corteva, Inc. today provided preliminary net sales and earnings results for the quarter ended September 2023 and an update for its expectations for full year 2023 net sales and earnings. Third quarter net sales are expected to be approximately $2.6 billion.

Last week, I highlighted FMC’s adjustment in earnings, emphasizing their continued challenges with channel destocking, specifically with issues in Brazil.

To read the comparison between BASF, Corteva and FMC earnings challenges, along with gaining access to the Q3 2023 Agribusiness Earnings Highlights and Analysis on November 19th 2023, become an Upstream Ag Professional member today:

Climate FieldView, the flagship digital farming product from Bayer, has announced a platform integration with Combyne, its recently acquired crop marketing management tool.

Through this new capability, grain farmers in Canada and the United States will be able to connect their agronomic data in FieldView to their marketing data in Combyne, enabling them to make more informed decisions.

Bayer Crop Science announced its acquisition of Combyne in January of this year, so a formal announcement surrounding integration was expected.

Combyne is a software tool supporting farmers with their grain marketing efforts through helping farmers manage their inventory, pricing, contract management, delivery status, percent contracted, and more, along with connecting them into various software to manage double entry for farmers better.

For more on why the integration is beneficial for farmers, FieldView and Combyne, become an Upstream Ag Professional member today:

For those interested in the ESG side of Bayer’s business, they recently had a webinar and released their Crop Science Sustainability Progress Report.

Check out the Bayer Crop Science 2023 Innovation Summit Highlights and Analysis from earlier this year to see how their innovation and new product efforts align with their sustainability efforts.

9. Empowering Agribusiness Growth Using Private Equity - Farmers Capital Conversations

This is a good podcast featuring Jim Schultz of investment group Open Prairie.

If you are interested in learning how to get the interest of investors, or develop relationships with them, there is good insight on that.

What stood out to me was the latter portion of the podcast where Jim commented on some of his future views on agtech on a future of many “orphaned” and “stranded technologies” in the coming few years and more interestingly, that they are currently looking at two roll ups of 3-4 companies in what sounds like the digital ag space, one being a company with $8 million in revenue that could acquire a couple of its competitors/adjacent companies that would increase their revenue to upwards of $40 million in revenue with 10% in net operating margin.

I talked about roll-up opportunities in the October 22nd 2023 Edition of Upstream Ag Professional.

There is often discussion about the shortcomings of venture capital in agtech.

Connie Bowen shares a few of the shortcomings:

Agtech has a valuation challenge. Exit valuations aren’t terribly high. The average exit size in 2022 was $122M.

Agtech has a timing challenge. It takes a longer time to build successful solutions for seasonal, distributed industries.

Agtech investors are overly reliant upon M&A. This too often has negative consequences for farm customers, as venture backed companies are incentivized to build for exits rather than for their customers. 

There are less often thoughts about what funding structures could look like that still attract capital to the space, deliver a good return for investors, and deliver the right incentives and timelines for entrepreneurs to build resilient companies in the agtech space.

There have been calls for more long-term, patient capital— such as more agriculture focused entities investing in unique structure plays such as The Production Board (TPB) which has outright taken positions in ag retailer Lavoro and fed their start-up investments into that market channel, such as Pattern Ag or Stenon. TPB has also worked on internal company building, which is finding technology and entrepreneurs and building the companies from scratch within the business.

In the linked article, Connie highlights another example— “redeemable equity.”

In short, redeemable equity is a mix of equity and debt financing. The investing company can buy back most of the investor's shares over time. For example, if A invests $1M for 10% of B's company, they agree on terms like a fixed return multiple, a repayment plan tied to revenue, and a set residual equity. A retains 2% ownership even after repayment. This benefits A with faster repayment and B with less dilution. As B grows, they have flexible funding options. A can reinvest or distribute the capital to their LPs for future investments.

My understanding of venture would lead me to suspect this approach could be challenged, as the sort of return stated would not be considered great for venture capital where the power law is crucial. But Connie does call that out:

That said, being “contrarian” is also cited as the key to outperformance in venture, so maybe those things cancel each other out?

Non-Ag Article

Ghost markets seem real. They have a seemingly enormous TAM and a clear story about how tech will disrupt it and create a huge company in the process. Bottom-up and top-down analyses validate the opportunity. It’s the topic du jour on Twitter and TechCrunch. So a wave of companies is funded to go after it, and then… the opportunity vanishes into thin air.

Other Ag Articles