Upstream Ag Insights - October 9th 2023

Essential news and analysis for agribusiness leaders

October 09, 2023 • Read Time: 17 minutes

Welcome to the 187th edition of Upstream Ag Insights!

Last week, I shared the opportunity for discounted access to become an Upstream Ag Professional member— I have extended that offer out for just three more days if you missed it last week:

Index for the week:

  1. Artificial Intelligence and the Supply Chain in a World of Converging Agribusiness Software

  2. Exploring Incumbent Innovation in Agriculture

  3. Nutrien Investing $300 Million Over the Past 5 Years in Digital Solutions

  4. Hit the Bullseye with Customer-Centric Marketing

  5. Fundamentals of Technology and Keys to Implementation

  6. Discipline in What You Offer

  7. In Case You Missed It: a. Rantizo Raises More than $6 Million to Scale Automation Orchestration b.Highlights and Analysis of AGCO's Acquisition of Trimble Ag Assets and Joint Venture c. Predictably Irrational: The Dilemma of AgTech Adoption

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Your Competitors Already Are.

This week, I read news from Agriculture Dive on an AI chatbot that can help predict farm supply chain disruptions.

It caught my eye, specifically if we extrapolate the functionality more upstream in the agriculture value chain:

Helios on Thursday launched Cersi, a chatbot that harnesses billions of climate, economic and political signals to forecast potential supply chain risk down to the farm level. The virtual assistant is part of Helios’ larger risk management platform, which was launched in December, and is meant to help large food companies get a better handle over their agriculture supply chains.

Helios focuses more on the downstream supply chain for CPG companies securing grain supply from farms.

I think this presents a valuable example of two things directly related to upstream portions of the value chain:

  1. Opportunity for product evolution in upstream supply chains.

  2. An example of where a Large Language Model / ChatBot interface isn’t the best default approach.

I also believe this functionality will become a future feature contributing to digital battlegrounds in the agribusiness software.

Become an Upstream Ag Professional member and don’t miss out on a deep dive into the opportunities of embedded supply chain artificial intelligence in agribusiness software and how the convergence of agribusiness software across the value chain is playing out, along with why supply chain artificial intelligence could significantly impact certain profit pools within the value chain. Includes two exclusive images to help understand the agribusiness software market.

2. Exploring Incumbent Innovation in Agriculture - Upstream Ag Professional

Recently, I read a post from Bob Reiter, Head of Research and Development at Bayer Crop Science, talking about Bayer’s continued investment into R&D:

For us, we continue to take the results of the Farmer Voice survey deeply to heart. Our biggest challenge and greatest opportunity is to meet global need with unprecedented ingenuity, continuing to invest in an R&D pipeline that will keep delivering on farmers' biggest needs.

It made me want to look closer at not only Bayer’s R&D spend, along with some of their competitors but also the approach to innovation within input incumbents.

In 2022, Bayer invested €2.876 billion plus has >7,000 employees working in R&D.

The general trend, on a percentage of revenue basis, has been declining— moving from 13% of revenue in 2018 to 10.1% in 2022, according to their annual report:

Even though their R&D expense as a percent of revenue was down in 2022, it was up in absolute dollars over 2021 thanks to the increased revenue (because of increased input prices).

This brings them in at almost exactly 10% of revenue— ahead of all major competitors on a percent of revenue basis and absolute spend basis:

There is an increasing focus on accessing innovation in other ways outside internal R&D expenditure among the most significant crop protection and seed companies.

The approaches in my mind are the mechanisms and “how” by which entities are working to identify innovative technology or concepts, bring that innovation into their business, and develop innovative solutions to farmer problems that are commercially viable.

As you can see above, the primary strategies of these companies include the following:

  • Internal R&D - Empowering an internal team and allocating a specific level of expenditure for inner discovery and product development capabilities such as new herbicide molecules, use of CRISPR, computational agronomy, and data analysis to drive proprietary capabilities.

  • Open Innovation - Acknowledge that innovation can and will come from outside your organization and then actively seek out and collaborate with governments, accelerators, venture entities (e.g.: Radicle Growth), and external groups to identify novel technologies and seek to license, co-develop, or learn from them (e.g.: Universities) to innovate.

  • Corporate Venture Capital - Investing directly into external businesses with novel technology, cornered resources, the ability to be agile, and lacking the constraints inherent within a corporate setting. Often, CVCs can get board seats and direct access to unique industry talent.

To Bayer’s credit, they are leading in expenditure, have active corporate venture capital groups (Leaps by Bayer), and actively emphasize their open nature to innovation (caveat: It’s difficult to assess if actions match words).

However, expenditure doesn’t consistently deliver output. The goal is to commercialize products, not spend on R&D.

For access to exclusive insights surrounding agribusiness R&D efficiency, what influences downward R&D expenditures, what’s necessary for innovation, and more, become an Upstream Ag Professional member today:

According to Clayton, Nutrien has spent $300 million over the past five years on digital solutions and its data team.

This works out to $60 million a year. Interestingly, in 2018, then-CEO Chuck Magro stated they were budgeting $100 million per year. That signals a drop in emphasis on the digital front, and it comes through, at least in part, on some of their publicly shared KPIs.

For more on Nutrien’s KPI’s, and previous success, access to the Nutrien Annual Report Highlights and Analysis and an illustration of the performance decline; become an Upstream Ag Professional member today:

Related: Nutrien 2022 Annual Report Highlights and Analysis - Upstream Ag Professional

This is a well-thought-through article on the evolution of marketing in ag retail and how it can be a strategic edge for those who take the time to integrate it into their business in a holistic way effectively:

It’s time to say goodbye to the spray-and-pray approach and dial in a more focused marketing strategy. One that is all about targeted, tailored, and timely messages to achieve greater customer satisfaction and increased sales.

Precision marketing will be the norm this decade.

In agriculture, precision is a common term used around the application of inputs.

However, it can apply to almost every facet of business and agriculture.

I think “Precision Everything” is where agriculture is headed: agronomy, product marketing, gene editing, grain marketing, and more.

“Precision” as a mental model has been top of mind for me since reading “Railroader” by Howard Green, an excellent book on Hunter Harrison, who revolutionized the rail industry by bringing in “precision scheduled railroading.”

Railways used to measure car efficiency in days. Did the car get there on Monday or not? Monday at 7 a.m. is much different than Monday at 7 p.m., but technically, the car arrived on time. This caused friction among customers. Hunter Harrison moved the railways towards measuring the accuracy of car delivery to hours instead of days as one aspect of precision but also had maintenance measured in minutes instead of hours as another example. The takeaway? Identify the smallest unit of measurement you can acquire information in to take more effective action and deliver better outcomes for the business and your customers.

My friend, Janette Barnard at Prime Future, wrote on precision and laid out an excellent framework for precision in the same vein:

There are three defining dimensions to precision agriculture technology:

There is direct applicability of Janette’s framework to marketing.

One statement that stood out from the article was the need for alignment across the entire team. This sounds obvious, but it often isn’t. Frequently, marketing doesn’t talk to sales, and agronomy teams don’t align with marketing or procurement, resulting in missed opportunities, confusion, and high inventory levels.

Match the audience with the underlying goal. To do this, keep the company, product, and team goals in mind. Such as:

It’s okay to have multiple, but there should always be a leading objective. Just like during content planning, collaboration between marketing, sales, and other department teams is necessary. With the primary purpose of the marketing campaign as the center point, identifying the ideal audience becomes more straightforward.

Ensuring everyone is aligned is the only way to effectively execute precision marketing because you can have all teams buy-in and reinforce the same message— the core of successful marketing campaigns.

Given AgVend’s platform’s marketing capabilities, the above advice is notable.

For more on how marketing can help retailers navigate influence erosion, why precision marketing is important for input manufacturers, extrapolations from the mainstream tech market to how this functionality can benefit agribusiness software and more, become an Upstream Ag Professional member today:

“The industry probably hasn't done the best job with technology because there's been so much oversold under delivered in the marketplace…I don't think it's always been the issue with the sales companies or the products.”

Instead Swain encourages ag retailers, farmers and any users of technology in agriculture to set their expectations and then institute measures of accountability. 

There is sound commentary from Dave Swain of Vision Technology Management in this conversation with Margy Eckelkamp.

His comments are consistent with what I highlighted as a necessary aspect of technology utilization last week in Predictably Irrational: The Dilemma of AgTech Adoption: There is a need for education and support infrastructure to effectively implement technology and guide individuals through the process of integrating it into their day to day.

6. Discipline in What You Offer - The Daily Scoop

As always, Brad Oehlman shares valuable and practical tips for agribusinesses.

Related to the title, I think there is a lot of synergy with what Brad states, and an article I wrote called Navigating Strategic Development, Strategy Tax and the Opportunity in Uncertainty in Agribusiness— discipline to be focused and to be different goes a long way.

The below quote also stuck out to me:

I can’t say enough how important it is to understand the business plans of customers….It costs more to react than to plan with farmers. And when you plan with your customers, you have a better understanding of what they need and what they don’t need from you. 

I agree and have emphasized this in the July 23rd, 2023 Edition.

The most significant innovation in ag retail over the last decade or two hasn’t been farm management software; it hasn’t been online selling, nor has it been a shift to proprietary product lines; it has been the practice of crop planning with farmers. Crop planning empowers efficiency.

The best way to effectively access the right product, at the right time, in the suitable SKU while maximizing programs and minimizing end-of-year inventory levels is through ground-up conversations and planning among retail staff with farm customers, turning that into a forecast and then executing procurement efforts against that forecast with continued farmer conversations.

There will always be unpredictable occurrences with crop protection products, such as urgent insecticide needs or supply challenges with fertilizer. Things you can’t control are inevitable. The only way to do a better job of getting the product to the farm before a farmer needs it is to control what you can control, and this primarily stems from knowing what products will be required and ensuring access to them.

Even as the techno-optimist that I am, it is impossible to ignore the importance of two basic things in distributing and selling crop inputs to farmers: communication (which enables crop planning) and physical assets (to deliver them).

For any retail to continue to be successful, no digital tool can replace the need for effective communication and good conversations.

7. In Case You Missed It:

Last week had a lot happening in the world of agribusiness, while this week was relatively slower— if you missed any of the critical aspects from last week, here they are again:

Key Takeaways:

  • Rantizo raised more than $6 million to scale their leading operator network for spray drone services. 

  • Rantizo connects demand and supply for agricultural spray drone services by selling drones, support, software, and training to ag retailers and drone operators and by flying contracted acres for spraying services. Rantizo provides a service platform that can deliver new revenue for ag retailers and seeks to automate spray service delivery. 

  • The future of Rantizo is unlikely to stop at a focus on drones— the end could be the enablement of novel services and business models and being an orchestrator for the entirety of services and autonomy in agriculture. 

Key Takeaways:

  • The purchase price for the Trimble Ag business comes in at an implied enterprise value of approximately $2.35 billion and a transaction multiple of approximately 13.8x based on 2023E EBITDA of roughly $170 million.

  • The transaction brings some natural immediate benefits to AGCO’s business, including integration of Trimble products in all AGCO equipment, channel expansion, talent integration, margin expansion, and amplifying AGCO’s retrofit strategy.

Key Takeaways:

  • Humans are not economically rational— things outside traditional ROI constantly influence us, and are often making decisions based on cognitive biases that are less tangible to navigate. This includes farmers and B2B professionals.

  • Human psychology needs to be considered to maximize agtech adoption. Hurdles to overcome include loss aversion, status quo biases, and considering how social perception influences decision-making priorities.

  • Understanding the actual pain point is crucial to positioning the product and understanding the true ROI of an agtech product, especially when progressing beyond the early adopter segment of farmers and agribusiness professionals.

Non-Ag Article

This tendency is exacerbated by the fact that we’re all heavily socialized to aim for mediocre success. Schools, universities, large organizations—they don’t want big swings and big misses; they want safety and consistency. A steady seven is better than tens interspersed with zeros. This might work well in structured, predictable environments, but in startup land, it’s anathema.

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