Upstream Ag Insights - July 2nd 2023
Essential news and analysis for agribusiness leaders
Welcome to the 175th Edition of Upstream Ag Insights!
Happy July 4th and Canada Day Long Weekends to all North American readers!
Index for the week:
Synthetics, Biologicals, Systems Agronomy, and Weak Link Problems
Biologicals won’t replace chemical crop inputs anytime soon. Here’s why
AGI Defeats Farmers Edge Challenges to Patents + Carbon Challenges
ICL Leaf: A New Approach to Season-Long Data
Bridging Farm Data Through API with Bailey Stockdale, CEO and Co-Founder of Leaf
Blurring the Line Between Farmer and Ag Retailer and The Principal-Agent Problem in Agronomics
Transforming the Future of Ag Retail with Rob Dawes
Solinftec Announces Waiting List Website to Order Solix Sprayer
Data: the new oil or a new byproduct?
Bayer Crop Science 2023 Innovation Summit Highlights and Analysis
Top Upstream Ag Insights Articles from H1 2023
ChatGPT Implications for Agriculture
Tracking Biostimulants Farm Survey from Stratus Ag Research Highlights and Analysis
USDA Precision Technology Adoption Report Highlights and Analysis
Plus, watch out for a new report on agribusiness trends!
The Economic Potential of Generative AI: The Next Productivity Frontier
Thanks for reading, sharing, and subscribing!
If you are new or were forwarded this e-mail, my name is Shane Thomas, and this is Upstream Ag Insights, a newsletter for agribusiness leaders breaking down the latest innovations and business dynamics in the agriculture industry.
1. Synthetics, Biologicals, Systems Agronomy, and Weak Link Problems - Upstream Ag Insights
On June 20th and 21st in Salinas, California, Western Growers and New Zealand-based agrifood tech consultancy, Wharf42 held their 2023 Biological Summit.
I had a conflict that didn’t allow me to attend, but it drummed up a significant amount of conversation among those interested in the biological space.
Walt Duflock shared his thoughts and insights, The Mixing Bowl Hub launched their first ever Biological Landscape, S2G Ventures shared their takeaways, and Jennifer Marston of AgFunder wrote a great article sharing her learnings (linked in the next story) as just a few examples.
I have long been enthused about the potential for biologicals in crop production, and all of this discussion got me thinking more about a few areas of biologicals.
That led me to dig into three areas regarding their present and future utility:
Synthetic chemistry is king
Systems agronomy and biologicals
Weak link problems and biological progression
2. Biologicals won’t replace chemical crop inputs anytime soon. Here’s why - AgFunder News
In the first link, Synthetics, Biologicals, Systems Agronomy, and Weak Link Problems, I get into numerous areas of systems agronomy and the need for synthetics, but I wanted to share an excerpt from my article here that was inspired by Jennifer Marston’s great AgFunder News article linked in the heading.
One quote specifically stood out to me in the article:
One investor told me informally that we’ve already been through “biologicals 1.0”, which makes him confident VCs will do their due diligence when it comes to investing in “biologicals 2.0.”
Unfortunately, I do not know if this is the case. I want to agree with this VC in hopes this person is right, but in my mind, this is not a venture capital funding issue.
At the Salinas Biological Summit, the Mixing Bowl released the first edition of the Biological Landscape, with ~400 companies shared. Walt Duflock, who contributed to the landscape build-out, stated that more than 1,200 companies were on their list! An immense number considering on the flip side ~4 input manufacturing companies own ~65% of the crop protection market.
I would suspect that less than 30% of these biological companies are venture-backed. Meaning these companies proliferate even without access to venture capital (notably, the large company number presents an interesting private equity opportunity).
From this, I posit that the issue with biologicals hasn’t been VC due diligence; it’s the lack of regulation around them.
This leads to low barriers to entry and a proliferation of companies with subpar technology and products.
As a note, VC due diligence only goes so far in early-stage biological companies too. A well-meaning biological company can achieve consistent responses in a lab and find multiple rigorous studies on a specific molecule working, with it vetted by a scientific leader hired by a VC firm, but have that technology fall short due to that bio company’s inability to overcome the chaos-level complexity that is field-scale crop production— challenges such as soil complexity (there are over 1 billion organisms in a teaspoon of soil), formulation and supply chain issues and environmental inconsistency across multiple crops and scenario’s that compound on one another.
Low barriers to entry and no regulations are important to note because biologicals are a weak link problem.
Weak Link Problems
Weak link problems are scenarios where the system's overall performance depends more on the weakest or least capable elements. In these cases, the success or failure of the system is determined by how well the weakest links perform.
Weak-link problems are everywhere in the world and in agriculture. A car engine is a weak-link problem: it doesn’t matter how great your spark plugs are if your engine is shot. Food safety is a weak link problem. For example, none of us want to eat anything that will make us sick, so we aim to eliminate that risk. That’s why the Food and Drug Administration (FDA) makes sense. Often, weak-link problems can be managed with regulation.
Weak-link problems are problems where the overall outcome depends on how good the worst stuff is. The best way to fix weak-link problems is by making the weakest links stronger or simply eliminating the weakest links.
I believe biological challenges fall into the category of a weak link problem. The outcomes for farmers would be better with the worst providers removed.
Suppose there are poor companies, products, or actors within the biological space. In that case, it drastically increases the likelihood of a farmer or trusted advisor experiencing a poor outcome leading that farmer or professional to believe “all biologicals do not work” and having a higher likelihood of products not working. On top, many poor companies become overwhelming to navigate through, leading to a lack of desire to move efforts along.
The poorest performers need to be eliminated, leaving only the best entities. The easiest way to do this is by increasing the barriers to entry and requirements necessary to sell products to distribution or farmers.
I am not usually a proponent of regulation, but it is easy to see that this lack of regulation has significantly contributed to some of the challenges in the biological realm.
The synthetic world of crop protection is one of the most heavily scrutinized and regulated product segments on the planet— yet when it comes to biologicals, all we have are voluntary mechanisms like USDA Certifications of Biostimulants that do not require proof of efficacy, simply proof of contents or a lack of harm such as in Canada.
These voluntary mechanisms are a step in the right direction. There are entities like The Fertilizer Institute working in this area, but they do not have the same oversight that a traditional regulatory agency would have.
Weak link problems often make sense to have gatekeepers.
Couple this weak link problem with the fact that crop production is a weak link problem (see Leibigs Law). This compounds where weak products are being applied in areas where an economic yield response is unlikely, allowing us to see further why there are challenges with biologicals alone or even in a systematic approach (and reinforces the need for soil and plant testing to be a part of an effective system).
I am optimistic about the increasing education, awareness,s and expectations of how to vet these products across the industry. Still, my view is that given the vast number of companies, the complexity around the product, and seeing an economic response, there is a need for much more for the industry to thrive, specifically around biostimulants.
3. AGI Defeats Farmers Edge Challenges to Patents - Market Screener
On November 3rd, 2021, Farmobile (AGI) filed a multi-patent complaint against Farmers Edge.
Farmobile alleged that Farmers Edge infringed U.S. Patent Nos. 11,126,937. In its complaint, Farmobile stated that the Asserted Patents “generally relate to”:
Automated systems and methods for capturing, processing, and sharing point-by-point farming data
Collecting farming operating data using passive data collection devices attached to farming equipment while the farming equipment operates
Processing and sharing the farming operation data via an online farming data exchange system or server
You can read the Farmobile awarded patent here.
The lawsuit is connected to the Farmobile PUC (passive uplink connection) and Farmers Edge infringing on that patent. Farmers Edge appealed the original ruling.
Part of the original Farmobile product offering (now AGI Suretrack after being acquired by AGI) had a PUC that connected into the ISOBUS of any make of equipment. This PUC device allowed them to acquire telematics data to enable data acquisition for their fleet management offering, field record keeping, and more.
Farmers Edge has a similar system that enables their precision ag offering, called the CanPlug.
Last week, it was announced that AGI SureTrack (Farmobile) was successfully defeating challenges Farmers Edge Inc. brought to AGI SureTrack patents relating to the PUC device. It’s not clear the financial penalty, but previous Farmobile lawsuits of Farmers Edge in Canada led to a $20 million settlement.
You can read more from court proceedings last year here
The challenges for Farmers Edge do not stop there, with issues in their carbon offering:
Editorial: Carbon Hype is Not Market Reality - Manitoba Cooperator
Farmers Edge has taken flak from producers who signed on to its Smart Carbon offset program. Those farmers say the returns they expected from their carbon credits did not materialize. In fact, they say they have been charged thousands of dollars for services they thought would be covered by revenue from those carbon credits.
Farmers Edge has serialized the credits but cannot sell them for farmers. Meaning, as interpreted from the article, the company positioned their variable rate services to farmers as essentially no-fee because the cost of the services would be offset by the carbon credit sales they would receive, then never sold the carbon credits, calling the market soft and therefore not delivering any carbon dollars to their farm customers while still charging the farmers for the variable rate services.
Carbon was mentioned almost 120 times in the prospectus for the Farmers Edge IPO in 2021 and heavily emphasized as a major growth lever for their business. This has not materialized, and the company is backtracking on its emphasis and even commenting the following:
It’s unfortunate that any grower would have felt that it was a slam-dunk revenue stream
In defense of the individual commenting, their vice-president of Strategy, Amit Pradhan, that feeling of a “slam dunk” instilled in farmers was likely a part of the previous Farmers Edge executive team more than the current one.
Still, what’s unfortunate in my mind is that Farmers Edge doesn’t own this issue more and place the onus on themselves to better communicate expectations into the market and to customers. I can’t see comments like the above instilling confidence in any customer enterprises or farmers.
Farmers Edge market capitalization currently sits at ~$7.5 million (CAD), a 99% drop from their IPO high in 2021.
Related: Nestlé to walk away from ‘carbon neutral’ claims - Just Food
We are moving away from investing in carbon offsets for our brands to invest in programs and practices that help reduce GHG emissions in our own supply-chain and operations, where it makes the most difference to reach our net zero ambition
This is worth further exploration in the coming months, but I believe this is not a one-off scenario and is a bigger trend we will see unfold.
The reason is that offsets bring interdependencies that a company cannot control— permanence risk, demand driving up costs, more companies in the fray (e.g.: offset aggregators), and the optics surrounding offsets (eg: greenwashing and “license to pollute”).
When it comes to lowering emissions in a company’s supply chain (aka managing scope three emissions), it delivers an increased ability for control.
I think organizations will opt more for control, and I think consumers’ expectations will be for the optimization of one’s supply chain before focusing on buying offsets that could be perceived as being a license to pollute.
Carbon emission reduction is not a “one or the other” (offsets vs. insets) scenario here, but a deprioritization of offsets seems expected.
4. ICL Leaf: A New Approach to Season-Long Data - ICL Group
ICL Leaf adds a new, influential dataset to the precision nutrition conversation. ICL Leaf is an efficient and cost-effective X-ray-based leaf nutrient analysis to identify when farmers exceed plant nutrition (surplus fertilization), or to identify plant nutrient deficiencies (not enough elements to grow proper crops) to specific elements. This technology empowers agronomists to optimize the farmers’ nutrition plan using precision – moving the nutrition plan beyond fertilizer 101. This plant leaf analysis can be done at different maturities throughout the season and as the plant nutrient requirements change throughout the lifecycle.
Over the past two months, there have been numerous announcements regarding plant testing for nutrients using various forms of spectroscopy.
Last month, Croptix announced a raise, and in May, Picketta Systems announced a seed raise.
I am a huge fan of testing to understand plant and soil health.
However, unlike the real-time nature of the companies above, this technology still needs a shipment to a lab. This means it is essentially on par with levels 2 and 3 below for speed: