Takeaways from AgTech Conference
Focus on gene editing, biologicals, and Wall Street perspectives
Last week we hosted an AgTech Conference at a regenerative Ag farm just north of New York city. My partners for this event were Steve Haggerty and Eric Rasmussen from Interior Lines Advisory, and the terrific staff from the not-for-profit Glynwood Center For Regional Food and Farming that provided us the conference room within their 225 acre farm where they produce organic vegetables and range-fed animal protein. We brought together a dozen AgTech companies along with about 20 representatives from the investment community - institutional investors, private equity funds, and sell-side chemical analysts to discuss 3 key topics:
Can gene editing accelerate yield gains in row crops and develop consumer traits in specialty crops? Presenting companies were GDM, Pairwise, Inari, and Hudson River.
Can biologicals augment or replace synthetic crop protection chemicals and fertilizer? Presenting companies were UPL, Nufarm, Robigo, Impetus, BioConsortia, Phospholutions, and Intelinair.
How to improve the exit strategy for AgTech startups
Here is a 3-minute summary of key takeaways, with more details below.
Gene Editing Sessions
Our gene editing discussions focused on the ability to use the technology to accelerate yield gains in row crops globally, and to develop consumer-friendly traits in specialty crops. Our panel discussion on row crops highlighted that significant yield potential could be amplified from gene edits, and that the technology accelerates the breeding process. With tens of thousands of genes in row crops, and 5-10 naturally occurring variants per gene, gene editing enables selecting specific gene combinations, rather than the random recombinations from conventional breeding. There was significant excitement over the EU regulatory framework in development for the adoption of gene edited crops, as this regulatory change represents not only an enormous opportunity for EU-grown crops, but also enabling EU imports of gene edited crops from both North and South America.
While the focus of gene editing in row crops is primarily to drive yield from structural changes and protective traits, the opportunity in specialty crops is significantly broader due to the opportunity to affect consumer traits, such as seedless fruits, improved flavor, disease tolerance, and longer shelf-life. Acreage per crop is less, which has led to limited historical improvements in the germplasm (particularly for perennial crops), and thus a greater opportunity for gene editing. The presenters also highlighted the significant value per acre for specialty crops, and thus the potential return for impactful edits.
There was a clear view among the presenters that the learnings from gene editing in one crop are readily transferred to other crops, including from commodity crops to specialty crops. The speed of executing gene edits continues to accelerate and the process of genetic selection is being enhanced with AI, primarily to eliminate failures.
Key takeaways: There is meaningful potential to bolster crop yields from gene edits, but it is essential to have access to high-performing germplasm to enable a path to commercialization. We see a significant opportunity to use this technology in fruits, vegetables, and ingredients, as the seed germplasm is far from optimized, and the value creation can be much greater.
Biologicals Sessions
Our discussions about biologicals included all the verticals: biostimulants, biofungicides, bioinsecticides, and bionutritionals (N-fixing and P-solubilizing bacteria). We also discussed how adoption rates differed globally, and within commodity vs specialty crops.
Within row crops, our panelists had a general view that the consolidated distribution channels in the US have been an obstacle for biologicals adoption. Further, the corn and soybean crops in the US Midwest are already well controlled for pests, and thus less of a compelling opportunity for biocontrol products. In addition, the results from biologicals can be variable from year to year, and often with a modest yield bump, which can be difficult to explain and make repeated use a challenge. Our presenters indicated greater interest in using biologicals for specialty crops due to the significantly higher value per acre and less influence by crop input distributors. While biologicals have been used in the US for decades, the more recently developed products have improved performance due to gene edits and in some cases transgenic traits.
In South America, however, the opportunity for biologicals is much greater for several reasons. First, soils in Brazil can be highly weathered and infertile, resulting in strong results from biologicals that enhance plant health. Second, disease and insect pressure can be much greater, resulting in frequent requirements for insecticide and fungicide applications. And lastly, the distribution channels in South America are much less consolidated, resulting in significant opportunities to sell direct to growers or through co-ops.
Key Takeaways: A key challenge for biologicals is the consolidated distribution channel in the US that can limit grower access to new technologies. This is less of a challenge in Europe and South America. A commercialization strategy for a biological start-up that involves selling direct to growers has the lowest probability of success. A more compelling commercialization strategy would be to partner with seed companies and incorporate the biological into seed treatments to avoid the challenges of selling through distributors or directly to growers.
Fertilizer Alternatives
There is significant innovation underway to provide alternative pathways for 2 of the 3 macronutrients (N and P). For nitrogen, bacterial-sourced ammonia was the only source of organic nitrogen prior to the century-ago discovery of the Haber Bosch process, which provides the current global supply of nitrogen fertilizer. Numerous AgTech startups are evaluating ways to use gene editing to amplify the bacterial pathway for producing ammonia, using energy derived from crop root systems, similar to the symbiotic relationship that long-ago evolved with soybeans. For phosphate, the primary challenge is that a significant portion of the phosphate in conventional fertilizer (DAP and MAP) can become bound to soil cations like iron and become effectively unavailable for crop uptake. Two alternatives are in development and were discussed at our conference. The first is a bacterial product that secretes enzymes that solubilize the soil-bound phosphate, and the second is a granular phosphate additive that prevents the phosphate binding mechanism in the soil, thus reducing total application rates.
Wall Street Perspective
Our discussions with the financial community at our conference highlighted that institutional investors remain generally more positive about the seed industry, assuming steady growth potential, in contrast to being meaningfully more cautious about the crop chemical industry, reflecting several challenging years for FMC and the looming breakup of Corteva. This latter caution appears to be magnified in private Ag markets, owing to the combination of underperforming VC/PE funds and the enormous number of AgTech startups in need of capital. One of the bankers that attended reported a recent pickup in SPACs.
An interesting development in sell-side equity research is a recent initiative by several of the big banks to publish research on private companies, which represents an opportunity to increase the awareness for private companies with institutional investors. This initiative has reportedly been driven by hedge fund PMs and the steady decline in the number of public companies (15 yrs ago 8000 public companies, now 4000). Our discussion also included recommendations for startups on how to improve the potential for success. There was a broad view to avoid building a direct-to-grower sales force, but rather to leverage adoption by big growers and develop partnerships with big seed companies and big distributors/retailers.
Key Takeaways: AgTech startups should strive to work with big companies to accelerate sales, to increase the potential for take-out, and to increase the awareness among private and institutional investors.
Please reach out to me at steve@byrne-advisory.com to discuss any of these issues.