Is AgTech Addressing Real Farm Needs; Are Farmers Listening?
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Mike Raymont discusses the potential of agtech to address real farm needs and outlines its promises, such as increasing yields and reducing environmental impacts, while questioning whether it successfully delivers on these promises. He emphasizes farmer skepticism, the importance of demonstrable financial returns, and current pressures within the agricultural sector that necessitate technological adoption. The presentation concludes with a call to prioritize customer needs while ensuring that technology effectively addresses the challenges faced by farmers.
Is AgTech Addressing Real Farm Needs; Are Farmers Listening?
- 1. Is AgTech Addressing Real Farm Needs; Are Farmers Listening? Mike Raymont Pres. and CEO AVAC Ltd Managing Partner, Verdex Capital Address to Agri Investment Forum, Toronto, June 4th 2015
- 2. 2050 World Food Issue
- 4. Ag Tech Promises Many Things • Increase yields in both crops and animals • Decrease net water usage • Reduce pesticide/fertilizer usage while increasing yields • Increase nutrient/nutraceutical content in foods/feeds • Reduce/eliminate impacts of climate/weather • Reduce spoilage and waste • Improve farm management practices • Utilize marginal soils for economic, productive purposes • Biomass crops for energy, chemicals, pharmacologicals But Can it, Does it Deliver?
- 6. The Big Bet “I make a $7 million bet every spring, and then I see if I’m lucky by sometime in the fall”, (Farm owner with 25,000 acre mixed farm on the Canadian prairies.) So, is Ag Tech reducing risks and increasing profits? Several factors such as: • Commodity price volatility, and • Increasing severe/damaging weather events are increasing farmer’s financial risks
- 7. Precision/Digital Ag Value Proposition The value proposition of a Precision Farming Company can be summarized as first informing, and then convincing a farmer that you know how to run his farm more profitably that he currently knows how!
- 8. Some Ag Tech Sub-Sectors “Promises” • Seeds – increased yield, improved climate tolerance • Fertilizers – slow release, better uptake, micronutrients, soil health • Pesticides and Fungicides – better efficacy, reduced environmental and health impacts • Digital/Precision Ag – improved input efficiency, better economics, reduced risk
- 9. Ag Tech Delivering? Relative Input Costs as a % of Gross Returns (based on Canola in AB) • Seeds – 10% • Fertilizer – 17% • Chemicals (Pesticides, Herbicides, etc) – 11% • Agronomy – 0 to 8% New Ag Tech Products must pay their way, so higher costs in any form must result in proven better returns
- 10. Seeds • Arguably the best option for demonstrably higher returns • But new yield enhancement often involves GMO which limits market opportunities • May pay off under abnormal climate conditions, but not under “normal” climate • Extensive time to field trial, and regulatory barriers may make investment returns to Ag Tech investors challenging
- 11. Fertilizers and Micronutrients • Are they compatible with existing equipment and conventionally applied materials? • Correlating enhanced yields to “standard practices” – statistical significance • Do proven enhanced yields result in greater net returns to the farmer? (ie. cost of “super fertilizers vs. conventional) • Long-term value/impact? (post year 1) • Soil remediation and marginal soil upgrading (bio-char, etc); does it work in the long-term?
- 12. Chemicals - Pesticides, Fungicides … • Are they compatible with existing equipment and conventionally applied materials? Do they degrade in the mix tank? (storage, formulation, etc) • Do they negatively impact beneficial ecosystem, soils, plant biome, etc? • Spectrum efficacy, long-term use resistance? • Impact on nutritional plant values, harmful degradation products – regulatory requirements • Highest value uses?
- 13. Digital/Precision Ag • Huge potential, but …. • Many entrants, many investors = much confusion • Data collection/aggregation, analysis or decision/recommendation tools? • Platform/system compatibilities? • Data ownership and liabilities? • Ease of use, automated, who makes the decisions? • Imprecise business propositions and revenue models
- 15. The Farmer Perspective • Conservative and conservative – “show me” • Pragmatic and practical • Vast experience and know their own farms (often generations of knowledge) • Small farms being aggregated – professional management, sophisticated • No “spare” time, especially in key seasons • Capital constrained? • Must have demonstrable financial returns
- 16. Farm Pressures • Farmers and Agri-Businesses have both the Opportunity and Need to Embrace Ag Tech • Global Competition, Commodity Price Volatility • Increasing Farmland Values pressures Returns • Increasing Environmental pressures (phasing out of many traditional farm chemicals) • Water and Extreme Weather Events • Increased Income and Financial Rewards (don’t have to “live poor and die rich”) More Efficient and more Effective
- 22. But Ag Tech Must and Will Deliver Many Reasons for Optimism
- 23. • Gene Sequencing – known tool, but huge cost/time savings • Phenotyping Technologies – quantifying observable physical, biochemical, and/or behavioral characteristic of an plant or animal • Gene Editing – “replaces” the need for GMO is many cases, and advancing very rapidly • Computational Biology – using biological data to develop algorithms and relations among various biological systems • Synthetic Biology – combining disciplines such as biotechnology, evolutionary biology, molecular biology, systems biology, biophysics, electrical engineering, Ag Tech Tools Have Advanced, and Costs Have Come Down – Exponentially
- 24. Accelerating Growth in AgTech More Profitable · Lower COGS · 25% profit margin Time to Market · Advanced tool kits speed R&D · Lower regulatory hurdles Efficient Infrastructure · $20B/yr Public R&D · Lower Development Costs Market Demand · Ag Tech 10x in last 10 years · 500M acres of biotech traits
- 25. Creating More Valuable Exits Sooner At Lower Costs
- 26. Deal Exit Value • ~$1B • ~$400M • ~$500M • ~$523M • >$1B* • ~$115M# • ~$1B Revenues • Unknown, < $50M • None • ~$50M • <$40M • Unknown, >$150M • None • Unknown, >$200M Exits in Bold Red are companies invested in and/or built by the FVII Fund principals * Market Cap at time of final Dow purchase # Combination of $86M base payment plus $29M “progress payments” Why Invest in Ag Tech? - Successes (a VC perspective)
- 27. New Finistere/Verdex Fund -- FVII • Pure Ag Tech – no Land • Joint Fund between top US and Canadian Ag GP’s – 100+ years experience and 3 funds returning ~2.7x • Max Fund size US$200 Million; Target $150M • First close completed Jan 30th 2015; 1st investing Q2 2015 • Final close late 2015 or at Fund max. Min. unit size $5M • Commitments from Bayer Crop Sciences and top 3 global food company. Top global sovereign wealth fund in final due diligence. • North American focus; global perspective and deployment
- 29. Never forget the Customer and THEIR needs, but always question whether your technology addresses their Challenges!
- 30. Thank You! Contact: Verdex Capital info@verdexcapital.com All rights reserved by Verdex Capital