Too legit to quit

The process of commercializing a new permanent crop such as a tree takes time to ‘prove’ economic viability. It is therefore no surprise that investors have shied away from the space. In fact much of the investment in new crop development over the past hundred years has been on annual crops like corn and soy. Nevertheless, permanent crops have the potential for much higher yields per acre and sustainable cultivation through the use of lower inputs (unless you are clearing forests to plant — I’m looking at you oil palm!).

Yes indeed validating yields of mature tree crops takes many years, so how do we get investors to pony up risk capital to develop novel permanent crops? Let’s leave aside the notion that investors (venture types especially) delude themselves and their LPs in to thinking that exits should require only 3 to 5 years (please look at all of your investments and see how many actually hit that mark).  Most successful businesses in agriculture, biotech and even technology take a decade or more. Even though permanent crops are more challenging they can be very profitable and scalable if done using innovative business models.

The key to large scale adoption of a ‘new’ tree crop isn’t just good yields but can also come from developing valuable uses for the crop.  For example, a Bloomberg article this morning highlighted the recent interest in the cacay tree that is found in Andes Kahai-Nut-OilMountains in Venezuela, Ecuador, Peru and Colombia. This tree probably pre-dates humans and has been in use by people in the Amazon for centuries to treat skin irritations and burns, to make soaps and to feed livestock. A few years ago, a company called Kahai SAS showed that the oil from the tree has anti-aging properties and now folks are selling facial creams for $200 an ounce in beauty shops. Are there large scale plantations of cacay trees? None! I am sure it will take many years to hone in on consistent, high-yielding cultivars of the cacay tree but the highly valuable oil will make broader adoption of cacay plantations economically viable.  And to sweeten the deal, there are also a number of sustainability benefits for planting trees: CO2 capture, soil enhancement and curtailing deforestation (apparently cacay makes great firewood).  Kahai has already built a nursery and a processing plant to scale this crop.

As we discussed in previous posts, TerViva is commercializing a leguminous tree crop called pongamia that is native to India. Our vision is to create the world’s most scalable, cost-effective and environmentally friendly source of oil and protein. That grand vision is married to an innovative business model where we work with growers to convert their underused and distressed agriculture land into productive acreage by planting our proprietary pongamia cultivars. We offer more than just large and consistent yields per acre; we are also developing high valued uses of the oilseeds like anti-microbials, bio-pesticides and animal protein.  Permanent crops that can produce high valued, non-commoditized products make the bet for growers (and investors) more than just about yield.

Our bottom line is that if growers are convinced that a crop can be profitable (due to high yields and/or valuable products), they will grow it. Just look at the table below of 4 more established permanent crops and how many acres are planted every year.

Keep your eye on this space…

Sudhir is the CFO of TerViva, Inc

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