Is precision agriculture the new low hanging fruit?

In the world of agriculture, ‘precision ag’ is hot. Precision agriculture is a farm and site specific management system to optimize inputs and outputs. Essentially, farmers use GPS, sensors and big data analytics to better understand and adjust for spatial variability in their fields such as yields, moisture levels, soil variability, etc. Rather than treating the farm as a monolith, the idea is to break it down into smaller sites and customize agronomy to each site accordingly.

WSJ graph on precision agMonsanto recently announced big initiatives in the space, including the launch of FieldScripts (software), the $250M purchase of Precision Planting (hardware), the $1BN purchase of Climate Corporation (data analysis) and the acquisition of the soil analysis business line of Solum, Inc.  The company says that precision planting, based on detailed analysis of soil and land conditions, can improve corn yields by 10 bushels per acre. Monsanto isn’t alone in embracing precision ag. John Deere, Syngenta, CNH, Dupont and others have also been pushing the technology. Not surprisingly, the venture guys are following suit with a number of investments in the space.

If you want to understand why, just read last week’s Wall Street Journal article that estimates that 41 million acres of corn seeds were planted in 1 week last year (twice the max rate in 2008). GPS software attached to tractors allows farmers to plant more precisely and to plant at night. Planting faster is important because farmers can identify ideal planting windows and optimize for weather.

precision ag chart

Source: http://lb.landw.uni-halle.de/publikationen/pf/pf_cc98.htm

Over the past 100 years, the agriculture industry has pursued a variety of means to increase yields. These “low-hanging fruit” innovations include new irrigation techniques, mechanically powered tractors, biotech crops, fertilizers and higher density plantings. Precision agriculture is next. Just in time too. According to the US EPA, “some 3,000 acres of productive farmland are lost to development each day in this country.” That’s more than 1 million acres lost every year, an area the size of Delaware.

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Precision ag also holds another promise: countering climate change. For example, it has the potential to curb overuse in fertilizers. A report released last month by California Environmental Associates argues that countries like China use too much fertilizer. Using precision ag technologies, farmers in China could reduce fertilizer use by 30%-60% without harming yields.

Data management tools give farmers more choices to measurably improve nitrogen use efficiency and greenhouse gas emissions. Just last week, Smithfield Foods and Environmental Defense Fund teamed up to help farmers optimize fertilizer application. EDF estimates that this collaboration will reduce excess nitrogen fertilizer on more than 450,000 acres and reduce GHG emissions from agriculture by more than 60,000 tons. Not bad.

Despite these possibilities, precision agriculture needs to overcome a number of challenges in order to reach its full potential. At a recent Agri-Tech Summit hosted by Sidley Austin LLP, Dr. Ted Crosbie (Monsanto’s Integrated Farming Systems Lead) described some of these challenges. For example, on any given field, soil can materially vary every 150 feet! That’s a lot of data that needs to be collected and analyzed. In addition, there are concerns about the privacy of farmer data; namely who owns it and who can use it.

Still, like the innovation that came before it, precision agriculture holds enormous possibilities for how we grow food and further optimize farming inputs and outputs. Hopefully investment in this space will bring the costs down so farmers around the world can reap the benefits.

By: Sudhir Rani
CFO of TerViva, Inc.

TerViva: Why We Do What We Do – Part II

Back in June, I wrote the first part of a blog post called:  “TerViva:  Why We Do What We Do”  (http://bit.ly/18WIC2j).  In that post, I identified three sub-topics: (1) why marginal land matters (2) why new crops are necessary for marginal land; (3) what is TerViva’s unique approach to new crops for marginal land.

I discussed topic 1 in the previous blog, and in this blog, I will tackle topics 2 and 3.

To recap on topic 1 – why marginal land matters…

Put simply, the amount of marginal agriculture land is growing every year.  According to a recent Oxford University study, future environmental hazards such as climate change, land degradation, and water scarcity could eliminate as much as $8 trillion in agriculture assets annually (http://bit.ly/11Z2NeQ).

Oxford has put some thought into the environmental risks for agriculture.

Oxford has put some thought into the environmental risks for agriculture.

We use agriculture to make food, feed, fiber, and fuel.  To meet future demand, we will need to farm lots of new acreage, increase production on existing acreage, and also find ways to use underproductive acreage.

On to topic 2 – so why new crops for marginal land…

New crops aren’t the only option for marginal land.  Indeed, companies such as Monsanto and Pioneer are using genetic modification techniques to improve the ability for existing crops such as corn, soybeans, rice, and wheat to grow better in harsher conditions.  Other companies, such as Drip Tech and New Leaf Symbiotics, are improving the viability of marginal land itself –through advancements in areas such as in soil fertility and irrigation.

We commend such efforts.  But there are places where, no matter the extent of GMO or land improvement, existing crops like corn, soybeans, rice, and wheat simply will not grow.  Where we work in Florida citrus country is a good example:  weeds, sandy soils, high water table, bedded rows, high humidity.  In other words, it’s land that’s excellent for citrus but not for most other crops.  And now, with citrus greening disease wiping our hundreds of thousands of acres, it’s increasing difficult for citrus, too

But this land can potentially be farmed with alternative, hardier crops that can still produce similar food, feed, fiber, and fuel.

On to topic 3 – TerViva’s approach…

A few years ago, we convinced ourselves of the need for new crops for marginal land.  We then began to evaluate many different “new” crops, from the well-known to the not-so-well-known:  sorghum, miscanthus, castor, jatropha, camelina, moringa, simaruba, yellowhorn, etc., etc.  At TerViva, we describe these crops as “semi-domesticated”  — they have had varying degrees of advancement by humans over generations, but not nearly to the extent of large-scale commercial crops like corn and soybeans.

Our search process led us to three conclusions, or better said, three pre-requisites for the success of new crops on marginal land:

(1) Hardiness:  the new crops have to be versatile, capable of withstanding the “new norms” of soil salinity, water availability, and pests.  Ideally, these crops will require fewer inputs than their predecessors in terms of fertilizers, pesticides, and irrigation.

Hardiness in action:  pongamia in the desert.

Hardiness in action: pongamia in the desert.

(2) “Drop-in”:  the new crops have to utilize a region’s existing agriculture skills, labor force, equipment, field setups, and processing infrastructure.  New crops are risky, and if growers cannot leverage existing capabilities, the rate of new crop adoption is likely to be low.

(3) Disruptive economics:  by definition, marginal land is not generating a good return.  High, sustained returns require both high income per acre and scalability.   $50 net income per acre doesn’t excite a lot of growers (I’m looking at you, camelina).  Similarly, It doesn’t help to have a $5,000 net income per acre for a crop with a market of only 5,000 acres.  For these niche crops, supply eventually exceeds demand, driving down revenue and returns.

Pongamia trees "dropping in" to Florida, just like citrus.

Pongamia trees “dropping in” to Florida, just like citrus.

Not many crops can check all three of these boxes.  But we have found one: pongamia.  It’s the crop of fervent devotion on this blog:  a legume species of tree that produces oil and seed cake of similar quality to soybeans, which is used heavily for the biodiesel and animal feed markets.

Pongamia is extremely adaptable:  droughts, waterlogging, sand, clay.  Where tree crops are cultivated, it drops right in to the existing agriculture system.  It can serve the huge markets for biofuels, biochemicals, and animal feed, at a return per acre of over $1,000 per year.

For these reasons, pongamia is rapidly gaining traction with large, leading landowners in Florida, Texas, and Hawaii.

Naveen Sikka is TerViva’s CEO.

The Lettuce Revolution

Who would’ve thought this would be the title of a blog post? In the last few years, we’ve seen significant changes in the market for — lettuce. We’ve observed three trends:

(1) Shift to local production: urban population centers consume the most lettuce, but lettuce is mostly grown far away from urban areas. More than 90% of the US lettuce supply is grown in California and Arizona. Now, several companies – including Go Green Agriculture (http://www.gogreenagriculture.com) and BrightFarms (http://www.brightfarms.com) — are growing lettuce closer to where it’s consumed. Go Green has established a system of small-scale hydroponic facilities. BrightFarms is going even more local, with a deal with Gristedes supermarkets in New York CIty to grow lettuce right on supermarket roofs.

Go Green's model for distributed lettuce production

Go Green’s model for distributed lettuce production

(2) Shift to less intensive production: hydroponics, and now “aeroponics”, are all the rage with lettuce. Whereas hydroponic agriculture uses nutrient-rich water as the growing media, aeroponics uses almost no growth media (just air and nutrient mist). In addition to the aforementioned Go Green and Bright Farms, other companies to get their name out there are Aero Farms (http://www.aerofarms.com) and Pod Ponics (http://www.podponics.com).

(3) New “varieties”: now commonly available in California are lettuces with the root balls attached, which preserves freshness and shelf life. I can personally attest to this — I left such a head of lettuce in my fridge for two weeks and when I went to use the lettuce, it was fresher than if I had bought a regular head of lettuce from my grocery store that day.

"Living" lettuce with roots attached, available (soon) at a grocery store near you.

“Living” lettuce with roots attached, available (soon) at a grocery store near you.

Also, recently Monsanto released “Frescada”, a cross between iceberg and romaine that’s packed with vitamins. Unlike Monsanto’s corn and soybean seeds, Frescada lettuce is not genetically modified.

So why the all the focus on lettuce recently? Truthfully, we’re not sure. We don’t see cost being a major driver — we don’t know of people who have been complaining about the price of leafy greens (aside from President Obama — http://lat.ms/dzsZqm). We’re not even sure if hydro- or aeroponics will produce a lower cost lettuce.

Our guess is that the Lettuce Revolution is largely predicated on the belief that consumers want higher-quality and more sustainably-grown lettuces. Today, lettuce grown in the traditional manner can be of mixed quality. No one likes limp, slimy lettuce with browning edges. These hydro/aeroponic companies are certainly making a great product that uses far less chemicals and water than the lettuces grown outdoors in the California and Arizona deserts.

Another noticeable thing about the Lettuce Revolution — investors are getting on board. A few of the companies mentioned in this post have received VC funding. We’ve been a bit surprised by that. VCs typically like to say that they want to fund companies that can be “huge” (definition never clear when you talk with a VC), with an “enduring competitive advantage” (jargon that’s been forced down my throat many times). Based on some USDA data, the domestic market for iceberg and leafy lettuces are approximately $1 billion each. That’s nothing to sneeze at, but I wouldn’t call that huge. In addition, it already seems like there are low barriers to entry and a lack of differentiation in technologies from one new lettuce company to another.

Monsanto's new lettuce - Frescada

Monsanto’s new lettuce – Frescada

Lettuce is growing in popularity outside of the US, in places where it might be difficult to otherwise grow lettuce (i.e., the Middle East). The core hydro/aeroponic technologies are also extendable into other vegetables.

But still — VC funding for lettuce companies? No knock on the lettuce companies — they have some pretty significant talent. I personally met the young founder of Go Green Agriculture (a sharp, charismatic guy) and I recently learned that a very smart college classmate of mine with an investment banking background has joined Bright Farms.

We’re not sure how this will all play out. Consumers definitely stand to gain from the Lettuce Revolution, but I’m not sure if investors will. Lettuce farmers in California and Arizona are most at risk from the Lettuce Revolution. We could easily find that, in ten years, more lettuce is grown through hydro and aeroponics than in outdoor fields.