The Agriculture — Energy Connection

On the TerViva website, it says that I have familiarity with  “the nexus of agriculture and energy”.  Just what is that nexus?  There are two ways of thinking about it:  agriculture as energy supplier and agriculture as energy user.

Ag as Energy Supplier

This topic has gotten much mainstream discussion over the last several years.  There are numerous public companies and start-ups working on “bioenergy”, loosely defined as electricity and transportation fuels created from “biomass”, itself defined as a collection of organic non-fossil materials (e.g., commodity crops, forest residue, organic waste, dedicated energy crops).

One type of bioenergy, biofuels, is already a big business in the US.  Our largest crop by acreage is corn, and about 40% of it is used to make ethanol.  Our second largest crop by acreage, soybean, is popular with biodiesel producers because of its high quality vegetable oil.  The use of these two crops for bioenergy has triggered a debate over “food vs. fuel”.  That’s a topic for its own post.  But briefly, what’s our philosophy about the use of crops for bioenergy?  We think it’s an excellent idea in theory that has to been implemented well in practice.  In other words, for each bioenergy technology, the positives have to significantly outweigh the negatives.

Positives of ag bioenergy vs. negatives

Positives of ag bioenergy vs. negatives

For better or for worse, the current US legislation for biofuels, RFS2, takes into account only some of the factors. We like pongamia for bioenergy because we believe it’s “best-in-class:  it more than checks the box on cost, land, and carbon.  A gallon of US pongamia fuel will cost $3.00 or less to produce.  We are growing pongamia on land that’s no longer suited for prime ag.  And because pongamia is a tree, our orchards permanently sink an estimated 10 tons of carbon per year — potentially making pongamia a source of carbon-negative energy.

 Ag as Energy User

Far less discussed is agriculture’s consumption of energy.  Ag is not a huge consumer of energy – it represents 3-4% of energy use in developed countries and 4-6% of energy use in developing countries.  That energy is consumed in two forms:  directly via agriculture crop cultivation and processing, and indirectly via the production of chemical fertilizers and pesticides.

But energy use in agriculture is becoming more important.  The world is looking for more arable land, and we’re turning toward Africa and Asia to find it.  On those continents, ag land has had lower productivity, in part because of a lack of direct and indirect energy.  To put it another way, the more energy we put into land, the more we get out of it.   And if we want to improve farmland productivity in developing countries — where ag is already a whopping 30% of GDP on average — we’ll need to produce more energy.

Recently, developing countries have made significant improvements in electrification (e.g., power plants, transmission infrastructure) and household energy systems (e.g., cookstoves, solar water heaters).  But comparatively fewer initiatives have targeted energy supply for agriculture.

Enter bioenergy: we can use agriculture to produce energy for agriculture.   There’s lots of potential.  Let’s examine our favorite crop, pongamia, in this vein.

Easily extracted via basic crushing equipment, pongamia oil is not a perfect substitute for diesel, because raw pongamia oil (like other raw vegetable oils) contains water and gums.  But it can be used on a limited basis in tractors and generators, and improvements in this regard are being made. Cummins, the large engine manufacturer, built a special generator that runs on raw pongamia oil to power a rice mill in a remote Indian village.  For great video on this project, check out this link:  http://bit.ly/1aYVXKO.

In the future, we’d like to see pongamia used in developing countries not just as a large-scale commercial crop, but on a smaller scale too – where in a polyculture setting, pongamia provides the energy for food crop cultivation and also provides animal feed for livestock.

Spraying pongamia oil on citrus

Spraying pongamia oil on citrus

Back here in the US, pongamia oil could also be used in agriculture contexts.  One of our Florida landowner partners currently uses 20% biodiesel in its irrigation pumps.  Another one is working with us to see if pongamia oil could be used as a substitute for expensive, petroleum-based mineral oil for crop spraying.  Citrus growers have been spraying more and more mineral oil as a part of their efforts to combat citrus greening disease.

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Agriculture often gets discussed as a producer of energy (e.g. biofuels), but agriculture itself requires increasing amounts of energy, and with some investment and planning could provide itself with that energy.

Naveen is TerViva’s CEO.  For this blog post, he borrowed liberally from some great thoughts put together by the FAO (see http://bit.ly/1fiCjuP).  

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.

Looking for Value in Farmland Investing

By Tom Schenk, Director of Business Development for TerViva

Back in 2006, when people were trading the stock and the real estate markets like rock stars, few people cared about a quietly obscure asset class called farmland.  However, the economic collapse that began in 2008 changed all of that. At the same time, grain prices soared to a new plateau at 2x the prices seen in the 80’s and 90’s due to increased demand from middle class consumers in emerging markets and ethanol production, as well as supply shortages created by crop failures from violent extremes in weather patterns globally. On the demand side, the industrialization of emerging market countries has brought millions of people into the middle class in those countries who demanded – and could afford – better diets of meats, vegetables, and grains.

At the beginning of the farmland investment boom in the US, every $1 of farmland value only carried about 5¢ of debt.  Ownership was in strong hands. It was this obscure statistic relating to the low levels of farmland debt that was one of the greatest factors that contributed to the fact that this asset class being a wonderful placeholder for wealth during the financial hurricane that slashed stock and residential and commercial real estate in half in a period of months.  Asset classes that were highly-leveraged were the same ones that deflated the hardest.  When collateral for loans decline in value, lenders demand more collateral.  If that other collateral is falling, it creates fire sales in a rush for liquidity and thus a vicious feedback loop ensues.

Today, debt-to-asset ratios in some of the major farming states are back to 30% and higher.  These are levels not seen since 1979 which, along with sharply rising interest rates and falling commodity prices, led to the great farm crisis of the 1980’s.  Today, alarms are being sounded that we are in a similar setup and an imminent crash could be ahead.

However, few things in the financial world are that linear in reasoning.  There are many moving parts involved in calculating the future stability of this asset class if we enter a period of rough financial weather.  For example, while debt levels in dollar terms may have increased 2x, land values (on paper) have gone up 3x to 4x times in many instances.  Another major variable in this calculus is that production costs for farmers have come very close to doubling in this period also.  Additionally, farmland has historically had a very high inverse correlation to the 10-year US Treasury rate.  The enormous impact on farmland values from the Federal Reserve’s financial engineering of interest rates cannot be overstated.  Where investors could find 7% – 9% cap rates back in 2006, today those rates have dropped to a range of 2% – 4¾% depending on the quality, yields, and location in the US.

Nevertheless, traditional farmland investing is considerably more vulnerable to adverse shocks than it was in 2006.  Creighton University’s Farmland-Price Index is a monthly survey of 200 rural communities in major grain growing states.  The most recent survey show that the rate of farmland price appreciation is has been decelerating since late 2012.  Clearly land prices are flattening out.  Unfortunately, commodity prices and land values can drop by the speed of light compared to any declines in production costs , and this can put a farm’s balance sheet in a bind almost overnight.  A strong case can be made that interest rates may have hit a long-term (30+ years) cyclical low.  If rates begin to rise, there is little question that farmland prices can come under immediate pressure.  There has always been a historically strong inverse correlation between 10-year Treasuries and farmland prices.

US farmland prices were on the steady rise last year (above), but according to the recent Fed Reserve studies in KC and St. Louis, prices are plateauing (http://bit.ly/1b5Wzxe)

US farmland prices were on the steady rise last year (above), but according to the recent Fed Reserve studies in KC and St. Louis, prices are plateauing (http://bit.ly/1b5Wzxe)

The purpose of this article is not to sound alarms about the imminent demise of farmland asset values. In this past decade, we have seen “bluechip” stocks and “AAA-rated” bonds  go to zero, as well as commercial real estate like shopping centerss can become vacant or obsolete.  But what was unique about farmland is that it has an imbedded put option; if you lose a crop, you still have the land and you can try again.  In this crazy world of abstract derivatives with notional values priced at hundreds of trillions of dollars worldwide, there will always be a demand for an real asset like farmland; it cash flows and the demand for its output is relatively inelastic.  People have to eat.

However, it should give investors pause before they pay $12,000 for that next Illinois acre.

Large scale/institutional farmland investors have always diversified geographically and with different crops, but in cyclical commodity downturns, the income streams of these “diverse” yet traditional agricultural properties will have as much non-correlation as a squadron of Blue Angels at a summer air show.  In other words, that cotton property in Mississippi will go in the same direction as corn land in Iowa or the potato farm in Idaho.

So what’s a farmland investor to do in what appears to be a relatively deflationary economic climate?? One idea is to borrow a page out of what traditional money portfolio managers have done for decades which is to apply the principals of Modern Portfolio Management – namely, diversify into property types with diverse return profiles in order to reduce overall portfolio risk.  Over the years, I have seen small cap and micro cap managers rescue overall portfolio returns by exploiting those overlook and under-researched companies where fundamental analysis ran circles around index managers by finding those opportunities that returned comparatively out-sized returns from some overlooked niche. In the 80’s, Microsoft was one such company.  The underlying attraction in small cap stock investing is that few, if any, analysts are researching these companies.

TerViva pongamia trees thriving in Texas

TerViva pongamia trees thriving in Texas

To that end, there is a quiet little company out of Oakland, CA called TerViva that has been establishing plantations of a hardy tree crop called pongamia. Pongamia trees are native to Australia and India.  They produce a nut crop that is virtually a first cousin of soybeans – but grows on a footprint where soybeans generally cannot.  An annual harvest of the nuts can produce over 400 gallons of oil and a couple of tons of residual “seedcake” that can be used as a high-protein animal feed or as a high-nitrogen fertilizer.  In a given year, a producer has the ability to direct that oil to biodiesel, bio-jet-fuel, bio-chemical (it is high in oleic acid and other valuable long-chain carbon compounds), or even biopesticides markets, depending on what is determined to be the highest best use downstream markets. Pretty cool.  The oil has been tested by Dynamic Fuels, REG, and Shell as a great feedstock worth about $3.50/gal.  I recently spoke to an organic grower who has successfully used pongamia oil as an adjuvant in his pesticide sprays for the last 7 years.  His supply comes from India.  He proudly informed me that he had recently got the price of his oil “down” to $17/gallon!

However, the most compelling aspect of this tree crop is that these trees can thrive in marginal soils such as south Texas or the challenging sandy fallow soils southern Florida where citrus trees used to grow before HLB disease marched through the state.  Instead of passively collecting x in revenue like typical farmland investors, you can proactively generate 5x-10x on these lower grade properties. And as a result, you will obviously get a sharp appreciation in the underlying land value in addition to the improved income stream that is arguably on par with the richest Iowa or Illinois farms.

Is this too far-fetched of an idea?  Not for three major citrus growers in Florida (plus a fourth grower planting this month) who conducted extensive research on the tree and this concept before planting on their own properties.  So far, they are more than pleased with what they are observing. The trees are growing almost twice as fast as citrus and require a fraction of the inputs.  Moreover, for investors who want to grow this tree crop, these citrus companies will act as the operators for planting, maintenance and harvesting.

Sometimes is you cannot find any gems in the rough, you just have to make your own.

Tom is TerViva’s Director of US Business Development, and works every day with agriculture growers to explore opportunities with new crops.

Terviva: Why We Do What We Do — Part I

Whenever I introduce Terviva as a company at conferences or events, I always start off by saying, “Terviva develops new crops for marginal land”.

Very few people ask me why that’s important, or why anyone should care about new crops for marginal land.

And yet, for the people who work at Terviva, that “why” factor is at the heart of what we do.  It’s what motivates us and drives us to work intensively toward our goals.

So I’d like to share “why” we develop new crops for marginal land.  I’ll break our logic down into three parts, to be covered across two blog posts.

(1)  Why marginal land matters

(2)  Why new crops are necessary for marginal land

(3)  What is Terviva’s unique approach to this opportunity

First – why marginal land matters….

In agriculture, the big picture goal is to increase food production.  The often-cited UN statistic is that, over the next 40 years, global population will increase by 2 billion people, and the world will require 70% more food production.

To meet this challenge, we need to farm more acres, farm more per acre, and – even more basically – maintain the viability of existing land.

It is estimated that 1 to 2% of all agriculture land becomes indefinitely fallowed every year due to soil salinity issues.  Now, add in other factors, such as desertification, declining water availability, extreme weather conditions, new crop diseases, and volatile macroeconomics.  The result:  a significant amount of land that was once valuable for farming is now longer so.

Marginal agriculture land in Florida, with TerViva pongamia trees now planted on it

Marginal agriculture land in Florida, with Terviva pongamia trees now planted on it

There are numerous examples of this marginalization of agriculture land.  We specifically work in three affected areas:

Florida:  citrus greening disease has wiped out nearly 50% of citrus tree acres in the last decade (almost 500,000 acres).

Texas:  extended droughts have triggered irrigation water cutbacks and declining productivity in rice, corn, and cotton farming

Hawaii:  sugar and pineapple farming, once mainstays of Hawaiian agriculture, have almost completely ended, due to competition from lower cost geographies in Asia.

It’s unlikely that any of these three areas will recover to the point where their land will once again be farmed for their traditional high value crops.  But there may be alternative crops for these areas – ones that can meet the demand for food, feed, fiber, and fuel more efficiently than traditional crops such as corn, soy, and sugarcane.

Abandoned citrus field in Florida -- another victim of citrus greening disease

Abandoned citrus field in Florida — another victim of citrus greening disease

No matter what, the amount of marginal land in the world is going to continue to grow.  Solutions are needed to improve the usability of marginal land, and at Terviva, we think we have some great answers.

Next week, I will write Part II of my post, discussing the need for new crops on marginal land and Terviva’s approach to developing these crops.

Naveen Sikka is Terviva’s CEO.

The 99%

Look around you right now and you will see plant based products: the coffee in your mug, the cotton in your shirt, and the mustard stain on your pant leg. Plants are out there silently manufacturing a myriad of compounds and polymers that weave their way into every aspect of our lives.

The shear variety of food, medicine, personal care items, and industrial products made possible by harnessing and commercializing plants is mind boggling. Even more amazing is that this plethora of plant products is largely derived from only 250 domesticated plant species. To put that number in perspective, that is only 0.06% of the possible 390,000 estimated species of land plants that grow on earth. What about the other 99.94%? Is there an untapped reservoir of agronomic possibility lurking out there in the forest? Think what we could do by effectively harnessing just another 0.06% of it. 

The fact that such a small percentage of the earth’s plant species have been domesticated tells me two things 1) domesticating new plant species has been difficult for most of human history 2) somewhere in that 99.94 % there must be at least a few leafy gems waiting to be mined by someone with the right equipment.

wheatBut, why bother with new species anyway? In the past, people have rarely found it necessary or economically beneficial to domesticate a totally new species, even when business as usual wasn’t working. Settlers moving to the American Midwest found that their European varieties of wheat didn’t grow too well in the new environment. Did they drop everything and domesticate local prickly pears? No, they developed new varieties of European wheat. I’ll take a wild guess and say that a big factor in that decision was that the demand for wheat was probably higher than for prickly pear.

So, why is today any different? What is the incentive to domesticate new crops, and will there be a market?

Since the agricultural expansion of the Midwest, some things have changed, and other things have stayed pretty much the same. Americans still ask themselves “How can I make the best use of my land?” and “Who am I going to sell my crop to?” The main difference is that the answers aren’t so simple anymore.  Markets for agricultural products are larger and more complicated. To name just a few new demanding customers with specific needs: biodiesel refineries want cheap triglycerides, chemical manufacturers want feedstocks for specialty chemicals, the health foods industry wants better nutrition grown with lower environmental impact, and manufacturers of personal care items want oleochemicals in high volumes. Farmers want all this to happen using less inputs, and environmentalists want it to happen on less land with less environmental impact. It’s a big ask from our 250 domesticated plants, especially if it’s going to happen in a sustainable and profitable way for the farmer.factory

I believe that many of these new demands will require new crops to satisfy them.  It is likely that some solutions will come from tweaking plants that we are already familiar with, but perhaps we will also need to look toward the 99.94%. Just as advancements in mining equipment has allowed miners to reach untapped ore, advances in agriculture and genetics will allow scientists and growers to explore the potential of a broader range of species for cultivation. For the past few years Terviva has been matching suitable growers with a new tree crop, pongamia, to help them add value to land where conventional crops, such as citrus, have failed. In just three years, pongamia went from being unheard of to relatively well known in a few key geographies.

Creating channels for the acceptance and utilization of new crops is not an easy task, but progress is being made. Once the domestication channels are in place, new crops will likely be easier to bring online. The rewards will include the preservation of an entrepreneurial agrarian lifestyle that America has come to know and love, as well as the production of higher value agricultural products using fewer inputs.

Where Can Investors Hide Today?

Author:  Tom Schenk

If the political and financial landscape seems to be getting a little crazier to you, you are not alone.  What happened in Cyprus a few weeks ago set a new bar for what the governments and central banks can – and will – do.  It also demonstrates how powerless the citizens can be.

ScrewedToday’s investors are extremely challenged to find some “place holder” for the wealth they have spent their life accumulating.  After Cyprus, I think we can scratch “cash in the bank” off of that list. Government bonds? Who wants to buy a 30-year Treasury at a 2.95% yield?  Any guess what would happen to the principal if rates rose?  Stocks are not cheap.  And adjusted for inflation, they really haven’t gone anywhere in the last decade plus companies can always issue more shares.  Buying at the highs may not end well. And after 2009, when we saw stocks drop by half or more, how do you quantify your risk-adjusted returns in this asset class?  And let’s not forget about the hundreds of trillions of esoteric derivatives that are collateralized by this stock and bond markets where volumes are dominated by elaborate algorithms and high frequency trading systems.

Gold and silver? Those are a classic store of wealth (even though they do not cash flow), but we have also seen the US government (in the 1930’s) make it illegal to own.  Could they confiscate it today?  They don’t have to; all they have to do is declare, say, a 50% tax on any sale. Would they do that?  I have no idea. But until last week, I sure didn’t think they would talk about taxing our retirement savings, either.

Hardly a day goes by when I’m reading about some guru advising investors to move their assets abroad.  Really?  Would you really feel better with storing your wealth thousands of miles away in Europe or some developing economy country? There were no classes in business school that taught us how to cope with today’s investment climate.

That green paint could be worth more than we all think.

That green paint could be worth more than we all think.

By process of elimination, I believe the last thing a government would do is jeopardize its domestic food supply.  For that reason, I believe that good US farmland may be one of the last, best places for investors to preserve their wealth.  It’s not a place for a get rich quick home run, but it may be perhaps the best oasis in a landscape increasingly filled with risk that is almost impossible to define anymore by conventional analysis.

In the last 10 years we have observed how fast money can move in a panic.  None of the problems that caused that panic have been solved; they have only gotten bigger.  Now is a better time to trust your own gut feeling, or common sense, or what else you want to call it.  Don’t split hairs over a 4.5% cap rate or a 4.38 % or whatever.  If farmland feels like a good place to invest, get out and look at the property, meet the farmer, look over the operation and make your decision and get a good night’s sleep.  Time may be shorter than you think.

Tom Schenk is the Director of Business Development for TerViva, working with landowners to develop new strategies for new agriculture crops.  Tom has worked for over 20 years in trading agriculture commodities and acquiring farmland for investment purposes.

Novel Agricultural Products: Reasoned Steps or a Leap of Faith?

Author: David Harry

Introducing any new product into the marketplace—agricultural or otherwise—is nothing  to be taken lightly.  Our corporate mission is to introduce a new tree crop into the agricultural markets in the US and beyond, so it makes sense to be on the lookout for “teachable moments”—learning opportunities external to our primary business interests from which we can glean insights to help us prepare for contingencies that, one day, we may face ourselves .

Two areas we follow concern advances related to biofuels and genetically engineered crops.  Being in the biofuels market ourselves, following developments in related biofuels crops simply makes good business sense.  But what about genetic engineering?  Genetic engineering, otherwise known as the process of genetic modification (GM), is common in agronomic commodities such as corn and soybeans, but still relatively rare in other agricultural crops.  Why?  Before any new GM crop is brought to market, it must first pass a series of stringent hurdles from US regulatory agencies including the Environmental Protection Agency (EPA), USDA’s Animal and Plant Health Inspection Service (APHIS) and the Food and Drug Administration (FDA).

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Over the past several years, Syngenta’s new bioengineered (GM) corn crop has slowly worked its way through this regulatory process towards commercialization.  This particular crop, marketed under the name of Enogen corn (i.e. Event 3272), contains a gene encoding a heat-stable amylase enzyme from a thermophillic (heat loving) bacterium. Enogen grain containing this novel amylase is a more efficient feedstock for conversion to ethanol.  Amylase breaks down complex carbohydrates such as starch into simple sugars that are then available for fermentation into ethanol.  For non-Enogen corn, supplemental amylase is added during the milling and fermentation process. The end result of using Enogen grain, particularly for dry milling, is a higher ethanol yield per unit of grain, all the while using less energy.

From the standpoint of ethanol production, this sounds pretty good, right?  Well perhaps so, but what about other indirect consequences, perhaps related broader environmental impacts or human health?  To what extent have factors such as these been considered during product testing and regulatory approvals?

Some critics have drawn parallels between the release of Enogen corn and the “Taco-Gate” incident of over a decade ago involving Starlink corn.  That incident involved the inadvertent mixing of Starlink with other grain destined for human foodstuffs.  Starlink corn contained a type of insecticidal Bt protein that had yet to be approved for human consumption.  This inadvertent mixing, once discovered, caused considerable uproar associated with possible health concerns and lead to a costly clean up process.  In the end, no claims of adverse health effects were ever conclusively tied to the Starlink incident, but it did cause the industry to re-evaluate its ability to manage corn grain as a differentiated (i.e. non-commodity) product.

There are certainly lessons to be drawn from the Starlink incident, but to what extent have things changed since then?  Should an earlier incident, such as Starlink, forever block attempts to try again?  As a broader question, to what extent does developing novel agricultural products represent either a reasoned move forward, or a leap of faith?  Perhaps it’s worthwhile to examine the Enogen situation more closely to better understand some of the factors that must be considered in introducing a new agricultural product.

First, because Enogen corn was developed using GE technology, regulatory approvals are required before being sold in the marketplace.  In the US, several agencies manage different aspects of this process.  APHIS approval is required to ensure that the GE product will not become a plant pest.  EPA approval is required if the GE product involves a pesticide, and the FDA evaluates matters related to food and feed safety.  In addition, the National Environmental Policy Act (NEPA) mandates that both direct and indirect environmental and health consequences be considered.  Fulfilling NEPA’s requirements has generally been administered by APHIS.  While these steps had been followed for Starlink corn, at the time of the incident, Starlink had been approved only as animal feed, not for human consumption.  For  Enogen corn, however, Syngenta took the additional step of obtaining FDA regulatory approval for human consumption—just in case.

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Relative to other varieties, Enogen corn offers additional value only for ethanol production, hence Syngenta is appropriately targeting Enogen corn only to a specialized market segment.  Syngenta’s ability to capture additional value from this market segment critically depends on the production system’s ability to distinguish and sequester specialty corn from it’s commodity counterpart.  Syngenta reasons that since Starlink, markets and production systems for specialty corn have matured, pointing to examples including white and blue colored corn, non-GE and organic corn that, together, comprise about 8% of all US corn production.  Critics point out that US agricultural production is leaky, meaning that small levels of inadvertent mixing of corn varieties is inevitable.  This is bound to be true to some degree, but given the apparent economic viability of other specialty corn varieties, the system seems to be working.  Moreover, given FDA’s approval of Enogen corn for human consumption, low-level leakage represents a potentially minor economic loss, but does not threaten the human food supply.

So to my way of thinking, Enogen’s potential health and environmental consequences have been adequately addressed, at least for those impacts related to the genes of Event 3272.  Does this mean that with respect to broader questions such as overall impacts on food prices, or life-cycle contributions to greenhouse gases, it still makes sense to cultivate Enogen corn for ethanol production?  That’s a very different question and is outside the scope of this blog post.

Let me conclude by bringing us back to my original thinking regarding the introduction of a new agricultural crop.  It behooves a crop’s developers to think critically and carefully about many factors—environmental and climatic factors, potential pests and diseases, risk of invasiveness, consumer acceptance, production methods, near-term and downstream markets, the list goes on.  Developing a GE pongamia variety could happen at some point a long way down the road, but it is certainly not something we are considering in the near-term.  Yet following the development and regulatory approval of a GE crop offers important insights because of the close scrutiny received at each step of the process.  These steps are characterized by critical evaluation and scientific testing, coupled with assessments of broader environmental, health, and economic impacts.  While differing in both scope and detail, the steps we are following with pongamia follow an analogous logical and stepwise progression.  With luck, a leap of faith can lead to a success, but more often than not, it falls flat.  We don’t see that as an effective business strategy.

David Harry is Director of Research and Development for TerViva.  His background encompasses research and management positions in the public, private, and academic sectors, working primarily to integrate novel genetic applications with applied breeding in plants and animals.  David has a B.S. and M.S. in forestry, and a Ph.D. in Genetics from UC Berkeley.

 

Upgrading the World’s Most Important Crops

We are all accustomed to adopting new versions of familiar products like phones, computers, and cars. But what about taking on new versions of our most important food crops? Corn, wheat, and rice all have something in common that hasn’t changed since their domestication: an annual life cycle. This characteristic aided their domestication in the hands of Neolithic farmers by allowing quick improvements in yield due to the short time span between generations. Interestingly, these major grain crops have lesser known perennial relatives that did not lend themselves as well to domestication, but otherwise produce similar useable parts. Recently, humans have turned to perennial relatives of our annual staple crops in the hopes that they can help solve some of our most pressing agricultural issues.

Growers face common challenges including water shortage, erosion, high fertilizer costs, and lack of soil nutrition. These problems are caused and/or exacerbated by cultivation practices tailored to plants with annual life cycles. Annual root systems are relatively shallow and short lived. Therefore, a lot of the water and fertilizer applied to annual crops is lost in the form of runoff. By comparison, perennial plants have deeper root systems that remain in place for multiple years in a row (see image below). They help mitigate the above agricultural issues by holding soil in place, maximizing water use efficiency, and improving nutrient uptake. Many non-grain commercial crops are inherently perennial, require fewer agricultural inputs, and do well on marginal land. Examples include grapes, olives, pidgeon peas, and many common fruit and nut trees.

4_Seasons_Roots

Despite the aforementioned crops, the world still lacks commercially viable perennial alternatives to the world’s most important grain crops. The catch with perennial grain species is that in order to produce extensive root systems and store energy for next year, they must divert energy away from seed production, thus lowering yields. It shows that the saying, “there is no such thing as a free lunch” holds true in the plant world. Currently, in order to get the ecological services of an extensive root system, you have to compromise on yield. Most growers on good agricultural land are not yet forced to make that compromise, but those on marginal land might take it into consideration. Breeders are working on backcrossing domesticated grains with their wild perennial relatives to close the yield gap between perennial and annual varieties. Breeding and commercializing these varieties has proven to be technically challenging and underfunded, but there are some notable signs of progress.

The Land Institute, founded in 1976 by Wes Jackson in Salina, Kansas is a leader in the research and implementation of perennial agriculture for cereal crops. The institute faces the challenge of creating varieties with adequate yields while also maintaining perennial characteristics. Some breeders say they are still 15 or 20 years away from developing varieties that are suitable for main stream agriculture, but signs of progress are imminent. Dr. Hu Fengyi of the Yunnan Academy of Agricultural Sciences has bred a variety of perennial rice that has produced yields for the last three years of roughly equal quantity to annual rice in the region. Nevertheless, projects on this time scale do not lend themselves well to the three year federal grant cycle, and their mission does not exactly jive with the business model of large agricultural companies, so there will likely be some financial hurdles to overcome.

glover-roots-lg

Regardless of the challenges, one has reason to be optimistic that recent advances in bioinformatics and marker assisted breeding techniques combined with mounting pressure from environmental hardships such as soil degradation and water shortages could tip the balance in favor of perennials sooner than people might think. Commercial viability of a crop is not decided in a vacuum, and depends on more than just the crop itself. It is a function of many economic, environmental, social, and biological factors that change from year to year. Additionally, there is an opportunity to get smarter about matching specific varieties to specific land use situations. Proto-varieties of perennial grains will probably not be able to compete on prime agricultural land in the near future, but prime ag land seems to be a static (perhaps diminishing) resource. In an approaching era of agricultural innovation, marginal land could prove to be a vast and profitable new niche for agricultural companies. The development and implementation of hardier crops such as perennial grains are likely to see huge payoffs.