The sectors of AgTech that might be in trouble
September 28th, 2022 - My 20th Edition of Easy Observations in Ag
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Opening Thoughts:
Okay, I’m going to pick on some groups this week. Not specific companies per say, but the sectors they lie within. I also don’t plan to dive super deep here either as to be honest I’m not an expert in each sector necessarily, but just know enough to be dangerous. Heck, maybe I’ll do the best sectors next week.
As tradition I’ll bring up, some of these sectors have some winners within them. They absolutely do and while I’ll try to talk some on that I mainly want to highlight why these certain sectors are or might be in trouble going forward. Of course it being Ag it all can change drastically too. Markets and weather do some crazy things though they don’t solve or destroy all issues at hand either.
In any regard, I hope others that do understand each of these sectors better or in a different way chime in and give their perspective too. That’s really my goal too is to showcase a set of issues out there and get people engaged enough to maybe solve some of those issues. Sometimes you need to nudge to get off your ass and change somethings. I’m your nudge potentially. Let’s begin…
Troublesome Sectors:
Before I get into this list I want to say this, some of the reasons I’ll put down will not reflect on all that are involved even though they might be in the same sectors. Ag is very niche, dynamic, and weird so while I’ll try to be general and specific I probably might get a few questionable thoughts on my thought process here. That is okay as it creates a good conversation and a platform to help your disgruntled self explain why you are different. I hope at least.
Biologicals - Yes I know I make fun of this group to start in the main meme, but I think it’s worthy to call it out. While there are amazing scientists and other people behind this tech I just can’t help but feel there for one is too many in the space and that they’ve raised almost too much money at times without enough really sound agronomic impact understanding. I get the idea around saving money on traditional fertilizer by replacing them with natural biological processes, but there are limits to how that can work. For one, some soil and crop systems just don’t support the biological activity as others may. It’s incredible complex and the entire biological process isn’t understood fully in the slightest. This means you have a lot of variability in the effectiveness of the product and you might only have solved one of a thousand different functions of the field biology. I’m not sure where this group will go beyond a change in valuations and acquisition craziness soon, but if you want to stay relevant I think you need to find out where your products fit better on a per field or even per area of the field basis instead of broadly going after the entire industry. You’ll do much better doing that.
Scouting Apps - Don’t get me wrong these are needed, but I find some of them becoming just not relevant as they don’t connect to the other systems and apps that are more popular. That or some of the large consulting and Ag Retail groups that make up most of the need for scouting have basically chosen their platform and are not switching anytime soon. Basically this is a worry for the smaller and less relevant apps or odd niche apps that don’t have a high usage or cliental. Now if your niche makes you bank then awesome, if you need large numbers to do it than I’m sorry. The other issue here is that so many major Ag companies are basically giving away these scouting apps for free now for many different reasons. Mainly to keep you engaged in their other products or unfortunately getting your data. Maybe that is a case for the smaller ones to grow, but I just don’t think the money is there.
Basic Farm Management Systems - This sort of ties in with the above sector as they are usually connected. They might actually be the same sector depending on how you think about it. More or less I see these groups as not the full fledge FMIS that many use or have for years, but the more simplistic ones. The ones that just want you to add simple field and farm information and show you some simple data like weather data and very very basic imagery data. I will say many of these groups almost have been built by only a few people in all different parts around the world as doing basic mapping and connecting to open weather and imagery APIs is pretty easy these days. The problems these groups have is a good understanding of the Ag Industry traditionally. They maybe know software but not the rest. They almost are just throwing themselves in a sector that they see locally needs it, but then underestimate that the local population is no where close to needing what they provide as they can’t apply the data well enough to see ROI. This is still a problem in the US so while I could say I can’t imagine what they are going through, I can. Being involved in early AgTech/Precision Ag with imagery I can tell you it can be very frustrating when you create something that many can’t or won’t use. Stay strong if you can, but understand you might need to change or need a better niche.
Precision Irrigation - Yes I know irrigation is important to many especially in the west coast, but that is also the issue. Water regulation and the pure amount Ag uses is getting called out politically and while that does create opportunity for these groups it also creates another issue. Mainly, there are so many of these groups I feel out there and many are very similar that I don’t think all of them can survive independently. I see a lot of mergers or some just going away soon as the big winners will prevail likely. It’s not all doom and gloom, but mainly I just see way too many of the same groups being in the field with little that differentiates them. Theres a similar thing going on in the next few sectors I’m going to talk about so you are not alone. You’re going to have to get niche or make some big contracts to succeed though.
IOT Platforms - Semi similar to the above, there are really just too many of these IOT groups out there. This can mean so many things too as IOT is a large and complex sector so what I’m talking about is basically any sensor that is in a field that is connected to the internet. One giant issue for this sector is connectivity. While some areas are pretty good like North Dakota where I’m at, other areas are just awful. Your success is reliant on outside environments and while there is ton of money going into internet infrastructure soon it may take some time, too much time. I also see a lot of consolidation in this area soon as well. That or some going away in the dust as they just couldn’t get mass adoption. Sensors in the field will be critical, but I’m just not sure Ag is there yet as was suspected. It will get there though just in different way. The larger corps and retailers likely will win anyway as they have the budgets and customers to push them easier for different reasons. Think of car insurance companies with their car data pucks to track your driving. If you don’t own the other end product that shows value that the sensors help in you might be in trouble.
Imagery Analytics - I hate to say it as this is my expertise really, but I’m going to digest this one a little more. Yes, it has similarities to Precision Irrigation and IOT sectors though it’s a little different. The main issue is there is almost too much data out there and there is going to be a lot more in the near future. Like a lot more. That may sound like a great opportunity and it may be. Especially as much of the newer data sources coming out in the satellite form are not traditional and have way more sensors and better timing. What I’m worried about is the perception and commonality of free data that is used out there. So many have got free imagery data or basic analytics recently from Landsat and mainly Sentinel in Ag that many just are overwhelmed or don’t know what to do with it. Paying for imagery analytics is a hard concept regardless I can tell you that. Getting others to pay for better data that is more frequent might not do it as who’s going to pay for it all? Getting million dollar contracts from the big corps in Ag is tough too and there is going to be more than a few going for those compared to the past. Another issue is creating value from the data that is sound agronomically with results that give real ROI. Those groups exist, but not all do it well as it can’t be very hard to scale. It is very tough and I know this first hand. Niche industry needs will be key, but the biggest thing this group will need to rely on is government (direct or linked) or corporate contracts via sustainability, ESG, carbon, and similar things likely in some way. Selling basic analytics to the general Ag industry won’t do it or it won’t be enough unless you already have good clientele. I could and likely will dive into this deeper later.
Regenerative Ag - Now this really almost plays into every other sector I’ve listed above and that is why I’ve put it last. This industry for one is all over the place. Regenerative can mean so many different things and especially in different parts of the world or even field by field. Many in this area are trying to use open data like weather and imagery to build models, but that isn’t enough. You need more and especially grower data. Getting grower data though is tough plus half the time it isn’t clean or very good/reliable. You need the user adoption and it’s just not there yet. Now maybe the next farm bill and newer initiatives from corps and governments can help here. They surely will to an extent though I’m not sure some will make it there. It also takes a lot of smart people to make something like this happen and with that you usually need to raise a lot of money to build these products and models. Timing is maybe going to be the biggest issue here as depending on what you are spending vs what the government might pay you in the future is well…questionable. Finally, this sector relies on many of the other sectors above in some ways and if those are iffy then that won’t help either. Especially if they are also somewhat in those sectors themselves which is common. All the best here and all, but ooff you have a weird road ahead of you.
In Closing:
As I said, I don’t have all the answers to these problems and sure some are doing better at them than others. What I’m trying to address is the core problems I see with these sectors. If you can get around them or figure out a better way that is awesome and congratulations!
The real big issue I see that covers all of these sectors is basic grower adoption and acceptance. Maybe its a cost thing, or service, or education, or complexity. Really, it’s all of those things and it isn’t much different when it comes to the big Ag corps or governments that likely will have to pay the bill anyway to survive. And that’s a big if.
The days of trying to go after the entire industry is basically dead and I’ve talked about this some already. Be niche/specific or die unless you already have the market and clients. Building from nothing is so hard to do and even worse if you don’t understand Ag to begin with yet want to solve problems in Ag. It isn’t impossible, but choose wisely is all I can say if you are still trying to figure out where you want to help. It’s a long long complicated road.
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The sectors of AgTech that might be in trouble
I've always tended to have better "luck" when the froth is out of these markets. I played around in the biologicals space for a spell after the last big run-up in commodities prices and that took some of the air out of the whole sector, and consequently some of the enthusiasm out of the customers we were pitching.
The run up in commodity prices, fertilizer becoming "unobtainium" at one point last year, and lots of really cheap money sloshing around the early stage capital markets looking for yield, way way way way way too many companies got funded in the space probably. It was over-crowded and too confusing for the consumer in 2016-2020.
The last couple of years has seen a veritable explosion of names, all the enough money to amplify already confusing messages out to producers with very little in the way of product message differentiation.