Pricing Agribusiness Risk

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Destruction by Chocolate


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21st Century Revolution in Farming

Green revolutions, digital agricultural, precision farming, big data: investors are asking what’s going on ‘down on the farm’? And they have not failed to note what is happening on ‘Wall Street’ either. Monsanto has offered Syngenta’s shareholders $45bn (a 43% premium to pre-bid value) to combine its leading supply position in seed technology with Syngenta’s world class agri-chemicals manufacturing capacity. The Monsanto/Syngenta story is just the latest development in what has been termed an Agritech Gold Rush. According to the online magazine Inc, “the breakout year for “agtech” was 2014, with $2.36 billion in venture money invested” across the sector. With populations soaring and growing richer, the pressure for food resources is climbing. This pressure risks social and political upheaval, perhaps even existential challenges and it is prompting an upsurge in investment in technologies to deliver ever bigger crops alongside more sustainable farming practices.

Smart Farming, Stable Society

Uruk was a city in the region of Sumer, southern Mesopotamia, in what is modern-day Iraq. Beginning it is thought as a small village in the Ubaid Period of Mesopotamian history (5000-4100 BC) Uruk became a significant port city on the Arabian Gulf with a peak population estimated at some 80,000 citizens. Yet after a period of 5,000 years this first great city was abandoned when it could no longer feed its population. The agricultural resources that had supported its development were utterly depleted.

Agriculture has been a ‘Cinderella’ sector of the economy for decades, marginalised for 100 years by growth of the industrial sector and then for the past 20-30 years by the extraordinary growth of the financial services sector. Yet this economic backwater underpins the smooth functioning of all societies on the planet. Agriculture has historically been the most complex and important of mankind’s interactions with nature, and it has been the focus and the facilitator of many of our species’ greatest social and scientific achievements. With estimates of peak human population continuing to rise, the existential importance of agriculture (think food security), has brought the sector back into political and economic focus, and no more so than since the 2010 Food Crisis, which many commentators believe gave rise to the Arab Spring. In 2010, droughts in Russia, Ukraine, China and Argentina plus heavy rains in Canada, Australia and Brazil — all major wheat and grain producers — considerably diminished global crops, driving commodity prices up. North African and Middle Eastern societies, riven with internal socio-political, economic and religious tensions snapped as food prices rose (see chart below for 2010/11). Indeed the chart below suggests that food prices are now likely on a long term inclining trend.

Food Price Index From 2000Source: FAOSTAT

Analysis produced by Professor Raftery, University of Washington in September 2014 suggests that the global human population will continue to grow beyond the previously assumed peak of 9bn or so by 2050. The analysis indicates that there may be as much as a 70% chance that the total population will expand from 7bn today to 11bn (or even more) in 2100. Sub-Saharan Africa is set to be the fastest growing region; the Washington University study projects the SSA population expanding from 1bn today to between 3.5bn and 5bn in 2100. Nigeria’s population alone is expected to climb from 200m today to 900m by 2100.

Little wonder then that the Geological Society of London has proposed that the current geological era be christened ‘The Anthropocene’. In this era the growth in human numbers and the gathering effects of our activities on long term climate stability and availability of vital resources has prompted a drive for innovation in food production and an emphasis on sustainability. As food commodities face growing demand competition from larger and richer populations around the world, an increasingly corporate producer sector is turning to innovative, and sometimes disruptive agricultural technologies (Agritech) to produce larger and more reliable crop yields with fewer inputs and a lighter impact on the environment. The online magazine Inc., postulates that agriculture is ripe for disruption.

The drive by the big Agritech companies such as Monsanto, Syngenta, Bayer and BASF to acquire innovative high growth Agritech businesses has been dubbed a ‘Gold Rush’. A rush that has just reached a new high with the possible $45bn bonanza now on offer to Syngenta’s shareholders.

Agritech Deal Flow

Investment dollars are flowing into a wide range of innovative technologies including drones, big data and life sciences. University of California-Davis’ Sustainable AgTech Innovation Center (SATIC) points the way with a collaboration of academics, engineers, and investment professionals including an Agritech Innovation Fund with a reported $50m for Agritech start-ups.

On the demand side agriculture is becoming increasingly multifunctional. Whereas the main focus used to be on productivity in order to meet the needs of a growing and richer population – a 60% increase in output by 2030 is required (Source: FAO) – now the emphasis is increasingly on sustainability (in the face of limited land, water and fertilizer resources), food safety and contributing to the bio-economy. On the supply side agriculture is becoming increasingly multi-disciplinary. Biotechnology and ICT are playing an ever more important role alongside traditional chemical and seed breeding approaches. Moreover in some areas the different technologies are becoming integrated, adding a further degree of complexity. All this change creates opportunities for innovation and makes the Agritech sector one of the most exciting in the global economy.

Seven specific areas are identified as benefitting particularly from these underlying trends:

  • Genomics/biotechnology
  • Bio-pesticides
  • Bio-stimulants
  • Fertilizer application and use efficiency
  • Seed Care
  • Big data in agriculture
  • Precision agriculture-related hardware

Each of these is briefly examined below.


Since the introduction of the first GM traits in 1996 GM crops have grown phenomenally, despite the reluctance of some regulatory authorities to accept them. They have penetrated markets which have been open to them faster than any previous agricultural technology, for example reaching over 90% penetration in soybeans and maize in the US, Argentina and Brazil, driving growth of the overall seed market. Hitherto growth has been focused on input traits (such as herbicide tolerance and pest resistance), which offer significant benefits to the farmer in terms of increased efficacy of weed and pest control and decreased cost. There are signs that growth of these is slowing down, partly because they have achieved such high penetration in those markets where they have been launched. There are also signs of resistance to some traits (e.g. to Bt crops), offering opportunities for new modes of action to be introduced.   In future more growth is likely to be generated by agronomic traits, such as drought tolerance and nitrogen use efficiency, and also by traits which offer benefits to processors and consumers, such as biofortification whereby plants are bred to provide enhanced vitamin levels. These will not necessarily be GM but may be based on ‘native traits’ whose effect is enhanced through the techniques of biotechnology. There is a large amount of R&D taking place in the private sector with a combined value of over $20bn: for example the seed industry spends around 10% sales on R&D equivalent to $4bn. Moreover there is rapid progress in the platform technologies which underpin biotechnology such as plant genome sequencing and RNAi. Whereas most innovation has so far been applied to four major crops – maize, soybeans, canola and cotton – in future the application will spread to other crops. For example there has been a considerable increase in investment in wheat, the largest global crop in terms of areas grown, in recent years.


Bio-pesticides, or naturally-derived products used for crop protection, have been around for a long time but are currently the subject of great interest on the part of the R&D-based majors who have been making acquisitions (such as Bayer’s acquisition of AgriQuest) and collaborations (e.g. Monsanto/Novozymes) and increasing internal resources devoted to the area. As a result they are experiencing a period of rapid growth with sales now approaching $3bn. Several reasons can be posited for this:

  • Regulatory support for these products which, being highly selective in their activity have a limited impact on non-target organisms and are suitable for integrated pest management.
    • There are fewer regulatory requirements compared to conventional crop protection products and quicker passage through the regulatory process (e.g. 1 year vs 3 in US)
    • Their use is encouraged in the EU’s Sustainable Use Directive
  • Support from retailers who perceive naturally-derived products to be safer than synthetic ones
  • Technology advances in adjacent and related sectors
    • Plant health and root health
    • Formulation and seed care (see below)
  • The declining rate of innovation for conventional crop protection products
  • The deregistration of older products under EU re-registration rules, creating opportunities to fill the resultant product gaps

The momentum from these drivers is likely to continue to propel growth in the sector.


Plant bio-stimulants are a diverse group of substances and micro-organisms which modify plant physiology to improve efficiency and resilience, resulting in higher yields and better quality. Many derive from natural sources. There has been significant growth in this sector in recent years and sales now exceed $1bn. Some of the drivers are the same as for bio-pesticides: the desire of companies to diversify, advances in the underlying science, the association with natural products and ‘greenness’, were applicable.   In the past such products were sometimes met with skepticism. However the scientific understanding behind them is rapidly improving and they have now gained more credibility, as reflected in the upsurge in interest from the R&D-based majors in crop protection and seeds.

Fertilizer use efficiency

There has been very little innovation in the fertilizer sector for over 50 years. Fertilizer companies commonly spend under 0.1% of their sales (combined industry sales are around $100bn, depending on the prevailing prices) on R&D. At the same time there are concerns over the finite nature of fertilizer resources, particularly phosphates, and the environmental damage stemming from their overuse and misuse in many countries. There are various ways of improving fertilizer use:

  • Improving the efficacy of synthetic fertilizers
    • Improved application
    • Improved bioavailability
    • Improved uptake by the plant
    • Improved use within the plant
  • Supplementing synthetic fertilizers with measures which improve nitrogen fixation

There are various approaches to addressing the above challenges – through seeds and biotechnology (addressed above), through improvements to equipment and in its usage, and through product formulation and through use of chemicals and additives.

Seed Care

Seed care, where crop protection products are applied directly to the crop seeds before planting, is the fastest growing sector in the crop protection market. The drivers of this growth are technological, environmental and economic. Technologically an ever increasing number of new molecules suitable for use as seed treatments is becoming available and adjacent technologies, such as polymer sciences, are offering new ways of enhancing their efficacy when used in this way. Moreover, use is extending beyond traditional crop protection products to embrace bio-stimulants and bio-pesticides, offering further potential for innovation. Environmentally seed treatments are a precise way of applying the product whilst minimising damage to non-target organisms. Economically, the low resultant rates needed to achieve control lead to attractive margins for companies and explains the increased level of interest in this segment over recent years.

Big Data

Since the acquisition of the Climate Corporation by Monsanto in 2012 for $1bn ‘big data’ has maintained a high profile in agriculture. The term is somewhat broad and ill-defined, but covers the integration of information provided by farmers, players in the agri-food chain and third parties into knowledge products which can be used to enhance productivity, reduce risk (e.g. through insurance products) and increase oversight in the food chain. Big data has relevance to all stages in the food value chain and also across it as an integrating force. For input companies it can improve the management and increase the utility of the data they work with (e.g. through bioinformatics), and create closer links with farmers. For farmers it can lead to increased productivity and efficiency, for example through use of prescriptions provided by input companies. A major driver for the increasing involvement of companies such as Monsanto and DuPont Pioneer, is that they perceive farmers, particularly in developed markets, as being information rich but not fully leveraging this wealth of knowledge. For downstream food chain players ICT tools can help with tracking and traceability and certification schemes. With the inexorable rise of smart phones the interface is becoming increasingly mobile promising to provide added value to small farmers in emerging markets as well as the larger ones in developed countries.

Equipment/Precision agriculture

In order to both facilitate and benefit from the opportunities provided by of big data there need to be parallel advances in the equipment sector.   Sensors, RFID’s and UAV’s are required to gather the data which feed into the algorithms and prescriptions being used to predict and improve crop yields. In the case of UAV’s it is estimated 80% of the market will be in agriculture. Sophisticated equipment is needed to execute the tailored applications of seed, fertilizer and water, and to track the yield of the harvested crop. The large equipment manufacturers such as John Deere (who have articulated their vision as the ‘farmer of the future’) are deeply engaged, for example through fleet management software, but there are also many smaller specialist companies involved.

Not only is each of the above areas attractive in its own right but there is increasing overlap and synergy between them: this provides a vision of the future for farming and a likely road map for investors in Agritech.

International Agritech Sector

In 4th Quarter 2015 Hardman Agribusiness is proposing to publish a review of the international Agritech sector detailing some 50 internationally dispersed companies with leading technological propositions spanning:

• Yield enhancement technologies
• Biological and sustainable crop protection technologies
• Technologies for sustainable use of crop inputs including water, fertiliser, soil and pest control
• Farm management systems including drones and other technologies for precision farming.

We are currently inviting expressions of interest from parties who would potentially find the report useful.