24 September 2024 | George Darrah and Ben Chostner
We’ve all heard that ‘agriculture has an adoption problem’. Consultants, policy makers, businesses and VC’s alike have cast farmers as luddites, or at best holding outdated views, reluctant to adopt new technologies or regenerative agriculture, a loose assemblage of climate and biodiversity friendly farming practises. VCs are feeling particularly sensitive, having deployed ~$40bn of capital into agtech over the past decade with few exits. But the truth is far more nuanced.
Farmers can be extremely rapid adopters of new technology. In fact, the introduction of hybrid corn in the early 1930’s underpinned the entire research field of innovation diffusion theory, given adoption rates were so extraordinary. In Iowa, the epicentre of US corn production, hybrid corn varieties went from 0% to 90% of acreage in just 5 years. More recently, herbicide tolerant soybeans went from 0% of US acreage in 1996 to 70% within 5 years. For VCs, this well within a fund’s capital cycle.
Technologies or practises that are adopted rapidly by farmers to high levels of market penetration tend to have similar ‘adoption traits’:
Big positive outcome for farm profits - material (>20% yoy) increases in farm profitability, by reducing costs, increasing yields or acreage
Practical adoption is easy - a value story that is easy to understand and resonates with the farmer without requiring significant practise changes
Consumed frequently – purchased at least once a year as an operating cost, thus enabling swift ‘upgrades’ (although needs to be very sticky to avoid churn)
Strong intangibles - less complexity improves farmer peace of mind (fewer sleepless nights!), less paperwork/admin drudgery, and fields are looking good!
What’s (un)remarkable about these traits is that they are universal to any business owner. Well-meaning academic papers, policy makers and even VCs (myself included!) often fall into treating farmers as a totally alien species, beholden to unknown laws of nature and secret arrangements with their ‘big ag’ suppliers. But in reality it’s far simpler – if you want your product to sell, make a great product that drives near-term and material positive profit outcomes, is easy to adopt, and your customers are excited to tell their friends about.
For start-up founders, these adoption traits are essential but not sufficient. To build an agtech start-up with the possibility of >$1bn exit, founders need to find a product only they can provide and is as universally applicable as possible. Agtech is sensitive to market size in a way that energy tech is not - the total farm gate value of the global corn harvest, one of the world’s largest acreage crops, was ~$260bn in 2023. Power generated in just the US in 2023 was sold for nearly 2x this. Going for big penetration in big markets is particularly important to build big start-ups in agtech.
Seed traits are the perfect example of this. They can deliver massive profit impacts year-over-year, are easy to adopt, and can reduce the volume or variety of crop inputs required. When herbicide tolerant soy was introduced by Monsanto in 1996 in the US, yields went up 10-30% year on year. Most recently, the introduction of pod shatter resistant canola has bumped harvestable yields and reduced the number of passes through the field (jumping from zero to 60% penetration in 5 years in canola’s Manitoba heartlands). These are products that offer immense value to farmers. Seeds are also consumables, used on an annual basis, and so farmers can quickly upgrade to a different product. This is why seed traits start-ups with no revenues can continue to attract venture $$ even as their implied valuations blast past $1bn – if they are successful, the rewards can be momentous.
But as soon as you move away from seed traits, adoption does slow significantly. This is because it is very hard to build products that hit all four adoption traits. It’s probably hardest to build products that are universally applicable, drive significant profit outcomes for farmers and are consumed every year. The companies that succeed can become very big – Syngenta, Corteva et al selling genomics and chemicals. And Deere, the world’s most successful agricultural equipment manufacturer, increasingly sells insights on a monthly basis. But most consumables don’t drive significant farm level profits or are not universally applicable. This is the nut for biologic based fertilisers and pesticides to crack.
However, some farmers move much, much faster than others. The ~10m farmers in the US and Europe each have very different local conditions and financial situations, and therefore tech ROI and willingness to pay varies significantly across different farms. For example, Autosteer, the GPS assisted tractor navigation which underpins pretty much all of precision ag, took nearly 20 years to grow to ~60% adoption in the US across major crops. The technology had a moderate profit impact alongside saving farmers time and stress, allowing consistently arrow straight field tramlines that were the envy of neighbouring farmers. But it initially cost $30k to bring onto the farm and required some practise changes.
For a cohort of bigger, well capitalised farmers, Autosteer’s high(ish!) capex was not a barrier to adoption. Of these, the most important group of farmers that any founder can target is probably the corn and soy farmers of the US midwest. One large US soy and corn farmer I spoke to recalled his neighbour getting an autosteer rig in the late 90s, and within 5 years everyone in his farming community was using it. The scene was set for a venture outcome, but a limited technology moat and well capitalised competitors, including Deere, who quickly developed their own offerings, prevented a single player from becoming the ‘Autosteer’ company.
Farmer adoption of agtech can be fast and enduring. It does not mean that agtech itself moves quickly – seasonal development and regulatory timelines means that building a product will be adopted quickly can take 5+ years. But farmers will adopt technology rapidly that has a big impact upon profits, is practically easy to adopt, consumed frequently and has strong intangibles, or put in other words, makes farming enjoyable!
For founders with ambition to improve agriculture’s relationship with the climate and biodiversity at scale, these are the only metrics that matter.
Special thanks to co-contributors Alastair Trickett, Carl Peterson, Joe Adams and Shely Aranov
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