110. Analogs: the {variable} of agriculture

“Software is Feeding the World” is a weekly newsletter for Food/AgTech leaders about technology trends.

Greetings once again from the San Francisco Bay Area.

Over the last two years, many people around me (including close family) have gotten COVID, and I have escaped. I am triple-vaxxed.

Until now.

I finally got it last week (it is not inevitable everyone will get it). I have almost recovered after a few days of discomfort.

I was telling a story to myself about how good my immune system was, and I was going to get past COVID without ever getting it. It was a story I had started believing.

We (including companies) tell stories we want to believe, and want others to believe. This is true in business as well. Businesses have to tell their story (and back it up) to win customers and provide value, attract & retain investors and employees, and create a valuable business for stakeholders.

One common form of efficient storytelling is to use a known analog from another industry. It leverages the mental model of the analog which people already have. Startups use it to communicate their value proposition, and positioning more effectively.

For example, the “Uber for an industry” comes up quite frequently to describe an asset as a service business.

Here are some examples, applied to agriculture.

Uber of agriculture

The Uber for agriculture is an attractive way to describe your company, if you have an asset light model, which uses existing spare capacity, to connect buyers and sellers. Similar to Uber, it is often heard of in agriculture.

In the developed world, a planter or a combine operates for 2-3 weeks a year. It sits idle for the rest of the year. It can present an opportunity to utilize a piece of equipment more efficiently, and convert your capital expenditure to OpEx.

It is challenging to do in the US, due to tight planting windows, the optionality farmers want for when and how they want to plant or harvest, and the logistical challenge to move large equipment between farms in a timely fashion.

We do see the model for application equipment, which is typically not owned by the farmer. The farmer can get it as a service from their local retailer.

The model is more attractive in the developing world, with small farm sizes (2 to 5 acres), low mechanization levels, and small equipment (for example a 75 to 100 hp tractor).

I had highlighted an example in edition 66 of the newsletter, in my conversation with Jehiel Oliver, CEO of Hello Tractor.

Hello Tractor has created a device which can be attached to a tractor. The device is connected to the cloud and provides operating details like location of the tractor, operational hours, fuel levels to the tractor owner in real time. It protects the tractor asset and reduces fraud. With complete visibility to their tractor status, tractor owners are able to rent their tractor to other farmers for a price. Hello Tractor helps connect tractor owners, who want to rent out their tractor, with farmers who want to rent a tractor for their farm. You can think of it as Uber for tractors, though that is not a perfect description for what Hello Tractor provides.

Apple of Agriculture

Steve Jobs lived by the Alan Kay’s principle

People who are really serious about software should make their own hardware.

The Apple ecosystem is more open today than 15 years ago (when the iPhone was launched), but even to this present day, Apple follows this principle. Apple’s strategy is to have a unified and strong brand name across its entire product portfolio worldwide. Apple backs it up with high quality customer friendly products, and which are highly profitable.

Within agriculture, some of the equipment manufacturers have a similar strategy.

For example, majors like John Deere have a unified global brand throughout the world. They provide high end hardware, and software under their brand, especially in the large scale row crop farming in the developed world. As I wrote in edition 89,

In the case of agricultural equipment, big companies like Deere seem to follow an iPhone strategy of building their own hardware and software (or acquiring it and running it under their brand). Through its App Store, Apple does allow you to download and run 3rd party apps, but developers have to use Apple SDK, and infrastructure to deploy their products. Apple is a premium product, with high profit margins but lower volumes compared to Android powered phones. Will Deere acquire more “software applications” to run on its autonomous platform?”

Very few agriculture companies have a similar approach. OEMs or input companies have a house of brands strategy based on regional acquisitions. You see this play out in grocery retail (for example, Kroger, Ralphs, King Soopers are all under the Kroger umbrella) or fashion (The Gap, Old Navy, Banana Republic etc. under the The Gap umbrella).

There are pros & cons with each approach, depending on the type of customer served by each brand. There can be efficiencies on the back end on components, supply chain partners etc. and the ability to differentiate on the front end with the customer based on the brand promise. If you are a house of brands, it makes scaling new innovation across brands harder, though it might be easier to test out new innovation across one brand, and then roll it out to other brands.

Android of Agriculture

Android’s strategy is to unbundle the operating system from the smartphone hardware, and offer it as a customizable option to the device manufacturer. Android is available on smartphones running from less than $ 100 to more than $ 1000.

In edition 89, I compared and contrasted the two, with a question of whether an Android type strategy could be applied to the lower end of tractors for the developing world. This is a relevant question, as we move towards autonomy, and software will play a bigger role in the operation and performance of agriculture equipment.

Autonomous equipment (or any equipment in general) is a combination of hardware and software. How does one go about assembling the hardware and software together?

Another variation for agriculture equipment could be an Android approach. The hardware is inexpensive, and more of a commodity product, the “smarts” of the phone come through an operating system and applications. For example, you can buy a decent Android phone for less than $ 100, and it works quite well for billions of users.

Is there space for a generic sub-$10K tractor, where the hardware is more or less a commodity, and the software on it is what makes it interesting and more useful? There are many types of operations depending on crop type, and so there might be different hardware configurations.

Amazon of agriculture

Is there an opportunity to build the Amazon for Agriculture? What would it look like? It will have a large selection of products, especially on the input side, along with some brands provided by the retailer. It will provide a strong e-commerce and omni-channel component to meet their customer needs.

This is an existing strategy followed by many large retailers like Nutrien. Retailers provide brands from different input providers, but in many cases will have their own brand of products, which either they have developed inhouse or have licensed from existing input providers.

Nutrien is vertically integrated, has a strong omni-channel experience, and has a large geographical footprint. Another example is Orbia in Brazil, though at a smaller scale.

The examples are much more prevalent in smallholder markets like India, due to a fragmented base of suppliers, and a very fragmented set of buyers.

Reference: Walt Duflock’s essay: Why isn’t there an eBay for Ag?

GCP/Azure/AWS of agriculture

Similar to the Android of agriculture, is there a space for a GCP/Azure/AWS of agriculture? How is it different from the “Android of agriculture” model?

The Android of Agriculture model provides an operating system and tools to build additional applications on top. The GCP/Azure/AWS of agriculture model is similar, but it is probably more geared towards specific capabilities needed in agriculture, and goes beyond just storage and computation. It provides the digital infrastructure for building AgTech tools.

I had tried to explore this topic in edition 83 (Picks and Shovels), in the context of the Microsoft-Bayer deal. It is still not clear what the deal is about, but it is a separate issue.

DIGITAL AGRICULTURE TECHNOLOGY STACK

For digital infrastructure, it is helpful to look at a technology stack. I simplified my diagram from 5 years ago. (Similar to Seana Day’s soil health tech stack from September 2021)

As you move higher on the technology stack, you move from tools to specific applications like FieldView or other 3rd party applications.

The lower you are on the stack, the tools have broad applicability, and tend to be a commodity. For example, compute and storage has become a commodity in the last 20 years, and the main computer and storage providers can sell it to any size company (and individuals) in any industry in the world.

As you go higher, the tools as well as the applications become more specific to the agriculture industry, and so are applicable to a smaller set of customers, but you can create and capture more value per customer.

So what is included in the different levels of the technology stack above?

AirBnB of agriculture

Similar to Uber, AirBnB was able to increase the utilization on a fixed immovable asset, and more importantly it was able to unlock trapped value.

There are startups (and large corporations) working to unlock additional value, which has traditionally been trapped. In edition 97, I used the concept of “trapped value” pioneered by Geoffrey Moore, in the context of ecosystem services.

Geoffrey Moore talks about “trapped value.” Trapped value exists in a given context, but either the technology and/or the business model to create the “trapped value” and capture is not available or mature.

“Who knew we had trapped value in the back seat of our car?” (Uber)

“Who knew we had trapped value in our bedroom?” (AirBnB)

The excitement for carbon in farming can be explained by finding another source of “trapped value”, which already exists in farmland. There is (potentially) billions of dollars of value trapped in millions of acres of farmland, if we just consider carbon.

Can the trapped value for carbon be released to farmers, and other entrepreneurs? What is holding back the “trapped value”?

I had highlighted LandTrust, a startup which specifically uses the AirBnB analogy in its marketing.

We utilize a similar shared-economy platform that made Airbnb a global success and put it to work for you. You get paid for allowing hunters, fishermen, bird watchers, campers, photographers, and people looking for authentic farm and ranch experiences on working lands like yours.

Costco and Disney of agriculture

There is only one company, and it is an absolute behemoth, who has described themselves as Costco-meets-Disney. I had highlighted Chinese e-commerce giant PinDuoDuo in edition 60, during my conversation with Xin Yi Lim.

Agricultural products are not being well served. The penetration rate is in mid-single digits versus 25-30% for the wider industry. Everybody consumes agricultural products. We estimate it's about a $1.2 trillion market in China alone.

We are in a new era of shopping experience for people who are connected by smartphones. They are connected to their social network by mobile apps. When they are on the go, they want easy access to products in a fast and interactive fashion. The user experience was designed as a recommendation feed, so it pushes products to people instead of you having to have a specific idea.

The team purchase is a critical piece of the puzzle. The team helps aggregate demand, which is especially important for agricultural products, because they are perishable. It is important for the farmer to have reassurance to move a large volume in a short period of time.

Blockbuster of agriculture

No company will describe themselves as the Blockbuster of agriculture, and at the same time, you don’t want to be recorded in history with the moniker.

Companies which do not embrace the digital world, and move to where the customer wants to be, will struggle to compete.

Theranos of agriculture

I hope there are no companies behaving like Theranos in agriculture. Though you often come across this sentiment especially from farmers who have been made very tall and confident promises, or have a very bad taste in their mouth due to an extremely poor experience.

What other analogs are out there? I would love to get your feedback.

What do you think?

💗 If you like “Software is feeding the world”, please share with a friend or a colleague.

🙏 If you don’t mind answering 3 questions anonymously (2 are optional), I would love to get your feedback.

About me

My name is Rhishi Pethe. I lead the product management team at Project Mineral (focused on sustainable agriculture). The views expressed in this newsletter are my personal opinions.

Rhishi Pethe