By Eric Jeck
The economics of farming are increasingly tilted against the grower.
Growers invest heavily upfront in land, equipment, labor and expensive inputs including seed, chemistry and fertilizer, typically borrowing to do so. They then do their best to manage through whatever weather (or other environmental conditions) impact how much of a crop their fields produce. Ultimately, the value of their crop fluctuates meaningfully with dynamic commodity prices. Growers assume most of the risk in what is typically a leveraged business model with highly variable outcomes.
At Indigo, we are working to reduce grower risk and increase grower profits through innovative products and business models.
Steady Increase in Grower Risk
In 2016, despite near record-high commodity prices – albeit lower than the price spikes of a few years back – farm incomes were at unhealthy levels. Farm land values are falling as a result (by 3% in 2016 according to the Chicago Federal Reserve Bank) and are expected to tumble by another 20% by 2018 according to MetLife Agriculture.
The challenge for farmers is that though commodity prices have increased over recent decades, input prices have grown even faster. From 2006 to 2014 alone, the seed expense on corn and soybean acres, for instance, nearly doubled in real dollars – increasing from $51 to $101 per acre, according to the USDA’s Economic Research Service.
We must increase our capacity to produce food in an environmentally and economically sustainable manner to feed the world’s growing population. Achieving these goals will require product and business model innovation.
At Indigo, we believe our microbial seed treatments will be an important part of the solution to help farmers feed the world sustainably, but we are also focused on sharing risk with growers and providing solutions that help them to make more informed decisions.
Tools that Help Growers Make Data Driven Decisions Are Necessary
Growers take risks when they buy seeds. Even if they’ve seen that seed perform in a nearby field trial, there is no guarantee they’ll see it perform on their own land.
Until recently, the tools available to farmers to manage growing crops were rudimentary. Emerging information technology tools, sometimes referred to as “precision agriculture,” provide farmers with information on selecting inputs, planting dates and fertilizer applications to help them make more informed decisions.
While it’s still early in the technology adoption cycle, we are rapidly entering an era where farmers will increasingly be able to make data-driven decisions.
But these tools alone do not mitigate the risk growers are required to take with high upfront costs and ongoing expenses through harvest.
Business Model Innovation Is Necessary Too
We believe the existing way of selling to growers must be disrupted as well. Growers deserve to work with companies that seek to enter business partnerships with them, rather than treating them as brand-loyal consumers who purchase through retail stores.
Partnering with growers has helped us enter the market faster. It allows us to get onto fields, proving our technology works and sharing the upside of a grower’s success. Our business model innovation generates a level of trust that many find missing in the industry. Instead of marketing and selling our product like traditional ag companies, charging a fixed upfront price, we are committed to sharing risk and performance in an aligned way.
For our first cotton launch, for example, instead of asking farmers to pay us upfront for our seed treatment, we asked them to pay us a fixed amount per acre post-harvest, so long as they saw a certain amount of increased lint production.
As recently reported by our CEO David Perry, Indigo™ Cotton, a product designed to improve yields in water-stressed areas, increased lint production by 11% in the target geography of West Texas – a region that produces nearly half of all US cotton. For some farmers, that meant their cotton crop was profitable. This increase in yield was transformative to the farm and the grower.
Early In the Innovation Curve
We are very early in the adoption of our technology and our business model, but by experimenting, we expect we’ll reach more farmers faster. Doing so means we’ll learn faster, improve our technologies faster, and help more farmers increase yields – all while reducing agriculture’s current reliance on pesticides and herbicides.
Our model creates a cycle that enables continual improvement. We believe it will transform farmer profitability and allow us to feed the planet sustainably.