Categories
Uncategorized

Marketing Workshop – 2021 Biostimulants World Congress

The AGD Consulting team is thrilled to be hosting a SOLD OUT workshop on biostimulant marketing at the 2021 Biostimulants World Congress in Miami on Monday 29 Nov 2021!

The workshop will focus on guiding marketing principles, the modern-day challenges with traditional marketing, alternatives to the outmoded strategies, and possible solutions linked to marketing biostimulant products through interactive group exercise and real-world case studies.

Key areas that we will cover:

1. Marketing strategy – what works and what doesn’t

2.  Marketing – your brand and how to position your product in the market 

3. Marketing : the difference as a start up vs established organisation – what can we learn from both?

4. Marketing biostimulants- how to ensure you know your customer – case studies and key learnings 

If you missed this opportunity, not to worry. AGD and New Ag International are considering making this a formal part of the mini-MBA courses in the future.

More to follow!

Categories
Uncategorized

Regenerative Ag Panel – New Ag International – Dawn and Grant Breitreutz

On June 14th, 2021, AGD’s Founder/Managing Director, Michael DeSa, had the opportunity to host a panel discussion on behalf of New Ag International with two of the early adopters of regenerative agricultural practices – Dawn and Grant Breitreutz of Stoney Creek Farms. Below is a transcript of that fantastic discussion. Enjoy!


Mike DeSa  00:03

Good day everyone, thanks for joining us as part of New Ag International’s Digital Week focusing on sustainable and high tech ag. My name is Mike DeSa and I’m the Founder/Managing Director for AGD Consulting – a veteran-owned strategic advisory firm serving the global food, investment and agtech portion of the value chain.

Let me first start by thanking New Ag International for this opportunity and our guests for the willingness to share their time and insights on regenerative ag. Grant and Dawn Breitreutz are founders and Operators of Stoney Creek Farms in Redwood Falls, MN.

Over the past 20 years, Dawn and Grant have converted a conventional row crop and cow/calf operation into a multi-enterprise regenerative family business. In the late 1990s, after noticing degradation to their own lands, they begin to research and implement sustainable practices in an effort to increase production and improve yield, first. The soil health part of this discovery would come later. They were early pioneers into regenerative agricultural practices, and not without scrutiny. But they persisted and are now recognized as leaders in this space. In 2015, they were recognized as the Minnesota State Cattlemen’s Association Cattlemen of the Year. In 2016, they were recognized as regional honorees of the Environmental Stewardship Award Program and in 2019, their farm was featured in a multi-part docu-series produced by Farmer’s Footprint focused on holistic management practices.

Their 100%, no-till cropping system has evolved from a conventional corn and soybean rotation to a three (or more-crop rotation) annually, with the incorporation of cover crops whenever possible. Cattle are grazed across nearly every acre of the farm today every year and they’re using adaptive grazing throughout their pasture systems and now graze longer, with many more head than ever before.

Welcome Dawn and Grant, thank you for joining me:

Grant  02:07

Thanks for having us.

Mike DeSa  02:09

I was hoping we could start today’s discussion with your definition of what regenerative agriculture is, right? There’s often so much back and forth about the definition of this term and whether or not it’s appropriate or whether we go with sustainable or whatever the case may be. But let me get your take first and foremost on what you believe regenerative agriculture is?

Grant  02:34

Well, you brought up a term there – sustainable. Our good friend Gabe Brown says it this way, why would we sustain a broken system or degraded system? So, the way I define regenerative is basically any improvements we can see in soil health, whether it’s organic matter, water infiltration, all the way to a wildlife, healthier livestock or higher density in our grains, those are all things that we monitor and focus on to make sure we’re going the right way.

Dawn Breitkreutz  03:12

And it goes a little bit further to it. It lends to happiness in the family, you know, happiness and enjoyment and in what we’re doing. It’s a completely different way of farming now, and I don’t think we’d be here, if we wouldn’t have started down this path.

Mike DeSa  03:30

Why would we sustain a system that’s broken? Does that kind of mean that the current practices are somewhat broken?

Grant Breitkreutz 03:36

Well, I’ll just give you an example on our farm. Like you said in the intro in the early or in the late 90s, we figured out we had a problem here. We’re doing soil testing, and we were testing soils that are done the 1.6 and 1.9% organic matter. Organic matter is a measure of carbon. We all survive on carbon. And if you look back in history here, and I’ve got some neighbors that have some unbroken prairie, it tests at 12% organic matter. Well, in 150 years of farming, we blew, you know, 75 to 80% of it? Something’s wrong, something seriously wrong and we’re seeing all sorts of problems that others see right now in the industry. I mean, we had crop failures. We had sick cattle. It was just a multitude of things that we saw and then being married to her the eternal question of why why why why are we doing this? Why are we making a second pass of tillage? Why are you going on spraying again? You know, why are we running these cows thru the shoot again? And it always kept me thinking, and I mentioned we got to where we are, I mean, we’re by no means done. No, we every year we try something else and push harder and harder and harder.

Dawn Breitkreutz  04:59

I think that’s the farmer version of “if mama ain’t happy, ain’t nobody happy”.

Mike DeSa  05:10

You guys, this has been a third I think your kids now are the fourth generation farm. I mean, do you think it was – what was the tipping point there for you guys to finally say, something’s not right with the system? Was it someone like you, Dawn, that can kind of come in and ask the critical question, or was it finally at a point where it just wasn’t tenable anymore agronomically speaking?

Grant Breitkreutz 05:34

It was a combination of things. It was not paying the bank off at the end of the year. Yeah, we’d produce superior crops, we’d use all the latest and greatest technology, but there was no money left in our hands at the end. It was livestock health, that was a big part of it. We’re seeing all kinds of problems in the cattle. It was a lot of different things that pushed all at once. And some of it was just by chance. So, we were we were always running out of feed here for our livestock operation. And I started messing around after we cut corn silage off, I planted a cover crop in there, at that time, it was even called the cover crop, it was winter triticale. We’d plant it in there and the one year, we had rain, rain, rain, trying to harvest it you know, about a week ago, this time frame in Minnesota is when you harvest it. And it just kept raining and raining and raining and is getting so tall, we couldn’t get it through our harvesting equipment. And we had an inch and 43 hundredths one night, about two in the morning, when we got done feeding cattle in the morning, I told Dawn I said, you just got to go cut, we’ve got to get this stuff laid down to the ground and get it to the choppers or we’re never gonna be able to handle it. But she went and cut all day and never left the track. It was like “ding” – what just happened here? Why? You know, it was a trial of trial of different things for different reasons. And if you ever go through soil health academy, one of the main things they teach there is observation. And we were blessed enough to actually observe it and say, “Hey, something, something just changed here. Why? Why can we cut in the morning and eight hours later come through the choppers after that kind of rainfall never leave a track?” And right behind the choppers, we’re putting soybeans into the ground and had a wonderful soybean crop. You know, it was just things like that that hit us. The big side of it was eventually I studied grazing management and we were blessed to meet Ian Mitchell-Innes from South Africa and went through one of his classes, three-day classes. And we changed our grazing operations substantially. And it’s like, well, if we did this on the grazing land, why aren’t we focused on the cropland? If we made these huge changes out in pastures, why can’t we change where we’re producing grains?

Mike DeSa  08:00

Okay. So if I’m hearing you correctly, the first thing that you guys sort of tried in this was cover crop just a simple cover crop, but it wasn’t called that at the time. Was that to try to gain an additional revenue stream or was that to was that just kind of your first toe in the water as to what may happen if we if we put something like this down?

Grant Breitkreutz 08:21

Oh, initially, most all of them were for cattle feed. It was just a grow, grow three crops in two years, grow four crops in two years. Yeah, anything to grow more cattle feed. And you know, before we met Ian, we have been cover cropping on our farm for a long time before that, but had no knowledge of what we’re doing other than all of a sudden one year we’re not fighting cyst nematodes because we had a healthy turnip and radish crop after wheat crop. We didn’t even know we had cyst nematodes, you know, it’s just all these things that…

Dawn Breitkreutz  08:52

Instinctively we knew were, I mean, at the end of the year, you could tell that the cattle are what got the operation through. The cattle are what kept us going all through the years. And so we had to continually find ways, you know, to cut our costs to keep them alive. And, you know, it just happened that that was actually part of the circle of principles of soil health that we didn’t know we were doing at the time, that was actually benefiting us, you know, and we didn’t even know it.

Mike DeSa  09:25

You had mentioned both of you and you did a presentation a couple years ago as to just the way these practices, reduced input costs, and one of the examples that you gave was on vet bills. So, I’m curious as to what were those typical veterinary issues that you were having with cattle on the more conventional practices and then how did you start to see those problems fade as you moved into a more regenerative system?

Grant Breitkreutz 9:57

Well, we were we were calving out of sync with nature. We were calving in late February and March here in Minnesota, that’s not a good time to calve. So, we immediately had respiratory, intestinal issues and those cattle and those baby calves and fight that all summer and then get to respiratory issues again in the Fall. That was some of the main ones. I mean, you know, you bring that up, but I’ll never forget looking that up that one year, we spent $18,000 at the vet. And now with well over twice as many cattle, we’ll maybe spend $3,000 a year at the vet most of that is on vaccines that we just haven’t decided to give up yet. It’s not buying boxes of antibiotics, you know, cases of boxes of antibiotics anymore.

Mike DeSa  10:45

Were you guys giving any biotics those animals prophylactically before they were sick just to try to stave off some of those issues?

Grant Breitkreutz 10:54

Oh, yeah. early on. We did. Yeah. Early on in our feedlot days, we would run non-CTC through the feed on the first of every month.

Mike DeSa  11:02

You mentioned calving out of sync. Was that a result of trying to try to force production or forced calving at a at a time of the year that was more convenient for you guys? Like what do you mean when you say that?

Grant Breitkreutz 11:17

Well, you can’t calve of cows and plant corn same time. That’s the rule of thumb nationwide. Well, they’re wrong. You can. Our cows calved all during corn planting.

Dawn Breitkreutz  11:29

Yeah. It’s amazing they can have a calf without us standing by their side.

Mike DeSa  11:33

So, this idea was just to try to deconflict these two agricultural events for no other reason than just to free up time?

Grant Breitkreutz 11:42

Yeah. Well, we kept pushing our calving date up earlier and earlier to have bigger calves and sell in Fall. We were going after production, production, production. You know, when you sleep on a pickup beside a barn, you know, five or six nights a week? I don’t know what kind of fun that is. No, it was just stupid.

Dawn Breitkreutz  12:04

It was scary. You know, he’d be over here at the farm. We lived off the farm at that time, and he’d be over here. And I’d wake up in the middle of the night and he wasn’t there. And all I had is these, you know, horrible visions of him being attacked by a cow that was mad because he was helping her calves. And so then I’d be over here. And so neither one of us would get any sleep. And it just, that’s not a way to live your life. It’s just not.

Grant Breitkreutz 12:28

And we were, I will say this – My brother bought a set of cows that were May calving cows. And we figured out that those cows didn’t need any help. And then the good Lord wiped our pretty much our entire farm off the face of the earth in 2011. And we, at that time, we already had half of our cows calving in May and then it was just a matter of – we got to switch them all because we had no buildings left, we had no intentions of rebuilding.

Mike DeSa  12:57

Was it a rain or storm event? What caused that?

Grant Breitkreutz 12:59

It was 115 mile an hour winds with embedded tornadoes for 43 minutes. Not much stands after that

Mike DeSa  13:08

Was it both the grass and the structures that kind of resulted in that or was there animal loss of life too?

Dawn Breitkreutz 13:15

We lost a few.

Grant Breitkreutz 13:18

We lost a bunch of cattle in that storm. We had some in buildings that went down. Pretty much all we had left was our houses. They withstood the storm.

Mike DeSa  14:04

So then that became a moment for you guys to then say, look if we’re going to have to rebuild. Why don’t we try to rebuild this way?

Dawn Breitkreutz 14:14

Yep. God’s nudge.

Mike DeSa 13:28

In that same lecture, you guys described the converting of the mind that has to happen. And you talked about it specifically with this transition between conventional practices and regenerative practices. But why does that resonate so strongly with you all? That particular saying?

Grant Breitkreutz 13:53

As we were going down this path, converting things. I was born and raised farmer she was not. So when something would go wrong, I’d resort back immediately to what we’re doing before that worked. Instead of, you know, my first thought was to resort back to what worked instead of figuring out what the problem was with the issue we were having with our changes.

Dawn Breitkreutz  14:14

But the whole problem was, it didn’t necessarily work. It’s what they were used to. How they were raised.

Mike DeSa  15:46

Right. This adage of this is the way we’ve always done it, therefore, that’s the way we’re gonna continue to do it.

Grant Breitkreutz 14:26

Oh, man. But the hardest thing for me ever is planting corn in May. Here, everybody was done in April. You know, in this in this last weekend, our corn is just barely out of the ground. We’re just finishing planting soybeans today. And what happened last weekend? A big big chunk of the upper Midwest froze. Oh, no, all of a sudden, I look like the smart guy. At least I don’t have to do it twice.

Mike DeSa  14:55

Why were you guys? Why do you say that’s one of the hardest things to plant in later May instead of April, just because you don’t have the same length of growing cycle like you did in traditional methods?

Grant Breitkreutz 15:08

Oh, farming is a big competition.

Dawn Breitkreutz  15:10

It is but they’re also they’re also like herd animals. You see one going and all sudden you got the itch. And now you got it all. It is a little bit competition and it’s just a little bit – well, they’re doing it, so we should do it. So it’s hard to break out of that paradigm and then to deal with the fallout from, you know, from breaking away from that paradigm is also a little difficult – the social elements of that.

Mike DeSa  15:39

Yeah. Yeah, you and I talked about that, Dawn, I’m wondering if you can maybe kind of elaborate on that? From what I understand, I mean, you guys are kind of a blueberry in a tomato soup, so to speak, right? Where you’re, you’re surrounded kind of by more conventional practices, and you’re operating in an unconventional way for your own rationale and for your own reasons. But what’s that been like for you at the beginning? But then now I think just as importantly, what is it like today? I think there’s been some progression, but maybe walk us through a little bit of that.

Dawn Breitkreutz  16:15

I don’t know. At first, it was a little bit painful just because you kind of like you’re on an island all by yourself, but you are under a microscope too. Eventually you get you get used to that microscope, but it you it also keeps you on your toes, and that has you looking at your operation yourself and double checking to make sure you are doing things that you hoped to do. A lot of times we didn’t. But that’s learned. And eventually, you know, at first we separate kind of basically separated from everybody. We just we didn’t have things common things to talk about anymore. Um, but we eventually kind of got over that and we’re kind of tiptoeing back into our local society again and reacquainting ourselves with everybody and making sure that we’re open so that they can ask questions that their comfortable asking questions. And they are. And that’s encouraging to us. The fact that they’re curious and not just talking behind our backs makes us hopeful that people will start looking at this in a positive light, rather than in a competitive light.

Grant Breitkreutz  17:39

So, I’m the president of Minnesota State Cattlemen’s Association right now. 1,000 plus members. One of my interview questions was, “are you going to tell other farmers how to farm?” And I said, “Absolutely not and I answered that by – if you ever went and watched any of our presentations, I don’t tell people how to farm. I tell people how we’re farming what we’ve done wrong, you know, those types of things so they don’t have to financial hits and steps.” It still comes back to it’s all between your ears when you’re ready to chain you know, come and ask the questions. And for a while we had just shut down. And now we get neighbors coming and asking and we will tell them what we’re doing why we’re doing it.

Mike DeSa  18:24

You guys shut down in the sense that look – I’m just tired of this kind of scrutiny. We’re a closed book now. That kind of shut down?

Grant Breitkreutz 18:35

We’d plant something different, do something a little bit different than the neighbors. They’d come over and they’d ask what we were doing. We’d go through 100% of the explanation of why and then watch them do absolutely nothing after they understood it.

Mike DeSa  18:49

In your own instance, where you’ve got three generations of these conventional practices, and I can imagine the tomato soup around you, so to speak, is in a similar type longevity of these practices. How do you begin to have that discussion on converting? How do you reshape the thought process from one of competition to collaboration? Is there a place you always start?

Grant Breitkreutz 19:19

Yeah, um, I always start with try something. You’re never going to learn if you don’t try. And it comes back to us as humans. I mean, what’s the two hardest things to do? It’s to change and admit you’re wrong. If all of a sudden you quit plowing? In a way, that’s admitting you’re wrong. You know, and then the other part is all you’re going to change and switch to something else. I mean, it’s human nature besides generational teachings. Besides so we always encourage people to just try something. Now in saying that, if you Michael, were farming, what I would call full bore conventional, and you wanted to convert what we’re doing, I will tell you hold the brakes. If you switch everything to what we’re doing in one year, it will be a complete failure. Soils are addicted to what we’ve done them for the last 75 years. They need to be weaned off, they need to be nursed back to health, you know, so there’s steps and there’s processes to it. But there’s all sorts YouTubes, there’s all kinds of seminars, there’s all kinds of people, right and local areas that you can go ask – how’d you get this far? What was your steps and methods to get there?

Mike DeSa  20:32

That’s such a great point. That it it’s an incremental change, from what I think I’m hearing you say. That if you just start somewhere, that somewhere is going to be different for everybody, based off of what you’ve done, where you are, what your geographic and financial limitations and requirements may be, but start somewhere. And I mean, you guys, if I’m understanding you correctly, started with cover crop, is that a fairly reasonable place, generally speaking, for folks to start? Or no till or strip till?

Grant Breitkreutz 21:08

Reduce tillage and a cover crop

Mike DeSa  21:15

And in terms of, you know, capital expenditure to begin to do those things – I know there’s special equipment for strip till, but if you can, are there are there ways of implementing lower till without buying, you know, lots of different or new equipment, or the ways you can do that with your conventional equipment?

Grant Breitkreutz 21:42

At least in our area there is. A lot of the co-ops that we buy our inputs from have no-till seeders. We’ve got a lot of neighbors that have the co-op come in and seed their beans for them. You know, that’s one step. Now, a bunch of these co-ops are starting to seed cover crops in the Fall to keep that piece of equipment making money for the co-op. There’s farmers, farmers could figure out how to do it. But when you bring up strip-till, and those types of things, we got a friend not too far away from us here. He, he understood soil health, got a grasp of it, spent the entire winter studying it for a while, probably for many years. And when he was done, he bought a strip-till machine, he bought a vertical tillage machine, and sold $1.8 million worth of machinery over and above what he spent buying those two pieces of equipment. And if you talk to the man today, he’ll never turn around and go back. Imagine that – $1.8 million of equity freed up plus got rid of the massive workforce needed to run all that equipment.

Mike DeSa  22:46

Because we’re talking about some of these different practices, I want to make sure that we talk about some of these principles that you guys have described in previous lectures. And I think you mentioned six in particular, I’ve got those six here, but if you would kind of detail those out for us, kind of what are those basic six principles that you guys use that have sort of shaped your regenerative practices?

Grant Breitkreutz 23:13

Now the first is Do Not Disturb. That was our toughest part. The corn was the last one we switched to no-till. And we had a plan that if no-till didn’t work for us, we were going to stretch back to strip tilling for corn. But we had perfected planting all the other grains no-till so – do not disturb. You know, the second one I mentioned that I don’t think we’re given enough credit is Build Cover and armor on that soil. We’ve over grazed pastures here because we’ve been extremely wet, couldn’t use some. And that covers missing. We got weeds coming in this year. You know, we got weeds coming in, we’re gonna spend all year building a cover back on these pastors. And it goes right direct to the cropland too. How can a weed germinate if it can’t see the sun? If there’s enough cover on the soil, that weed is not going to germinate.

Dawn Breitkreutz  24:10

And then Diversity is a huge part of all of it. That’s why we have the cattle across all acres. So not only do we have, you know, all the different livestock, we have hogs and cattle. Now we have chickens. But also when you have all the diverse plants out there, you’re building an environment where there insects and birds and wildlife also. So the more diversity you provide, the more diversity you draw, you know, to your to your farm, and it creates a bigger circle of life, you know, on your operation.

Grant Breitkreutz 24:51

And Keep a Living Root in the Soil all the time. Obviously here in Minnesota, it’s tough for us but we figured out how to do it. Ok, so we terminate cover crops when we planted the corn, the corns that are growing, keeping the biological life going. This next week now we’ll start inter-seeding annual rye, radishes, turnips, kale, some other stuff in between the corn rows so what then the corn starts dying, we still got to living root growing all the way till the end of the season. You know, that’s what we figured out, you know, and soybeans we don’t do that. We come in right after the soybean crop is off and seed a bunch of cover crops in there.

Dawn Breitkreutz 25:36

Then Incorporating Livestock. That’s really important. And I know that there’s a lot of row croppers out there that have livestock, and they don’t want to put livestock on their farms. And that’s fine. All of this can be done without having livestock on your acres, but the livestock part of it just kind of speeds it up. And I think that strictly row crop producers and livestock producers can cooperate and work together to get that to happen and to do it properly. And that’s helped heal things here on the farm faster than we could have imagined. But I think the biggest the biggest one that that we’ve been and they brought in is the principle of Context. Each operation has a different context. And everything that you do has to be within your context. So, what we do here on Stoney Creek Farm is not going to work on somebody else’s operation. We’re further along we do different things. We have different goals. You know, we have different people involved. So, you have to find out what works in your context. And each field has its own context. So there isn’t an easy button for this. Yeah. And I think that’s one thing that keeps really interesting. You do not get bored ever, ever.

Grant Breitkreutz 27:03

And we get we’ve got a really good friend we just went on to help marry one of his kids off and he and his boys farm with him. They wanted a prescription they wanted a recipe of what to do. I cannot do that. You are three hours north of me. You got different equipment, you run your cattle different times of the year, you’ve got different cropping rotations, you know, they wanted a prescription. And they’ve been asking for that for the last 10 years, right? And I said, No. I said you need to come to a school or come down to my place and look and see what we’re doing implementing at their place. It was just neat being up there this weekend to see how far they’ve made it. Like Don said, they did it in their own context, what they were comfortable with, financially wise, you know, and it was, like Don said, there’s no ease.

Mike DeSa  27:37

Give us a sense of why this pattern is circular, and why it works in a sustainable and regenerative way.

Grant Breitkreutz 27:47

Because look at Mother Nature, is it ever in a set system? You know, like I say, we just froze here the other day? Well, that’s not common. Rainfall patterns are shifting all the time. Nothing in Mother Nature is the same all the time. And, and we’re very fortunate to finally realize that here on the farm, we’re managing and ecosystem. Dr. Allen Williams has been awesome to teach us this. There’s compound cascading effects. And they’re always either positive or negative. But disruption is good. So in our in our grazing, or even in our cropping fields, we don’t do things the same two years in a row or a cycle of five years in a row, just because disruption is good. Like I said, we over graze some pastures, we know we need to rest them longer this year to get the to get the biomass back up there. You know, if we have a crop failure in a row crop field, we need to get something going out there or an extreme drought or something that prevents us having cover on the soil, we need to get something out there and get that crank and we need to fix we need to fix the six principles and realize that we’re managing an ecosystem. And the grazing heights and stuff of grasses that. For a long time we had Department of Natural Resources here wanting to change some land to warm season grasses, so graze all the cool seasons off, graze all the cool seasons off, graze it short, graze it short. Well, when you’re only focused on one thing, you can’t imagine the disaster you have by just focusing on those warm season grasses. It was horrible. Yeah, they got some warm season grasses, but you have to watch, you have to observe everything and realize that you’re managing an ecosystem.

Dawn Breitkreutz  29:41

I think I need to say that, this probably to some people, it sounds really complicated and really hard. But once over the hurdle of looking at it from that lens, you actually realize that it gives us a lot of flexibility and that’s a positive. That’s a huge positive. Everything we do gives us flexibility because we have the livestock. That’s the flexible part of it.

Grant Breitkreutz 30:16

Two springs ago we’re calving with nature. And we can’t have by our crest time of the year, so we have on our flat land. And we had grazed all of our flatland. We were out of feed. Dawn and I were standing on the hill at the end of the driveway here, and we’re like, what are we gonna do? There’s nobody around here that’s got feed. And she looks at me and she’s like, “well, what the hell’s wrong with that rye field behind us?” Well, here, there’s a cover crop of rye that’s 18 inches tall already. All we did was walk the cows across the road, okay, kept them there for a couple weeks and all of a sudden a grass again, you know, it just, that’s just one example of the flexibility that we get, by doing things so much different.

Mike DeSa  30:58

This kind of picture and phrase is circulating in my mind now of managing an ecosystem where you’re permitting diversity, but you’re almost doing it in paddocks. so to speak, right? You’re allowing the livestock to move and operate in a particular paddock where their manure and their urea goes back down in the soil as fertilizer, maybe you pass hogs behind it, maybe you pass chickens behind it to kind of spread it all back out again. And then you take that whole system, and you move it to the next paddock, or you move it across the street to the rye field that hadn’t originally maybe been a part of your diversity management, so to speak, but Mother Nature gave you an opportunity. And you capitalize on it because you had the mindset and the flexibility to adapt to what was being presented to you.

Grant Breitkreutz 32:05

You said it very well. I guess it’s gotten to the point…how do I say this? Twenty-five years ago when Dawn and I started, if you’d have told us we were going to win conservation awards, we would have said no, we’re not the tree huggers in the neighborhood. We don’t want that. Now, after the first award in 2010, and we realized what we’re doing, we can’t work hard enough to do this. You know, we used to fight mud holes on this farm in the pastures or in the tillable land. We don’t fight that anymore. We don’t fight moisture extremes. And for the most part, we don’t fight moisture stress. I mean, there’ll be they’ll still get us but it’ll be after the neighbors get burnt up first, but just watching what’s happening out there, you know, we’ve been taught to observe, observe, observe all the wildlife, the insects, the birds, the it’s just unbelievable. That we actually affect that through our management.

Mike DeSa  33:08

Since you mentioned not fighting this, I’ve got to ask – what are you fighting now? What has switching to regenerative practices, what challenges have arisen that are either constant or consistent? Everybody has challenges in any profession. What are yours is as regenerative practitioners?

Dawn Breitkreutz  33:39

Dandelions.

Mike DeSa  33:42

What do you mean by that? What do you mean by that dandelions comment?

Grant Breitkreutz  33:46

I’m the best dandelion farmer in the county

Mike DeSa  33:52

They just have no value

Grant Breitkreutz 39:54

As we made all these shifts and changed all these practices, we just weren’t watching the dandelions. I never knew how bad it could be. But you know, that’s in a row crop side of it. But we’ve got that under control now.

Mike DeSa  34:07

How are you controlling that?

Grant Breitkreutz 34:10

With herbicide

Mike DeSa  34:11

Okay

Grant Breitkreutz 34:11

We’re coming out with herbicide. We are not we’re not organic. We just with organics, I’m letting some of my friends figured out how to do no-till organic first, and then hopefully we can feed off of their lessons learned doing it and get ourselves to it. But the biggest challenge right now on our farm is getting the hell out of the commodity market. We so desperately don’t want to sell corn into the commodity market. We don’t sell anything in the commodity market. We found a lot of places to get out of that and get on our own. But we have been picking up a bunch more land. And so we’re going to be in the commodity market again this year a little bit. But you know, we’re growing non-GMO soybeans. And we’ve got a grain terminal just two miles or three miles away from us as paying us 80 to a buck 20 over market value. Now, I’m out of the commodity market. You know, plus I’m getting a premium. This Fall, we’re going to take a bunch of our open pollinated corn and make it into chips. And we can make a good chip and market chips. You know, we got we got friend is doing he said that’s 30 bucks a bushel net. Well, good Lord, how many bushels of corn do I got to raise at $30 a bushel net? Well, maybe I’ll have a machine shed full of chips. But we’re, you know, we planted some red fife wheat this year, the kids want to mill that and sell flour. You know, that’s the old heritage breed wheat. It’s all that type of stuff that we’re just trying to get away from the commodity market so we can control all the end prices. You know, we planted a bunch, we planted a bunch of seven grain mix last year that turned out awesome. I planted a bunch more this year. Well, that seven green mix is the perfect chicken ration year-round all by itself, I don’t have to buy any inputs off the farm. You know, I still buy some supplementation, but I’m not buying soybean meal anymore. And there’s customers that don’t want soy in anything, you know, it’s just those type of things that we’re struggling to find them. That’s our biggest challenge. And obviously, I’m pushing our soil to maximum health faster than we are. And we fought some awful wet years up here and didn’t make much progress but this is just a treat. Cody, my son-in-law, he’s out planting beans right, you know, just thinking the biomass that’s gonna lay down tomorrow or whenever we go through with the roller cramp now, just amazing how when Mother Nature helps us out a little bit we can get cover back on that soil again.

Mike DeSa  36:57

One of the challenges is pushing soil health to an optimum space faster. Right. So if I’m kind of understanding that correctly, one of those challenges is repair in a faster way than what may be conventional. Are there practices you guys are using that have you found some success with as to making that regenerative process for the soil faster?

Grant Breitkreutz 37:35

Yeah. Cover crops and like I say the last four years we’ve really struggled getting cover crops even putting on time and then throws off early or later. That really sets up but if we’ve got a successful cover crop life is really good for Grant. I mean like this year, you plant corn and a bunch of stuff. But plant corn, we spray is three days later we’re done for the year. We’ll go out and apply some nitrogen. But that’s it. No more herbicide, no cultivation, just get the cover crop interceded in there.

Mike DeSa  38:14

Say that again. So with a cover crop down, you plant no-till into it. You do one pass herbicide early, you maybe do a later shot of nitrogen. That’s it til harvest?

Grant Breitkreutz 38:31

That’s right. Intercede our cover crop and we’re done until harvest. We’ve even gotten that working on soybeans. Where Cody’s planting today, that’ll be a one pass system on soybeans. I sprayed it yesterday to kill the rye and the dandelions that we had in there. And we will not have to re spray that this summer and they will be the cleanest beans in the community. And they’re non-GMO.

Dawn Breitkreutz  38:54

And we don’t need any fungicides and no insecticides on any of our acres.

Mike DeSa  39:00

I was going to ask how you’re controlling pests without pesticides.

Grant Breitkreutz 39:08

Rotation.

Mike DeSa  39:10

That’s it, rotation?

Grant Breitkreutz 39:11

Rotation, rotation. All of our corn that we plant has no seed treatments on it at all. No neos, no fungicides, no nothing. It’s it looks like corn. We’ve got a bag of corn left over we can feed it’s to the cattle or hogs

Dawn Breitkreutz  39:26

It’s not pink or green or blue.

Mike DeSa  39:28

Right. That’s what I’m thinking so the rotation of the crop in that particular paddock or field where you’re planting in and of itself through your positive or beneficial nematodes in the soil actually performs pest management for you. Or/and the biological insects that As a result of that diversity that are natural predators.

Grant Breitkreutz 39:51

Well, basically when you look at it, we’ve broken the cycle. If you’re just corn on corn, you got a compounding increase in harmful insects. above and below the soil. We offer habitat for beneficial insects, maybe not in that field, but in a bordering field or on a part of the farm. Where instead of in Minnesota here in August, the spray planes run non-stop spraying for soybean aphids was sprayed for soybean aphids, and eight or nine years, you open up our bean canopy and it’s just full of freakish insect life that’s eaten those aphids. Do we have aphids? Yes, but never economic threshold where we have to spray, you know, we’ve created the environment where the beneficial insects can be there. I think as Gabe Brown, one of those guys had a slide years ago, it really caught my eye – every time we go after, say that soybean aphid with the plane and insecticide we kill 1,700 beneficial insects. Well, we’ve given them the habitat and we don’t kill them. So they’re here, they’re our friends.

Mike DeSa  41:10

To our earlier point about mindset, right, that’s just you just changing this sense of the presence of insects, right as being something that can be beneficial, instead of something that is a detriment to the crop itself is just such a foundational shift in the way you look at it as a system. One of the things that I’m hearing you describe as a challenge is finding those kind of value-added opportunities, where you’re growing a particular corn variety that you can make a chip out of whether you’re, you know, taking something else and turning it into something with a higher premium, with a little bit of extra value-add, etc. Do you do you see your path to growth and the future as one of either scaling these opportunities that you’ve already found through more land and the similar practices? Or do you see it as a culmination of lots of different value-added opportunities where you have 20 or 25 instead of four or five on double the acreage?

Dawn Breitkreutz  42:42

Well, the simple answer would be four or five on all the acres, but, you know, it’s hard to say right now. In that regard, it’s early times for us. You know, we haven’t spent a lot of time focusing on that part of things because of other things that you know, we’ve had going on that you know, we’re shutting doors right now. But they’re not shut yet. So we have an opportunity to look into it and spend the time to do that. But bringing our daughter Carly and Cody on the operation and having them do the direct marketing; they are opening doors like crazy. And so we’re you know combined between the two of us among the four of us we’re working through those steps.

Mike DeSa  43:33

What type of doors have you shut?

Grant Breitkreutz 43:36

Years ago, when we weren’t making ends meet, we decided to buy a baling business. And you want to run your life into the ground, go bale 40,000 bales of corn stocks every Fall. You know, I added it up, after 10 years we put 49,800 hours on equipment. What the hell for, you know? 50,000 hours on equipment, pay all that help, all the labor? You know, so we’re just we’re just finishing up getting all the property cleaned up and out of here and that’s taken too much work to get that stuff. But we got to get it out and then we get on with what we’re doing.

Mike DeSa  44:18

Yeah, and I can certainly respect that. I appreciate you sharing that first of all, but Dawn I can certainly respect the kind of uncertainty of what the growth future of Stony Creek farms looks like. That’s always one of the big questions, I think is that are these regenerative practices? scalable? Can you can you take them on to more acreage? And I don’t know, if just maybe in the form of the question that I just asked, it sounds like you can, it’s just a matter of doing it in the context in which you’re operating? Because it’s so important. Right? I have to ask, right? Because I think there’s so much chatter about it. Now, I want to see if it resonates with you all – carbon markets? Are these I know, and I won’t ask you about regenerative or I won’t ask you about impossible or lab grown meat? I just I don’t think that’s quite relevant here. But I will ask you about carbon markets? Are these an additional revenue stream? Or are they a bridge too far? How are you viewing that?

Grant Breitkreutz 45:28

My view on that is they are additional revenue stream for farmers. But once again, the middleman is taken way too damn much out of the pie. You know, it’s just like I said, I want to get out of the commodity market. Why? Because they’re making all the money, you know, right now on cattle, they’re making over $1,000 a head? Well, if we get out of that market, that’s money, maybe not all money in our pocket, but at least a good chunk of it’s in our pocket. I’m afraid this carbon market is being set-up very similar. And some of the contracts that I’ve looked into are scary. You know, they’re asking for 20-year commitments on some of these farms for some of these programs. That’s, to me, the way our farm has evolved and changed so rapidly from year to year, in the last 10 years, in the last 20 years, why would I lock myself into something for 20 years, and the other part of the carbon market is – they ain’t gonna pay me jack for what we’ve already done. These carbon markets are going to be focused on the guys that are trying to get him to do no-till or cover crops, and those guys will probably the biggest rewards out of it. Now, if all of a sudden that carbon market falls apart again, are they gonna affect their old practices because there’s no subsidy? I would just about guarantee it.

Dawn Breitkreutz  46:54

But let’s go back. You said you wanted to avoid the Impossible Burger question?

Mike DeSa  47:00

Yeah. No, tackle it, Let’s go.

Dawn Breitkreutz  47:04

Okay, so there’s a company up-state a little ways, and we are growing peas for that company. And the reason why is because it fits our context. Those peas, yeah, their vegetable protein, and I don’t care what they’re going to do with them. They if they want to compete against our beef, that’s fine. People want to eat it, that’s fine. That’s your choice. But it fits our context because those peas go in early, they come off early. And then we have the opportunity to go back in and plant cover crops and run our cattle across those acres. And it’s helped us heal our system. So why wouldn’t we take advantage of that? We’re getting a decent price for them

Mike DeSa  47:52

Yeah, that’s so that’s… go ahead Grant.

Grant Breitkreutz 47:55

They’re not competitive with soybeans right now. I mean, I’m sure our neighbors are saying what hell Why did you do that? Why not? We’ve got so many acres of corn, we’ve got so many acres of soy that we’re getting a good price on, if we market it correctly, obviously things are very hot. To me, this was the time to find out how to grow these other crops. You know, we got high corn and soybean prices. I don’t need to get rich all at once. But I know corn is going back to three bucks. And I want to know how to grow yellow field peas for Puris potentially going into a vegetable protein market that competes with our beef. But I’ll harvest these peas the end of July. If we get moisture and successful cover crop on there, I will grow corn on there next year for just about nothing. There will be virtually the only synthetic input will be a tiny dash of nitrogen. Well then when corn is $3 and I’m producing corn for $2.50, I’m still making money. We got a look at the whole system. You know and that’s, that’s why we’re doing this.

Mike DeSa  49:03

Yeah, but I mean, the for the forthrightness that it takes to think about growing something for a competitor to your own product, so to speak. I mean, again, we’re kind of back to mindset shift here. Where, yeah, you can grow these and… go ahead

Dawn Breitkreutz  49:25

They’re not our competitors. They really aren’t. We know that our that we’ve got good quality beef. In the in the system, yeah, maybe. But we know that, you know, we’re confident that the eating experience and the flavor and the nutritional value and all of that, the whole processed system. It doesn’t compare, they don’t compare.

Grant Breitkreutz 49:50

And this company was in this long before the Impossible Burger came. I mean, they’re a storied company. I’ve met the owners. I mean, we really like the company.

Mike DeSa  50:00

Let me ask you one final question, if I could. Dawn, you mentioned in one of our first interviews that adopting these practices has brought joy kind of back into and I Grant I think that may be the case for you as well, but joy back into the practice of agriculture, rather than one of competition. Describe if you could kind of your thoughts around that sense of joy that’s come back with these practices versus maybe what your mentality was prior to that.

Dawn Breitkreutz  50:44

I think…a friend Gabe has put it really well, rather than getting up in the morning and trying to figure out what you’re going to kill that day, you go outside, and you observe all that you have here and all that you’ve helped create, and what life you can bring to the farm now, and what life you’re going to see as you’re, you know, going around and seeing the improvements that you’ve made, rather than Oh my God, we’ve got a weed, we’ve got to kill it. What are we going to spray? All those things. It’s just it’s living positively. For the moment. I mean, yeah, we have bad days. But this is so much more uplifting and being able to be a part of it and to see it and to look through, you know, God’s eyes. You know what, what we see out there that that He’s given us and that we can remove it rather than keep on degrading it. It’s refilling. It really is.

Grant Breitkreutz 51:52

Just a simple example today we just got done loading Cody up with seed to go and seed it and Carly was walking by and she’s like, what is going on that field? Where’s all that smoke and dust coming from? we all looked out there. Here the pollen coming off of that rye. It looked like a dust storm. So we were just talking about this we got we’ve got dust in the air from our conventionally tilled neighbors fields. We’ve got pollen blown air, I mean what’s pollen gonna hurt other Cody’s like, I’m gonna die, I’m just going to go inside right now I got allergies. But you know, it’s just fun. It’s just fun things like that, that we get to see now that where before. If we were standing in the exact same spot, the way we farmed 20 years ago, we’d have been worried about dirt ball, instead of a big pollen cloud going across the farm, you know. It’s just daily and weekly things like that all the time.

Mike DeSa  53:00

And I bet you guys could at this point could fill a book with those tangible examples. Because it in my mind, those are, those are key moments to sort of capture and try to articulate. So I’m glad you shared that Grant because I think that shows, in my mind two things: It shows how your perspective on something can change. If you’ve if you if you’re looking at it through a different lens. But then I think it also shows it shows the way that these the system should operate. That’s what happens when wind blows on plants that are flowering is that their pollen spreads for a natural reason. I don’t know. I don’t know if that example speaks to the rest of the folks listening, but it sure speaks to me. Is there anything else that I’m not asking you about regenerative agricultural practices that I should be that you want us to know?

Grant Breitkreutz 54:03

I guess the big thing is for farmers that are thinking about pursuing regenerative agriculture, it should not…a cover crop should not cost you money – long term. There might be a short term upfront expense, I mean, changing practices should not cost you money. There might be a short-term upfront expense, but eventually the returns come back, you know, like here with us with the cattle, it really helped us a lot because we could plant a cover crop we could graze it. Well, if you’re just a corn and soybean farmer, you’re not going to see that type of return right away, but increase in soil health and water infiltration, the nutrient replenishment, it’ll come eventually in reducing synthetic inputs, you know. And really, as a society, we need to look at this, you know, two years ago, we tried going down I-29 three times and it was closed for flooding. You know, in our farm, where we’re at eight to 12 inch rainfall infiltration rates, and I can step right across the fence and a half to eight tenths of an inch in an hour. You know that regenerative agriculture is more than just our economic and social life here on the farm. It can heal a nation, you know, Dr. Alan Williams, he’s a very, very smart man, when Hurricane Harvey hit down there in Texas, I was on the phone with him for something and he was in his hotel room. He’d done the calculations, if every farmer and rancher in that region had increased organic matter by 2%, there’d been no flooding. Look, increased organic matters here four and 5%. Already in a short period of time. I mean, it can be done, we can heal, and we can fix a lot of the stuff we deal with other than an agriculture.

Mike DeSa  55:51

That’s a great way to end is that there are…you talked about second and third order effects of actions beyond what we intend to. And those I think, largely speaking can be positive, within regenerative agricultural practices beyond just what we’re doing for our pocketbooks or for our livelihood. But to fix things around us. So,I’m just I’m so grateful for the both of you for what you’ve done, for what you are doing the education and encouragement that you’re providing others in this space. I hope that you continue to do it for decades more and that your kids and your son-in- law continue to do it as well. So thank you guys so much for taking the time and for being a part of this discussion.

Categories
Uncategorized

AGD Consulting Adds Agricultural and Socio-Economic Expert in Africa

Texas, USA – AGD Consulting, a US-based, strategic advisory and business development firm servicing the agricultural and resource sectors in emerging and OECD markets, announces the addition of a Senior Associate to provide agricultural and socio-economic support for the African continent.

Solomon Tiruneh Abebe joins AGD Consulting to lead and support new business development, agricultural economic evaluations and policy and social strategic advisement.

Senior Associate – Solomon Tiruneh

“AGD Consulting recognizes the opportunity and need for agricultural and social development support within Africa,” says Michael DeSa, AGD Consulting’s Founder/Managing Director. “Solomon brings a unique and proven set of skills necessary to support social development initiatives within the continent. His agricultural economics background ideally equip him to advise companies and investors as to the feasibility and potential of agricultural opportunities throughout the region.”

As a Senior Associate and Project Manager, Solomon will lead business and social development projects. His strong country-specific expertise and socio-economic experience with large NGOs and multi-nationals including USAID, FAO and the World Bank will be invaluable to clients seeking to navigate the African agricultural and business landscape. Solomon has spent more than 12 years working in research and consultancy in agriculture, natural resource management, social studies and other cross-cutting issues as a lead researcher, M&E expert, and development practitioner internationally.

Prior to joining AGD Consulting, Solomon served in a variety of associative and consultative capacities within Zambia, Ethiopia, Kenya, Jordan, and Switzerland specifically. Solomon has worked on behalf of organizations like the Department for International Development, Swiss Development Cooperative, University of Oxford and the International Centre for Agricultural Research in Dry Land Areas. Solomon is fluent in English and Amharic, married with two young children, and currently resides in Ethiopia.

Solomon can be reached at solomon@desaconsultingllc.com.

Categories
Uncategorized

Variable Rate Technology – Here to Stay or Gone Tomorrow?

Our most recent contributed content article for Global AgInvesting’s AgTech Intel Newsletter. A concise, to-the-point commentary piece on Variable Rate Technology (VRT), adoption challenges, and what the future may hold. Many thanks to George Varvarelis and the Augmenta team for co-authoring this article and continuing to lead innovation in the sector. If you’re in California for the World Ag Expo this week, stop by Building C, Booth 3830 to visit with the team.

By Michael DeSa of AGD Consulting and George Varvarelis of Augmenta

Imagine you’re at the county fair with your date, casually strolling the grounds, watching ring toss games and listening to the joyful screams from the kids on the ferris wheel. Inevitably, you stumble across the fortune tellers and palm readers. Some people are passionate professors of this craft, while others are strict non-believers. Most, however, are willing to try it out of sheer curiosity, so long as it’s not too expensive. The adoption of Variable Rate Technology (VRT) — an application allowing farmers to apply different rates of crop inputs at each location across their fields — appears to have evolved in a similar fashion; some being true believers, but most only willing to put their toes in the water. We’ll take a deeper dive into VR tech, the headwinds facing a more widespread adoption, and what the future may hold.

What Problem is VRT Trying to Solve?

One of the indisputable facts we’ve learned in the last 15 to 20 years is that field variability is a real thing. Every farmer’s field has different agronomic needs, weather patterns, and soil profiles. As a result of this field variability, most farmers suffer some form of loss due to underperforming crops and overspend in inputs. VRT describes any technology that enables producers to vary the rate of crop inputs using a combination of variable-rate (VR) control systems with applications equipment, to apply inputs at a precise time and/or location to achieve site-specific application rates. However, if VRT was designed to solve a problem most of us agree exists, why have adoption rates been so slow?

VRT Adoption – How Does it Compare?

Like most things in agriculture, economic incentive and immediate need are two primary drivers for precision ag adoption, including VRT. By the end of 2017, for example, nearly 80 percent of U.S. ag retailers had adopted some form of GPS guidance[1]. Given that most U.S. farmers access new agtech through retailers, it’s safe to say guidance systems have been generally adopted by mechanized farmers worldwide. Why? Because the immediate benefits were very clear, the technology was easy to use, and the ROI was short and compelling. To the contrary, farmer up-take of VRT has been comparatively lower, rarely exceeding 20 percent anywhere in the world for cereals and oilseeds. These adoption rates indicate an “experimental” level of acceptance[2]. In spite of the widespread availability for VRT services indicated by Figure 1 and intense publicity and subsidies in some countries and states, VRT use by farmers has rarely broken this threshold.  

Figure 1 – Dealers Offerings of Precision Services, Variable Rate Technology

Source: Erickson et al., 2018, CropLife-Purdue Survey

Figure 2 – VRT Adoption Purposes by Crop 1998- 2013


Challenges with Current VRT

Many of these headwinds to VRT adoption stem from the inadequacies of the technology and/or methodology used. First, ag retailers who offer Variable Rate Application (VRA) mapping generally do so as an add-on service to soil sampling. The problem with this methodology is that soil sampling data used to create VR prescription maps does not accurately consider nitrogen levels throughout the farm. In fact, nitrogen in nitrate form is evaporated by the time many of these samples reach the lab.

Drones and satellites are also commonly used today to create NDVI maps from which variable rate prescription maps are derived. NDVI maps tell a farmer how much more near-infrared light is reflected compared to visible red light. When translated into actionable data, it can provide insight into a variety of agronomic issues, but doesn’t specifically pinpoint why the crop is stressed (poor nutrition, disease, lack of water, or fertilizer, etc.). Further, the quality of the NDVI map is directly related to the sensor’s altitude and resolution. Logistics, high technical skills requirements, data transmission latency, and weather limitations all impact the use of drones/satellites for VR prescription mapping. While the use of VRT on tractors to enable mechanized input applications is a well-developed landscape, their effectiveness is still limited by the quality of the NDVI sensor.

Finally, many prescription maps today rely on a combination of soil samples (often taken only once per every acre or two) and drone/satellite NDVI imagery to create accurate enough maps in which to base agronomic decisions. With nitrogen fertilization windows being narrow and unpredictable, neither of these solutions allow the grower to capitalize on these maps in real-time.

What Must Change?

In order for VRT to break through the 20 percent adoption ceiling, it must make economic sense for the farmer. It must consistently illustrate that it helps increase yields and reduce input costs, ideally in the double-digit range. It must be easy-to-use and compatible with existing GPS systems. It must eliminate the high cost of site-specific information requirements (soil sampling) and developing individual prescription maps. The technology must be scalable and customizable to read more than one crop type without complicated configuration or retrofitting. Higher resolution, camera-based systems utilizing computer vision and machine learning are likely steps in the right direction. The solution must be able to be applied in real-time, and for commodity growers, grain prices may also need to improve before many will consider adoption.

Finally, the cost of being wrong must be cushioned by incentives for early adopters. Trial lease periods with free support, integration at grower co-ops and ag retailer levels first, and economic incentives from the downstream use of farmer data are just a few examples. In order for this to work, the bold must be rewarded by early fortune.

Find out more about Augmenta at www.augmenta.ag

About the Authors:

Michael DeSa is the founder/managing director of AGD Consulting, a U.S.-based, strategic advisory and business development firm servicing the agricultural and resource sectors in emerging and OECD markets. Services include farmland and agribusiness due diligence, project origination, market assessment, and competitive analysis for precision ag technology and international project management. DeSa can be reached at michael@desaconsultingllc.com.

George Varvarelis is the founder/CEO of Augmenta, a precision agriculture technology company. Varvarelis was a Ph.D. candidate in computer and embedded systems engineering while managing his family farms before deciding to put his engineering expertise into action to create scalable solutions for large-scale farming. Augmenta’s mission is to connect the dots of the global agriculture ecosystem and to augment the capacity of the arable land. Varvarelis can be reached at george@augmenta.ag.


[1] Bruce Ericksonet, James Lowenberg-DeBoer, and Jeff Bradford. (Dec 2017).  2017 Precision Agriculture Dealership Survey. Retrieved from the Departments of Agricultural Economics and Agronomy, Purdue University. http://agribusiness.purdue.edu/files/file/croplife-purdue-2017-precision-dealer-survey-report.pdf

[2] Professor Lowenberg-DeBoer, James. “Economic Considerations for Agricultural Big Data.” PowerPoint, Identifying Obstacles to Applying Big Data in Agriculture Conference, Houston, TX USA, August 20-21 2018.

Categories
Uncategorized

AGD Article Named Top 5 Stories for 2018 – GAI News

Global AgInvesting‘s weekly GAI News recently announced its “Top 5 Stories for 2018”, of which the Brazilian piece we authored was the second-most read story last year! See the full list below:

Newly Launched Asset Manager Offers Unsolicited US$1.8B Cash Bid for GrainCorp (https://goo.gl/kUC1UM)

Brazilian Farmland: Is the Risk Worth the Reward? (https://goo.gl/9N62LU)

Expert Commentary: A Decade in the Farmland Asset Class Evolution (https://goo.gl/2VuUbZ)

Macquarie’s Latest Venture Viridis Ag Acquires First Farm (https://goo.gl/2fx1X6)

15 Minutes With… Deborah Perkins, Global Head of Food & Agribusiness at ING (https://goo.gl/FSSukS)

Categories
Uncategorized

Investing in Ukraine: Will Fortune Favor the Bold?

Ukraine’s agricultural production capability is often overshadowed by the country’s civil conflict and lack of business transparency. However, a closer look at this strategically-positioned agricultural powerhouse reveals there is ample opportunity for growth to meet the world’s increasing food requirements. Ukraine is the number two global leader in overall grain exports after the United States and takes the number three seat in corn exports.1 They are the number one producer of sunflower seeds and exporter of sunflower oil, reaching 1.16 billion tons of sunflower seeds produced in 2016/2017.2 Over 70 percent of the country’s total area is agricultural farmland, totaling more than 30 million hectares suitable for agricultural production.3 This level of production is accomplished on less than 10 percent of the total
agricultural farmland in the United States, due in large
part to the quality of soil. Ukraine boasts one of the
richest concentrations of fertile soil on the planet, with
over 30 percent of the world’s reserves of chornozem or
“black earth” lying within its borders. The soil contains
approximately seven to 15 percent organic matter
necessary for quality crop production compared to two to
eight percent in other parts of the world.4

Even with quality soils and ample arable
land, Ukraine is not producing anywhere near
its potential. According to Ukraine’s Deputy
Minister of Agrarian Policy and Food of Ukraine
for European Integration, Olga Trofimtseva, the
country harvested 66 million metric tons of
grain in 2016 and 62 million in 2017.5 She believes
this is far from the limit, commenting that Ukraine
could easily harvest 100 million metric tons in
the coming years, subject to the development
and use of new technology and land reforms.
She isn’t the only one who believes Ukraine is
operating at a production deficit. The Organization
for Economic Cooperation and Development
Food and Agriculture Organization’s Agricultural
Outlook for Ukraine projects Ukraine’s grain
export potential could reach 90 million metric
tons. Note that when the below graph was
produced in 2014, Ukraine had already exceeded
grain export projections for 2017 by nearly 20
million metric tons (see CHART 1).


If Ukraine could reach these production
levels, this would give them an exportable
surplus of approximately 50-60 million metric
tons, assuming 40-50 million for domestic
consumptions.6 An exportable surplus is an
indication of country’s ability to supply a lower
cost product to the global market, thereby
increasing their competitive advantage.
The ability of growers to keep production costs
low can have a significant impact on profitability
and growth potential. A direct comparison of
farmland prices in the Ukraine to other markets
on a cost per hectare basis is inconclusive due
to wide variations in farmland productivity
and land prices, therefore, land cost per unit of
production is a more meaningful comparison
metric. The utilization of a production-based
benchmark allows investors to compare land
values using different production characteristics.
The graph below shows costs of production
for wheat and corn in the Ukraine compared to
several other markets (see CHART 2).


Investing in farmland with low land costs per
unit of production can allow an investor to realize
greater capital gains through the application
of things like new technology and modernized
equipment, experienced management teams, and
to the extent possible in the Ukraine, economies
of scale. It is important to note, however, that this
metric does not take into account the logistical
costs/considerations of getting the commodity
from the farm gate to the marketplace.

Ukraine’s geographic positioning to key
European and Asian markets also provides
additional cost-saving advantages. The graph
below shows Ukraine’s advantageous positioning
to key export markets (see CHART 3).


Proximity to these markets helps keep
transportation costs low and also provides
steady demand for commodities as middle
classes in places like the EU and China
continue to grow. Finally, a large labor pool – 25
percent of the Ukrainian population is employed
in the agricultural sector7 – providing another
supporting parameter for low-cost
crop production.


High quality, naturally occurring soil – low-cost
per unit of production as a result of strategic
positioning to key markets and a large labor
pool – are all positive indicators of Ukraine’s
agricultural investment potential. The caveat is
that, because of the severe limitations to land
ownership by foreign investors in the Ukraine,
investors should examine opportunities outside
direct farmland investments that still capitalize on
the land’s productivity potential.


OPPORTUNITIES
As grain production forecasts predict a sizable
increase in output from Ukraine, investments will
need to be made into the country’s transportation
and storage infrastructure to support this
increased supply. Logistic costs for moving grain
from Ukrainian farms to the Black Sea ports are
still approximately 40 percent higher than cost
for comparable services in France and Germany,
and 30 percent higher than costs in the United
States.8 These high costs are often the result
of poor logistics, specifically outdated railway
transportation equipment, underutilization of
river transport, and insufficient storage capacity
leading to higher spoilage. As a result, farmers
receive lower shares of the market prices and
shoulder these logistical costs from their own
balance sheets. These losses in annual revenue
potential can range between US$600 million to
US$1.6 billion.9


CATCHING THE TRAIN
A review of the Ukraine railway system reveals
that currently 60 percent of grain volume in the
Ukraine is transported via rail. The country boasts
the 13th largest railway network in the world
and can easily absorb the increased production
forecasts with proper infrastructure development
and equipment improvements (see CHART 4)




For example, current rolling stock of
Ukrzaliznytsia (UZ), the state-owned Ukrainian
monopoly that controls the vast majority of
railroad transportation in the country, is outdated
and ill-equipped. A recent World Bank study
estimated that a US$64 million investment in
Ukraine’s railway infrastructure, including 8,500
grain hoppers, new wagons, and locomotives,
could yield an Estimated Rate of Return (ERR) of
21 percent.10


While transportation from storage to port is
primarily done by rail in the Ukraine, significant
investment is also needed to improve river
and barge infrastructure and deep water port
facilities. Only five percent of exported grain is
moved along Ukrainian rivers, representing a
formidably untapped opportunity to transport
bulk ag products reliably, efficiently, and at a
low cost, especially along the Dnipro River.
River transportation in the Ukraine is often
less expensive and more environmentally
efficient than railway transport, with unitary
transportation costs of three to 8.9 USD per ton
compared to 10.5 for rail and 16.4 for road.11 The
same World Bank study estimated a US$580
million investment could yield a 21 percent ERR.
This would include dredging the Dnipro River’s
shallow bottom to accommodate larger ships and
prevent freezing during peak production winter
months, lock passages, bridges, and port storage
infrastructure. This type of investment could also
lead to a capacity increase of five to six million
tons of grain annually by 2022 and a 30 percent
reduction in costs associated with road damages
by 2022.

Improvement to rail and river transportation
infrastructure will allow Ukrainian producers
to offer even lower cost per unit of production
to offtakers, but grain storage is yet another
key component of the value chain suitable
for foreign investment. Sufficient and quality
grain storage infrastructure will help Ukrainian
farmers minimize loss and store grain longer. In
2014, Ukraine had a grain harvest of nearly 64
million metric tons, however, existing certified
storage infrastructure allowed for immediate
storage of only 45 to 65 percent.12 Many existing
facilities are more than 50 years old while the
complementary infrastructure supporting drying,
loading/unloading, and testing operations are
energy-intensive and employ little to no recent
improvement from precision technology.13
According to the World Bank, a US$1.5 billion
investment into 6.4 million metric tons of new
elevator capacity could reduce grain loss by
15 percent per annum yield and return early
investors a 24 percent ERR. Without appropriate investment, poor logistics will become a bottleneck to sector development rather than a
vehicle of trade facilitation.


A Fluid Investment
Opportunities exist in the upstream portion of
the Ukrainian ag value chain as well, particularly
in irrigation infrastructure. During the Soviet
era, irrigation was widely used throughout the
country. At one point, irrigation infrastructure
grew by 100,000 hectares per year.14 While
much of this machinery is now dated, proper
maintenance and repurposing on the back of
investment dollars could revitalize millions of
hectares of existing infrastructure. At present,
most Ukrainian farmers use dryland farming
practices which place significant risk at the
mercy of Mother Nature (see CHART 5).


Irrigated land has the potential to produce two
to two-and-a-half times the yield compared to
traditional dryland farming, without the risk of
uncertain precipitation conditions. A recent State
of Nebraska irrigation study showed a yield of
4.7 million tons per acre of corn on irrigated land
compared to a yield of 1.8 million tons per acre
on dryland, resulting in a revenue growth of over
$240 more per irrigated acre. Under the right
structure and management team, this could be
a profitable way to participate in the forecasted
Ukrainian agricultural uplift.


Adding Value with Agtech
Finally, the application of precision technology
to Ukraine’s agricultural sector will further allow
producers to increase yield, reduce production
costs, and optimize input consumption without
the necessity for scale. There should be no doubt
now that agtech is a booming sector across
the globe. According to an August 2018 market
intelligence report released by BIS Research, the
global precision agriculture market is expected
to raise US$10.55 billion by 2025, increasing at a
CAGR of 13.7 percent from 2018 to 2025.15 With only
three to four percent of arable land in the Ukraine
under precision management, there is much
room for growth.16 Early movers to this space
who identify ways to apply precision technology
to Ukrainian farm operations, while limiting their
exposure to country risk, stand to do well.


One such area is soil erosion. According to the
World Bank, Ukraine loses about 50,000 hectares
of farmland every year from soil erosion and land
degradation.17 Groups like AgriEye, a Ukrainian
company founded in 2016, hope to cut this loss
in half through the application of drone imagery,
multispectral remote sensing, and open source
geospatial imaging data. AgriEye uses this
input data to create a precise field map of soil
composition, which it then pairs with algorithms
to analyze yield and provide prescriptive
recommendations on how to irrigate and fertilize.
While they charge for this service internationally,
it’s free to Ukrainian farmers. Other Ukrainian
firms like SmartFarming are applying data-driven
solutions to help Ukrainian farmers reduce
costs by as much as US$3,000 per hectare and
save their producers more than 10 percent of
inventories in a season through the re-equipment
of machinery.18 Associations and accelerators like
AgTech Ukraine, while only a few years old, are
beginning to draw attention to the importance of
technology in the sector.

Adding Value with Agtech
Finally, the application of precision technology
to Ukraine’s agricultural sector will further allow
producers to increase yield, reduce production
costs, and optimize input consumption without
the necessity for scale. There should be no doubt
now that agtech is a booming sector across
the globe. According to an August 2018 market
intelligence report released by BIS Research, the
global precision agriculture market is expected
to raise US$10.55 billion by 2025, increasing at a
CAGR of 13.7 percent from 2018 to 2025.15 With only
three to four percent of arable land in the Ukraine
under precision management, there is much
room for growth.16 Early movers to this space
who identify ways to apply precision technology
to Ukrainian farm operations, while limiting their
exposure to country risk, stand to do well.
One such area is soil erosion. According to the
World Bank, Ukraine loses about 50,000 hectares
of farmland every year from soil erosion and land
degradation.17 Groups like AgriEye, a Ukrainian
company founded in 2016, hope to cut this loss
in half through the application of drone imagery,
multispectral remote sensing, and open source
geospatial imaging data. AgriEye uses this
input data to create a precise field map of soil
composition, which it then pairs with algorithms
to analyze yield and provide prescriptive
recommendations on how to irrigate and fertilize.
While they charge for this service internationally,
it’s free to Ukrainian farmers. Other Ukrainian
firms like SmartFarming are applying data-driven
solutions to help Ukrainian farmers reduce
costs by as much as US$3,000 per hectare and
save their producers more than 10 percent of
inventories in a season through the re-equipment
of machinery.18 Associations and accelerators like
AgTech Ukraine, while only a few years old, are
beginning to draw attention to the importance of
technology in the sector.

RISK FACTORS
In spite of these opportunities, Ukraine is not
a simple place to invest. Perhaps the most
obvious challenge is the civil conflict, centered
in the eastern provinces and Crimea. Notable
conflict began in 2014 when then President Viktor
Yanukovych, a pro-Russian supporter, refused to
sign an association agreement with the European
Union (EU). Opposition groups to the president,
called Euromaidans, supported closer relations
with the EU and ousted Yanukovych through a
series of violent protests. Russia used this as
justification to annex Crimea. The local Ukrainian
government in Crimea, along with Donetsk and
Luhansk provinces, was expunged and while the
conflict has since quieted, it is far from over (see
CHART 6).


This unrest is affecting Ukrainian farmers on
many different fronts. First, the majority of
provinces under Ukrainian government control
have lost access to Crimea and several eastern
provinces and vice versa. If you’ll recall from
the soil map earlier, these eastern and southern
provinces were among the richest in “black earth”
soil and therefore, some of the most productive.
Secondly, as a result of the conflict, farmers in
these affected regions have not only lost access
to the Ukrainian domestic market, but also
internationally, and are finding it increasingly
difficult to access inputs like fertilizer and
seeds. Before the conflict, Russia was a primary
importer of Ukrainian commodities, especially
from the eastern regions. Now, trade between
these regions has all but ceased, putting further
stress on Ukrainian producers. Finally, according
to Raimund Jehle, FAO’s regional coordinator for
Europe, many producers in these highly-fertile
regions have turned to household production
instead to survive the turmoil, and have given
up attempting to sell their products domestically
or abroad.19 Investors in Ukraine’s agricultural
sector need to carefully examine how their capital
may be affected by the ongoing civil conflict
before deployment.


The land moratorium currently in place, which
dates back to the transition from communism
to capitalism, is another barrier to entry. When
the Soviet policy of collectivism in Ukraine
failed in the late 1920s due to drought and snow
levels that resulted in the death of more than six
million Ukrainians, ancestors of the victims were
awarded small parcels of land averaging four
acres each. Then in 2001, Ukraine’s government
passed a law prohibiting the sale or purchase
of these plots, a moratorium that is still in
effect today over 25 years later and has been
extended nine times already.20 Productivity in
these 27 million hectares of distributed land is
severely lagging as there is no incentive for local
producers to improve land quality because they
don’t actually own the land. The moratorium also
prevents them from making any change to the
land’s designating purpose, so transformation to
a higher-value crop in the absence of selling it is
also not an option. Farmers are permitted to lease
their land for as long as 49 years, but since all
adjacent landowners would also have to agree to
lease in order to achieve any semblance of scale,
this is not a viable opportunity. Supporters of the
ban argue that without it, foreign companies from
the EU or the United States would flood into the
region, stripping this land away from generations
of Ukrainian farmers for pennies and providing
it to land developers. Calls for reform are getting
louder as Ukraine’s agricultural productivity continues to lag its neighboring countries.21 Many institutional investors will continue to
watch these policies closely, but until they
change for the better will likely keep their capital
on the sidelines.


Finally, a lack of transparency coupled with a
tendency by the government to emphasis short term solutions rather than pursue long-term fixes are additional risk factors to be considered.
According to the 2017 Corruption Perceptions
Index compiled by Transparency International,
Ukraine ranked 130 out of 180 countries, placing
it in the bottom third of all countries evaluated.
While they took their first steps to fight corporate
secrecy back in 2017 when they agreed to
share data on who ultimately controls Ukrainian
companies, past events such as former President
Yanukovych’s ability to syphon off at least US$350
million of Ukrainian public funds for his personal
benefit, will be challenging to overlook going
forward.22 Even Ukraine’s own Deputy Minister
of Agrarian Policy Olga Trofimtseva admits that
the decision to cancel refunds on export VAT for
soybeans and rape seeds was based on an “ad
hoc policy, when a policy is not based on some
strategy or long-term vision, but a short-term
reaction to changes.”23 Yet another indicator of
the government’s struggles to deal with systemic
issues is the fact that in the Ukrainian agricultural
economy, the investment burden is carried
primarily by producers financing production
from their own revenues. A study conducted by
UkrAgroConsult in 2017 showed that the share
of agricultural producers’ own money in total
investment volume reached 70 percent in 2016,24
indicating that this method of self-financing from
producers’ own profits is nearly exhausted. For
comparison, the next highest source of capital
investment came from bank credit and local
budgets at only 7.1 percent of total volume.
Continued civil conflict in some of Ukraine’s
most fertile regions, the 20-year-old-plus land
moratorium, and a lack of transparency and
financing opportunities for producers will
continue to plague Ukraine agricultural
producers as they search for alternate sources of
investment capital.


FUTURE OUTLOOK
Ukraine’s growth potential as a low-cost,
strategically-positioned grain producer is
an opportunity that must be approached
cautiously and with the right structure. Direct
farmland ownership, at this stage, is not an
option; and while long-term land leasing is
possible, it exposes investors unnecessarily to
naked commodity and legislative risks. While
an increasing number of experts believe that
opening up Ukraine’s land market to foreign
investors will not only solve the problem of
limited access to financing but also provide
incentive for foreign capital to come in, it is
not likely to happen in the foreseeable future.
Therefore, investors seeking to capitalize on
Ukraine’s projected growth in grain production
should seek debt-based investments into parts
of the ag value chain like transportation/storage
infrastructure, irrigation, and precision technology
applications. Finding and building a relationship
with trusted partners who have boots-on-the ground experience and a proven track record are essential for success. It also may be prudent
to consider co-investments with groups like the
World Bank or other NGOs as a way to bolster
credibility and further protect an investor’s
assets. While fortune does favor the bold, in
Ukraine, those first steps must be calculated and
protected, if one chooses to step at all.

SOURCES
1. Ministry of Economic Development and Trade of Ukraine. (2014). INVEST Ukraine Open for U. Retrieved from https://mfa. gov.ua/mediafiles/sites/rei/files/MEDT_ Brochure_A4_View.pdf, pg. 6

2. Latifundist.com, Top Lead. (201). 2016/2017 Ukrainian Agri Business Infographic. Retrieved from https://ukraineinvest.com/wp-content/uploads/2017/12/theinfographics-report-ukrainian-agribusiness-
2017-eng.pdf, pg. 5.

3. Baker Tilly, Credit Agricole and AEQUO. “Agribusiness.” Your Investment Matters: Agribusiness. https://ukraineinvest.com. 2018. Web. 10 October 2018.

4. Ibid.

5. Makarevych, Myroslava. “Olga Trofimtseva Talks about Future of Agriculture in Ukraine.” https://destinations.com.ua/business/ trends-innovations/395-olga-trofimtsevatalks-about-future-of-agriculture-in ukraine, UA Destinations, 31 May 2018. Web. 8
October 2018.

6. Baker Tilly, Credit Agricole and AEQUO. “Agribusiness.” Your Investment Matters: Agribusiness.

7. Ibid.


9. Ibid.


10. Ibid.


11. Ibid.


12. Ministry of Economic Development and Trade of Ukraine. (2014). INVEST Ukraine Open for U. pg. 19


13. World Bank Group. August 2015. Shifting into Higher Gear: Recommendations for Improved Grain Logistics in Ukraine.


14. Baker Tilly, Credit Agricole and AEQUO. “Agribusiness.” Your Investment Matters: Agribusiness


15. Banga, Bhavya. “Global Precision Agriculture Market Anticipated to Reach $10.55 billion by 2025.” https://markets.businessinsider.com/
news/stocks/global-precision-agriculturemarket-anticipated-to-reach-10-55-billionby-2025-bis-research-report-1027473195, Markets Insider, 21 August 2018. Web. 14 October 2018.


16. Gaidai, Nick. “Hot Investment: Agribusiness in Ukraine?” http://whartonmagazine.com/blogs/hot-investment-agribusiness-inukraine/#sthash.sFhG83nv.InVF7Hxr.dpbs, Wharton Blog Network, 21 May 2018. Web. 11 October 2018.


17. Krasnikov, Denys. “How technology is changing Ukrainian agriculture for the better.” https://www.kyivpost.com/ technology/how-technology-is-changingukrainian-agriculture-for-better.html?cnreloaded=1, Kyiv Post, 28 June 2018. Web. 15 October 2018.


18. Belenkov, Artem. “Artem Belenkov about Ukrainian Agricultural Holdings.” https://smartfarming.ua/en-blog/rozvitokagtech-v-ukraini-skladno-ale-mozhlivo, SmartFarming, 11 July 2018. Web. 15 October
2018.

19. [Food and Agriculture Organization of the United Nations]. (16 October 2016). The future of agriculture in Ukraine. [Video File]. Retrieved from https://www.youtube.com/watch?v=fSQrAasTHNo.

20. Gomez, James M & Choursina, Kateryna. “Ukraine’s Ban on Selling Farmland Is Choking the Economy: Kiev keeps putting off land reforms, despite pressure from the IMF and investors.” https://www.bloomberg.
com/news/features/2018-01-02/ukraines-ban-on-selling-farmland-is-chokingthe-economy. Bloomberg Businessweek, 1 January 2018. Web. 11 October 2018.

21. Ibid.

22. Transparency International. “Ukraine Takes Important First Step Towards Ending Corporate Secrecy.” https://www.transparency.org/news/feature/ukraine_takes_important_first_step_towards_ending_corporate_secrecy, Transparency International, 1 June 2017. Web. 17 October2018.

23. Makarevych, Myroslava. “Olga Trofimtseva Talks about Future of Agriculture in Ukraine.” 31 May 2018. Web. 16 October 2018

24. UkrAgroConsult. “Amounts of investment in Ukraine’s agricultural sector.” http://www.blackseagrain.net/novosti/on-investmentin ukraine2019s-agriculture, UkrAgroConsult, 24 May 2017. Web. 9 October 2018.





Categories
Agricultural Investing

The Value Down Under – Investing In New Zealand & Australian Ag

Our more recent article published by Global AgInvesting. Read below or click here to review on their site. We’re especially excited about this article because it was featured along with other articles addressing investment opportunities in Australasian agriculture in Volume 5, Issue 3 of the GAI Gazette, distributed in conjunction with Global AgInvesting Asia 2018, held in Tokyo on 2-3 October 2018. 

The Value Down Under – Investing in New Zealand and Australian Ag

Limited government intervention, an ability to produce exportable surpluses, and low production costs have helped create goldilocks-like agricultural opportunities in Australia and New Zealand. Little to no uptick in political risk relative to other OECD countries and limited access to domestic capital creating arbitrage opportunities have helped form the pillars of a sound investment foundation. New Zealand is a transformative opportunity in the niche, high-yield specialty permanent crop space where value is extracted from new IP-protected varietals. Australia is an evergreen prospect in the farmland and animal protein sectors deriving its value from scalability and efficient operational and water management practices. Further priming the region for future efficiencies are advantages in logistics, compared to LatAm, the U.S., and Europe, as well as an ag culture focused on improving productivity through an active precision ag effort.

While challenges do exist, such as limited scalability in New Zealand, an over-dependency on a major regional trade partner, and water security in Australia, these risks can be managed through selective strategies and diversity within the sector. Barriers to foreign investment remain directed primarily against China and are relatively simple to overcome compared to other geographies. This article evaluates both countries’ relative value to other markets, investment opportunities, risk factors, and future outlook.

Strong Relative Value

The establishment of a National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index in Australia indicates a favorable long-term outlook for Australian farmland. The index was established in 2015, and while data points are still limited (12 quarterly data points and only 48 farms in the index), total annual returns for the last three years appear strong.

A direct comparison to the U.S. NCREIF index is difficult because of the difference in the quantity of data sets, differing asset appraisal timelines, and a lack of longevity in the Australian index. A re-index of the Australian and U.S. NCREIF Indices shows Australian farmland outperforming U.S. farmland with 10.5 percent higher cumulative total returns over a two-year period.1

S1-Chart2

A direct comparison of farmland prices in Australia/New Zealand to other OECD countries on a cost per hectare basis is not conclusive due to wide differences in farmland productivity and land price valuations, and therefore, land cost per unit of production is a more meaningful comparison metric. The utilization of a production-based benchmark allows investors to compare land values using different production characteristics. Using the long-term average for wheat yield as an example, the graph below illustrates relatively low land cost per unit of production for Australia when compared to other developed/OECD countries. Investing in farmland with low land cost per unit of production can allow an investor to realize greater capital gains through the application of more efficient management, farming practices, new technology, and higher operating returns. It’s important to note, however, that this metric does not take into account the logistical costs of getting the product from the farm gate to the market.

S1-Chart3

Agricultural government subsidies from a variety of developed and OECD countries were also compared against those in Australia/New Zealand. Lower, or non-existent subsidies, can force producers to be more efficient and yield-oriented if they know there is no government-supported safety net. This also prevents the unexpected removal of subsidies from disrupting an entire sector. The Producer Support Estimate (PSE) shows the lowest percentage of government subsidy funds provided to New Zealand and Australian farmers (0.9 percent and 2.0 percent, respectively) when compared to 11 other OECD countries.2

The ability of a country to produce a surplus of an exportable product is another important metric for evaluating competitiveness in the global market place. A large exportable surplus, often generated through higher yields and larger market share, indicates a country’s ability to supply a lower cost product to the global market. From 2005 to 2015, New Zealand went from accounting for 39 percent of the total global kiwifruit export market to accounting for over 50 percent in 2015. The nearest competitors, Italy and Chile, have remained relatively flat during the same period. Italy began at 24.4 percent and ended at 23.6 percent, while Chile began at 9.4 percent and ended at 11.6 percent over the same time period.3 The graph below highlights New Zealand’s total kiwifruit and apple yields compared to other global producers; illustrating their ability to create exportable surpluses.

S1-Chart4

S1-Chart5

Australian and New Zealand agriculture present a strong relative value compared to other developed agricultural markets. Appreciating farmland returns, low costs per unit of production, low government subsidies, and the ability to create large export surpluses are all positive indicators of the region’s agricultural investment potential.

Opportunities

A structural shift in ownership of farmland in Australia and New Zealand is creating a new demand for capital. Consolidation of smaller farms by larger operations is permitting older farmers to retire. This changing of hands is creating an increasing demand for capital in order to achieve critical mass and operational efficiencies.4 This section will highlight specific opportunities and trends in the agricultural markets as a result of these shifting conditions.

Australia

Agriculture has been one of the pillars supporting Australia’s economy, accounting for 12 percent of the nation’s GDP5, with the majority of all agricultural commodities produced in Australia sold to international markets. Due to the availability of arable land, investments in farmland assets and large-scale livestock operations are ideally suited.

Strong export markets and limited growth in global lamb production is expected to continue to drive strong prices for Australia’s lamb industry for the next several years. From 2009 to 2016, the value of Australia’s overall sheep meat export market grew by nearly 50 percent (in real terms), from US$1.5 billion to US$2.3 billion6, with lamb meat exports accounting for almost three-quarters of total sheep meat exports from Australia. Demand is expected to remain high, driven primarily by income growth in China and a strong market demand from the Middle East and the United States. Lamb export volumes to the U.S. grew by two percent in 2017 following an average annual growth rate for sheep meat of 11 percent over the previous five years.7 Exports to China grew 41 percent in 2017 alone. Supply is expected to remain muted as strong lamb prices create incentives for producers to limit flock growth in the short term. Strong demand from diversified markets and muted supply growth will continue to be positive for influencers for Australian lamb prices. These supply and demand conditions, coupled with the availability of scale and expert farm management organizations/practices in Australia, make for an attractive investment opportunity.

The current negative sentiment of Australian farmland by their own superannuation (SUPERS) funds is also creating an opportunity for outside investors to capitalize on rising farmland returns in the region. While Canadian, U.S. and British pension funds have been willing investors in Australian farmland for years, Australian SUPERS historically have been adverse to real assets, viewing farmland as a new asset class with varied returns. AustralianSuper, Australia’s largest non-profit SUPER, plus of number of other industry funds, quit the Sustainable Agriculture Fund (SAF) last year after years as key investors.8 The decision to sell by AgCap, the fund’s manager, was unanimous and came more than a year ago, before the fund announced a one-year total return of 10.6 percent (after fees) for the year 2016. AgCap’s investors cited mediocre returns and a lengthy time horizon (seven years). Whether this is just a missed opportunity by SAF investors or an outward sign of a skeptical sentiment towards farmland as an asset class on the part of the Australians, it has created an opportunity for international institutional investors to broaden their exposure to an asset class that is fundamentally strong.

New Zealand

This same structural shift in ownership of farmland is playing out in New Zealand, creating a new demand for capital in the permanent crop space. New kiwifruit, for example, were hit relatively hard by a 2010 Pseudomonas Syringae Actinidiae (PSA) outbreak, destroying a large portion of the countries’ green and gold kiwifruit supply. This forced many commercial growers to reexamine kiwifruit varieties and their resiliency to PSA. Zespri, the number one global exporter and number three global producer of kiwifruit9, developed a proprietary SunGold varietal, a G3 PSA bacteria-resistant cultivar, in response to the outbreak.

Zespri owns the license to this new G3 variety and plans to release 3,750 ha of SunGold licenses over the next five years, of which 250 hectares will be organic SunGold. While these licenses are available internationally, it should be noted that given New Zealand’s ideal growing climate, counter-seasonality to NORAM/Europe and overall kiwifruit market share, these G3 premiums will likely be the highest in New Zealand. Since November 2014, specialty farm management company, Craigmore Sustainables, has been transforming nearly 40 hectares of green kiwifruit orchards into the G3 variety with licenses purchased from Zespri. While the holding period for the Craigmore orchards has been short, the IRR achieved to date, Q1 2017 – 2018, has averaged 29.2 percent.

Industry consolidation, emerging IP-controlled varieties, and strong export market surplus capacity are creating similar opportunities in New Zealand’s apple market. New Zealand apples are the country’s second leading produce export, accounting for 25 percent of total produce exports, and the country is the number three apple exporter in the Southern Hemisphere.10 New Zealand has a strong record of new variety development – the Gala and Braeburn varieties now account for one-sixth of trees globally (outside China). When compared against key peer countries, New Zealand was the top average apple yielding country in 2014, in front of Chile and Italy with a growing market share percentage. From 2012 to 2015, as New Zealand began to bring new apple varietals online, their market share grew from 4.1 percent to 6.3 percent. China, the leader in global apple export value, lost market share during the same period from 15.5 percent to 15.0 percent.11

The new Dazzle apple variety was launched in December 2016 by Fruitcraft after being licensed the worldwide rights by Prevar Ltd.12 This was one of the biggest apple variety launches since Royal Gala decades ago. Fruitcraft is forecasting one million cartons will be exported from New Zealand by 2028, which could make it one of the country’s most popular apple varieties.

Investment strategies should be focused on transformative and new varietal opportunities within the New Zealand kiwifruit and apple sectors while prospects are best found in Australian farmland and certain animal protein sectors due to their scalability and expert land-use experience and practices. Further adoption of precision ag technology by both countries will continue to enhance on-farm productivity, leading to higher yields, lower production costs, and increased profitability.

Risk Factors

As with any investment opportunity, the risks need to be carefully measured against potential returns in order to meet specific investment criteria. The prospects for investing in scalability in New Zealand are limited as expansion of area devoted to key commodities is fixed. Therefore, opportunities for increasing scale in New Zealand will likely come in the form of land conversion, while Australia will center on improved efficiencies generated through technology adoption and consolidation. Increased scale in one crop type will likely come at the expense of another, as land is converted to more profitable products. Particularly in New Zealand, limited arable land constraints could lead to a lack of scale outside key export products, particularly in the permanent crop sectors.

The largest export markets for both New Zealand and Australia are predominantly Asian countries, in particular, China. Over 20 percent of New Zealand’s kiwifruit and apples, as well as 20-plus percent of Australia’s overall agricultural products, are destined for China. This heavy reliance on a single trade partner can create an overexposure risk. High levels of Chinese debt continue to add to the uncertainty in the country’s long-term economic strength. With China such a large importer of Australian and New Zealand agricultural commodities, their increasing debt levels13, and other economic challenges bring a sense of uncertainty to their long-term growth potential. While diversity within the Australian livestock markets along with a growing demand from the Chinese middle class both serve as counter-balances, investors need to weigh this potential risk against proposed gains.

S1-Chart6

Many of the opportunities in Australia center on farmland assets, therefore, the regulations of owning Australian farmland as a foreign investor need to be considered. Under the Foreign Acquisitions and Takeover Acts 1975 (FATA), investment in agricultural land by foreign persons requires prior approval by Australia’s Foreign Investment Review Board (FIRB) where: the investor is a foreign government; or with non-government investors (other than Chile, New Zealand, Thailand, and the U.S.), the cumulative value of the foreign investor’s agricultural land holdings in Australia will be greater than AUD$15MM.14

The FIRB has a significant role in deciding to approve or disapprove a transaction, and with changes to these rules over the past two years and inconsistent determinations, this could lead to an increased sense of uncertainty among foreign investors. In 2016, Australia’s Federal Treasurer granted foreign owners of Cubbie Station (Chinese textile giant Shandong Ruyi) an extra three years to comply with the original conditions of the sale; to sell down its stake from 80 percent to 51 percent.15 Many Australians felt this decision to give Shandong more time was not in the best interest of the country and fought to stop it. This verdict came on the heels of another decision by the treasurer to stop two previous bids by other Chinese companies to buy Australia’s largest cattle company, S. Kidman and Co, citing it was “contrary to the national interest”. These decisions were seen by many as an inconsistent approach by the Australian government in determining foreign investment approval and could serve to bolster a reluctance by Australians and the international community to invest in farmland assets.

Finally, water rights in Australia don’t guarantee water availability. Australian farms used less water in 2015/16 than in the previous year; partly because there was less water to use.16 A generally dryer year reduced water allocation as well as water availability in on-farm dams and tanks. The biggest decrease was in New South Wales (NSW), where the number of irrigating businesses dropped 21 percent. The Agricultural Census attributed this decrease to a decision by more NSW irrigators in the Murray-Darling water network to trade their water allocation, instead of using it to grow a crop. The Murray-Darling Basin accounted for 57 percent of all water used for irrigation in 2015/16.17 This high dependency on the Murray-Darling water network exposes farmland investors to high levels of risk concentration. As rules and water values vary widely between rivers and regions, the key is to understand this variability, quantify it, then value it.

The limited opportunities for scale, heavy reliance on China as a major trading partner, uncertain foreign investor regulations, and challenging water situation are all risk factors that need to be considered.

S1-MAP

Future Outlook

Investors should strive for a balanced approach between creating efficiencies and scale in Australian farmland while capitalizing on niche, high-yielding permanent crops in New Zealand. Consolidation at all levels of the value chain will continue to drive overall efficiency and management. The growing middle class demand from the Asia-Pacific region will be a positive trend for the region’s exporters, but will need to be a measured approach from investors due Australia/New Zealand’s high dependency on a major trading partner. Both countries will continue to adopt technology-enabled alternatives to increase yields and manage water challenges.

It is realistic to assume agriculture is moving into a phase where productivity growth will be driven by the more efficient use of existing land, inputs, and water. Therefore, future return potential will rest with technology-enabled improvements in per-hectare production, reductions in unit production costs, and creative solutions to waste management. Growth will need to be supported by effective R&D and the development of new pathways for the commercialization of new varietals. This will all need to occur against a background of a changing climate and varying input costs.

ABOUT THE AUTHOR

Michael DeSa is the founder/managing director of AGD Consulting, a U.S.-based, strategic advisory and business development firm servicing the agricultural and resource sectors in emerging and OECD markets. His agricultural engineering background, 10- years of leadership and project management experience with the U.S. Marine Corps, and extensive travels and investment experience in emerging market countries make him uniquely qualified to counsel companies and investors throughout the region. Services include farmland and agribusiness due diligence, project origination, market assessment, and competitive analysis for precision ag technology and international project management. DeSa can be reached at michael@desaconsultingllc.com.

 

Sources

1. 2016 and 2017 Australian and United States National Council of Real Estate Investment Fiduciaries (NCREIF) Indexes↩

2. Organization for Economic Co-operation and Development (OECD). “Producer and Consumer Support Estimates database.” 2016. http://www.oecd.org/tad/agricultural-policies/producerandconsumersupportestimatesdatabase.htm↩

3. Coriolis, New Zealand Ministry of Business Innovation & Employment, New Zealand Trade & Enterprise and Ministry of Primary Industries. “The Investor’s Guide to the New Zealand Produce Industry 2017 – Part of the New Zealand Food & Beverage Information Project, FINAL REPORT.” (v2.01; June 2017): 6. Web. 21 March 2018↩

4. FarmInvest Australia. Invest in Australian Agriculture. 2015. http://farminvestaustralia.com.au/invest-in-australian-agriculture/↩

5. Chepkemoi, Joyce. World Atlas – Top 10 Agricultural Exports of Australia. 25 April 2017. https://www.worldatlas.com/articles/top-10-agricultural-exports-of-australia.html↩

6. Food Innovation Australia Limited, “Australia’s recent meat export performance.”10 August 2017. https://fial.com.au/australia-meat-export-performance↩

7. RaboResearch Food & Agribusiness. “Rabbobank Australia Agribusiness Outlook 2018.” 16-17. Web. 20 April 2018.↩

8. Hemphill, Peter. The Weekly Times. “Farming investment: Australian superannuation funds pulling out support.” 23 March 2017. https://www.weeklytimesnow.com.au/agriblusiness/decisionag/farming-investment-australian-superannuation-funds-pulling-out-support/news-story/31a1986bd6cedcbacce9f8669b75160e?nk=583a6e0595cf590e3d47fba9f5e7e20b-1520876030↩

9. Coriolis, New Zealand Ministry of Business Innovation & Employment, New Zealand Trade & Enterprise and Ministry of Primary Industries. “The Investor’s Guide to the New Zealand Produce Industry 2017 – Part of the New Zealand Food & Beverage Information Project, FINAL REPORT.” (v2.01;June 2017): 44. Web. 7-22 March 2018↩

10. Ibid. 44. Web. 26 March 2018↩

11. Ibid. 36. Web. 13 April 2018.↩

12. O’Connell, Tim. NZFarmer.co.nz. “Dazzle apple variety launched after twenty-year development.” 21 December 2016. https://www.stuff.co.nz/business/farming/87775089/dazzle-apple-variety-launched-after-twentyyear-development↩

13. Ibid.↩

14. Johns, Steve. Lexology. “Changes to FIRB laws make it harder for foreign investors to buy agricultural land in Australia.” 12 February 2018. https://www.lexology.com/library/detail.aspx?g=f689b841-3eea-4cb2-8a67-e3793ce688b7↩

15. ABC Rural News. “Cubbie Station Ownership Changes.” 21 June 2016. http://www.abc.net.au/news/rural/rural-news/2016-06-21/cubbie-ownership-changes/7517058↩

16. Vidot, Anna. ABC Rural News. “Farmers getting older as latest survey reveals average age is 56.” 6 July 2017. http://www.abc.net.au/news/rural/2017-07-07/whos-farming-australia-abs-agricultural-census-2015-16/8686750↩

17. Ibid.↩

Categories
Agricultural Investing Brazil farmland crops Investing Latin America relations market research

Brazilian Farmland – Is the Risk Worth the Reward?

Brazilian Farmland – Is the Risk Worth the Reward?

By Michael DeSa, Founder of AGD Consulting, and Monica Ganley, Principal at Quarterra

Click here to view the article on Global AgInvesting’s website

In recent years, Brazil has solidified its role as a global agricultural powerhouse. It has become the world’s largest exporter of soybeans, coffee, and sugar, as well as the second largest overall food producer on the planet. Over the past 15 years, Brazil has increased agricultural production by 156 percent with overall Gross Domestic Product (GDP) from agriculture reaching an all-time high in the first quarter of 2017.1 The agricultural sector as a whole accounts for nearly 6 percent of Brazil’s total GDP and employs nearly 16 percent of their total labor force.2 It is also the only sector that has continued to grow despite the current recession.3

Brazilian GDP from Agriculture

Is this enough, however, to draw investors into a country and an economy in the midst of economic and political discourse? The economic crisis, which began in early 2015, coupled with the ongoing political turmoil, have forced Brazil into difficult times. In 2015 and 2016 Brazil’s GDP declined – the first time since 1931 that the country’s GDP has fallen for two consecutive years.

Brazil's Struggling Economy

Figure 1: Brazil’s GDP (2010 – 2016)

However, the World Bank expects Brazil to slowly emerge from the recession by the end of 2017; restoring investor confidence and recovering lost ground could take much longer.

Brazilian Farmland – Is it Still for Sale?

While Brazil has begun in earnest to develop its frontier farming regions, there still remains millions of hectares left to be developed. Brazil’s total arable land area nears 600 million acres with only 170 million acres presently cultivated. One side of this coin seems to indicate that there is more than ample room for the development of viable agricultural land to meet a growing demand. With the world’s population expected to reach nearly 10 billion people by 2050, Brazil’s millions of hectares of undeveloped land could become the southern hemisphere’s next bread basket.

Farmland prices are also an attractive part of this equation, and is the primary reason for foreign investment by groups such as the Brazil Farmland Development Fund. According to Matthew Kruse, President of the fund, their land appreciated at nearly 3x within a ten-year timeframe in their previous investment.  According to Kruse, “we can purchase land at less than U$1,000 per acre.  That is a fraction of comparable land costs in parts of the Midwestern United States.  We are confident that we are purchasing land with the same productivity potential but at one-tenth the cost.” Given that the average price for an acre of U.S. farmland is US$7,183, according to the 2016 Iowa Land Value Survey Results, farmland in Brazil is presently some of the most affordable in the world.

World Farmland Prices Per Acre

The other side of the coin begs the question – if land is so plentiful and affordable, and it’s the only sector in Brazil’s economy that is presently growing, why hasn’t this development happened yet?

Financing in Brazil is neither common nor readily available, thereby limiting the average Brazilian’s ability to purchase and develop raw land. There are no government subsidies for agriculture in Brazil either. Land development can be very expensive, requiring either independent wealth, foreign investment, or debt financing to accomplish, the latter of which is largely not an option. Wealthy Brazilians do not account for a sizable enough population to make a substantial impact in development statistics.

These factors have resulted in a much smaller pool of available capital capable of developing Brazilian farmland, leaving foreign investment as a significant source of land development capital in Brazil. This pool of capital has been growing during the last couple of years, making Brazil the world’s eighth largest destination for Foreign Direct Investment (FDI) in 2015,4 and could indicate that investors are again ready to take the plunge.

In spite of a growing agricultural sector, attractive farmland prices and increasing foreign investment flowing into the sector, the decision to invest in Brazilian farmland is still very much a risk versus reward consideration.

Understanding the Risks

While Brazil offers a compelling opportunity for agricultural investors, operating within the country carries unique challenges. To be successful, investors must be cognizant of these risks and become either comfortable with the potential impacts, or confident that they have a robust mitigation strategy in place. Although agricultural investments worldwide are subject to volatility stemming from a variety of sources, including weather and fickle commodity markets, investments in Brazil are subject to unique idiosyncratic risk as well, particularly due to the political environment, foreign exchange fluctuations, and liquidity issues.

Brazil’s chaotic political machine has been thrust into the international spotlight repeatedly in recent years as widespread corruption scandals have led to the indictment of one former president, the impeachment of another, and have left the current president with dismal approval ratings. Just a decade ago, Brazil was the darling of Latin America, posting GDP growth that frequently topped 5 percent. However, the prevailing concern, given the country’s poor economic performance during the last couple of years, is that these ongoing political scandals will inhibit the country’s recovery, thus impacting investment performance.5

In addition to impeding overall economic performance, an unstable political system can introduce additional risks that must be considered with any potential investment in Brazil. One poignant example is the regulation of foreign land ownership – an issue that carries particular socioeconomic sensitivities throughout resource-rich Latin America. In 2010, over concerns that land purchases by international investors were leading to disproportionate foreign control of Brazil’s agricultural resources, then President Luiz Ignacio Lula da Silva restricted purchases of farmland by foreigners. This move resulted in the area of agricultural land bought or leased by foreigners not being able to account for more than 25 percent of the overall land area in a given municipal district, according to the National Land Reform and Settlement Institute (INCRA). Additionally, no more than 10 percent of agricultural land in any given district may be owned or leased by foreign nationals from the same country.6

While the rules still allowed access after clearing a number of bureaucratic hurdles, this greatly increased transaction costs associated with these investments. Although these rules have since been adjusted, smart investment managers have developed ways to overcome these hurdles, such as the Brazil Farmland Development Fund (www.brazilfarmlandfund.com), who have developed a strategy to allow for foreign investment into Brazilian farmland. However, the political risk here still goes to the heart of the viability of these investments. If the political winds shift, it could affect a factor as fundamental as an investor’s legal claim to their asset.

Political risk also can manifest at a more granular level. Many of Brazil’s institutions are weak by Western standards and it is no secret corruption exists in many corners of the country. For a reminder, one needs to look no further than the ‘Weak Flesh’ sting that devastated the country’s meat packing industry in March 2017. This police investigation into the industry found widespread food safety offenses and bribery, resulting in the indictment of 60 individuals and the loss of an estimated $1.5 billion USD in export revenue for the beef and poultry sectors.7 Understanding that these risks are pervasive and having the ability to build operational mechanisms to prevent them where possible, and implement strategies to identify and address them where not, will be critical for investor success in Brazil.

Closely tied to political and economic evolution, and a critical factor in calculating investor returns, is the value of the Brazilian real. The real, as we know it today, was introduced in the mid 1990s and since then has fluctuated with the fiscal and monetary policies of the government.

Real Value (1997 - 2016)

While the currency had been experiencing a period of relative strength in late 2016, the resurgent corruption issues led to its rapid devaluation in June 2017.

Currency movements can impact investments in a number of ways, which can be either favorable or unfavorable to investors. Most obviously is that the relationship between the real and an investor’s base currency can influence the value of an investment. Currency risk comes into play when its change affects the underlying price of the asset in the period between the initiation and the retirement of the investment.

Currency risk plays another role, especially with respect to agricultural investments. In many cases agricultural investments are attractive, not only for the underlying asset, but also for the operating income that the asset creates. For example, in the case of a farm that produces soybeans, not only is the value of underlying farmland important, but also the value of the annual soybean crop. In this case, the value of the Brazilian real has an important impact on the value of the annual soybean crop. Since many agricultural goods are traded on global markets, they are denominated in U.S. dollars. As a result, a weak Brazilian real will encourage additional export demand as the crop will be artificially inexpensive in global terms. A strong real will have the opposite effect. Depending on the nature of their investment, investors may be able to manage some currency risk using financial tools such as those available through futures markets.

While many investors who choose agricultural investments are looking for long-term opportunities, sooner or later they may want to exit the investment. At this point, liquidity concerns with farmland assets can come into play. An asset is only worth as much as someone is willing to pay for it, and particularly in the case of larger farms, the pool of potential investors may be limited. To limit the impact of this risk, investors will be wise to maintain the value of their investment by performing necessary maintenance and making improvements to protect the operation. In addition, for an investor with flexibility of timing, staying close to the market can help identify the ideal moment to sell.

Is Now the Time?

The decision to invest in Brazil’s agricultural sector requires investors to strike a balance between opportunity and risk. While Brazilian farmland prices are more attractive now than they’ve been in years, owning land as a foreign investor in Brazil is still difficult and highly regulated. The agricultural sector as a whole has seen continued growth in spite of an economic downturn, but a continued slide toward slower growth or further political turmoil will inevitably begin to affect the sector. There are currency factors at play that can be either a hindrance or a help, depending on your base currency and the type of investment. For every positive, there is a direct counter-point that must be considered.

The rewards are promising for bold, first movers, but every investor must carefully weigh each risk before jumping into the murky agricultural investment waters of Brazil.

ABOUT THE AUTHORS:

Michael DeSa is the founder and CEO of AGD Consulting, a U.S.-based, veteran-owned firm offering strategic advisory services and customized due diligence trips for investors seeking exposure to Latin American agriculture. DeSa is an experienced LatAm land owner, former Marine Corps Officer, and family farmer. He has years of technical management experience with the Marine Corps from his assignments in Djibouti, Jordan, Afghanistan, and throughout Latin America. DeSa can be reached at michael@desaconsultingllc.com.

Monica Ganley is the principal at Quarterra, a boutique consulting firm offering international strategic planning, research and business development services to organizations and individuals in the agriculture and food space. Ganley is passionate about the food and agricultural industries and has pursued a dynamic career with experiences ranging from agricultural production to consumer products spanning many geographies. She holds an MBA from the University of Chicago Booth School of Business and currently resides in Buenos Aires. Ganley can be reached at monica.ganley@quarterra.com.

 

SOURCES:

1Yara International. “Agriculture in Brazil – Vast Resources.” YouTube. 13 June 2014. 28 August 2017. https://www.youtube.com/watch?v=KlI2JwhI1JU.

2World Bank. “Global Economic Prospects – A Fragile Recovery.” World Bank. June 2017. 28 August 2017.

3“Brazil Farmland Development Fund Pitchbook, (www.brazilfarmlandfund.com) 01 August 2017.

4Export.gov. “Brazil – 1- Openness to and Restriction on Foreign Investment.” State Department’s Office of Investment Affairs’ Investment Climate Statement. 31 July 2017. https://www.export.gov/article?id=Brazil-openness-to-foreign-investment. 28 August 2017.

5“How to Cope with Brazil’s Political Crisis.” The Economist. 25 May 2017.

6Ibid.
7Welshans, Krissa. “JBS SA Resuming Operations as 60 Indicted in Brazilian Meat Scandal.” Feedstuffs. 21 Apr 2017.

 

 

Categories
Agricultural Investing biotechnology Latin America relations market research

AgriThority® Grows Strategic Services with Experienced Project Manager

Pleased to announce that I am now formally an associate with AgriThority. Excited to be part of such a respected and well recognized team! Check out the press release below:

————————————————————————————————————–

AgriThority®, an agricultural science consultancy focused on accelerating new technologies to commercialization in markets around the world, welcomes Associate Michael DeSa to expand strategic and product development services.

DeSa will lead account and project management activities in North America and Latin America, with strategic advisory services for customized investor initiatives. His leadership and agricultural investment experience is an asset to clients as they navigate the economic aspects of developing and commercializing new technologies.  His activities will include project sourcing, risk mitigation, market/commodity analysis, boots-on-the ground due diligence, risk assessment/mitigation and land management. DeSa’s technical background, years of leadership/project management experience with the United States Marine Corps and extensive travels and investment experience throughout the Latin American region (Ecuador, Peru, Colombia, Chile, Argentina, Uruguay, Panama and Mexico) make him uniquely qualified to advise and guide investors and companies.

A seven-year veteran of the U. S. Marine Corps, DeSa is recognized for his leadership, management and training achievements in humanitarian and combat situations. While deployed to Afghanistan, then Captain DeSa served as the Chief of Staff for a 250-personnel organization, accounted for $35 million in itemized assets and supervised a geographical area of nearly 350 square kilometers.

“Mike is an initiative-based leader with a proven record directing large-scale operations to resolve complex issues. He knows how to maximize organizational performance that positively impacts the bottom line,” says Jerry Duff, AgriThority President and Founder. “His first-hand experience as an international agricultural land owner and foreign investor raises the level of strategic counsel he provides clients when navigating market access opportunities or building investor relationships.”

DeSa has guided investors in every aspect of foreign land investments from project sourcing and risk assessment/mitigation, to boots-on-the ground due diligence, overseas land management and ownership structuring.

DeSa graduated from Texas A&M with a Bachelor of Science in agricultural engineering.

Categories
Agricultural Investing asset class crops Investing market research potash

Is Potash Rising from the Investment Ashes?

Our most recent article for Global AgInvesting. Enjoy an abbreviated version of the article below. You can find the full article here

As always, don’t hesitate to contact us if you can help.

Best Wishes,

Michael

————————-

Potash — it’s a key component to feeding the world’s growing population, yet many don’t even understand what it is or why it is important. In the broadest sense, potash refers to a variety of mined and manufactured salts that contain potassium in water-soluble form. Before the industrial era, ash burners (workers who collected or produced wood ash) would soak wood ash in water, then evaporate the water from the mixture in large iron pots leaving behind a concentrated, white residue called pot ash. The name pot ash literally means plant ashes soaked in water in a pot.

Today, potash is more widely associated with naturally occurring potassium salts. Coincidentally, the name potassium comes from the word potash. Global potash production capacity was approximately 51 million metric tons in 2016, with the majority of it used in fertilizers. These fertilizer applications constitute the single largest industrial use of the potassium element in the world, making it an invaluable and irreplaceable part of feeding the world’s growing population, which grows by 80 million people every year – a number equal to the population of Turkey, according to the UN.

The potassium in potash fertilizer is used to encourage water retention in plants, increase yields, improve taste, and even help plants fight disease. Potassium is also an important mineral for keeping humans healthy and must be regularly replaced in our bodies by consuming potassium-rich foods. Since potassium doesn’t exist in elemental form in nature (it reacts violently with water), it has to be combined with other elements, either naturally or mechanically, before it can be used by plants. The naturally occurring union happens as a result of a very long geological process, so, in order to be applied as a fertilizer on our rapidly expanding fields, it has to be mined and processed.

Economic and middle class growth in places like Asia and Latin America have contributed greatly to the increased use of potash-based fertilizer. With increased cash in the pockets of middle class families, the more they’re willing to spend on more and higher quality meat and dairy products. This new and more expensive diet will require more acres to be planted, more fertilizer to be applied, and more animals to be fed – all good news for potash.

The industrial applications for potassium span a variety of necessary human functions. Potassium chloride is used in aluminum recycling, oil-well drilling fluids, snow and ice melting applications, and even in water softening. Potassium carbonate is used to produce animal feed supplements, cement, fire extinguishers, and is an integral component in beer brewing. These non-fertilizer uses historically account for about 15 percent of the annual potash consumption in the United States.

They Don’t Always See Eye to Eye

Most of the world’s potassium reserves were deposited as sea water in ancient inland oceans. After the water evaporated, the potassium salts crystallized into beds of potash ore. These crystallized beds formed thousands of feet below the surface area where most of the world’s potash is being mined today.

Canada possesses the world’s largest potash reserve and is also its largest producer, mining nearly 11.2 million metric tons in 2015. Following closely behind are Russia, Belarus, and Germany to round out the top four.

It should come as no surprise that these countries don’t always see eye to eye when it comes to potash production. In 2013, a trade pact between Russian and Belarusian producers collapsed when Russia pulled out of the agreement, claiming Belarus had been selling potash outside of their pact. Russian producers then quickly announced a policy of heavier production, sending the potash market into a slump from which it has yet to fully recover.

Recent talks between the two governments could signal that the cartel is ready to rise from the ashes once again. Belarusian president Alexander Lukashenko has been suggesting that an agreement between Belaruskali (Belarus’s main producer) and Russia-based Uralkali could allow them to divide up the markets again and agree on production limits. While this could be positive for the overall potash price and the market’s largest producers, the competition is not very happy.

With the state of the former cartel uncertain, competition was allowed to soar along with unregulated production. Many new producers from around the world began to build new mines and ramp up production. The German company, K+S AG, officially opened a new mine in May 2017 while Sirius Minerals is nearing a final plan to begin building the second deepest mine in Europe beneath a national park in Britain.

If cooperation is ultimately restored between Russia and Belarus, it could spell trouble for smaller potash producers. This could, however, be good news for the potash price, which is already up over 20 percent since last July, mostly on the rumor.

Meanwhile, Canada’s potash producers were off to an uncertain start to 2016 as well, with negotiations between key Chinese buyers and Canadian producers dragging on well past their usual wrap-up window of January-March. With market prices sitting around US$230/metric ton in July 2016, the Chinese continued to play hardball, asking for prices below US$200/metric ton. Low potash prices have instead placed the bargaining chips squarely in the hands of the world’s largest potash buyers (China and India included), forcing negotiation at every turn.

Are Low Prices a Cure of Low Potash Prices?

The potash market has had a strong dose of low prices over the last several years, but has this forced the supply and demand equation back into alignment? Is the market poised for a bull run or will the recent price uptick be just another dead cat bounce?

From the supply side, sustained low potash prices have forced many companies to trim excess fat, closing high cost operations and delaying new ones. Shutting down or delaying these operations has had a slight impact on the overall supply, but these production cuts are unlikely to result in a net shortage. Global potash production capacity is forecasted to reach 64.5 million metric tons by 2020, a 22 percent increase compared to 2016’s production capacity of 50.8 million metric tons. How does this stack up against global demand and consumption?

World potash consumption was approximately 35.4 million metric tons in 2016. A comparison with 2016’s production capacity highlights a 15.4 million metric ton supply surplus that isn’t likely to shrink significantly in the next five years. Global consumption is expected to rise (39.0 million metric tons by 2020), but if production capacity hits expectations, the supply surplus will nearly double during that time period.

Between 2015 and 2020, global potash supply is expected to grow by 17 percent with demand increasing by only 11 percent. Barring some major black swan event that could drastically affect global potash supply, this will be a hard gap to close. As the world’s largest potash producer, a look at Canada’s supply/demand forecasts says it all.

Foreign currency exchange rates also will play a role in the potash price of the future. The U.S. imports the majority of its potash from Canada and Russia in U.S. dollars, so a strong Canadian dollar and Russian ruble could support higher potash prices as outside producers attempt to maintain their margins. The Canadian dollar is up more than 10 percent since the start of the year while the Russian ruble has held steady.

However, the U.S. is not the only consumer of potash, and being forced to purchase this necessary component in U.S. dollars is severely affecting some agricultural powerhouses. Brazilian farmers, for example, have been the recipients of the wrong end of the currency exchange stick for years, being forced to convert their reals into dollars to purchase potash at nearly a three to one premium.

The combined effect of long-term low prices and strong demand may not be enough to overcome an increasing supply surplus and mixed buyer currency exchange rates. If the Russians and Belarusians never work collaboratively with potash production again – bringing production back under control – smaller producers will continue to drive new growth, only widening the gap between supply and demand. Meanwhile, China, India, and other major buyers will continue to play coy with their bottom line price, making is easier to negotiate a lower price and harder for markets to predict annual prices. While this is certainly an area to watch going forward, I wouldn’t bet the farm on it.

SOURCES:

  1. Heffer, Patrick and Prud’Homme, Michael. “Fertilizer Outlook 2016 – 2020.”  International Fertilizer Industry Association.  84th Annual IFA Annual Conference. 30 May 2016. Web. 20 August 2017. http://www.fertilizer.org/imis20/images/Library_Downloads/2016_IFa_Moscow_Summary.pdf?WebsiteKey=411e9724-4bda-422f-abfc-8152ed74f306&=404%3bhttp%3a%2f%2fwww.fertilizer.org%3a80%2fen%2fimages%2fLibrary_Downloads%2f2016_IFa_Moscow_Summary.pdf
  2. Ibid.