How to Thrive in Emerging Markets: Making industrial biotechnology work away from home

Why do hot US agricultural technologies fail to get the explosive growth they deserve? BEE offers a new tech-to-market approach.

They say that to be a great champion, you have to learn to win on the road.

So, it’s meaningful in that context when BEE’s Patrick McDonnell throws down the gauntlet to the US agricultural technology sector, which is enjoying an early-stage investment renaissance at the moment:

All the precision ag in the world is a waste of time in the developing world because those who sell have no incentive, little understanding, no credit, no real end-to-end business proposition. The farmer isn’t even able to get the right fertilizer and access to markets, what do you suppose their reaction to investing in precision ag is going to be? The existing company is focused on selling products that have high costs and high margins, one by one.

Why few care about the developing world, really

Why think about the developing world at all? Most tech firms hardly bother.

Because the emerging market farmer might have something like 1-4 acres. They have no motivation to change, no voice, no power, no money, no credit, no infrastructure of the types that are common in the developed world.  They’re distributed, hard to find, tough to reach, impossible to bring aboard.

Why disdain is a dangerous business practice

As BEE CEO Everett Stephens told The Digest:

“Right now, tech developers are asking farmers to adopt, in the US or EU, in the middle of a tight commodity squeeze. And how are you justifying a technology investment, which is a tough sell, when you are deploying technologies that generally makes sense only in developed markets, with developed infrastructure, where you’re going to get 3-5% productivity increases.”

Benson Hill Biosystems CEO Matt Crisp noted the same trend when he told The Digest, “[investors] like the ag vertical but stay close to home. So they go for precision ag and sensors and Big Data imagery and phenotyping. And there’s a recognition that with agriculture there’s still an inertia and you don’t get the rates of adoption. Because you’re convincing a farmer to add a line to the P&L at a time of low commodity prices. It’s a heck of a lot more difficult than telling farmers you have a better fertilizer or seed, something they are already investing in.”

Stephens lays down the obvious challenge. “Why not look to markets where there are 70-90% improvements available in productivity,” he told The Digest. “ Those are emerging markets. But you have deploy to a network, and the magic is going to be the network that you are creating, not just the technology which connects it.”

“US tech companies have done a great job so long as they focus successfully on the numbers,” he added. “Temperature, irrigation, yield, fertilizer, rain. Where they’ve done a poor job is developing relationships — focusing not only on data but on relationships and leveraging that.”

Will Farmers like it?

“What if you and a colleague were in agricultural engineering grad school,” said McDonnell, “and your professor gave you a semester long assignment to develop an ag technology platform for emerging markets. Your colleague spent the semester in Silicon Valley, and you spent the term working hand in hand with famers, in the field. At the end of the project you are going to have two vastly different designs.”

That’s a fair theory.

“You spent time with farmers and their practical grasp of farming,” McDonnell added. “And their tendency to invest in the practical as opposed to the trendy. You’d probably see what we see — the front end of an agtech bubble. Because what it takes to succeed, that deployment and scalability. How are people reaching farmers, developing solutions for them in an affordable way. Are they really providing for access to the common things that farmers need, regardless of where the farm is.”

Unlocking the emerging market potential

So, here’s the heart of it in one word: network. A network of growers, linked into a single system that confers the advantages of scale. A network that delivers meaningful technology. A network of best practices shared across the domain. And a network of services that turn developing world potential into developing world production at world-scale productivities.

Why a novel approach might work

The technologies that cater to emerging markets, the vast majority of technologies come from the US, but we don’t take into account what it takes to be successful in emerging markets, McDonnell said. “You have to link the emerging market potential with US investor and ag interest.”

Where’s the return fro the grower in the business as usual scenario? “There’s no link back to markets in a way that gives farmers a credit-worthy transaction at the end,” said Stephens. “So, we’re going to provide access to 1000, 1-4 acre farmers. Then, you have buying and selling power. Then you can connect to markets, and access market credit. That’s the point of a network. That’s what needs to be built.?

How do you do it — a technology system for developing markets

“What they need is nuts and bolts technology program to help them improve productivity at the farm level,” Stephens told The Digest.

“So, we’ve developed four distinct platforms in an agricultural complex, four distinct profit centers, but linked in a complete solution. Bee energy – our path to a new market, a new revenue source. There’s Bee AgLand – create investment pathways into emerging markets, so that we are feeding our energy machine. Then there’s – Bee ag tech – where we develop and deploy a technology platform that improves productivity and delivers a cost competitive product. Finally, there’s Bee Trading, where we offer the financial tools that make it a credit-worthy, thoroughly hedged system for producing food and energy.”

They’ll come on line together, although one can expect that trading will lag technology and initial production.

So, you use a biofuels machine to feed the ag machine. You improve productivity with a point — an additional market that you have created access to, through bioenergy.

The where and when

“We settled on Mexico,” Stephens said. It’s a good trade partner with US, with the potential to be a serious supplier of high volume in ultra low carbon energy. There’s the high margin potential, but Mexico is fraught with inefficiency. We aim to solve that through 1G projects that solve the challenges via an energy platform, that also produces some food components along the way.

“We see the same problems here as elsewhere in the emerging markets. Lack of access to modern credits and inputs. Knowledge transfer. But there’s the proximity to the established North American markets.”

The financial scope

Here’s the BEE overview:

Our energy project is $300 million, and we’ve had significant interest from groups like IDB etc on the debt side. And we’ve had significant interest on equity.  The world’s paying attention to energy reformers in Mexico. Right now, we’re finalizing engineering on our 1G project and we’ll then work on closing on equity for the refinery.

On the AgLand side, our series of funds in the $20M-$30M range allow us to purchase, manage and co-invest — and acquire existing farms in Mexico. Right now we’ve acquired 500 acres of cane with our first fund and are in the middle of acquiring another 4000, and we have up to 40,000 acres across all our partnerships. The total land with Bee would likely be around 60,000 acres.

For AgLand, we are creating a farming enterprise, and we build in financial restructuring options, in a 6-10 year time frame so that we can provide returns to investors. But we are creating an intact managed farming enterprise, as opposed to individual parcels.

The Bottom Line

It’s ambitious, for sure. Four distinct focal points. That’s a lot to focus on. But, the emphasis here isn’t so much on internal innovation as much as adaptation of winning ideas into a system for emerging markets. So, that’s less daunting in its own way, and certainly less time-consuming, than taking a novel technology to scale.

It’s about proven technologies for an unproven market — recognizing that the reason technologies have not been suitable for the market goes back to how they have been integrated into a system that provides returns to the grower through bioenergy’s markets — rather than providing another line on the P&L and an uncertain return.

It’s a system that justifies and can provide working capital and credit, which is a shambles in Mexico and elsewhere for anyone trying to bring forward bioenergy solutions in the emerging markets.