Editor’s Note: Kevin Zussman is an agtech investor with Cultivian Sandbox, a venture capital firm that invests in food & agriculture technology startups. Cultivian Sandbox is a joint venture between Cultivian Ventures and Sandbox Ventures, and is one of the most established agtech-focused venture capital firms. It’s currently investing out of Fund II, which closed on $115 million in February last year.
Here Kevin writes about the similarities of the crop protection and animal health industries, and how new technologies are disrupting these markets.
Protecting the crops and animals we cultivate to feed the world is no small feat. In fact, globally we spend $51 billion and $24 billion on crop protection and animal health products, respectively. Furthermore, investment in these sectors is poised to increase in anticipation of population growth and rising demand for protein. As a venture capitalist monitoring hundreds of technologies in crop protection and animal health, I noticed some parallels across the two sectors.
Firstly, both sectors are dominated by large players and continue to consolidate. Secondly, like the pharmaceutical industry, R&D in both sectors is expanding beyond synthetic chemistry to biologicals, biochemicals, and synthetic biology. Lastly, consumer demands for the reduction of chemical pesticides and antibiotics are rippling upstream through the value chain. Meeting these demands and supporting growth in a global population that desires a more protein-rich diet will require investment in a wide range of new technologies including microbiome, enhanced biologics, gene-editing, machine learning, sensors, automation and synthetic biology. As these technologies are commercialized, they are well-positioned to capture market share from existing products. Here’s a brief look at each.
The microbiome is a complex ecological community of billions of microorganisms interacting with each other to support life. As the time and cost of genome sequencing have decreased over the last several years, scientists have been able to study the symbiotic relationships of microbes in these ecological communities in plants, humans, and animals. In crops, beneficial microbes are improving nutrient uptake, nutrient fixation, and disease resistance capabilities. For example, AgBiome is developing a proprietary fungicide, Howler, which is a living microbe that is highly effective against a broad range of fungal and oomycete diseases. In animal health, beneficial microbes are reducing or replacing antibiotics. For example, EpiBiome offers phage therapy providing targeted deletion of specific strains within the microbiome. Its platform can produce phage cocktails to treat mastitis in cows.
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As discussed above, R&D in both sectors is expanding beyond synthetic chemistry to biologicals, biochemicals, and synthetic biology. In fact, Monsanto’s strong biologics portfolio, in addition to its expertise in seeds & traits and data science, was likely one of the drivers of the company’s pending acquisition by Bayer. Increasing R&D and M&A create opportunities for biologics startups in the crop protection and animal health sectors. Vestaron, for example, is developing bioinsecticides derived from naturally-occurring peptides. Instead of fighting pests with synthetic chemicals, the technology’s insect resistance derives from spider venom, which safely and effectively targets new metabolic pathways of pests. This venom is harmless to mammals (including humans), birds, fish, honeybees and other beneficial insects. In animal health, Prevtec Microbia is developing biologic products to increase animal production performance, including a range of vaccines for treating pigs against post-weaning diarrhea, to replace antibiotics.
Gene-editing uses “molecular scissors” to modify the properties of an organism to express a desired outcome using the organism’s own DNA without the need for foreign DNA. Tools such as CRISPR, TALEN, ZFN, and Meganucleases are rapidly reducing the time and cost of gene-editing. In crop protection, Caribou Biosciences has partnered with DuPont Pioneer in testing CRISPR to make drought-resistant corn. In animal health, Recombinetics is gene-editing livestock using TALEN and CRISPR to improve feed conversion, enhance milk production, boost fertility and increase environmental adaptation and disease resistance.
With advancements in sensors, robotics, machine learning and biotechnology, farmers can more precisely deliver pesticides to plants and antibiotics to animals. For example, Blue River Technology is developing “See & Spray” machines that use computer vision and machine learning for precision weed control. The company claims its technology can reduce the amount of chemicals used in agriculture by up to 90%. In animal health, Advanced Animal Diagnostics (AAD) has developed rapid, on-farm diagnostics to provide livestock producers with information they need to make informed management and treatment decisions. Through accurate, onsite disease detection, producers can provide more precise animal care. At the 2015 National Mastitis Council Annual meeting, AAD presented data that demonstrated a 47-59% reduction in antibiotics use, in addition to lower treatment costs and labor savings, for livestock producers.
The potential impact of indoor farming on conventional agriculture is similar to the potential impact of synthetic meat on conventional livestock production. Growing plants in controlled environments and culturing meat in a fermenter could drastically reduce or even obviate the need for chemical pesticides and antibiotics. Some examples of indoor farming companies include Freight Farms (container farms), and FarmedHere (vertical farm). Some examples of synthetic meat companies include Memphis Meats (pork and beef) and Perfect Day Foods (milk). While both technologies – indoor farming and synthetic meat production – hold great promise, adoption will ultimately be determined by the unit economics of production. Robotics, sensors, and automation are increasing the operational efficiency of indoor farming, but we are much higher on the cost curve for synthetic meat (although scientists are making progress since the first synthetic burger debuted in 2013, costing more than $300,000 – and that’s without cheese!).
Food for Thought
It’s not a question of if these technologies will capture value from industries historically dominated by synthetic chemistry-derived products but rather when and how much? Take the existing $51 billion crop protection chemical market for example. GMO crops – crops genetically engineered to include the benefits that chemicals bring to plant growth – represent a $20 billion industry. Without the commercialization of GMOs, crop protection chemicals could be a $71 billion industry today. Essentially, GMOs “stole” nearly 30% of the crop protection chemical market’s potential value. How much more of this market and the animal health market will be captured by new technologies such as microbiome, enhanced biologics, gene-editing, machine learning, sensors, automation and synthetic biology?