The Production Board (TPB), the investment company created by Climate Corp founder David Friedberg, is investing $100 million in Brazil’s largest ag retailer — Lavoro — in a special purpose acquisition corporation (SPAC) deal that will list Lavoro shares on the Nasdaq stock exchange.
São Paulo-based Lavoro will be the first US-listed “pure-play Latin American agricultural inputs retailer,” according to the two businesses.
The deal will invest some $225 million into Lavoro, as long as none of TPB Acquisition Corporation I’s shareholders redeem their Class A shares. It’s a break from other SPAC deals we’ve seen in the recent past that have focused on taking earlier stage businesses public; Lavoro is projected to have earnings of just under $200 million in 2022 and has around 53,000 farmer customers.
Although it does sell a portfolio of proprietary biological input products, Lavoro is not strictly an agtech company. Instead, TPB’s investment in Lavoro is a strategic play for its portfolio of assets, Friedberg told AFN.
“We were pretty clear when we set up the SPAC last year that it was specifically to be strategic for us and not just to get free founder shares and flip them,” he said. “We set out to find a business of scale in a market we knew well that we thought could benefit one or more of TPB’s assets.”
With a significant number of farmer clients in its network, and big potential to grow — Lavoro has just 10% market share in Brazil so far — Lavoro could become a distributor of the agtech products in TPB’s portfolio. Friedberg specifically mentioned the potential for soil microbiome-testing company Pattern Ag, which just raised a $35 million Series B. Lavoro could deploy Pattern Ag among its farmers to help them determine which products to apply and when.
But there are other companies in TPB’s portfolio that could also benefit from Lavoro’s reach into Brazil’s farmer base. While Friedberg didn’t call out any others specifically by name, the TPB portfolio also includes farm real estate marketplace Tillable, Stenon, another soil-health company, and stealth-mode plant genetics company Ohalo.
“Several of our businesses offer breakthrough technology to farmers that we believe could help drive significant value creation for Lavoro in the years ahead,” he noted on a recent investor relations call.
Friedberg told AFN that Brazil’s farmers are particularly advanced in their adoption of sustainable technologies like biological alternatives to synthetic inputs. The growth rate for biologics in the US is 1% compared to 26% in Brazil, he exampled, citing internal analysis and third party research, as well as USDA data from 2020.
So it’s fair to assume that biologics startups could receive a warmer reception from Brazilian farmers.
On the flip side, other agtech tools and services are far less entrenched in Brazil compared to the US, including digital ag and precision farming. Variable rate technology, which allows farmers to vary the type and amount of seed throughout a field, as well as precisely deliver fertilizers, is used on an impressive 78% of the US row crop farms but only on 10% of those in Brazil, for example. That creates a lot of room for growth in the region for digital agtech companies, and it also provides a way for TPB to add value to its new partner by helping to bring digital tools to its farmers.
“Brazilian retailers need additional, higher-value services models including soil testing, digital agronomy, and more,” Friedberg said.
Equipped with such tools and services, Latin America — the largest ag export region in the world — has a huge role to play in the future of our food system.
“The Latin American region represents the biggest opportunity to improve outcomes in terms of global calorie production and food security,” Friedberg said on the investor call.
That Friedberg, a veteran of the agtech space, feels he needs to make such a significant investment in an ag retailer speaks volumes to the challenges agtech entrepreneurs have faced in getting their innovations adopted. By partnering with Lavoro, TPB is hoping to drive more agtech adoption by leveraging the retailer’s influence on farmers.
“Ag retailers are the lynchpin of the industry and their agronomists spend a lot of time with farmers to help them get better outcomes in the field,” said Friedberg.