AgTech Business Model Innovation

Prime Future 78: The gate’s closing on 2021


With the gate rapidly swinging shut on 2021, here’s a look at the 5 most popular Prime Future editions this year:

(5) Egos & Incentives

Sometimes in the B2B world it’s easy to assume business decisions are driven solely by an ROI calculation, neatly tied with an Excel bow around a carefully curated formula. Or in the farm world, that every decision is justified by the output of the almighty shirt pocket calculator.

But in the real world, rarely can an ROI be fully captured numerically. Other factors impact decisions, including the psychological factors. I summarize this as Egos & Incentives.

Numerical ROI is necessary, but it’s not sufficient. At the margin, decisions are made based on their impact to our egos and incentives, including decisions about adopting new products, practices or ideas:

  • Incentives: How does this help me achieve what I’m incentivized to achieve, what I want to achieve?
  • Egos: How does this impact my view of myself and my place in the world, aka my ego?

We’re all out here responding to incentives, intentionally or unintentionally, doing the things to get the job, the bonus, the contract, the new customer, the promotion, the upsell, the renewal, the fill in the blank. And no surprise, we all have egos. Every last one of us, even those who say they don’t (perhaps especially those). The advertising industry is built around these fundamental truths of human nature.

And though it can be framed at an individual level, I believe it’s just as true at an organizational level because, of course, organizations are just big groups of individuals, still responding to egos and incentives.

The fundamental question to ask about new products is, where does value accrue and where is cost incurred?  If the packer accrues the value but the producer incurs the cost, well….that’s probably not going to go well because incentives are not aligned. The challenge of incentive alignment is why business model innovation can be just as high impact as tech innovation, if not more so.

Read more

(4) 💡3 reasons why dairy is the new beef

I started this series with an assumption that beef breeds create better beef carcasses than dairy breeds, or dairy x beef crossbreds. But here’s the surprising little secret: Beef x Dairy cross carcasses are as good or better than straight beef carcasses, or ‘natives’ as the people say.

The beef on dairy genetics jigsaw puzzle allows dairy producers to make decisions that get the best of beef and dairy breeds, to use ‘elite terminally focused genetics’ on the beef side that offset the dairy deficiencies.

Consistency is the name of the beef on dairy game. There are 3 elements of consistency that beef on dairy can offer to the beef value chain:

  • Year round continuous supply of calves to the feedyard, and then to the plant.
  • Genetic consistency given how narrow the genetic base of dairy cattle are since AI has been used so widely for so long.
  • Management consistency – while a beef animal could move through 2-3 sale barns between weaning and arriving at the feedyard, beef-dairy crosses are much less likely to go through a sale barn at all. They’re more likely to move in large lots from calf ranch to grow yard to feedyard, or directly from calf ranch to feedyard with consistent management in each phase.

Value is only value when it’s recognized by the buyer, in this case the packer. The value chasm is wide between a dairy animal and a beef animal, so the challenge for beef-dairy animals is to get them priced like a native. One producer said it this way, “packers are looking for a reason to price a beef-dairy cross like a dairy animal. You have to get the animals on a grid to get a base price where it should be.”

Capturing full value of the beef-dairy animal requires closely aligned partnerships all the way through the value chain to the packer. Aka aligned supply chains or coordinated supply chains.

Will it be surprising if Dairy Beef aligned supply chains grow and consolidate over time to find the efficiencies of scale without the capital intensity of true vertical integration? Not at all, that’s the nature of the agriculture game.

So, the 3 ideas that make beef-on-dairy shine:

  1. Beef x Dairy cross carcasses are as good or better than straight beef carcasses. (Think of it as having your cake and eating it too, but ya know, beef.)
  2. Beef-dairy crosses hold a consistency advantage over the traditional fragmented beef value chain.
  3. Beef-dairy cross value chains are forcing new partnerships in order to capture full value at the packer level.

Which is all fine and well, until we come back to the math of beef on dairy. If we are really only talking about 5M calves annually, out of 25 million total fed cattle, it raises the question of….so what?

What happens with 5M beef dairy crosses is interesting, but the really fun part will be seeing how the 5M could influence the 20M.

Read more

(3) Where’s the honeycrisp of the meat case?

I love wandering the aisles of a boujee grocery store. HEB, Whole Foods, Wegman’s…here for them all. Naturally a highlight is walking the produce aisle, letting your eyes take in the color explosion and the magic of plant genetic creativity brought to life: fizzy grapes, plucots, strawberries with more shelf life, sweet peppers with more flavor. Or, the crown jewel of the entire produce aisle: the Honeycrisp apple….pure magic. (I’m honestly not convinced they aren’t laced with something highly addictive.)

While plant based burgers aren’t my thing, objectively the product itself has completely transformed – and continues improving – as a result of innovation and R&D investment. Pat Brown, CEO of Impossible Foods, has been vocal about his strategy: bring about a world without livestock for meat by offering a plant based meat product to the world that meets consumer’s objectives on taste, cost, and nutrition so they do not have to make a values based tradeoff.

Which is a smart strategy! It’s the Tesla strategy. It’s ‘product first’ which inherently means high investment in product development.

Now let’s go to the retail fresh meat case where things have remained unchanged for, um, a while. That steak or pork chop or chicken breast is basically the same as it has been for the last 30 years. Why is that?

Most genetic progress in livestock centers around live performance, not end product outcomes.

We talk about genetics in terms of live performance metrics: Feed conversion. Growth rates. Calving ease. Hatchability. None of these are attributes you can see at the meat case.

Improved live performance is producer language, not meat case language.

We all know the amazing genetic progress over the last 50 years across livestock. Drastically improved feed conversions and growth rates have led to much lower production costs per pound of meat/poultry/milk. Great for producer, beneficial for consumer. I’m not taking anything away from the economic or environmental impact of that live progress….but I am saying, maybe it’s not enough?

Like it or not, we live in a what-have-you-done-for-me-lately world….so where are the product development innovations in meat that are noticeable to the consumer?

Where’s the meat case equivalent of the Honeycrisp apple?

Read more

(2) Lunatic farmers & velocity 🚀

The owner of a dairy was lamenting the rise of mega dairy systems and the risks they pose to small dairies like hers. How many cows does her dairy milk?


It’s a laughable story except that this dairy farmer & her family have grown the herd from a few hundred to several thousand over the course of their career. They’ve struggled and strived, taken risk after risk to get where they are. And yet in their minds, they still identify as small, scrappy, insurgent producers trying to survive.

There’s a special irony in the tendency among farmers to want to be bigger than neighboring operations. Sometimes bigger is better, sometimes smaller is better. But farm size is not the sole indicator of success and it definitely should not be the sole goal.

My hypothesis is that scale is a lagging indicator; velocity of business model innovation is the leading indicator of success.

The more commoditized the business, the stronger the pull to scale to reduce cost per unit.  The more value oriented the business, the stronger the pull to create incrementally more value per unit. There’s no clever analysis in those statements – those are natural forces that are a function of capitalism and a mature agriculture industry.

I think the successful producers (or packers or xyz business) who will thrive come-what-may are the ones who don’t think of their business based solely in terms of the output (corn, soy, weaned calves, whatever), but rather view their business as a business model that is is in continual refinement. They constantly ask what’s the process that most effectively generates the output. They think in systems that can optimized.

It seems that the really successful producers are the ones that have a vision of where they are going and how they will get there. There’s no doing it this way because that’s how we’ve done it, there’s no growth for the sake of the growth. There is only relentless learning and improvement.

The great producers realize that they aren’t selling just a commodity output, they are selling their business model.

Size is not the determinant of success. It’s about business discipline, management, relationships, processes, team, leadership, ambition. Successful producers have a vision for the future that they rally the team around, there’s an ever evolving plan for increasing revenue per unit produced or decreasing cost per unit produced, or both.

I recently asked a really large operator how they grew their business over the last 20 years from something not at all uncommon to something truly extraordinary. Did they have access to capital that others didn’t have? Some other advantage not available to similar producers? “I don’t think so, I think we just do things in a different way than most people are interested in doing. We do a lot of things that aren’t uncommon for most growing businesses, they are just uncommon for production ag businesses. We have a yearning for learning.”

Let’s call a spade a spade – capital is abundant and cheap in 2021, as it has been the last several years. Ideas are a dime a dozen. It’s everything else that separates the aggressive producers from the rest.

I’ve referenced Allen Nation’s book before, but germane to this conversation is a chapter on how farmers approach innovation with insights pulled from a 1962 book “Diffusion of Innovation” that studied extension efforts to get farmers to switch from open pollinated to hybrid corn post WW2.

“The innovative farmer is seen by his farm neighbors as a lunatic farmer. And a lunatic is not seen as a role model. As a result, what the innovator does on his/her farm is literally invisible to the neighbors. This is true even if the innovation is producing visible wealth. The normal reaction to unconventional success is the old it-might-work-there-but-not-here syndrome. The sad truth is that the vast majority of farmers prefer to fail conventionally rather than to succeed unconventionally. It is very, very difficult to be more innovative than the community in which you live.

Here’s the really germane part: “No farmer referenced what a farmer smaller in acreage than themselves was doing as applicable or worthy of study. Everyone preferred to learn from someone larger than themselves.” Isn’t that fascinating?

I’ve recently observed some markers that lunatic farmers seem to have that indicate high velocity of business model innovation:

  • They ask questions. A lot of questions. They find smart people to ask questions. They find smart people in non-traditional places to ask questions.
  • They read. Not just industry magazines, they look outside.
  • They have a sense that what they are saying sounds half crazy, dare I say they know it might make them sound like a lunatic farmer.
  • They surround themselves with high quality people, high quality teammates.
  • They have a system they are building/running, a flywheel they are looking to spin faster.
  • They have some insight that most of their peers don’t, some belief that isn’t widely held.
  • They know new practices & ideas take time to implement correctly, so they allow margin (time, energy, $) to experiment.

Read more

(1) The packers get Standard Oil’d. Then what?

If an oligopoly market is when 4 firms have 50+ percent share, then US beef, pork, and poultry are undeniable oligopolies. These concentrated markets aren’t uncommon though, we run into them from cereal (Kellogg’s, General Mills, Post, and Quaker) to cell phones (Apple, Samsung, Huawei).

But these examples are child’s play compared to the most extreme example of market power: the classic story of Standard Oil. In the 1880’s, John D. Rockefeller realized the oil business was a fantastic business except for the nagging issue of price volatility. So he found a solution to that little problem, by developing an effective monopoly through the Standard Oil trust. A Supreme Court ruling in 1911 forced the trust to split into 34 companies to increase market competition.

The current rally cry of many US producers is that the problem with the cattle business is concentration among the packers. This is not new; tale as old as time. But carry that rally cry out to the most extreme outcome of de-concentrating processing capacity….what does it really solve?

Just for fun, let’s say the DOJ goes full 1911 and ‘Standard Oils’ the meat industry.

Every plant becomes its own company.

The ‘Big 4’ become the ‘Midsize 22’.

Then what? Before we lock into any hypotheses about a re-fragmented meat industry, what was the result of busting the Standard Oil trust?

Would a Standard Oil’ing of meat packing be good for downstream players? Maybe, in the short run. Probably not in the long run.

Would a Standard Oil’ing of meat packing be good for upstream players? Maybe, in the short run.

But what’s not good for downstream players in the long run cannot be good for upstream players in the long run.

Hear me loud & clear that profitability at all stages of the value chain is the #1 foundation of a viable cattle industry. Increasing margin capture throughout the value chain is a good thing, a great thing. But is reducing packer power the panacea that people often describe it as? I may be wrong, but I just don’t think it is.

Maybe looking at impact of competition on pricing power & innovation is the wrong framework….maybe higher margins don’t lead to innovation, maybe innovation leads to higher margins.

Read more

Leave a Comment

Your email address will not be published.

You may also like


Prime Future 96: NFTs have entered the chat.


“Buy land. They aren’t making any more of it.”

It seems like every farm kid across the entire face of God’s green earth grew up hearing some variation on this idea. Farmland has historically appreciated ~12% annually.

While farmland has been a reliable investment class over time, many would say that’s true of the broader real estate market.

So this tweet caught my eye:

If you’ve never felt older than after reading that tweet, you are not alone.

What non-physical things are ‘young crypto investors’ investing in? The obvious is cryptocurrencies, but there are also DAOs (which we’ve briefly touched on) and NFTs.

“A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can…

View More Article
Blockchain Emerging Tech

Prime Future 79: Blockchain…all dressed up but where to go?


Technology only has a fighting chance in agriculture when it definitively improves producer outcomes🤑 and/or consumer outcomes😃. Tech for the sake of tech is a road to nowhere.

Moreover, I get reeally skeptical when seemingly overnight cult-like obsessions form, as has happened in the second half of 2021 in the tech world with DAOs.

Unpopular opinion: DAOs are just blockchains all dressed up & looking for something to do on a Friday night.

What’s a DAO? Decentralized Autonomous Organizations. (Oh that wasn’t self-explanatory? Weird…)

Constitution DAO is probably the most public example, recently formed to purchase a copy of the US Constitution that was going up for auction. The group raised ~$40M which wasn’t quite enough to snag the prize, so the DAO was dissolved.

One definition of a DAO is, “a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain.” Hmmm. Here’s another perspective:

“Formal definitions are…

View More Article
%d bloggers like this: