Animal AgTech Business Model Innovation

Prime Future 88: The infinite game plays on

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You probably know the now infamous quote: “There are only two ways to make money in business: one is to bundle; the other is to unbundle.”

Bundling vs unbundling is an example of two extremes in a market. But my hypothesis is that the insight isn’t about those 2 specific extremes, the insight is that every market has its own extremes from which the pendulum swings.

Let’s talk about 3 livestock & meat industry pendulums that miiiight be on the verge of gaining momentum. Who knows how much they’ll actually move, but it’s at least worth exploring out of curiosity.

(1) Farms moved from integrated to specialized, or from closed loop systems to open loop systems. Now there’s a movement back towards farming systems that integrate crops & livestock.

Before synthetic fertilizer was available, the fertilizer options were livestock manure or importing bat guano from South America. Then along came the Haber-Bosch process, an invention that converted atmospheric nitrogen into ammonia for fertilizer. This was a lynchpin in the evolution of the modern ag industry as it meant farms no longer ‘needed’ livestock manure in a closed loop system. It allowed farmers to sever the natural link between crops and livestock farming, allowing farms to specialize in crop OR livestock production. This was an incredible move towards efficiency.

Now there’s a movement to pull the pendulum closer to closed loop systems, to get the best of both worlds.

Even a few years ago, even in ‘sustainability’ circles, the idea of grazing cattle behind crops was quasi-heretical. Today the idea is not at all heretical.

How seriously the pendulum is swinging, to what degree, and at what pace are all still TBD.

The two extremes in farming are integrated systems or specialized systems. 

(2) Processing was geographically concentrated near population centers, then moved to be near the cattle. Now a segment of consumers want local production and processing.

Packing plants were originally located near population centers, like 1800’s originally. Live cattle were driven to the plants because live cattle traveled better than meat did. The development of the refrigerated rail allowed the pendulum to swing, leading to packing plants being located near the cattle, and cattle were increasingly located near grain. Ever since, meat has done the majority of the traveling.

Now some segments of the meat industry are rethinking that paradigm. Increased regional packing capacity is being constructed today in response to this dynamic…how the business model evolves to make these plants work is still a bit tbd, but regardless, capital is following this pendulum swing.

The two extremes in packing are large scale/centralized/high throughput and small-mid size/decentralized. Can this pendulum move meaningfully?

(3) Specialization in red meat value chains led to an effective separation between the livestock industry and the meat industry. More people are trying to re-converge the two.

The livestock, dairy, and meat business used to be synonymous. Then those segments each specialized. So today it’s not uncommon to find producers who don’t understand the nuance of the meat business. Neither is it uncommon to find folks in the meat business who do not appreciate the complexity of live production.

The two extremes are distinct livestock & meat industries, or an animal protein industry.

The complexity of nonstop recalibration

What makes the ag industry fun is its complexity. The examples above are just a few of the many pendulums that are continually & simultaneously recalibrating all while consumer behavior collides with producer economics, record packer profits, and the rise of soil health as the center of all the things.

This whole ag industry thing is not just as simple as bundling and unbundling as in other sectors, this is the complexity of a multi-player game with many moving parts, each simultaneously sending signals upstream and downstream.

We tend to think of these big pendulum swings as Either/Or, when reality is more of an And.

Speaking of pendulums with momentum, take the example of rapidly changing layer housing systems. On one extreme are super-efficient-and-great-for-low-cost-production-cage-systems and on the other end is cage free production, aka what the market is signaling it wants:

“Without much fuss and even less public attention, the nation’s egg producers are in the midst of a multibillion-dollar shift to cage-free eggs that is dramatically changing the lives of millions of hens in response to new laws and demands from restaurant chains.

In a decade, the percentage of hens in cage-free housing has soared from 4% in 2010 to 28% in 2020, and that figure is expected to more than double to about 70% in the next four years.

The egg industry also initially sought national standards that would allow larger cages but ultimately relented, said J. T. Dean, president of Iowa-based Versova, a leading egg producer.

The key, said Dean, was getting long-term commitments for guaranteed buyers of eggs at a higher price and then finding financing that would work for his company.

Jayson Lusk, who heads the Agricultural Economics Department at Purdue University, found that after a mandatory shift on Jan. 1 to cage-free in California, the price of a dozen eggs in the state jumped by 72 cents — or 103% — over the average U.S. price, although the gap could shrink as the market adapts.”

Where there’s a market there’s a way.

The invisible hand, and whatnot.

A few ideas from Simon Sinek’s book The Infinite Game bring this all together:

“Sinek explains that finite games (e.g. chess and football) are played for the purpose of ending play consistent with static rules. There are set rules, and every game has a beginning, middle and end, and a final winner is distinctly recognizable. Infinite games (e.g. business and politics) are played for the purpose of continuing play rather than to win. Sinek claims that leaders who embrace an infinite mindset, aligned with infinite play, will build stronger, more innovative, inspiring, resilient organizations.

Sinek argues that business fits all the characteristics of an infinite game, notably that: there may be known as well as unknown players; new players can join at any time; each player has their own strategy; there is no set of fixed rules (though law may operate as semi-fixed rules); and there is no beginning or end. Further drawing on Carse’s work, Sinek extends the distinction between end states in finite games to claim that business, when viewed through an infinite mindset, do not have winners and losers, but rather players who simply drop out when they run out of the will, the desire, and/or the resources to continue play.

The protein industry is by definition an infinite game. Individual businesses within the game are only infinite to the extent they continually earn the right to keep playing.

The pendulums swing but the infinite game plays on.

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

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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:

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