Tag: Livestock

Categories
AgTech

Prime Future 91: Red meat & venture capital don’t go together

Riddle me this: why are there multiple venture-backed poultry production companies, but zero venture-backed pork, beef, or dairy production companies?

Kicking that around raises questions about potential disruption in meat and livestock.

Venture + Poultry

According to Crunchbase, Shenandoah Valley Organic (Farmer Focus brand) has raised $24.2 million in venture capital to “revolutionize the industry by creating sustainable, innovative partnerships between SVO and family farms. These partnerships allow farmers to retain ownership and grow profitability while also providing traceable, organic meat.”

Meanwhile Cooks Venture just closed $50M in debt financing, after raising ~$75M in venture capital to fund “building an alternative to America’s meat industry, to deliver great food from independent, regional farms. Our core values include a commitment to true transparency, and prioritizing the health of the land and the well being of our workers.”

And then there’s Pasturebird, a pastured poultry + poultry tech company, which was acquired by Perdue Farms early in the company’s growth, but otherwise would likely have gone down the venture-backed path.

So that’s (almost) 3 venture backed production companies in poultry.

Yet we haven’t seen a single venture backed production company in beef, pork or dairy. Why?

Two potential reasons:

  1. The venture model is inherently more compatible with poultry production than the other proteins. We will not see venture backed production companies in beef, dairy, or pork.
  2. The other proteins have not yet found the right production model that is compatible with the venture model. We will see venture backed production companies in beef, dairy, and pork….it just hasn’t happened yet.

Note that I am specifically raising the question about companies actually producing beef, pork, or dairy. Currently the venture backed companies in beef, pork, and dairy fall into the overly broad categories of (1) solutions & tools for producers, or (2) meat & milk alternatives.

The caveat to this discussion is that venture capital is simply a financing tool – one of many. It’s not better or worse than debt financing or bootstrapping a business. It’s the right tool only when it’s the right scenario.

Also, keep in mind that venture capital is one of the highest risk asset classes. Really high risk only makes sense when there is potential for really big rewards. Venture capital is the most effective when it is funding companies that are:

  1. High growth
  2. Low CapEx

Said differently, venture capital most effectively fuels asset-light, high-growth companies. That’s why VC’s love to love software companies.

As a reference, consider three comparisons of asset intensive vs asset light business models:

  • Hotels: Marriott (asset-intensive with ownership of individual hotel properties) with Airbnb (asset-light with regular people renting out their homes)
  • Rental Cars: Hertz (asset-intensive with ownership of cars) with Getaround (asset-light with regular people renting out their cars)
  • Education: brick & mortar universities (asset-intensive with campuses) with BloomTech (asset-light with online only delivery)

Venture capital loves asset-light, high-growth companies. And it’s hard to imagine a more directly opposite business model than that of livestock production.

Production requires livestock inventory, land, and facilities. I think we can all agree that red meat & milk production is an incredibly asset intensive business. So….asset-intensive, (generally) low-growth. Probably not a fit for venture.

Not to mention, read meat & milk producing livestock naturally tie up cash for longer periods than poultry. In the Future of Ag podcast episode, Paul Grieve from Pasturebird talked about when they were starting the company that he would put the cost of purchasing chicks on his credit card and by the time the credit card payment was due, he had income from selling the birds for meat. That’s not really an option for red meat or milk production.

It’s why Bo Pilgrim & John Tyson were able to scale up their vertically integrated poultry model so quickly in the 60’s and 70’s, yet not only did beef never vertically integrate, what integration did exist has been undone as the packers sold off cattle feeding.

But back to our two options. Is the venture model just not a fit for red meat & milk production, or have we just not seen the venture back-able business model yet?

The most reasonable answer is that a venture backed beef/pork/dairy company isn’t a viable thing for the same as the reason that vertically integrated cattle production isn’t a thing – the asset-intensive nature of the business.

However the techno-optimist in me thinks that there is some future business model that will leverage technology and aligned supply chains in an asset light, scalable way that will benefit livestock producers, and packers, and consumers.

What is the future business model for livestock production that is asset-light, high-growth, and compatible with venture capital? I don’t know. But the most interesting companies are the ones that make previously held assumptions about what won’t work, look obvious in hindsight that it will.

This topic gets all the more relevant if let’s say, oh idk, the plant-based meat category fizzles and sends investors on a search for ways to disrupt animal protein from within. But more on that next week…

For you:

Let’s say you had $15 million to start a business to produce pork, beef or milk.

There are no other constraints but the business has to produce one of those 3.

What would the business model be?

Categories
Animal AgTech

Prime Future 85: Minimum viable management isn’t enough

If we’re gonna do this topic then we have to follow the story all the way to the end. Are you in?

Last week an exceptionally forward thinking rancher said in a sustainability discussion that the lowest hanging fruit to level up the US cattle herd is for every calf to get an eartag. Not an EID, an old school humble visual tag.

That simple step, and marrying the calf’s number with the cow’s number, allows producers to get a handle on each cow’s productivity and performance which allows them to manage their herd more precisely.

That simple step is the first baby step in shifting from managing at a herd level to an individual cow level. It is cattle 101, something the good & great (even mediocre) producers have been doing for decades.

Yet, you’re telling me there’s a meaningful chunk of the US cattle industry that is not even tagging their calves?

The idea that tagging calves represents a meaningful way for a meaningful chunk of producers to level up is….alarming. And it should be alarming for the mediocre/good/great producers. If tagging calves is the bar, the bar is…low.

In a time where hyper-innovative producers are deploying advanced genetics strategies, intensive rotational grazing, or non-traditional marketing agreements, over on the other end of the spectrum putting a mere visual tag in every calf’s ear can be considered a proxy for minimum viable management.

Suboptimal cattle production isn’t just an innocuous segment that has no effect on the rest. Poorly managed cattle are a drag on the whole system. And the impacts of the drag are worsening as the industry looks to address the big challenges.

This begs a few questions.

What is good management? It starts with a business approach, not a lifestyle mentality, which means things like:

  1. Sound financial management.
  2. Strong resource management – capital, land/soil, water, grass, livestock.
  3. Clear KPI’s to manage and optimize.
  4. Pursuit of excellence – however you measure it for yourself and your business.

“If a man is called to be a street sweeper, he should sweep streets even as Michelangelo painted, or Beethoven composed music, or Shakespeare wrote poetry. He should sweep streets so well that all the hosts of heaven and earth will pause to say, ‘Here lived a great street sweeper who did his job well. ‘” – MLK

There are many excellence-oriented producers.

There are also many existence-oriented producers. (Synonyms in this context: mediocre, ordinary, status quo maintainers, hobbyists.)

And the gap between the two is widening. Imagine that at the extreme edge of excellence-oriented producers are those pushing boundaries in all areas or maybe even hounding feedyards and packers for individual animal data on how cattle perform in the feedyard and on the rail so the producer can use that data to iterate on genetics and produce a more premium end product. And on the opposite end of the extreme edge of existence-oriented producers are those still operating at a brand level (herd level), largely raising cattle the same way cattle were raised back in the day: low cost, low touch, no tech.

The easy thing to do would be to assume that large operations are better managed than small operations. In the United States, ~10% of cattle producers own 100+ cows, yet this segment owns ~56% of total beef cows. The average is ~43 cows, which means the average of the ~44% of cows is actually much lower than 43.

But herd size isn’t necessarily a good predictor. We have talked previously about an alternative mental model to think about quality of an enterprise than simply scale:

“Big business can be good, small business can be bad. Vice versa. Size is not the indicator of success and it’s definitely not the goal.

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

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.”

Some portion of those <50 head operations are incredibly well managed operations that consistently send high quality cattle into the value chain.

And, some of those small herds exist for the fun of it, or so that someone’s ego is flattered by the status symbol of owning cattle, or so that a landowner qualifies for an ag exemption, reducing their property taxes by assessing the productive value of the land rather than the market value of land.

But again, excellence oriented producers come in all herd sizes. The distinction is in their objective and their management framework.

Take a producer with a lifelong goal to improve their business and steward their resources and pass on a viable cattle business to the next generation like the producer on Twitter who said he was going to start writing an annual report about his family’s cattle business for the benefit of both current and future shareholders, presumably his children. Then take the producer who really just wants an excuse to wear a cowboy hat, or a way to reduce their property tax burden, or does this because it’s all they know and they raise cattle the way their grandparents did.

The two are not the same.

As one cattle producer puts it, “it isn’t hard to be above average in this business.”

In the past, it’s been kinda easy for the excellent producers to ignore the existence producers, the below average producers. But as the industry leans in to address big problems (which happens to create opportunity for those at the front edge), the existence-oriented producers are creating a drag that could become an existential threat to the entire industry.

Which raises the next set of questions:

How do we level up the industry by bringing up the bottom x%?

How do you get producers to shift from existence to excellence?

How do you help those producers to level up or get out?

Maybe you don’t, maybe it is what it is.

Or, maybe you lobby USDA to pay them not to produce, or to produce something different. (Yes of course it’s a terrible idea but don’t act shocked – we’ve had crazier agricultural policies in this country.) Or, maybe you lobby to refine the ag exemption in the tax code (though sometimes its better not to poke the bear).

Changing behavior in a value chain often comes down to regulations 🥴 or market incentives, aka premiums & discounts.

As the aligned supply chain trend continues to grow and the variance increases from one aligned supply chain to the next as far as what farm/ranch level practices are incentivized, that could present an opportunity to incentivize these producers to level up…but only if they have a profit motive. Even then, there’s a high cost of coordination with small producers. Perhaps there’s a need for an aggregator platform to connect small producers with aligned supply chains.

Alternatively, as more innovative producers shift cattle into aligned supply chains, then more of the commodity value chain will be composed of cattle from existence-oriented operations. That doesn’t seem to be a good thing either, does it?

Look clearly I don’t know the answer, I’m just spitballing. And clearly it’s a complex problem.

What I do know is that as the industry looks to address the big problems like methane footprint, it’s going to take excellence across the entire value chain to be successful.

Anyone not striving for excellence is a drag on the beef industry.

Minimum viable management isn’t enough.

This extreme level of variance in production is largely only a cattle industry dynamic. Two questions:

  1. If different than above, how would you define minimum viable management in beef?
  2. What’s the proxy for minimum viable management in dairy? Swine?
Categories
Emerging Tech

Prime Future 83: Just a heart transplant, or a catalyst?

Today’s word is xenotransplantation, ‘the transplant into a human of an organ from a nonhuman animal’.

This week a pig heart was transplanted into a human, the first (so far) successful xenotransplantation of its kind. Somewhat downplayed in the media coverage was the role of CRISPR in making this transplant possible:

Xenotransplantation has seen significant advances in recent years with the advent of CRISPR–Cas9 genome editing, which made it easier to create pig organs that are less likely to be attacked by human immune systems. The latest transplant, performed at the University of Maryland Medical Center (UMMC), used organs from pigs with ten genetic modifications.

To make the pig heart used in the transplant, the company knocked out three pig genes that trigger attacks from the human immune system, and added six human genes that help the body to accept the organ. A final modification aims to prevent the heart from responding to growth hormones, ensuring that organs from the 400-kilogram animals remain human-sized.

…the future of xenotransplantation probably includes tailoring the modifications to suit particular organs and recipients.

Another report said “Researchers reported in 2015 that they had used Crispr, a new gene-editing technology, to inactivate pig viruses that otherwise might infect humans transplanted with pig organs.”

Can we just geek out for a moment about how wild this all is? Not just for novelty’s sake, but because….

…if gene editing can turn off/down genes to ‘inactivate viruses’, why can’t ASF & PRRS be edited away in commercial swine herds? (Research that is already underway.)

…if gene editing can modulate growth hormones, why can’t Average Daily Gain and Feed:Gain metrics be drastically improved in new and novel ways?

…if gene editing can alter how an animal organ interacts with human biology, why can’t gene editing enable meat & milk to play a bigger role in ‘food as medicine’ for humans?

I previously went down the CRISPR path, considering how gene editing could hit livestock:

In The Code Breaker: Jennifer Doudna, Gene Editing, and the Future of the Human Race the author focuses on human uses for CRISPR, only using the word agriculture once and almost as an afterthought. So, let’s brainstorm how a tiny little biochemical thingamajig could be used to make a potentially big impact in livestock, meat & dairy.

(Heads up: I’m not constraining this list to any nonsensical details like what’s scientifically possible 🙃)

  • Efficiency. The most obvious and least exciting use for CRISPR is to improve efficiency of production metrics like growth rates or feed conversion or carcass yield. Could beef someday have the same feed conversion as chicken, or even fish?
  • Quality improvements. Can gene editing increase meat tenderness in certain cuts? Increase flavor in pork? Eliminate that nagging issue of woody breast in chicken? Could CRISPR unlock the Honeycrisp apple of the meat case?
  • Health management. Imagine if you could eliminate Mastitis in dairy cows, or BRD in beef cattle, or ASF or PRRS in swine, or Coccidiosis in poultry…all of which have massive economic impact around the globe.
  • Methane emissions.  Could CRISPR gene editing somehow (magically?) reduce methane emissions and put that whole issue to pasture?
  • Demand response. Imagine you could use gene editing to get more of what the market is asking for, like more loin per carcass for a higher ratio of high value middle meats in beef & pork. Or let’s throw common sense to the wind – what if you could get more wings per bird? That would look pretty good in times when wings trade at $3/lb and breast meat trades at $1.

To be fair, this week’s development has no direct impact on livestock production or the milk & meat biz. Zero. It has far more implications for the field of medicine.

Yet there could be game changing indirect benefits, since the animal-organs-for-human-transplant use case for CRISPR gene editing will force regulators to put some guardrails in place. It will also nudge the general public towards an implicit verdict on CRISPR gene editing in animals.

The beauty of the pig heart transplant is that it accelerates the broader CRISPR+livestock conversation, starting with an initial use case that is almost inarguably good for humanity.

I previously described the risks this way:

The only way CRISPR can make a meaningful impact is if both regulators and consumers embrace the technology.

  • Regulators. What will the regulatory framework for CRISPR gene editing in livestock look like and who will oversee it? How will different countries approach it? For use in humans, scientists think of CRISPR having 3 different uses: to prevent disease, to treat disease, or for enhancements like making your offspring taller, smarter, stronger, etc. (Obviously there are varied opinions among the CRISPR scientific community about using it only for disease prevention & treatment to alleviate human suffering, rather than selecting for certain characteristics because we can.) Another screen, and debated distinction, is whether gene editing will impact only that patient/generation (somatic editing) or if it will impact that patient/generation and all future offspring (germline editing). If similar screens are applied in livestock, the list of possible CRISPR use cases would change.
  • Consumers. If GMOs in plant breeding signals how CRISPR might be viewed in livestock, then the odds of widespread consumer acceptance of CRISPR editing in livestock are less than my chances of competing in the 2021 Olympics. The staggering advantages of GMO’s in crop production – less resource use per unit of production – have not satisfied the anti-GMO camp enough to offset their concerns of genetic modification. Good science has not been enough for a good outcome.

However, there’s one factor in livestock that isn’t part of the equation for crops, and that is animal welfare. How will the risk/reward equation adjust itself if CRISPR provides ways to reduce animal disease and therefore improve animal well being?

I have to believe that the xenotransplantation use case for CRISPR will create momentum for additional CRISPR use cases that directly benefit commercial livestock producers and the broader meat industry.

So, was this heart transplant just a transplant? Or, was it a catalyst for all the ways CRISPR could change not just how we think about livestock genetics but nutrition, health, management, and more?

My hypothesis is that history will call this a catalyst for more….how much more, and on what time horizon, remain TBD.

What a time to be alive!

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This ebook summarizes the Prime Future beef-on-dairy series when we looked at everything from what this trend really is, why it’s emerging so rapidly and what it really means for the industry. Here ya go:

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Categories
Animal AgTech Animal Health

Can gut bacteria save livestock & poultry? Yes. Here’s why:

Here’s the thing: I’m bullish all things microbiome. Soil. Plant. Animal gut. Human gut.

Pressure to reduce antibiotic use has led to the launch of more companies bringing non-antibiotic pre/pro/post-biotics to the market to “support gut health”.

The obvious reason is that producers simply have to figure out how to offset lost performance from reduced antibiotic use. Look at the US poultry industry that has gone from <10% No Antibiotic Ever production to ~60% NAE….in less than 5 years. Presumably swine and cattle will follow at some point and to some degree, though that is tbd.

But in an industry accustomed to FDA regulated products brought to market with impeccable rigor by pharma co’s, most microbiome products have been viewed by producers as foo-food dust….rightfully so. Here’s why:

  1. The approval process to launch a non-antibiotic product means the manufacturer can make no claims about impacts on animal health. What’s the benefit to the animal? Sorry, we can’t say…but it helps, trust us.
  2. Microbiome products typically brought to market with limited data, either in # of studies or # of head per study. So you did 1 study with 22 birds in Italy and you want to sell to US producers? Adorable but no…
  3. Because of #2, there is limited guidance about recommended use on these products. “Here ya go producer, we recommend you use this product but good luck finding the dose that leads to the best response, most cost effectively”

Truly, its been the wild west out there with microbiome products. And it has damaged the category’s brand with livestock & poultry producers while raising the skepticism hurdle for future products.

And yet, I’m optimistic the category’s wild west era will soon end. Why?

Technology.

Look at our friends over in the crop side of the world where soil microbiome has been a fringe topic for a while, slowly making its way to the mainstream. An entire generation of technology companies are bringing precision to the soil microbiome through analytics, covering the whole range of measuring, analyzing, and ultimately enabling precision decisions to improve the soil microbiome to unlock productivity and (hopefully) profitability. Soil tech startups like Trace Genomics, Pattern Ag, and Biome Makers are proving this can be done in the world of soil microbiome.

So if we can have precision in measuring, managing, and improving the soil microbiome…..why can’t we ultimately do the same in livestock and poultry for the gut microbiome?

This would shift the entire category from product driven to outcome driven.

Instead of convincing a producer that one product is better than the next based on generic results or good branding, what if the producer could start their decision making process with baseline analysis of gut microbiome activity based on this location or these genetics, or, or, or. Then, what if the producer could monitor the microbiome through grow out to adjust their product decisions between turns, to  remove this pre-biotic and add that post-biotic or try that combo in order to hit XYZ microbiome objective because it correlates with improved feed conversion or reduced methane. And so on.

Ultimately, what’s exciting about the microbiome is not what we know….it’s how much we do not yet know. And there is a lot we don’t know. Like, for example, the interplay between the microbiome and genetics. Or environment, or diet, or any number of other factors.

Increasing the fundamental understanding of the microbiome’s baseline creates a foundation from which to build product (feed additive) decisions and then to understand the impact of those product decisions. Just like is beginning to happen in soil management.

Leveling up on the analytical understanding of the gut microbiome and how livestock producers can manage the microbiome with precision to drive performance and profitability is not only a huge opportunity, it is the only way to meaningfully reduce antibiotic use in a systematic way.

3 more questions while we’re here:

  1. We know that microbiomes are variable whether we’re talking from pasture to pasture, person to person, or pig to pig. Which obviously creates some challenges when the unit of management is 10-50,000 animals. What will precision livestock management or precision poultry nutrition look like in 10 years as we solve for this dynamic?
  2. This category is driving the convergence of animal health and animal nutrition as more companies have a microbiome element to their portfolio. What will that mean in the next 5-10 years for M&A activity and who buys or aligns with whom?
  3. With more producers looking at the benefits of grazing cattle on cover crops, what if it turns out that there’s a connection between the gut microbiome and soil microbiome? What if that gave producers 2 new levers to improve animal health & soil health? The mind reels…

I’m bullish on this space because of the potential of the unknown and the belief that through technology we can harness nature’s systems more effectively. If you are, or know, a company working to bring precision microbiome management to life, shoot me a message.

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Precision microbiome management is happening in soil; it’s only a matter of time until the same tech comes to the gut microbiome, shifting the livestock & poultry microbiome space from product driven to outcome driven.