Bailouts are band-aids.
Prime Future 026: The weekly newsletter highlighting tech trends throughout the animal protein value chain.
The last thing I want to discuss in the year of our Lord 2020 is politics, but if we’re going to create a more robust animal AgTech ecosystem then we should talk about policy. Stay with me :)
My hypothesis is that there are 2 specific policy areas that could ramp up innovation investment. I’m no policy expert, these are simply ideas to start a conversation:
(1) Expand the definition of R&D for tax credits to include external innovation investments.
One of the challenges that multiple investors have identified as a reason that animal ag is less attractive than the crop sector, is the lack of acquisition activity in animal ag. For venture investors looking at a market where going public is an unlikely exit path leaving acquisition as the likeliest path to generate returns, the lack of acquirers is a limiting factor both for the potential investor as well as for the potential outside innovator. In the last few years, the only acquisitions I know of in animal ag were by two companies: Zoetis and Merck.
While animal health companies are increasingly turning to external innovation to augment their own R&D pipelines, there’s an opportunity for other companies to do the same whether animal nutrition, equipment manufacturers, processors and even integrators. And what if investments in these external innovation pipelines were viewed as simply an extension of the company’s R&D efforts and therefore eligible for the R&D tax credit? What if Sanderson Farms could realize tax benefits by making early stage investments in startups working on science to reduce the need for antibiotics? Or Cargill through early stage investments in startups driving traceability from producer to packer?
What flurry of innovation would that unleash? What high octane gasoline would that pour on the race to solve the industry’s most vexing problems?
What wickedly important competitive advantage would this give to an entire animal protein supply chain under siege by a venture community that is actively betting against the existence of animal protein in the future?
Don’t just think of the big processors when you think about the potential positive impact of innovating how meat is produced & processed to maintain relevance for future generations, think of the small businesses, the families, the entire communities that depend on livestock and poultry production that are at risk. That should get any policy maker’s attention.
In recent years, Amazon has spent 12+% of revenues on R&D. Tyson Foods? .3%. <that’s three tenths of one percent> Yes, these are very different businesses with very different cost structures and yes, presumably Tyson’s investment in R&D is increasing under new CEO Dean Banks. And yet, I assume that .3% is higher than Tyson Food’s privately held peers. This seems, um, low. Especially in a business facing the existential challenges that the meat business is facing.
While the above proposed policy change could incentivize positive behavior change for the corporate strategics, now let’s look at a policy change that could incentivize producers and innovators:
(2) Expand the objective of farm support to include future staying power.
Since FDR’s New Deal, policy makers in America have insured some version of a safety net exists to provide a base level of stability for farmers who inherently operate in a high capital, low margin business that also happens to be high risk: market volatility, global supply & demand, weather, disease, pandemics, etc.
In short, this approach has insured America’s ability to maintain a domestic food supply and then some. Which is all well and noble. And yet, its short-sighted. Take the ~$51 Billion in direct payments to US producers in 2020, beyond the federally subsidized crop insurance program, government commodity purchasing programs, etc.. This money was put directly into the hands of producers to stop the bleeding & help them make it through this year. These payments are a short term band-aid.
What about the future?
Where are the Farm Bill incentives to innovate & power a robust and flourishing farm economy - and consumer satisfaction with its outputs - for the next 10 to 50 years?
Where’s the offensive play that sets up the next generation of young producers for success, not just defensively allows producers in 2020 to avoid bankruptcy?
I submit 2 countries that have a model the US should consider: Australia and Canada.
It seems like every Australian startup that I speak with has received non-dilutive grants from either the state or federal government, funding that enabled the company to form and begin its work. Matthew Pryor of Tenacious Ventures in Australia recently shared some insight on this topic given his firsthand view of how federal and state governments in Australia have incentivized a robust agtech ecosystem:
"We invested in those innovations to make our farmers the most efficient in the world, but now there’s an opportunity to do so much more than that. Farmers have to keep moving up the value chain."
"Australia is the 5th least subsidized economy in the world but we spend $600M/year on R&D so the support that producers get is more in the realm of help to become more efficient and compete internationally.”
"The global market for agtech products and services is projected to be $700B by 2023. Australia produces $60B of farm output and about $40B is exported, so Australia represents 1% of global ag production and 3% of global trade.”
Each country has different policy objectives, but what can the US learn from the Australian model? Or the similar Canadian model driving AgTech?
Whether in the form of grants to new companies, or tax credits for farmers that trial new technologies, or income tax credits for founders that launch startups, or or or or….there have to be some creative ideas we can explore to unleash tech horsepower in agriculture.
To be clear, do I think it is the US government’s role to drive innovation? Absolutely not.
Is it the role of policy makers to set policy that creates incentives for economically advantageous outcomes for US industry? You bet.
Whether it's through tax policy or the Farm Bill, policy makers should consider ways to incentivize investment in agriculture innovation at every level: corporates, small business, startups, producers.
I really want to wrap up with a quote from George Washington on the importance of agricultural research from the late 1700’s but I can’t find the book where I first read the quote. Suffice to say, even GW knew this was critical for America 🙂
What are your ideas about policy changes to drive innovation?
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About Janette
Janette Barnard is Managing Principal with Rock Road Consulting, working with animal health, animal nutrition, producers and processors to launch, source, and fund innovation. She leverages her commercial experience with agribusiness (Elanco Animal Health, Cargill, and McDonald’s Global Supply Chain team) and her entrepreneurship & strategy experience with tech startups.
