136. Bayer Crop Science Innovation Summit reflections

“Software is Feeding the World” is a weekly newsletter about technology trends for Food/AgTech leaders.

Greetings from the San Francisco Bay Area. I am back after a long unscheduled hiatus and I hope to be back on the weekly schedule.

I had the privilege to attend the Bayer Crop Science Innovation Summit on June 20th in New York City. It was a day-long event with a morning breakfast panel focused on sustainability, regulation, adoption, innovation etc. and the main event in the afternoon focused on Bayer Crop Science’s innovation pipeline, their view of agriculture in the future, their anchor around “regenerative agriculture,” systems thinking and adjacent markets.

“Software is Feeding the World” is focused on the intersection of Ag and Tech (software, hardware, digital, AI etc.), and so I will look at topics through a tech lens.

Note: I was invited by the Bayer Crop Science team to attend this event in person. They graciously offered to pay for my accommodations and air travel to New York, which I declined. The views expressed in today’s edition (and all editions) are my personal and independent opinions and do not represent the opinions of any other organizations. I do want to thank the Bayer team for including non-traditional analysts and writers like me for this event.

The two big themes at the summit were “systems” and “regenerative agriculture.” You can see the full presentation here. I won’t go into gory details of each section, but provide my high level reflections on my thesis on their approach, positioning, and messaging.

I. Redefine what you do & how you do it

Uber went from transporting people on demand to transport anything on demand.

Amazon went from being an online bookstore to an online store for anything (including now an offline store for groceries with their Whole Foods acquisition)

Netflix went from renting DVDs to being your entertainment center while producing their own shows and getting into games.

Any company which has been around for as long as Bayer has been, knows how to reinvent themselves multiple times over. Bayer continues to be the leader in the seed & crop protection business, but there are potential clouds on the horizon, especially for the crop protection business.

Bayer’s 2022 Annual Report showed 0% increase in volume, 1% decrease in portfolio, and most of the gains coming from currency exchange and price increases. They are probably unlikely to have similar growth in the future due to lower price growth and a depression in glyphosate pricing.

New regulations, especially in the EU, increased pressure on use of synthetic chemicals and reduction of GHG emissions from farming, challenges with herbicide resistance, and new technologies on the horizon like targeted spraying of weeds which could significantly reduce crop protection volumes*, biological products, etc. are potentially creating headwinds for Bayer Crop Science’s business.

(* Note: I asked the question about selective spraying of herbicides causing a disruption to their volume based model, and whether it could also break the seed + herbicide chemical bundle. The Bayer execs rightly pointed out they will not be afraid to disrupt and reinvent the company, though they did not address the seed + herbicide chemical bundle question.)

It makes sense for Bayer to reposition itself from being only a seed & chemical company, to being a company focused on “regenerative agriculture” with a “systems” approach, with a much higher revenue potential in markets adjacent to their core seed and crop protection business.

As my friend Shane Thomas, who also attended the summit explained in his excellent breakdown of the summit.

Bayer is leaning into systems approaches versus standard one-product emphasis which is unique compared to competitors, specifically because it isn’t a traditional “programming” based bundle, but a crop optimization bundle that includes access to services and digital tools and goes beyond traditional crop protection and seed.

Bayer listed their strategic priorities, which included “shape regenerative agriculture” and “digitally enable sales to offer full crop system solutions”

II. What is “regenerative agriculture” and “systems” thinking?

“Regenerative agriculture” has different interpretations & definitions, and depending on who you talk with will have a reaction on one of the extremes on the emotion spectrum. Let us look at a few definitions.

In 2022, leading food and ag systems venture capital firm, S2G ventures defined regenerative agriculture as a set of practices, which is similar to General Mills. S2G includes precise input applications (not included by General Mills)

S2G called out three major trends which will shape the future of regenerative ag.

1. Biologicals

2. Carbon / climate smart commodities

3. Digital Ag

As you can see scaling regenerative agriculture will require a holistic systems approach rather than a simple product based approach, and it will be underpinned by digital agriculture.

Bayer did accept there was no clear definition of regenerative agriculture, and they were seizing the opportunity to define it, and anchor their business strategy of expanded value creation and capture around it.

III. Adjacent markets (or Uber launches Uber Eats for food delivery)

According to me, the most important slide in the presentation is Bayer’s messaging on doubling their accessible market. They want to redefine their category from an inputs company for seed and chemicals to a provider of optimized systems to scale regenerative agriculture.

The systems thinking approach is not brand new from Bayer, though the specific emphasis is, especially in the context of “regenerative agriculture.”

Bayer has been selling products and bundles for the last few years. For example, Bayer’s seed and chemical products are in effect a bundle of herbicide tolerant crops and crop protection. With the incorporation of FieldView, a digital product was bundled into the existing bundle of HT crops and crop protection, with the promise to use digital to help you optimize your entire farming operation.

Bayer has moved in to own the messaging and positioning on “regenerative agriculture”, within agriculture similar to General Mills move on the consumer product side. This is a bold move by Bayer, and I am sure there must have been significant debate about owning the term.

Based on this, it is smart for Bayer to talk about unlocking additional value from adjacent markets, and use “regenerative agriculture” as an anchor. (If you want to read about Gordon Moore’s concept of “trapped value” applied to agriculture, you can read edition “97. Trapped Value”)

It does a few things:

• Take a leading position on the phrase “regenerative agriculture” and get a chance to define it. If done right, this could lead to a big transition in Bayer’s business over the next 10-15 years.

• Given the amount of land which is being farmed will hopefully stay the same (or even reduce in the future), Bayer has to continue to find additional value on the farm, and create new value off the farm. This positioning helps them paint a longer term picture and provide a coherent story.

• The talk of systems and the system of regenerative agriculture provides them a unifying mechanism to talk about their adjacent products and services.

• From a marketing and messaging standpoint, it does a better job of positioning them being in the right corner of the fight against climate change. This might appear like greenwashing to some folks, but I believe Bayer’s desire here is genuine.

• If Bayer can succeed in moving towards majority digitally enabled sales, digital platforms, and unlock additional value from the farm, and off the farm, investors, regulators, and the stock market will provide their vote of confidence to them. It could lead to better financial multiples compared to their peers, and a potential restructuring of the corporate structure of Bayer’s holding company itself.

IV. Tailored Systems approaches for Regenerative Agriculture

Bayer will have to tailor their “systems approach” based on the crop type, cropping systems, and regions they operate in.

In North America and South America, given the large farm sizes, access to technologies like GMOs, high level of mechanization, makes the regenerative agriculture message more around soil health, water quality, and profitability to adoption of regenerative agriculture practices.

For the EU, given limited access to technologies like GMOs, and strong regulatory environment, precise and reduced application of chemicals, reduced GHG footprint & water use while maintaining yields is going to be critical.

In smallholder markets like India, access to new tech and corresponding knowhow, access to markets and high quality low cost inputs for sustainable and profitable farming operations will be more important compared to other aspects of regenerative agriculture.

Bayer will not work on any program which does not advance the cause of regenerative agriculture, which is bold and probably necessary.

Bayer will have to consistently tailor their programs, products, and messaging in different markets tied to regenerative agriculture. Bayer will have to fully lean into their digital capabilities to provide these tailored solutions as needed by the market.

V. More Bosch than Haber

Scaling regenerative agriculture systems is not a purely technological problem. It will require significant investments in building an ecosystem of partners to scale the innovation coming from Bayer.

Bayer’s R&D investments have been very good over the last couple of decades on product innovation - whether it is their seeds & traits business or crop protection business.

Given the systems approach, Bayer will have to experiment, and invest into process and business model innovation.

For example, a systems approach will require them to think about approaches like outcome based pricing (which was heavily referenced at the summit), which is extremely difficult and hard to pull off, but aligns well with their systems thinking. It definitely requires a strong layer of digital capabilities and tools, including data science and artificial intelligence.

Another example of process change is how they help scale innovation. One of the interesting comments made by Mathias Berninger, Head of Public Affairs, Science, Sustainability and HSE in the morning breakfast session was the difference between innovation and implementation of innovation at the farming level. In a systems based approach, it is not enough to innovate on products, but Bayer will have to spend the resources to help in adoption and implementation of those innovations at a farming level. They will have to be more Bosch than Haber.

This can only come through ecosystem partnerships, whether it is through their retail channels in terms of data and best practice sharing or through other downstream players like Chevron and Bunge (partnership on Biofuels through cover crops - listed as an adjacent area of growth).

Another example is the process and product innovation required to measure, record, verify carbon benefits (listed as an adjacent area of growth). Bayer will not build a system to do an MRV process, but Bayer will have to figure out a way to source incentives, understand causality, and divvy up the incentives to the right players to make it worth their while. (for example, their ForGround program mentioned in the presentation). Given the issues related to additionality and permanence, this will be difficult to do in an open system like farming.

As Tim Nuss rightly pointed out in a recent article (emphasis mine),

Farmers make decisions based on economic considerations just like any other business. Unless someone downstream in the supply chain values regenerative widespread adoption will continue to be a challenge. Farmers can’t be the only group in the supply chain to make changes, take risk, and sacrifice precious downtime learning new operating systems. Retailers, processors, marketers, foodservice, food brands, service providers, consultants, and consumers need to come to the table and truly partner with farmers.

Bayer can act as the gateway to these entities, and orchestrate relationships between them and farmers, with the aim to create value for the farmer, the connecting entity, and for Bayer itself.

The focus on regenerative agriculture will act as a forcing function for the organization to think in terms of systems, and the context in which these systems operate. It sends a signal to the market and the ecosystem about their commitment. It will attract a new set of investors, and a new set of startups to the space, who might consider Bayer as a potential acquirer. It will be a great recruiting tool for Bayer Crop Science in the future.

Given the business pressures I talked about earlier, my thesis is Bayer didn’t have a choice but to double down on regenerative agriculture (or some version of it).

VI. What is the role of digital?

As I mentioned in section I, one of the four strategic pillars for Bayer is to digitally enable sales. Bayer has been doing it for some time now, with the bundling of FieldView with seed brands like Channel seed.

For example, the discussion around short-stature corn includes the full incorporation of digital capabilities through FieldView, with significant growth potential for the short-corn system.

Right now, Bayer is going through a process of digital transformation for the company. Major transformations at large organizations typically happen in three phases.

1. Optimization: Optimization involves the improvement of existing processes. For example, Bayer is using a combination of data, analytics, and artificial intelligence to speed up its breeding process. Based on the summit presentation, Bayer has made good progress in this stage.

2. Growth: Digital transformation should drive growth. Period. The redefinition of what Bayer does (see section I), and the use of digital to address adjacent markets, and strengthen existing markets is a strategic shift to drive growth. It feels like Bayer has a strong foundation through existing offerings like FieldView and Farmrise, but it still has a long way to go in terms of driving business growth through digital transformation.

3. Reinvention - This phase requires a complete rethinking and reinvention of the business model, or how a company creates and captures value. Bayer has dabbled with some ideas in terms of outcome based pricing with a bundle offer based on the farming operation.

Going back to S2G’s report on regenerative agriculture, digital ag is building the underlying infrastructure to enable the regenerative ag transition, with decision ag, operational efficiency, input management (systems approach), and connecting growers to end users.

Bayer is absolutely pushing innovation and has been a leader in digital adoption within the inputs business, similar to JD’s lead on digital adoption and usage on the OEM side.

Bayer’s Orbia initiative in South America is a great example of digital helping grow Bayer’s business in the region through a marketplace (an adjacent area of interest for Bayer) which connects growers, input providers, distributors, and has scaled to cover 75% of Brazil planted acres.

Bayer’s FieldView platform continues to be the brand and market leader. Based on these numbers, it continues to create incremental value to the Bayer seed and chemicals business. though it is not exactly clear how much of this is already baked into the model sans FieldView.

Bayer needs to do a much better job on showing the engagement with and value of FieldView. It has been almost 10 years post the original Climate Corporation acquisition by Monsanto, and Bayer is still showing only subscribed acres.

In my understanding subscribed acre is any acre of grower data within FieldView for a subscribed user. A subscribed acre does not tell much about the depth of engagement with FieldView, the data richness for those 220 M acres, how many of them are currently active, and how it helps the core business of seed and chemicals now, and how it might help the adjacent businesses in the future.

John Deere identifies 3 types of acres on JD Ops Center.

1. Engaged acres: Engaged acres is a reflection of the number of unique acres with at least one operational pass documented in John Deere Operations Center in the past 12 months.

2. Highly engaged acres: Highly engaged acres are those where farmers have used connected machines to document multiple steps in the production process and used Deere’s digital tools to complete multiple value-creating activities over a 12-month period

3. Sustainably engaged acres: Sustainably engaged acres reflect the number of Deere & Company engaged acres which incorporated two or more sustainable John Deere technology solutions like AutoTrac™, Section Control, Harvest Smart™, and See & Spray™ or sustainable practices such as cover cropping and conservation tillage over a 12-month period.

Bayer with its FieldView product does not provide any shape on engagement on the 220 M acres. Most social media and SaaS companies provide simple metrics like monthly active users (MAU), session length (minutes) etc.

The non-mention of any acres beyond subscribed acres could mean,

• The engagement with FieldView acres is not strong

• Bayer is still figuring out how to do digital using FieldView, 10 years after acquisition of The Climate Corporation in 2013 by Monsanto.

Either way, Bayer needs to speak the digital language of active acres, customer acquisition costs, and lifetime value for customers using digital, at a bare minimum.

In reality, Bayer needs to go much deeper on FieldView and its role in enabling “regenerative agriculture” by helping them think about systems, and start by answering some basic questions.

• Does FieldView help with seed + chem customer retention, and how?

• Does FieldView help with increasing the basket size of an existing Bayer customer, and how?

• Does FieldView help build brand loyalty for Bayer products, and how?

• Is it a factor in building brand loyalty, and how?

• Does FieldView help steal market share from other seed + chem companies?

• Which adjacent markets become the most promising due to FieldView and why?

Does Bayer need to add a senior leader from a company like Amazon, Microsoft etc. with a very solid technology & digital understanding to fully realize the amazing potential of FieldView, Farmrise, digital and AI?

VII. Digital infrastructure

At World Agritech, Bayer announced further developments on its partnership with Microsoft. On paper, the partnership seems a perfect match to combine the agronomic expertise of Bayer with the technology expertise of Microsoft. Microsoft is also an expert in setting up digital infrastructure through its cloud offerings, and has a deep understanding of structuring and executing on B2B relationships.

In edition 83. Picks and Shovels (Nov 2021), I had speculated on how the Bayer-Microsoft relationship could work, and how the two organizations could blend together their capabilities to provide better tools and solutions to the market, and in turn create incremental value for both companies.

The Bayer and Microsoft partnership includes a thesis to create a digital agriculture platform for the industry. It can allow Bayer to provide tools instead of just applications and allow Microsoft to provide industry specific tools and applications, and thus capture more value. Time will tell if this strategy will work out.

It has been 18 months since the original Bayer-Microsoft announcement, and the only capability Bayer has announced through the partnership is an effort to drive interoperability, and availability of some data layers through the partnership.

Bayer probably has one of the largest data sets within the commodity row crop space (outside of John Deere). Having the data does not mean, you should try to be the one driving interoperability, unless it is the right thing to do from a strategic standpoint. Bayer should definitely make a build, vs. buy vs. acquire decision, if they have not done so, instead of going down the build route only. For example, Leaf Ag has already driven hard in the interoperability wedge for precision agriculture data coming from equipment and have expanded it beyond it over the last 12-18 months.

The layers mentioned in the presentation last week were the same as the ones mentioned during Bayer's big announcement during World Agritech in March 2023. The layers mentioned include Growing Degree Days (a simple calculation), crop water use maps (a simple calculation), and some future capabilities around boundary detection using field segmentation models.

I have a ton of respect for the Microsoft and Bayer teams, and I hope they have many cool things in the pipeline, and we just don’t know about them.

VIII. Direct Seeded Rice

I have a weakness when it comes to eating rice and rice dishes. Growing up in India, rice has always been a staple part of my diet. Due to this I was excited to hear about Bayer’s work in direct seeded rice.

As Bayer pointed out, rice is an extremely water and labor intensive crop, and also a contributor to GHG emissions.

​One of my first essays related to agriculture was on rice and how it has contributed to the water crisis in India. (Rice is called the Mad King)

Agriculture accounts for 90% of freshwater use. Rice, wheat, and sugarcane constitute about 90% of India’s crop production and these are the most water-consuming crops. Rice consumes as much as 3,500 liters of water for a kilogram of grain produced. Indian farmers use (or have to use) 2 to 4 times more water to produce a unit of major food crop than in China or Brazil.

Growing rice in Punjab (an agriculture state in Northern India which has a semi-arid climate is not ideal, but free electricity and cheap water create this anomaly.”

Rice is planted manually in paddies flooded with water, with saplings grown in a different area. It is a very labor intensive process, but the flooding reduces the chances of weeds, and other threats and also makes mechanization difficult.

Bayer is testing a Direct Seeded Rice crop system in India.

Based on the slide above, as expected and rightly so, Bayer is following their seed + chem bundled approach with Bayer branded seeds for DSR, followed by Bayer branded chemicals supported by Bayer’s Farmrise digital offering (which to the best of my knowledge has struggled to gain adoption). It is a great story with a systems approach which supports sustainable goals of using less water, lower GHG emissions etc.

Given directed seed rise requires mechanization, Bayer also talked about an equipment rental model (Uber for tractors), which has seen some traction in places like Africa. (You can read my conversation with Jehiel Oliver, CEO of Hello Tractor)

The reality might be quite challenging.

​Direct seeded rice is a more sustainable approach to rice production, when it comes to environmental concerns.

Direct seeded rice is seen to be one of the most efficient, sustainable, and economically-viable rice production systems used today. Compared to the conventional puddled transplanted rice (PTR) method prevalent in Asia, DSR delivers faster planting and maturing, conserves scarce resources like water (12-35%) and labor, is more conducive to mechanization, and reduces emissions of GHG which contribute to climate change. Mechanized DSR also creates avenues for employment through new service provisions and is less labor intensive and free from drudgery, hence more attractive to youth and women farmers.

Under optimal conditions, there is no significant reduction of yield, due to faster maturation, no plant stress from transplanting, and use of mechanization. (emphasis mine)

The operating phrase is “under optimal conditions”, which rarely exist. There are many challenges with DSR, if optimal conditions don’t exist. These include exposure of seeds to birds and pests (which require higher seeding rates, leading to higher costs), increased weeds and weed management costs, higher risk of lodging, and risk of poor or non-uniform establishment.

According to a report by FoodTank,

Likewise, multiple studies in India have indicated that if weeds are not properly managed, DSR yields will likely be just a small fraction of yields from traditionally planted rice. Managed properly, DSR is an agricultural innovation that bears great potential to help rice farmers maintain their yields while doing their part to save water.

The challenge for Bayer is not enough to solve the innovation problem of DSR, but how to get the innovation at the farm level, where farm conditions will be different. Due to political reasons, rice farmers get free electricity and cheap water, and so their resistance to change will be quite high.

The challenge for Bayer will be to educate farmers about the advantages of DSR, provide them weed management solutions, and connect them with mechanization options, while still keeping the economics relatively unchanged or improved. This will be a tall order, as the farmers do not pay for electricity and water is cheap.

Unless labor costs to do seedling planting in paddies goes up significantly, or access to water becomes a big challenge due to a dropping ground water levels, or weed management and mechanization solutions are easily available or local / national governments provide incentives to adopt DSR technology, Bayer could potentially have a tough time to get the innovation to the farming level.

Bayer is one of the few companies which is uniquely positioned to push for adoption through training and education, and additional services through Better Life Farming centers in India. BLF centers’ objective is to take a holistic approach to improve livelihoods of smallholder farmers. Patrick Gerlich said in my conversation with him,

We aim to provide them with access to technology, knowledge, finance, risk management tools, and off-taker markets. The outcome is financial security, increased know-how and improvement in their livelihood

IX. Final thoughts

Bayer’s R&D and innovation pipeline continues to be strong.

As I said earlier, Bayer has managed to be around for many decades, and has gone through many ups and downs, different business models and product portfolio changes, and has reinvented itself many times over.

Bayer’s anchor on regenerative agriculture and systems thinking, powered by digital capabilities is an interesting way to redefine themselves and find adjacent markets. My hope is Bayer’s approach will lead to more collaboration in the industry.

Bayer’s commitment to continued investments in innovation is noteworthy and challenges remain for innovation at the farm level. I would love to see more advances on the digital side.

I do want to thank the Bayer team for inviting independent writers like me to the event.

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About me

My name is Rhishi Pethe. I lead the product management and technology delivery teams at Mineral, an Alphabet company. The views expressed in this newsletter are my personal opinions.