How Transformative is Indigo Ag’s Business Model?
Following the press coverage of Indigo Ag and its billion dollar valuation, we became curious to learn about this company and how they are innovating on plant microbes and using the best performing ones in the seed production process and productivity for the farmers.
In my personal view, the answer to their success lies in their business model and here I will share the learning from reviewing their business.
While several Agtech innovations and investments are focused on productivity enhancement, most farmers will be honest in letting you know that they are interested in enhancing their incentives not productivity. The reality of tech-focused Agriculture (Agtech companies as they are popularly known) is that it will fall short in enhancing farmers income and incentives. Several farmers and farmer groups I had an opportunity to learn from told me that increasing productivity almost always resulted in lower net incomes for them. The closest I could get to drive home this message is this graph below.
Now, the projected farm incomes all the way up to 2022 in the United States is expected to be way below the 45 year average income realization. If all the tech, economies of scale and market mechanism in the US cannot come to the rescue of farmers, it is very unlikely that the graph is going to be positively different in other emerging markets.
My natural inclination is to understand and review business models of innovative companies, and I rarely come across a technology solution that connected their revenue model to the realized returns of their customers. On the business model front, Indigo Ag looks to be a pioneer within the agri-input industry and it was quite refreshing to see their approach. Here is what Eric Jerk, Head of Strategy and Business Development, had to say about their engagement approach with farmers:
Instead of marketing and selling our product like traditional ag companies, charging a fixed upfront price, we are committed to sharing risk and performance in an aligned way.
For our first cotton launch, for example, instead of asking farmers to pay us upfront for our seed treatment, we asked them to pay us a fixed amount per acre post-harvest, so long as they saw a certain amount of increased lint production.
You can read through his full blog here: https://www.indigoag.com/pages/point-of-view/indigos-partnership-model-reduces-grower-risk
Now, in the best interest of food sustainability and the future food security, I do hope that Indigo Ag will continue to scale up their business model on the partnership model and set a precedent for other Agri-tech companies to follow. By doing so, they will not only enhance their business performance but will also be able to fast track their innovation pipeline; it is quite a feat to have a model where millions of your customers would like to contribute to your innovation agenda one way or another.
In January 2019, Agribusiness Academy is running a 5 week course for Agri-Tech entrepreneurs and investors, designed to help develop and assess business models like Indigo Ag. Find out more and apply here:https://agribusiness.academy/pages/agri-tech-course
