ZeaKal CEO Han Chen weighs in on how Agri-FoodTech companies are uniquely positioned to facilitate a new, better food system
It seems like every day brings a big new announcement of the latest and greatest Agri-FoodTech innovation.
Meatless protein alternatives will eliminate animal production. Biologicals will replace synthetic fertilizers. Soil-less growing will free up land from crop production. Biologically engineered plants and animals will produce healthier, faster, more resource-efficient food. AI-enabled farm robotics will solve the farm labor crisis and digitize the farm.
As the CEO of CS Partners, an executive search company for the Agri-FoodTech industry, I have benefited from working firsthand with many inspiring startups in the sector. But inevitably, as these mission-orientated companies move through the scale-up stages toward commercialization, they hit the same, seemingly unnavigable wall – the food system supply chain.
That inevitably begs the question, are the promises of the Agri-FoodTech revolution just big talk? Can these startups really change the food supply chain?
Yes, absolutely they can, says Agri-FoodTech leader Han Chen, CEO and co-founder of ZeaKal. There’s plenty of hope for reinventing, or what Chen calls “harmonizing” the food supply chain. And Agri-FoodTech startups are uniquely positioned to be the catalyst for that change, Chen says.
ZeaKal is a plant sciences company with technology that improves plant photosynthesis to support better crop yield, quality and sustainability. Their leading innovation has been in soybeans where they have improved oil and protein without sacrificing yield. Chen first introduced me to his vision of a harmonized supply chain in this “Leaders on a Mission” podcast.
ZeaKal CEO on How the Current Food System Leaves Value on the Table
To improve the food supply chain, we first have to understand why we’ve got the food system we do, Chen explains.
Our current food chain was built to address a mid to late 20th-century global food crisis. We created a crop-producing machine focused on yield and volume with commodities traded worldwide. This has worked very well to produce mountains of food, although this abundance has at times come at the expense of quality, creating a new host of problems.
Yet “disrupting” the current food system via the traditional “move fast and break things” Silicon Valley model is not only unobtainable, it is immoral, threatening the food security of billions of humans on the planet, Chen points out.
So, how can we capture the value lost from a volume-first food system without blowing up the critical pipeline of a global food supply? The answer lies with partnerships that capture lost value, Chen says.
Harmonizing the Supply Chain Through Partnerships
Take soybeans as an example.
Soybeans are one of the most important protein crops, primarily used as animal feed. Historically, the U.S. produced soybean meal that was 48 to 49 percent protein. But as the value chain pushed for volume, aka yield, quality was lost. This past year, soybean meal quality hit another record low, averaging 45 to 46 percent protein. That’s a problem for supply chain end users, especially for nutritionists at large livestock companies. Lower protein makes soybean meal less efficient, requiring more resources to make up the deficit, all while increasing the environmental footprint.
In the middle of the supply chain are soybean processors. They run a volume-based business model with little incentive to seek out a higher quality soybean crop because the cost and time to segment and differentiate is often not worth it in today’s commodity driven-system. Processors pass that mentality upstream, pressuring farmers to seek out further yield as their sole source of increasing revenue. Today, even if a farmer grew a more nutritious or sustainable soybean crop than their neighbors, there are few channels to capitalize on that effort.
With a “race to the bottom” mentality, the food supply chain leaves money on the table, Chen says. Not only in dimensions such as nutrient density but in other qualities end buyers are demanding like taste, equity and ethics in food production or reducing a crop’s carbon footprint and environmental impact.
“This push for volume without actually increasing or maintaining the quality of the crop does not service the ultimate goals of the end users or consumers. More importantly, this vicious cycle reinforces the lowest-cost commodity mindset, which is where no one wants to be, right?” Chen says.
So how can Agri-FoodTech startups make a difference? By facilitating partnerships that “harmonize” the supply chain while communicating, capturing and sharing that value for all the food system stakeholders, Chen says.
Capturing the Value of What the Consumer Wants
ZeaKal is attempting to do just this with their soybean trait technology. ZeaKal’s PhotoSeedTM technology increases soybean oil and protein – something that benefits everyone on the value chain. And that means a crop that provides more value without increased resources to grow it, realizing a lower carbon footprint for a higher-quality food product.
“When we increase oil, that is value the processor immediately realizes from improved crush margins. When we improve protein of the resulting soybean meal, that helps the downstream nutritionist formulate a lower cost, more sustainable ration,” Chen says. “This is an example of innovation that also harmonizes the incentives of all the players responsible for transforming that bean to the co-products we purchase as consumers.”
But, how do they make this shift in the supply chain happen?
At first, ZeaKal thought they might have to build a parallel supply chain to the tune of hundreds of millions of dollars just to get their improved soybean traits into the market. But then they realized they could repurpose and harmonize the existing supply chain by bringing partners together. But to do that, two key stakeholders need to be encouraged to come on board, Chen says.
First, the farmers.
“We had to rethink the role of the farmer as a partner to share value with rather than as a customer we extract profit from. This way our incentives in terms of sharing risk and value are aligned, versus selling them a seed for a season and saying, ‘Good luck, we already made our margins,’” Chen says. “That’s the first part, helping the farmer bear the risk of technology adoption with a model that treats them as a partner.”
Then, at the end of the supply chain is the buyer.
“Bringing a differentiated value add product to market has to be demand driven. The end-user and ultimately the consumer has to demand that certain practices, features, and metrics are important to them and they are willing to pay for and share in that value. This means that no player can just be a passive participant in the value chain, otherwise, inertia will continue to drive the industry in a business-as-usual fashion,” Chen continued.
The Time is Ripe for Supply Chain Change
Lest you think Chen’s ideals will never overcome the supply chain barriers – as many have told him – Chen remains optimistic as these trends are already happening more broadly.
Look to the recently announced joint venture between Continental Grain Co. and Cargill Inc to purchase Sanderson Farms, Inc., a poultry processor. Or, on the biofuels side, Chevron is investing $600 million into Bunge, a soybean processor, to secure future feedstock for renewable fuels (aka biodiesel). In February, Chevron acquired the outstanding shares of Renewable Energy Group (REG) a leading renewable fuels producer.
“Everyone is now thinking, ‘How do I get more local? How do I create durability in my feedstock supply? And how can I increase my profitability so that I’m not as subject to these major supply shocks?’” Chen says. “So, with all these macro-economic factors (the pandemic, global conflicts), supply chains have to be shorter and more resilient. Furthermore, with the convergence of energy, climate, and food security, we cannot meet all of these pressing agendas without innovative technologies and business models that drastically move away from the status quo.”
Chen says the biggest challenge has been overcoming the “it will never happen” mentality about reshaping the food supply chain. But, “we realized as we kept talking to all these different stakeholders that the pieces and the will to change were all there. There was just so much history, so much skepticism that nobody was willing to take the first step.”
This is precisely where Agri-FoodTech startups play the critical facilitation role. Startups are nimble without the entrenched assets of larger companies that make it hard to integrate a new business model, Chen says. This clean slate gives startups like ZeaKal the chance to push the envelope.
And, ultimately, it will just “take one” to change the food supply chain, Chen predicts.
“One player commits to this, shows it works, then all of sudden we have a blueprint to replicate the model,” Chen says. “The leadership at large public companies manage to the quarter and are penalized by Wall Street if they do not hit their guidance. They often do not have the luxury to change the ship’s direction drastically to sacrifice short-term revenues even if they know it is necessary for the long run. But if we start taking out the risk and prove that the model has demand, you’re going to see a domino effect.”
Pretty inspiring, big picture thoughts from Chen, aren’t they? What do you think of Chen’s vision of how Agri-FoodTech can reinvent the food supply chain? Do you have anything to add to the conversation? If you are a big thinker in supply chain innovations or know of someone who is, drop me a line at S.Leich@cs-partners.net. I’d love to hear all about it!
