Private equity prepares to follow organic farmers into the mainstream

Agri Investor | Article Link | August 2, 2018

Accelerating changes in farming techniques will create a wider market for biological inputs, says Pam Marrone, chief executive of Ospraie portfolio company MBI.

As techniques commonly used by organic farmers are imported in mainstream agriculture, private investors are preparing to move in, according to the chief executive of Ospraie Management-backed Marrone Bio Innovations.

A case in point is the biological inputs sector, which Pam Marrone sees as playing “a significant part” in a future where the search for yield and quality won’t be met through chemicals or GMOs alone. Large ag corporates have said it and investors are increasingly getting the message, she noted. “Private equity is very, very active right now in this sector.”

Organic farmers were the early adopters of MBI’s products since the Californian company’s founding in 2006 and the growth of organic agriculture remains an important engine for the firm. Nonetheless, Marrone estimated that about 80 percent of biologicals are currently used by so-called “mainstream” growers.

“Most conventional growers I talk to say that they know that if a product works on organic, it’s probably going to work on conventional.”

Following a sharp drop in its share price brought on by a fraud committed by one of its former senior officers, March saw New York-based Ospraie lead a $75 million recapitalization for MBI, in return for what a market source told Agri Investor was a 30 percent stake.

MBI uses proprietary technology to isolate naturally-occurring micro-organisms and plant extracts that have novel characteristics from flowers, insects, compost and other sources.

Six of the company’s seven crop protection and enhancement products are devoted to agriculture, Marrone said, explaining that the outlier is Zequanox, a microbe that combats zebra and quagga mussel infestation in lakes and industrial water facilities, and has already been sold for use by a power plant.

In specialty crops, Marrone said MBI has focused on a set of eight: potatoes, leafy greens, fruiting vegetables, citrus, berries, palm fruit, nuts and grapes. For row crops, the company has worked with partners to develop seed treatments, Marrone said. “The common wisdom is that biologicals are really nichey and narrow and that’s not the case with ours.”

Idea required
Because its business depends on commercializing cutting-edge breakthroughs taking place in science, Marrone said MBI carefully monitors universities, research institutes and entrepreneurs.

“We’re agnostic to who discovers something,” Marrone said, adding that MBI’s current product line is a mixture of proprietary and outside discoveries. What matters, she argued, is “getting it to market quickly.”

One benefit of Ospraie’s investment, according to Marrone, has been the firm’s decision to set up a separate vehicle to invest in promising companies and research that do not fit squarely into MBI’s strategy. Rather than seeing the vehicle, dubbed Ospraie Ag Sciences, as a competitor, Marrone said it is exciting that MBI is now in a position to support others that can help the overall market grow faster.

Ospraie’s more direct impact, according to Marrone, has been on its effort to get more farmers to use its products, which MBI sells to distributors and retailers. This has required MBI to translate their effects in economic terms.
“That’s how we are going to attract the mainstream grower. They are also interested in resistance, ease of export and labor flexibility, but the real driver is that bottom line.”

Bang for your bio
MBI has calculated, for example, that use of its Regalia product can help translate into a return on investment ranging from 3x and 4x for corn and wheat, respectively, and up to 9x for strawberries. For almonds, MBI calculated that its Venerate product can contribute to a 35 percent increase in yield and up to a 20x return on investment.

Marrone said MBI has benefitted greatly from access to Ospraie’s wide agricultural network, both domestically and throughout Latin America.

“Ospraie recognized that we had the science down and that now our job is to focus on the commercial side, and that is about adoption,” said Marrone. “Eighty percent of the [US] acres of the acres are controlled by 20 percent of the farmers, so for us as a little company, we can grow by accessing the top large farmers.”

2018-08-17T16:47:15+00:00