Planting the Seeds

We had some seeds, but should we plant them first in Agriculture?  Agriculture and AgTech specifically is a tough space that faces headwinds (culture barriers where my family has been farming this way for 5 generations, to technical ones, to remote locations, capital availability, etc).  Controlled Environment Agriculture (CEA) is even harder due to the high upfront Capital Costs to even get started ($150M Greenhouse?).  “When we started Tendrel, we focused on CEA since since it had the most parallels to the world of Manufacturing and Fulfillment Centers where the work of 1 individual has huge impact in a compressed space.  We could draw on best practices from other industries and bring them inhouse.  It also had the added benefit of being a potential solution to the Environmental Concerns the world seems to be facing and can be done effectively in Urban locations (55% of the world lives in Urban locations today with this expected to increase to 68% by 2050).  There are cities embracing this concept of bringing CEA to the city proper with Singapore leading the way with their 30 by 30 Initiative having 30% of their nutritional needs grown locally by 2030.

If you are unfamiliar with the economics around CEA, let me describe it in growing tomatoes in a commercial greenhouse (most of us do not know the economics which included me at the start).  A 60 Acre Greenhouse could hold approximately 720k Tomato plants in 1k+ rows (500+ plants per row) with crop care handled by 200+ workers.  The plants grow during a full 50-week season and usually produce fruit weekly from week 11 on.  Generally, a plant will produce 25-45 lbs of tomatoes during this season (Yes, this can be higher depending on variety and grow strategies).  You can think of each plant as a renter in your facility and you need them to pay their rent every week.  If a plant dies you can replace it (losing up to 10 producing weeks) or just accept the spot as a non-producer.  For simplicity of math let’s say you will get 1 LB/Plant each week during your growing season using 40lbs as the seasonal yield.  You can sell those same tomatoes at $1/LB for Grade 1 tomatoes, $0.4 for Grade 2 (Less than perfect tomato), and $0 for Waste (note that it isn’t $0 for Waste since it costs to dispose of that waste).

A 60 Acre Greenhouse with perfect production (all top grade), perfect harvest, and perfect distribution has a top line possibility of approximately $29M.  The key levers to move the needle on profitability are to maximize yield, increase crop value, and lower costs.  Note, food security is a huge issue in every country in the world.  You just can’t raise the price of tomatoes to make a profit.   I won’t get into the particularities of increasing crop value since that usually leads to switching crop types or getting into specialty crops which changes the yield numbers and the cost structure.  I will stick to what I can influence in a growing season, yield and cost.  If I lose 10% of my potential yield to waste that costs $2.9M.  I jokingly refer waste as the “Money Booth” at a carnival where every dollar you don’t grab is leakage.  The second aspect of leakage on your yield is a lower tomato grade, $0.4/Lb vs $1/Lb.  These tend to follow the same issues that produce waste, inappropriate harvest, bad grow practices, disease, etc.  If you have 10% of your crop as Grade 2, that has cost of $600k (note that this assumes there is even a market for Grade 2 tomatoes).   Measured waste for many commercial greenhouses is between 5% to 25% and probably much larger if unmeasured waste was calculated in.  Unchecked disease can spread like the plague, and you lose 100% of your yield over a given timeframe.  True waste is hard to measure since it involves culled at processing, left on vine, dropped fruit, and though not tracked effectively, plant loss due to poor growth.

Using $29M as the top line the economic impact of 15% waste of tomatoes and 10% rated as grade 2 is about $6M of leakage.  This is our opportunity and to capture this, we must move waste to grade 2 and grade 2 to grade 1.  If we can move the needle by 1%, the waste to grade 2 win is $115k and the grade 2 to grade 1 win is $175k.   Move waste to grade 1 is $290k win. Could we come up with a way to capture that $6M without increasing costs significantly.  In a highly Automated greenhouse labor is 20-35% of your costs.  In a low Automation Greenhouse it is not uncommon for this number to be 40-50%.  A hyperfocus on software platform that optimized labor that spanned both manual and automated greenhouses via tools and integrations made sense.

Our idea kept coming together. But, could we move the needle?