Synthetic Fertilizers Bad, Organic Fertilizers Good
They say that the easiest investment themes to peddle are those that combine a coming catastrophe (that only a select few have the keen insights to see coming) along with a way to get filthy rich. It’s an interesting psychological phenomenon which suggests that not only do we all want to be rich, we all want to be rich and see all those morons who were “wrong all along” lose all their money in the process.
One such investment thesis might be gold, where it’s often sold as the last vestige of true value. When all the global currencies collapse because of some black swan event, you’ll be one of the few astute investors who managed to see it coming, and now hold a large chunk of society’s remaining wealth. This proposition is then packaged up and sold – usually in newsletter form – alongside the latest news headlines about whatever global political turmoil happens to sound the most threatening. All the market’s uncertainty is channeled towards the coming collapse as you continue to “buy more on dips”.
It’s not the worst investment thesis frankly (that award goes to utility tokens), but we have another one that might be of more interest because it involves cleaning up the planet we occupy. The 20,000-foot view is that we have a ton of people on this small planet and the number is climbing faster every day. In order to feed all these people without destroying the planet, we need to invoke technology. Let’s take fertilizers for example. Without fertilizer, the world’s food production would be cut by 48%.
Nitrogen, Phosphate, and Potash
Plants derive their nutrients from soil, and the three main nutrients used by plants are nitrogen, phosphorus, and potassium. A United Nations report on forecasted fertilizer demand shows the proportion of demand for each of these main nutrients:
As you can see, nitrogen is the largest segment in the fertilizer market at around 60%. When it comes to which regions use the most fertilizer, these numbers are skewed towards Asia. According to MarketResearch.com, the Asian fertilizer market in 2016 accounted for around $110 billion or 57% of the total market due to the “presence of large farming communities in China and India using fertilizers.” By now you’re probably thinking, so what? Here’s why all that nitrogen being used for farming is a concern.
Synthetic Fertilizers vs. Organic Fertilizers
While “synthetic fertilizers” may sound innocuous, they’re not. Synthetic fertilizers are man-made, inorganic fertilizers that are typically derived from the by-products of the petroleum industry. The use of synthetic fertilizers is said to be a key contributor to “dead zones” that occur in our oceans. These are areas where there isn’t enough oxygen to sustain life. You can see the ocean dead zones, more than 500 of them, represented on the below map in the form of red circles:
The biggest dead zone in the world was only recently discovered in the Gulf of Oman – in fact, it pretty much is the entire Gulf of Oman, an area that’s around the same size as the State of Florida. That problem is directly caused by the synthetic nitrogen fertilizers that are used to produce half of our global food supply. In other words, there won’t be any line-caught sustainable sea bass on the menu for Sunday brunch if this keeps up.
While we can easily convince Western people to pay more for organic food that doesn’t use these synthetic fertilizers, good luck telling an Indian rural farmer that he needs to pay a 20% premium and buy organic fertilizer because you have a penchant for steamed sea bass. The key to solving the problem will be to sell the Indian farmer a product that is cheaper than synthetic fertilizer and better for the environment. That way, even if those dead zones aren’t caused by synthetic nitrogen fertilizer, the Indian farmer still wins by getting a cheaper fertilizer, the company that produces the fertilizer makes a profit (hopefully), and the investors in the venture can pat each other on the back about how sustainable they are. Everyone wins. That’s the idea behind “organic fertilizers.”
Things can quickly get fuzzy when you start to talk about what constitutes “organic fertilizer”. Something like compost comes to mind, but what if that compost contains trimmings from vegetables that aren’t organic? That’s actually one of the key problems with organic fertilizers. Not only do they cost more, but the ingredients vary so much that you never know what you’re going to get. They’re also messy to apply, and consequently not as concentrated in nutrients as the synthetic fertilizers are.
The better way to think about this might be to ask the question, “how can we provide the nitrogen a plant needs to grow without using so much synthetic nitrogen?” That’s where our next startup comes into play.
Through the power of biology, machine learning and computational modeling, we reawaken microbes’ natural ability to convert nitrogen from the air to meet crops’ daily nitrogen needs. – Pivot Bio
Founded in 2010, San Francisco startup Pivot Bio has taken in $86.7 million in funding so far from the Bill and Melinda Gates Foundation, agriculture giant Monsanto, and Bryan Johnson’s Os Fund. The most recent round of funding came in the form of a $70 million Series B funding round that just closed today.
Pivot Bio optimizes microbes’ natural ability to produce nitrogen for corn crops. A few years back, we wrote an article titled The Microbiome Defined and Understood Using A.I. which points you in the general direction of what Pivot Bio is trying to do here. It’s the same thing that the world’s biggest agtech company, Indigo, is trying to do as well. Using machine learning, startups like these can figure out how to engineer microbes to do cool things. In the case of Pivot Bio, that means engineering microbes that help a plant meet its daily nitrogen needs while using less synthetic fertilizers.
After five years of testing in the lab, greenhouse and small plots, Pivot Bio launched its field-scale beta testing program with farmers across the Corn Belt in 2018. (“Nitrogen is one of the most expensive nutrients applied in corn production” says Farmers Business Network. That’s because corn needs lots of delicious nitrogen to grow.) Next year, they plan a limited launch of their nitrogen-producing microbes that are applied in-furrow at planting. We still have to use synthetic nitrogen fertilizers, just less of them. It’s a good start to fixing the problem, especially when you consider that the ocean’s dead zones are reversible.
While the words “climate change” have suddenly become politically charged – along with just about everything else in ‘Murica – both sides miss the point entirely. Who cares if climate change is real or not? As someone once said, “wouldn’t it be a shame if we were wrong about climate change and all we ended up with was a clean planet?” Fair point, but the real world tells us that nobody will adopt any solution that’s better for the environment unless it has an economic benefit. That’s the sweet spot for all you newly-minted MBAs out there who want to change the world. Less sustainable marketing, more economic benefit. Find something that’s better for the environment and costs less than the alternative. Then go sell it to the hundreds of millions of Indian farmers out there. As someone else once said, “sell to the rich, live with the poor – sell to the poor, live with the rich.”
Looking for lower transaction costs? Zacks Trade is offering $1 trades for U.S. stocks and options for one year after you open an account. After a year of dollar trades, you'll pay just $3 a trade or a penny a share, whichever is greater. Zacks Trade is one of the cheapest brokers out there and we use them to trade stocks on over 90 foreign stock exchanges. Click here to open an account.