email to Sergio Nunez 27 september 2015
It was really great talking to you last night; I think the conversation could have continued for hours without getting less interesting.
You got me thinking about a few things, so as I drink my coffee this morning, here is a little follow-up:
You asked about the goals of Abbottagra. Interesting because no one has ever asked that before. A few years back, when we started the Abbottagra project in 2007, my wife and I agreed on these 3 objectives: to afford to be able to keep both of us working full-time for the rest of our lives in jobs we enjoy (she likes people, I like plants); to create a company that actually has value, that can be sold when we are old to finance our retirement (Abbottagra as our only investment); to make quinoa a viable option for crop rotation and a widely available food for people who need more options (like celiacs).
The trigger for the whole thing was the realization that quinoa, as a crop and a food, had big potential but that it was held back by the absence of a reliable supply chain with the ability to make long-term commitments.
Obviously, to reach the goals we've set, we have to stay focused -- no other crops, just quinoa -- and the longer we stay focused, the better we will be at what we do; like a snowball. So we will be focused on quinoa alone for the rest of our working lives.
All my professional experience has been in the seed business, so that's where I get my vision of the world. In order to grow a crop, the farmer needs three things: genetics (contained in small packages called seeds); technical know-how (how to grow it, clean it, etc.); and a market. Abbottagra exists to create quinoa supply chains by providing farmers with these three things. For the genetics I've got an exclusive license for Wageningen's breeding work; for the knowledge I've got the experimental farm; for the market I've got contacts, wholesalers and agents.
A reliable supply chain cannot be built only on know-how and commercial opportunities; the coordinator (Abbottagra) can quickly become irrelevant and in the absence of a central coordinator the reliability cannot be assured -- it becomes a free-for-all. This is a serious problem for farmer co-operatives.
However, exclusive control of specific, protected, excellent genetics can alone provide the basis for a reliable supply chain, assuming there is sufficient legal infrastructure to enforce contract law and respect of intellectual property. With assured total control of access to the best genetics, it becomes profitable for a central coordinator (Abbottagra) to invest in the other pieces of the puzzle -- technical know-how and commercial opportunities -- without the risk of being circumvented. In the end, the exclusive license with Wageningen is our key asset.
So I set up quinoa supply chains in France and Spain, and have sub-licensees to set-up similar supply chains in the UK, Belgium, the Netherlands and Germany. Together, myself and the sub-licensees form what we call the European Quinoa Group, and we are each contractually obligated to honestly answer any question asked by another Group member -- a total transparency clause; no secrets between us. We meet twice a year and stay in contact through a private Facebook group where we share thoughts and pictures.
A fundamental rule of Abbottagra is to never hire anyone directly. The company's growth and development can only be done through contracting and outsourcing. This is relatively costly -- we know we could actually make more money internalizing tasks -- but in this way we stay very light, so we don't need much money to reach our goals.
What we are doing in Europe wouldn't work in the USA, Canada or Australia -- and definitely not in poorer countries. I know because in the seed trade Western Europe is by far the best market. It is really the only place where farmers are willing to allocate a large part of their production costs to seeds. This is not an opinion, it is a fact. The average price of asparagus seed farmers outside Europe buy is about 5 - 10 euros per thousand seeds; in Western Europe 150 - 200 euros per thousand seeds.
Why would that be? I think it is because, generally speaking, farms in Western Europe are relatively small, family operations with limited land and labor, both of which are largely owned and inherited outright by the family (very little rent or wages), and they have excellent access to bank loans because of the high value of their land assets. This allows and encourages them to think relatively long-term and small-scale. A small increase in expected returns is usually enough to justify a much higher seed expenditure.
In North America and Australia, farms are relatively large, lots of land, much of which on short-term leases, and a corporate structure with short-term minded investors and salary-motivated employees. I hate to be judgemental, but this does not lend itself to taking good care of the land, and it encourages decisions based on annual budgets for expenditures. Seed is an expense.
Selling seed in the US, I would be across the table from the potential customer, and he would start by saying "I have X acres I want to sow to this crop, so I need Y kg of seed; my current seed costs Z dollars/pound and I get a pretty good yield. Can you make me an offer on a variety that yields as good but the seed costs less?" In Europe, the farmer would start by saying "with my current variety I get X euros revenue per hectare with Y costs per hectare; a gross margin of Z. Can your seed get me a better Z? If so, I might buy it, and maybe even increase the acres I want to sow to this crop."
My system would not work in North America or Australia because access to licensed varieties is the critical element that holds the supply-chain together, and that access is not as highly valued outside Western Europe. American farmers would probably just select their own varieties and grow their own seed to get seed costs down, and they'll be happy with merely "acceptable" genetics. So I don't intend to seriously expand my production operations outside Western Europe; too risky; I know I would quickly lose relevance.
Similarly, I fear your processing plant will not hold a supply-chain together reliably because it is even easier to change processing plants than to change varieties. You can't expect to maintain control. A serious, ambitious and profitable grower will get around you -- it is impossible to control the market and the know-how. Once he gets it, a grower will only need some money to buy processing machinery or convince an existing seed processor to do it cheaper than Andean Naturals. He may use you to get the market and the know-how, but you can't keep him loyal.
I also don't think you will be able to import dirty quinoa from abroad and process it in your plant. Semi-clean quinoa contains bugs, disease-ridden bits of stem/leaf, and weed seeds; USDA will give you a lot of trouble at the border.
Still, my gut feeling is that your primary hesitation on trading European quinoa is based on the investment you've made in your US processing plant. You would probably like to see a fully-integrated, controllable supply-chain form around your plant, and in that case European quinoa might be competition. I personally don't think that is possible for the next several years (until the market matures). I think that in the US, independent producers like Lundberg will spring up everywhere, and US production will be about as messy as South American production. In this unorganized context, with alternating surpluses and shortages and volatile prices and qualities, how much area can you lock into your own project? You have to have sufficient area to spread production risk, otherwise you can't forward contract. With this risky crop, I'm talking thousands of acres spread over a large area. To fix prices far ahead of time, you must be confident that they will continue to be dependent on you for something.
I do think your plant will be successful. There will be an increasing demand for saponin-removal service and marketing help as players cautiously move into the sector. Your plant will thrive. I just don't think it will be a sufficient anchor for long-term fixed-price forward contracting. I think it is an awesome way to be a significant seller of "local" US-grown quinoa in a high-value market segment, similar to your fair-trade Bolivian segment.
All I'm trying to say is that I really don't want you to hold back on European quinoa only because of your US processing plant. I've built up something over here that can't be replicated outside Europe anytime soon; I want you to be a representative for European quinoa, as a complementary diversification with respect to your South American and US production projects which have other stories and roles to play. Mine is to bring stability and through that stability grow the mass market. That will benefit other projects.
Another question you had was whether I thought Californian rice growers would benefit from introducing quinoa into their crop rotation. The short answer is this: the single most fundamental ingredient in sustainable farming is crop rotation; you won't find anyone to contradict this statement. The greater the diversity of crops that is grown on a soil in consecutive seasons (or the same season if possible), the healthier the soil, the more sustainable its fertility. This is especially true in conventional farming because growing the same crops often means using the same chemicals often and the same timing of tillage operations. A soil, like a body, can handle limited doses of about anything, but anything in excess leads to problems. So yes, I am certain that rice growers would benefit from introducing quinoa into their crop rotation, and the benefit, in terms of sustainable fertility -- would be directly related to the amount of chemicals, machinery traffic, and frequency of rice in their production system. It's kind of ironic; but I'm pretty certain that conventional quinoa has a greater effect on a region's land than organic quinoa, simply because conventionally farmed land is usually in greater need of rotation.
Well, my coffee cup has been empty for a while now.
email to Sergio Nunez 30 september 2015
That's great you are booked for Cincinatti.
A couple things to keep in mind about dealing with Abbottagra:
significant contract or purchase will not be signed by or billed by
Abbottagra, or at least, Abbottagra's signature would not be enough. It
is obvious that I don't have the capital to back up a comittment: In
case of a default on the contract, it would be pointless to sue
Abbottagra because I would just go bankrupt and disappear. I recongized
early on that a large buyer would want to work with a large seller, an
organization that has a huge insurance policy and a large enough balance
sheet to assume massive risks. So billing large customers and signing
large contracts is -- like most everything else I do -- outsourced, a
service for which I pay. For French quinoa, it is the farmer cooperative
whose members are my growers and who collectively own the processing
plant where I have most of my French production cleaned. For Spanish
quinoa, it is Algosur, the cotton ginning company that my spanish
growers use for their cotton, and which has built a processing facility
to make it possible for those cotton growers to diversify into quinoa
Now, it may appear that Abbottagra is an agent and consultant of these two large, well-financed organizations. Or, like Mark Artz, a match-maker hoping to take a cut. That's fine with me if it appears that way to your customers, if it reassures them. What I want you to remember is that in both cases Abbottagra has total control over the production, prices and commercialization of the quinoa handled by both organizations. The reason is simple: in each country, I have promised that I will not provide my unique services (genetics, know-how and market -- the most "exculsive" of which is the genetics) to any rival organization's growers in France or Spain, respectively, and that my payment for their services will not be merely a fixed fee but a percentage of the total value of the business we do together. The contract I have with them creates true partnerships but the roles are clearly defined: They have total control over the means they employ in collection, processing and storage of the grain to meet the product specifications to which we agree (for example, they choose the model of the density table or color sorter and do not need to ask me to approve the expenditure -- their percentage of the business must cover such choices). Only Abbottagra can decide how much area will be sown using my license to specific genetics, the techniques and know-how that will be employed (for example, the production contract can include obligations and restrictions regarding fertilizers and insecticides), as well as the choice of customers and terms of sale. Obviously, if they do not agree, they can refuse to produce quinoa for Abbottagra's supply chain; I have to make sure they are happy and profitable if I want to keep them.
I line up a customer for a 2017 production contract, and my big partner
agrees to sign the contract for specific volume, price and
specifications, my partner is legally bound to the customer, and I am
obligated to provide the genetics (contract production for the required
area) and know-how needed to fill that order. My partners know I am too
small, financially, to back it up, but the growers that control these
organizations are highly motivated by the exclusive access to my
genetics. There is obviously a big element of trust, and I think it is
developed and maintained because I directly provide the growers with
fresh agronomy information; this regular contact is probably the basis
for the trust. They do not seem concerned that I would hurt them.
the scale that this system is able to mobilize, there remains one
potential risk for a customer having secured a forward contract: that
Abbottagra would lose the license to the varieties. The license is very
secure, because I have agreed to pay an unusually high license fee in
return for an indefinite, transferrable license. The only "exit" for the
breeder is to buy back the license, but I would have to be willing to
sell it. Still, to make sure this risk does not hurt the system,
Abbottagra has the right, in the license, to OWN the plant breeders
rights of up to four varieties. So far, I have taken this option for
Jessie. To avoid any conflict of interest, I pay a license fee to the
University even when I use an Abbottagra variety, as if the rights were
owned by the University. But, in the unlikely event that Abbottagra and
the University get divorced, Abbottagra remains the owner of the four
varieties. For my partners and long-term customers, the fact that
Abbottagra actually owns some varieties should be comforting, even
though it would only matter in the case of a problem between Abbottagra
and Wageningen University.
Sounds good, right? The
problem is, as I've told you, I'm a shitty salesman. I know I just got
lucky. No one would buy my quinoa until the South American prices went
through the roof in june 2013. Now that I'm in the market and have some
forward contracts, I am about certain that buyers will reneg since I'm
more expensive than South America. If I can't get market, I have 2 big
issues: I will not have enough growers within my partner organizations
to keep interest high on their end for collective investment and
comittment, so I end up with the problem of having to contract and bill
customers as Abbottagra -- and I'm too "light" for the large customers.
Second, there aren't any other serious quinoa producers in Europe
outside my system today, and I know it is because there is not room --
my system is pretty big and could easily triple or quadruple in size
within a single year. Many other farmers and organizations have asked to
be on the inside; when I refuse, they drop the idea of growing quinoa
altogether. It was also just a matter of luck: I had everything set up
in France (and stock) when the world quinoa shortage hit in 2013. By the
time others noticed it was an interesting business they were already
too far behind. If the shortage had hit only in 2014 I would have
already gone broke. If I fail, others will step in, and I'm not sure
they'll do it the way I want it to be done.
why I need your help Sergio. You have both market contacts and ethics.
You can introduce the concept of forward contracting to large firms in a
way that keeps my quinoa flowing where it needs to go, at sufficient
volumes, without wreaking havoc. I really don't want anyone to get hurt;
I don't want my quinoa to be a substitute for smallholder quinoa that
can pull people out of abject poverty. Nor do I want the need for a
large, secure supply to force industry consolidation in South America
wherein small farmers will be abused and squeezed to death. I wouldn't
mind running those short-sighted coastal players out of the quinoa
business, but I know they're better positioned than I am to get the
If I were a good salesman, I could
say in a few bullet points what has taken me 45 minutes to write in this
email. I wouldn't even try except you said read my last email, which
was already long and confusing, and it does not seem to have scared you
I swear I'll stop with this one and leave the rest for Cincinatti !