Tackling enteric emissions part 4: the unlock codes for adoption

May 16, 2022

This is the fourth post in a short series I’m writing as I learn and think ‘out loud’ about viable solutions for reducing or eliminating enteric methane emissions from livestock, and whether & where a venture-scale opportunity might exist. To catch up, start with the size and shape of the problem, the solution space, and then why intervening directly to modify the rumen is a promising area.

Today, I’m looking at how to evaluate solutions within the “biogenic interventions” category and asking questions about what it would take to deliver impact at scale. I appreciate that there are many different ways to directly modify the rumen, though by far the most talked-about and researched is feed additives, so I’ll focus there.

First, the science

If you’re paying attention to the environmental credentials of beef and dairy, it’s likely you’ve heard about how asparagopsis, a type of red algae (seaweed), can be fed to cows to reduce the amount of methane they produce through their digestive process. This discovery (which happened somewhat by accident, as the story goes) led to a study published in 2014 that demonstrated, in vitro, seaweed’s potential to reduce methane emissions by 12–16%. From there, we’ve seen a surge in research and investment activity into asparagopsis specifically, and other feed additives more broadly.

It’s early days and we lack long-term studies, but so far there are some compelling results. The meta-analyses of the research on both asparagopsis and a synthetic compound called 3-NOP (produced by DSM and branded as Bovear® in the EU) demonstrate a consistent 20%+ mitigation of enteric methane production. Dietary nitrates follow just behind, with consistently demonstrated results of ~10%+ mitigation. The rest fall into either the “not promising” or “not enough evidence” categories so far (see below, from the same paper).

But, demonstrating the methane inhibiting effect is only one of the scientific questions we must ask. Active areas of important research include questions like: will rumens adapt over time, thereby reducing the methane mitigating effect? And, are the products toxic, either to cows or humans (e.g., if they end up in the milk/meat)?

Another critical question is whether these additives have productivity benefits. So far it seems the answer is that a productivity bump makes sense based on how the additives work, but the results are not conclusive enough for companies to make claims.

Finally, translating cutting-edge science to real-world impact is far from straightforward. Most of the studies to date have been in labs or small-scale trials. To give the industry confidence to adopt, we need to move into commercial trials. We must look at the whole system in which cattle exist to figure out how, why, and when products could end up in a cow’s rumen.

Second, the market(s)

Most of the studies and trials to date have included the feed additive in *every bite* of food that a cow takes. But is this practical in the real world? Well, it depends. And it’s complex.

For dairy cows, it might be, as they’re already coming into the shed/barn regularly for milking. Same for feedlot beef cattle. The challenge, though, is that rations change all the time and vary across local conditions. Some operations mix their own rations, perhaps sourcing by-products from nearby factories or farms. Others buy premixed rations, adding specific nutrients as needed. All of this is changed, sometimes daily, by in-house or commission-based nutritionists and feed consultants who are striving to balance cost, availability, and performance. Local trials and dosage flexibility will therefore be key considerations for adoption.

For cow/calf operations in the US or extensive grazing systems in Australia, as well as most of the grazing cattle in developing countries, the dynamics are very different. These animals, which are responsible for the vast majority of enteric ruminant emissions, might receive supplemental feeding and nutrients at times during the year. I don’t see a practical way of getting a feed additive into each rumen every ~6 hours. So, without changes to dosing or entirely different ways of getting the product into the rumen, these markets are inaccessible.

Finally, the above fragmentation is further complicated by the fact that different geographies have different regulatory systems and approval processes.

Most important, the business model

The most obvious business model for these additive companies is to produce it as cheaply as possible and sell it to producers through established feed supply channels. I think the likelihood of this being a venture-scale approach is very low for several reasons.

Production is capex intensive (not to mention the environmental credentials of scaling up seaweed production specifically are questionable). Established market structures will lead to price pressure, and perhaps a race to the bottom. And most importantly, without the ability to claim a productivity benefit, the value proposition to producers (versus the cost of adoption) just doesn’t stack up. In the vast majority of cases, the benefit of the emission reduction doesn’t move the needle on a producer’s economics. In other words, we have a classic user vs. beneficiary problem.

While the farmers/feedlotters are the users of the product, the real beneficiary of the methane reduction effect is the downstream value chain: the processor, packer, or brand who wants to make a claim to their consumers and/or for their scope 3 targets. For the feed additive companies, this introduces new considerations such as:

  • What influence does the beneficiary (e.g., brand) have on the user (e.g., farmer)?
  • How do I design an incentive that’s strong enough to overcome the barriers to adoption that users face?
  • What recognized method will be used to claim the emissions benefit, and how do I make sure my product is included in the method?
  • Who’s my actual customer, across markets and within specific companies (e.g., sustainability vs. procurement vs. innovation)?
  • What am I actually selling: a program, a product, a credit, or?

Summary: ripe for business model innovation

Ultimately, the science seems to stack up on the emissions reduction benefit in at least a few cases. But given the fragmented markets, each with unique considerations, flexibility across formulation methods and dosage will be an important differentiator. I’m currently not seeing many companies focus on this yet.

Most importantly, for a venture scale solution, there needs to be some kind of incentive from downstream that drives the adoption of these products. For companies and investors in the space, that means the unlock code lies in business model innovation.

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