Most sustainability startups struggle to find sustainable business models

Towing, however, has found their solution, and their customers are seeing 20% to 70% increases crop yields.

Today we sit down with Towing co-founder Teppei Okamura and he explains why even such a drastic yield improvement required an innovative production and distribution model to achieve scale.

We also talk about the advantages (and the challenges) of working with university research teams, how environment policy and carbon credits affect innovation in sustainable agriculture, and Towing’s joint research project with JAXA, Japan’s space agency, on developing farming in space.

It’s a great conversation, and I think you’ll enjoy it.

Show Notes

  • How Towing is revitalizing depleted agricultural soil
  • Achieving and verifying 20 to 70 % yield improvements
  • The pros and cons of research collaboration with Japanese universities
  • The high-tech business model behind dirt
  • How to develop the economic incentives needed to make sustainable agriculture profitable
  • Towing’s distributed business model that reduces storage and distribution costs
  • Farming in space and the most important part of getting it to work
  • Why Japan is a good market for Agtech startups
  • How carbon offset pricing influences sustainable agriculture
  • The advantages of starting a startup when the economy is good vs when times are bad.

Links from the Founder

Transcript

Welcome to Disrupting Japan. Straight Talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Cheaper Than Dirt.

Well, anyone who works in modern agriculture will tell you that’s not necessarily very cheap these days. Maintaining soil quality is hard and soil revitalization is expensive. Well, today we sit down and talk with Teppei Okamura, co-founder of Towing, a startup that has developed a sustainable and affordable soil additive that is resulting in a 20 to 70% increase in crop yield and is now being sold to farmers throughout Japan.

And Towing addresses the common scalability challenge that these kinds of agricultural tech startups inevitably face by using an innovative production and distribution model that should allow them to achieve meaningful and perhaps even global scale.

We talk about the challenges of launching a university spin out using licensed IP, why so many genuinely innovative agTech startups never managed to reach sustainable commercial scale, and about Towing’s ongoing collaboration with Japan’s space agency to develop the technologies and protocols to make agriculture and space a reality.

But, you know, Teppei tells that story much better than I can. So, let’s get right to the interview.

Interview

Tim: So, we’re sitting here with Teppei Okamura of Towing, who’s using microorganisms and bio charcoal to revitalize agricultural soil. And thanks for sitting down with us today.

Teppei: Thank you. Thank you for inviting me.

Tim: I gave just a very, very high level explanation of what Towing does, and I’m sure you can explain it much better than I can.

Teppei: What we produce is artificial soil. Basically we make soil from bio-char, which is made from any like organic materials and like waste from rice industry or like chicken industry or any waste. The organic waste can be used and we grow our basic microbes in the bio-char. And we make that into very good soil or good soil additives, especially good for organic farming.

Tim: And from what I understand, while it can usually take up to five years to revitalize agricultural soil Towing’s process can do it in in one month.

Teppei: Yes. Usually like making soil farm takes very long time and it’s very complicated organism. It’s like a black box. So, it’s a little hard to know what condition the soil is now. It takes long time, but still like many farmers fail to make a good soil. But with our soil additives, when farmers put our soil additives in their soil, like it changes their physical structure of soil. And also it gives good nutrient, also it gives good microbes with the combination of those and it can make the soil into very good condition within very short time.

Tim: From what I understand, your customers reporting yield improvements anywhere from 20% to 70%?

Teppei: Yeah, it varies. Like it really depends on the soils they use and crops and also fertilizer they use. And also when the soil is already very good condition, it’s a little hard to make it better.

Tim: So, the 20 to 70% really depends on the more on the condition of the original soil.

Teppei: Yes, yes. In the reality, not so many fields are in best condition with our soil conditioner. Those like rich soil can be even richer and like poor soil can be richer.

Tim: So, tell me about your customers. Who’s using this soil?

Teppei: There are many types, but like rice farmers, tomato farmers, strawberry, it’s actually applied for any crops. But it’s better for farmers who use organic fat rice more or who has high value product.

Tim: Alright, well tell you what, I want to get into a deeper dive on the market and the technology in a minute, but before that, I want to talk a little about how Towing was founded. So, you and the team are still relatively new. You just launched out of Nagoya University back in 2020, right?

Teppei: Yes. So, at that time our Kohei Nishida was a student master and I was a researcher and actually I was in the same study group, but I’ve already done my doctorate degree. At the beginning, like we were more focusing on the agriculture in space actually.

Tim: I definitely want to get back and talk about agriculture and space in a minute because that’s a really interesting topic. But, so the founding team, everyone was part of the same study group in Nagoya University?

Teppei: Three are from our study groups and two are from car industry actually. So, they’re engineers.

Tim: So, my understanding is the core technology, or at least some of the core technology that towing is using was developed by the National Institute of Agriculture and Food Industry.

Teppei: The original technologies was invented by the institution and our study group was a research member, Nagoya University and that institution, we were studying that technology together.

Tim: And so how does this work? I know a lot of Japanese universities are really focusing on commercializing their research, commercializing their IP. So, is the institute still involved in the startup? Are they licensing the IP? Are they investors?

Teppei: Yeah, the regional professor, he was the advisory kind of position because that institution of the patent, so we had to work out patent right matter. So, we sometimes asked him for advice.

Tim: So, what is the structure of the patent licensing?

Teppei: Basically there were three or four companies who used to use that patent attend. So, we had a contract to license and we made it like four only those companies who had been using that patent.

Tim: So, the companies that were already using it could continue to use it, but they couldn’t license it to any further companies other than Tokyo.

Teppei: Yes, exactly. That’s the way we were making the contract. But that’s the only for the first patent. Like after that we’ve been doing a lot of development on that technologies. So, we also have patents for like business model or patents for the extended technology.

Tim: Is Towing still doing like joint research and development with either Nagoya University or the institute?

Teppei: Basically we do study with Nagoya University and we have laboratory in the university.

Tim: Excellent. Let’s talk a bit about the overall market and the business model. So, I mean, bio-char is pretty common. A lot of companies are selling it. So, what’s different about what Towing is doing?

Teppei: Our technology is adding value on bio-char. Like bio-char is like already used in agriculture sector as a soil conditioner, but sometimes they have problem because it has high, pH, that’s alkaline type of material. So, when you use that bio-char too much, it’s actually not good for crops. So, we add microbe in it and make good soil conditioner that makes soil field faster than like just bio-char itself.

Tim: Is your long-term goal to produce the enhanced bio-char product and sell that to the farmers directly? Or is your goal more of to sell the technology and the service to the companies already producing bio-char to allow them to produce a higher value product?

Teppei: At the moment, like we actually sell products to farmers but our main business model is we don’t have plant. We let customers have a plant, for example, like chicken industry company producing eggs or like chicken meat. They have lot of waste and they have to get rid of that every day. Some of those company have like high cost throwing those material away. For those company we offer a service introducing a plant to produce soil additive made from bio-char so they can have like bio-char furnace.

Tim: That’s interesting. So I mean, with bio-char being, as popular as it is now, do a lot of these factories and farms already have bio-char furnaces?

Teppei: Yeah, it’s getting more common. Some those agriculture companies, they have those bio-char furnace.

Tim: That’s interesting. And so actually let’s walk through the whole business model of this then. So, if a poultry processing plant, if a chicken farm is producing bio-char, they’re not selling it to farmers, what are they doing it? Are they using it directly? Are they selling it to a chemical company?

Teppei: Often they sell that to farmers, but in some cases in terms of carbon fixation, they have service to put that carbon under the ground so they can have a carbon credit. That’s another type of business for them.

Tim: From the farmer’s point of view, is this something that they just apply like fertilizer? Is it something they do every year, every five years?

Teppei: Every two years will be good, but that’s for conventional agriculture. The other cases, farmers who want to change their agriculture style into organic farming, like they want to maintain their soil like sustainably and also use more sustainable fertilizer, these days like artificial fertilizer is getting more expensive, so organic fertilizer is getting more competitive.

Tim: So, let’s talk a bit about the economics of it. How much does the soil cost? How much does it cost the farmers to use it to revitalize this land?

Teppei: We think it’s going to be almost the same as compost. It’ll be almost the same price.

Tim: I mean, that’s amazing. In terms of a future target currently, is it still pretty expensive or where are you now on bringing the cost down?

Teppei: We can say at the moment now it’s almost, I think double the price of compost, I think. But our method like process of making soil additive is quite similar to those compost commodities. So, the matter is the size of the plant, those compost plant has very big scale. So, we have to have same scale of case price should be almost about the same. And when it comes to using waste, there are industry which has more cost on wasting things, in that case material could be cheaper or material can even give income.

Tim: That makes sense. I mean, you are competing for the same feedstock, you’re competing for the same resources as conventional producers of composts. So, it’s natural the price would level out. How scalable is this business? How much bio waste is produced each year that can be turned into this kind of soil? So, how big can this business scale?

Teppei: The market is really big as a soil additive or soil conditioner. The market is really huge. Tens of billion dollars, like big, big market.

Tim: One thing that seems to be a challenge in this business, just looking at it from outside, is that the input materials you need, the biomass, the sewage animal wastes, those are all spread out all over the world and they tend to be in very rural areas. And it would seem that collecting them would be very expensive and inefficient and not particularly good for the environment. So, how does this scale up into a large operation?

Teppei: Yeah, that’s actually very important point. I mean, in terms of collecting organic material is not problem because nowadays most of industry is produce lot of things at one place. For example, industry which make drinks, they produce lots of waste so we can obtain the material at one place. So, having waste material is not that difficult.

Tim: Will you be setting up your own processing plants co-located at poultry farms and food processing factories? Is that the plan?

Teppei: So, far it seems most effective business model. Company who has lot of waste can be our customer. They can have plant and we can offer our service to them.

Tim: So, I want to understand the business model. So, let’s take a poultry processing plant, chicken farm. Who is whose customer? So, are you operating a plant on their facility and then taking that bio-char or are they operating a plant on their facility and paying you to use your microbes and your treatment?

Teppei: Well, we have a contract with those companies who has a lot of waste. They install those bio-char farms and plant to produce our soil additives. So, they sell those soil additives to farmers around them.

Tim: The poultry processing plant is selling the soil to the farmers.

Teppei: Technically we sell soil additives to farmers. It’s not physically because they have plants and they physically make those materials. And we do marketing to farmers.

Tim: Yeah. So, Towing is the one with the relationship with the customer, with relationship with the farmers. And when the farmers order the enriched soil, it gets shipped out from a local agricultural plant to the farmer?

Teppei: Yes.

Tim: Okay. So, there’s no need for kind of centralized processing or centralized storage.

Teppei: Yeah, exactly. So, as you told me, like distribution is little hard point. So, important thing is finding company producing lot of waste and around that company we need farmers. So, it’s the best, like there is big agriculture around and there’s an industry of processing organic material. So, that combination gives the best business location.

Tim: That makes a lot of sense. Let’s get back to agriculture in space. You mentioned that this is something the original research group was really interested in and it’s a fascinating topic. So, tell me a bit about agriculture in space.

Teppei: We also do space farming thing as well. The main idea is usually for those astronauts, what they eat is really expensive. Like when they have like one piece of bread that cost say like $10,000 each because you have to bring it to space. So, when we have a people on the moon for example, it’s going to be like more expensive. So, if we have say 1000 people on the moon, we need to produce food in space, we have to do recycle. When we eat food, we get waste and we have to make that waste into food again. So, for that cycle, we actually have to do organic farming.

Tim: Well, I mean that makes sense just from the input and output point of view. We’d have to do that, but I mean, just thinking about it, can plants even grow in space? I mean, do seeds even know which way is up and where to come out?

Teppei: Yeah. So, they actually grow in different way, but they can grow and there is a way to give a gravity on those plants, like with a rotation and things.

Tim: Oh, so you spin them?

Teppei: Yeah, but that’s not our study topic, but that is actually possible to produce those crops in space.

Tim: So, are you working now with JAXA or with NASA on some of this research?

Teppei: Yes, we have a project called Test Food-a-Sphere with JAXA, that’s like a consortium. Our part is that soil pot cultivating those vegetables in the like closed system.

Tim: So, what’s the most challenging and important thing about soil suitable for space agriculture?

Teppei: The most important thing is efficiency of recycling green material. So, we put like 100 amount of material we want close to a hundred output. And also as we are stable, what do you say, like, in terms of using the energy efficiently, the temperature would be of change with the time. That’s also our task to solve.

Tim: It strikes me that in general Japan seems like a really good market for AgTech for agricultural technology. People are willing to pay high prices for quality food. Food quality in general is very important in Japan. Have you found more interest in this technology from Japan versus the interest you’ve seen from overseas?

Teppei: Of course, like in Japan, consumers are aware of quality of food, but not everyone cares about how it’s made. I mean, if it’s organic or not, people choose organic one if the price is same, but if the price is double, not many people choose organic one, I think it’s the same in any countries, I think.

Tim: So, are you getting a lot of interest in this technology from overseas as well?

Teppei: Yeah, recently there is a demand from the carbon credit market like making the industry sustainable. In that context, our technology is very useful. Agriculture in Japan, not many companies have been working on those carbon credit market. There are still lot of opportunities in agriculture sector.

Tim: That makes sense. Well, listen, Teppei, before I let you go, I want to ask you what I call my magic wand question. And that is, if I gave you a magic wand and I told you that you could change one thing about Japan, anything at all. The education system, the way people think about risk, the general attitude towards innovation, anything at all to make things better for startups and innovation in Japan, what would you change?

Teppei: I would say economic. I think if there is a good economic environment that’s the best for startups. Like Japan has been experiencing long time recession and that’s worst thing for startups.

Tim: Obviously economic growth is good for everyone, but do you think that’s important for startups because of increased investments or more people trying new startup technology? Why would economic growth be so helpful?

Teppei: Demand makes inventions so with good economy people want more things. So, company makes something for them.

Tim: That makes sense. It seems like it should be true, but I can’t help but think in the seventies and the eighties, the economy in Japan was great. It was like this bubbly time, but there weren’t a lot of startups in Japan then. It was all the big Keiretsu companies.

Teppei: But I feel there were many inventions. Car industry, like electric industry. They made a lot of things like even the bad products, good products. When I think of all time there were various thing in Japan.

Tim: That’s a really good point. Even though there wasn’t a lot of startups, there was a lot of innovation during that time. It was just coming from the big companies, huh?

Teppei: Yeah.

Tim: So, do you think good economic times makes people feel safer about taking risks?

Teppei: Yes, but the most important thing people demand. So, people have a lot of money they want to spend, they…

Tim: Well, startups are booming these days. Do you see the economy going up with it?

Teppei: Japan? I don’t think it’s the best, but better than before.

Tim: Getting better.

Teppei: Yeah.

Tim: All right, well listen, Teppei, I want to thank you so much for sitting down with me. I really appreciate it.

Teppei: No worries.

Outro

And we’re back.

So, dirt may be cheap but soil is expensive.

You see, as impressive as Towing’s 20 to 70% improvement in yield is, and make no mistake, that is impressive. Most agTech startups face very real scalability issues.

It’s a real challenge to design a business model in this space that is sustainable and scalable and profitable. Many agTech startups can hit two out of three, but only the very best managed to achieve all three of those requirements.

Here, the consulting and the carbon credits help of course, but Towing’s real innovation is their plan for distributed production and logistics with centralized marketing and sales. Having the waste processed into product and stored locally at the production sites and then delivered to area farmers, certainly saves a lot in transportation and storage.

But of course, this strategy creates its own challenges. It could potentially restrict the market to those areas where both supply and demand both exist. And even then these producers, these factories are not really in the bio-char or soil additives business. They’ll demand a turnkey black box system where the waste goes in one side and the money comes out the other.

And that’s not as crazy as it seems. Sure, it’ll require a lot of standardization. Some automated logistics, very good inventory and production management systems, and a strong field services team. But these processes and technologies are already well developed.

Of course, that doesn’t mean it’s going to be easy, by its nature distributed production and fulfillment is far more complex than a centralized approach. But Towing looks like they’re set to make it work.

Modern startups and recent innovation tend to concentrate money and power into a few big cities. So, it’s nice to see a solution resulting in more distributed and rural growth.

 

If you want to talk more about next generation agriculture or farming in space, Teppei, I would love to hear from you. So, come by disruptingjapan.com/show213 and let’s talk about it. And hey, if you enjoy disrupting Japan, share a link online or just, you know, tell people about it. Disrupting Japan is free forever and letting people know about it’s the absolute best way you can support the podcast.

But most of all, thanks for listening and thank you for letting people interested in Japanese startups know about the show. ‘

I’m Tim Romero and thanks for listening to Disrupting Japan.