Mark Schilling on blockchain in farming & the importance of provenance

Mark Schilling on blockchain in farming & the importance of provenance

Partner and fund manager at AG Schilling & Co

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Madaline Dunn, Reporter

This week, Madaline Dunn talked to Mark Schilling, inter-generational family farmer, partner, and fund manager at AG Schilling & Co to discuss Australian farming, keeping connected to the land and why balance is key.


Tell me a bit about yourself and the company. How has it evolved over the years?

AG Schilling & Co is a family farming business that started with my grandfather - I'm the third generation here on the land. When I returned home in 1984, I had a real passion for food and cut my teeth on growing crops. Then, in the mid-nineties, I became interested in exports. We had a fertilizer business called Direct Fertilizer Limited, which involved a group of growers coming together to bring fertilizer in from overseas. If I look back, I've always been disruptive in the marketplace and that's broken down barriers and made it so that growers can have more of an impact and be a part of the supply chain. In 2000, we started Northern Yorke Processing, which brought together growers and allowed us to be involved in the cleaning and packaging of our products. That started our container trade business, where we helped other companies export their products overseas. Then, around 2010, we dissolved that and we sold the business to AGT Foods. I worked with them for about three or four years and then left, buying back some of the business. I embarked on my provenance journey from there. Traceability and provenance are big points of focus for me; the consumer wants to understand where their food comes from and trust the origin and not a lot of people are doing that.

And what are you working on currently in the traceability area?

In the last two years, we've embarked on a program to track and trace our products digitally. We're developing a program for Australian and overseas users to do that via their iPhone and, on top of that, we'll overlay blockchain, so that the grower and consumer can both trust in the process. It will involve geo fencing and geo stamps so consumers will be able to know where the product comes from, where it's been, and where it's going. The consumer wants to get close to that; they want fewer chemicals, less fertilizer and better sustainability. In the industry, we tend to resist it because of the potential impact on gross margins but we need to start to embrace these new ways of doing things.
As a plant-based protein, pulses are really big at the moment. The humble pea is being used as a meat replacement. When you look at meat's production costs and specifically beef's carbon footprint, it's incredible - especially when you compare how much water is used to make a kilo of beef to the amount of water required by pulses. 

You mentioned exports. What are the markets you serve and what pulses do you deal with? 

We've got a large clientele base that uses our products. Our traditional markets include Bangladesh, Sri Lanka, India, and Pakistan and each market is different. That said, we've had to shift our focus from a containerized market to a bulk market and only some countries can handle that. Sri Lanka is one of the markets that can't: most of its market is containerized and the current currency situation is also an issue so we haven't shipped a lot there. 
The containerized market has basically been non-existent this year and that's affected us quite a bit. Looking ahead, I'm not sure what will happen or when the crisis will end. 
The pulses we grow include lentils, chickpeas and peas and we're also involved in the breeding of lentils. We have a breeding company called Grains Innovation Australia and, through that company, we're looking at what varieties can be grown to get a better pulse for Australian farmers as well as factoring in the nutritional side of things. We're actually doing a bit more research than traditional breeders so we might end up coming up with a lentil that's got 30% protein and 2% more selenium. You don't know until you have a go so we're pushing that forward and it's good fun.

Can you share with me some production numbers from the last harvest?

Our lentil crop yielded between 1.8-2.5 metric tons per hectare, which was an average season. With the pricing up to around $900-1000 a ton, that was a significant gross margin for any farmer. 
There are also stocks of lentils sitting on farms: the normal figures don't usually take into account on-farm storage but it's not uncommon because lentils store really easily and insects don't affect them. That’s the thing: there's plenty of supply in Australia but one of the issues we're facing is that we can't get them out quick enough and that's down to shipping. 
|The fact that India has taken its tariffs off tells us that there could be more activity because they need supply.

Considering that will last until September 30th, will you be able to get anything over in that time frame?

If someone brought a Panamax vessel to Australia, I think we could all capitalize on it! The market hasn't put pricing out in the last couple of days since that report and I think that's because there are lots of people in the background scrambling to see if they can get a vessel. 
It'll very much be a case of the first one to the party getting the job but I suspect there are still 100,000 tons of lentils to move out of the country.

What about rising nitrogen costs? Will that affect sowing intentions?

Personally, I'm probably going to put another 10-15% of pulses into the ground while the commodity's price is high. Having said that, if you look at the wheat market today, we're seeing $380-$400 a ton for the wheat market and usually that's $280. So, we're around $180 a ton above last year - a 33% increase. Nitrogen prices have climbed about 40% so if I can balance it out and lock in my wheat price now for December, nothing's really changed. I'll be happy to pay $1100-$1000 a ton for nitrogen, as long as I'm getting $400-$450 for our wheat.
Sure, I can sow pulses but the problem with putting in a lentil crop right now is looking ahead and working out what my price is going to be in December next year. I get nervous about signing contracts saying I can deliver 1,000 tons of lentils in December next year because I don't know if I'm going to have a drought or another weather event that will damage my crops. Traditionally growers in Australia will grow their crops, store them and sell them. About 10-15% of growers will program to grow the pulses, sell 15% of their crop pre-harvest and hope nothing goes wrong - there's always an element of risk versus reward. So I will stay pretty much the same and won't change my sowing intentions dramatically. 

Regarding the Russian-Ukraine conflict and the impact on wheat prices and pulse exports, are you seeing enough opportunity in the export market to counterbalance that?

You've got to be careful not to be too reactionary. I heard a report that the Russians are now retreating to the barracks. We've got to be so careful we don't play that game. Markets are very finicky - they jump at shadows. For example, the market was up 25 cents per bushel - purely on the back of Wednesday's reports that Russia was going to invade - then, it dropped 9 cents the following night. 
I've got a product that has to feed people and I think sometimes growers get a bit greedy. We think, "Oh, this crop is a thousand dollars a ton," but how much of that product actually gets sold at $1,000 a ton? You've got to look at the consumer and ask yourself if they can afford it. Probably not. I have a lot of empathy towards those in India and Sri Lanka because they rely heavily on our commodity for their staple diet and sometimes we capitalize on that too much. It's all about balance because these extreme peaks and troughs aren't sustainable.

Can you tell me a bit about your partnership with Dirty Inc and your drive to see your products eaten more locally?

The partnership with Dirty Inc is a relationship that's been built up over ten years. Simon from Dirty Inc is a celebrity chef and food scientist, and when our company was doing a story with Poh's Kitchen on ABC landline, he saw the piece and rang me up. He didn't know that lentils grew in South Australia so I told him to come out and have a ride on the harvester and that's how it all started. 
The partnership is all about being transparent about the origins of our products and demonstrating how it goes from paddock to plate. We have our 'Dirty range,' retail packs and wholesale packs. 
Asides from that, we've also got a beer called Yorke Premium, made from our barley - I know the paddock where the barley is grown. When people visit, we give them one as something to remember us by.

So, again it all comes back to provenance and traceability? 

Yes, we've got to get more in touch with our consumers. They're the ones who drive forward change, and unless we understand what they want, we’re nothing. 
I'm also trying to showcase that, for example, you don't have to have a brewery to make beer - we can use other breweries that aren't at full capacity and then enhance their business too. I believe competition and choice drive productivity, and that’s what I’m doing, giving people choice. 

You say that as a family business you're "custodians of the land for future generations of the family." Can you tell me how this approach informs how you treat the land, farming, and production?

We've got to farm sustainably. My grandfather came here, bought land, cleared it, and started farming and I've always believed that I have a right to the business but not to the land. The land is generational and, while I could make millions selling the land, that's no good. At the end of the day, I'm the custodian. 
I call myself the fund manager of the business now so my job is to look after the land asset and ensure that it's protected for the next generation. We can't all be corporate farmers: family farms are important and are embedded in Australian culture. But, how do we farm sustainably? We need to better understand our supply chains. After all, it's going to be the consumer that lets me stay here. If I don't perform and make an effort to work towards sustainability, I won't be here in the future. Likewise, my son and his kids need to have the same opportunities that I was given. It's not about the money; we grow food to feed people and I think that's pretty special. 

You mentioned sustainability - tell me about that. How are you pushing that forward? 

We need to understand what we're doing to our planet. I'm a farmer: I burn diesel and rip out ground. I'm producing harmful gasses every day. That said, I'm also growing crops that suck up some of that carbon. 
Sustainability encompasses a lot of different areas and part of it is ensuring that, as a business, we're paying people fair wages. We need to be fair employers and give everyone the same opportunities. Lots of big corporations say that they don't have any association with those paying less than fair wages and I agree with that but, currently, there's no way of actually tracking it. 
As an industry, we often talk the talk but don't walk the walk, however, the digital platform we’re building will help to address some of that. Our industry has been saying that we're compliant for the last 30 years but I don't think that's true. Sometimes compliancy comes second to price and that's not right. We've got a lot of work to do in this industry. We need to get better and, once again, find balance. 

What are your projections for the industry and what's next for you and the business? 

I think pulses will be a bit bullish. I don't see them being extraordinary but there are no droughts right now. Canada is setting itself up for a good season: they've got really good depth of snow but I think they've got to watch closely how it thaws. In Australia, we're also set up for a good season: it's February, and we've got a profile of moisture - I've never had that before. So, we can put in our crop in May and we'll have good moisture to take it through to July then we'll just need five to six inches of rain in season and we'll have a crop. 
Looking ahead, I'm excited about blockchain. I think it will stop a lot of arbitrage between seller and buyer, so that the buyer has a trusted way of getting the product they ordered. That's one of the things I learned early on in this business: be honest with your buyer. If, for example, I have quality issues with a crop, the first thing I do is tell the buyer. No one likes surprises in the trading world. I also think blockchain will help producers participate more in the export market. We need to encourage more of that so that everyone can play a part in the provenance story.
What's next for us? Watch this space. We've got a few projects in the pipeline, although I can't divulge what they are just yet. Ultimately, we want to stay a family business because we love it, but we want to become a family business with a corporate attitude. That said, I still want to hop on the harvester and sprayer - it's in my DNA.

 

Mark Schilling on blockchain in farming & the importance of provenance
Mark Schilling on blockchain in farming & the importance of provenance
Mark Schilling on blockchain in farming & the importance of provenance
Mark Schilling / blockchain / farming / Mark Schilling / AG Schilling & Co / Traceability / provenance / Australian / meat replacement / carbon footprint / Bangladesh / Sri Lanka / India / Pakistan / India / nitrogen / Russians / Dirty Inc

Disclaimer: The opinions or views expressed in this publication are those of the authors or quoted persons. They do not purport to reflect the opinions or views of the Global Pulse Confederation or its members.