Greener rice with Mitti Labs

Hi there,

Hope you didn’t miss me too much last week. Felt good to take a break from publishing for a week for probably the first time in four years. I got to spend an all-time weekend in Lake Como celebrating some close friends’ wedding. Photo at the end of the newsletter.

This newsletter isn’t about Italy however. Today, we’re taking a look at Mitti Labs, a company working to reduce methane emissions from rice farming, a significant and under-discussed driver of global warming. Mitti Labs is also building solutions to improve economics for smallholder rice farmers and to drive benefits across water and other factors, so there’s a lot to learn (and like) here. Plus, they announced a $3M equity raise this week, making it a timely moment to dig into their story.

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DEEP DIVE

I used to think reducing greenhouse gas emissions was primarily an innovation challenge. Increasingly, I see it predominantly as a capital expenditure (‘capex’) challenge. We know how to reduce or even eliminate most emissions, not just in the power sector and transportation but also in sectors that have historically been dubbed ‘hard to abate,’ like steel manufacturing. More on that next month.

Still, some emissions sources don’t fit neatly into this worldview. Many emissions sources in agriculture, for instance, aren’t ones we can necessarily just throw money at. And, if your mind jumped to beef and dairy products, not all agricultural emissions sources can be driven down by reducing demand for products either. Whereas reducing the amount of beef and dairy the world consumes is very tenable and would have a high impact from a climate benefit scenario, reducing, say, the amount of rice the world eats is not something anyone should advocate for. Rice provides more than 20% of globally eaten calories. There’s no demand reduction conversation to be had here.

At the same time, rice farming drives up to 10% of human-caused methane emissions globally, making it a non-negligible short-term warming driver (methane is much more potent than carbon dioxide but is shorter-lived in the atmosphere, driving warming more quickly). The reason rice contributes heavily to methane emissions is that rice paddies are often flooded to prevent weed growth, yielding ideal anoxic (absence of oxygen) conditions in which bacteria that produce methane (methanogens) thrive. As methanogens consume decaying organic matter in flooded fields, they make methane.

There are, however, well-established practice changes can significantly reduce methane emissions from rice farming. For instance, simply breaking up the periods during which rice paddies are flooded in a practice known as alternate wet and drying can have a significant impact. Similarly, practices like dry seeding can reduce emissions as well. When combined, the methane emissions reduction benefits here could be as high as 90%.

Other practice changes include not burning leftover rice stubble and other biomass, a large driver of emissions in India and air pollution. While the efficacy and appropriateness of practice changes vary spatially, all have been demonstrated and studied and can be undertaken without decreasing yields.

Hence, while innovation on the input side – say, with new biofertilizers – could reduce methane emissions from rice farming, too, the category doesn’t fit squarely into an innovation challenge or capex challenge box. It’s really more of an operating expense (‘opex’) challenge. Farmers need help operationalizing practice changes and data and getting paid for it. They don’t need a massive amount of invested capital.

Opex challenges in rice farming

This framing of rice methane emissions as predominantly an opex problem was one that Xavier Laguarta and I arrived at in discussing Mitti Labs, the business of which he's CEO.

Nick: "It's an interesting story because climate problems broadly typically fall into different buckets for me, right? Usually, it's, okay, maybe there's a technical innovation challenge where we don't know how to do something yet. That's one side. Then, a lot of other things are more of a CapEx challenge. What's shining through for me here is that there are pieces of technical innovation that are important on the innovation side, but the throughline is more of a productization opportunity. You know what practice changes make climate sense and economic sense for farmers? But creating a solution that makes practice change and outcome measurement seamless and reveals the benefit to people is the bigger challenge."

Xavi: "You're totally right. This is an opex problem. This is a business model innovation problem. The question is how to build a business and an operating model across different technologies so that the opex of the project works out in a way that the business can sustain, you can scale it up, and you're adding enough value to that farmer. There's nothing that new that we're creating except for a combined platform for the farmer to get all this in one place."

Nick: "That's a good tagline for the business, the operating platform for better rice."

Xavi: "Yeah, I really do view it that way. Rice farmers in India definitely need a champion. It hasn't happened yet. If anyone can crack it, it's going to be a rewarding win."

Mitti Labs exists to transform smallholder agriculture, starting with methane and rice farming, to drive a variety of beneficial outcomes. Beyond methane emissions, rice also consumes a humongous amount of water, roughly a quarter or a third of global freshwater, and it's often produced by some of the poorest people globally. When you combine those factors with the emissions from rice cultivation, rice becomes a complex but rewarding challenge to tackle.

Mitti Labs wasn't focused on rice at first. But after spending a lot of time in India to understand challenges and opportunities, they homed in on it, given it's not an area within agriculture that many others are focused on, either. It’s also a massive ‘market’; India is the largest global producer of rice, with 40 million hectares dedicated to rice cultivation (out of 150 million hectares or so globally). India also has the lowest productivity of rice per hectare globally, meaning there are opportunities to improve livelihoods and economics as well. When I asked Xavi why rice hasn't been a focal point for other companies or people historically, he offered:

Where there’s still complexity

Mitti Lab’s operating system, designed to make it easier for farmers to adopt valuable practice changes in rice farming and to reward them for doing so, combines three elements:

1. Practice changes: Educate farmers on valuable practice change opportunities.

2. Measurement: Build the hardware and software stack to improve measurement and modeling of emissions reduction outcomes, water usage, yields, and more.

3. Incentives: Use measured data to develop carbon-equivalent credit projects to reward farmers for their work.

Technically, the most complex piece is part two. Methane emissions from rice farming are more diffuse than from, say, a leaky pipeline in midstream oil and gas. Hence, the purview of measurement technologies has to cover larger areas, which really means there’s inevitably also a lot of modeling involved.

Mitti Labs built its measurement and modeling stack out with larger rice companies that manage active projects. It uses satellite imagery to track and validate practice changes. That, combined with process models and better ground truth data collected via gas chambers, can translate practice changes into greenhouse gas reduction estimations and water reduction estimations, as well as yield predictions. Mitti Labs also uses synthetic aperture radar, a sophisticated type of satellite imagery, to detect changes across all these different parameters at different wavelengths and machine learning to calibrate their greenhouse gas models. 

Make no mistake, the remote sensing piece isn’t easy. The physical elements you want to understand include metrics like water level, an integral component of modeling outcomes in alternate wetting and drying. Those metrics, as well as things like soil moisture, need to be tracked at an acre-level resolution. It isn’t just the efficacy of satellite imagery that matters; something as fickle as cloud cover can disrupt data collection. 

While scaling practice change in rice may be predominantly an opex challenge, in this area, namely in measurement and modeling, more innovation is still needed. More data and experimentation are necessary, too. Today, experiments look like a few gas chamber boxes on fields where you test control sites and measure methane, nitrous oxide, and carbon dioxide fluxes against other sites. Processing that information in a lab can cost 30 or 40,000 per season for one test. It’s expensive. Improving the quality of data and reducing costs to run much more experimentation globally would help a lot in terms of then improving models to simulate entire regions with higher confidence. That’s all challenging. Nor is there consensus on the best sampling approaches and model calibration methods. At the end of the day, however, actually doing the work is the most catalytic factor for improvement.

Making improvements to the entire measurement and monitoring process isn’t all complicated, however. This is where we shift back into the opex layer; in the past, data from many of these projects was tracked on physical notepads. Even basic digitization can help a lot in operationalizing and scaling change in rice methane mitigation.

Scaling practice change

The rest of the business is predominantly about productization and reducing opex, i.e., making it easy for farmers to say ‘yes’ and effectively shift practices. From a business model perspective, Mitti Labs goes directly to farmers rather than working with big corporations. Most rice grown in India is consumed locally, hence, the Mitti Labs team realized they needed to launch their own projects and own them to make this work. They work with NGOs, like Syngenta Foundation, to onboard smallholder farmers, and they aggregate the results of their practice changes to develop carbon credit projects. The steps here aren't that complicated; Mitti Labs onboards farmers, trains them, monitors their work, and then generates credits. To date, they've onboarded around 30,000 hectares and 40,000 farmers into their programs in a year, a product of day-to-day manual onboarding and 120 field agents on the ground.

Again, the end goal here is reducing operational expenses and barriers to entry. Mitti Labs wants to productize as much of the project lifecycle as possible to unlock scalability. This involves everything from the remote sensing we discussed previously to creating transparency for buyers of credits. For its field agents, Mitti Labs is developing apps for our field agents to onboard farmers, optimizing the sign-up process, onboarding process, and the training process. Here's how Xavi described it:

In terms of the competitive landscape, Mitti Labs is far from the first to develop carbon credit projects based on rice farming. The challenge with rice is that some legacy methodologies for carbon crediting came under intense scrutiny and weren't always rigorous. Some projects did very little in the way of measurement and monitoring and were overcredited as a result. As more carbon credit buyers prioritize fidelity, developing highly sound rice projects is a significant opportunity.

There are several other startups in the space, ranging from Bumitra and Varaha to Rize. When I asked Xavi how he views the competition, he wasn't concerned:

In the future, Mitti Labs may also be able to expand from supporting farmers with practice change to inputs into their processes as well. As referenced earlier, there are other levers one can use to drive beneficial outcomes in rice farming. For instance, whether it's better fertilizers or integration of methanotrophic organisms that 'eat' methane into fields, these input changes, while less well-tested, can also offer methane reductions and potentially yield increases. Xavi closed our conversation as follows:

The net-net

The deeper I get into climate work, the more I unfurl layers of challenge, like methane emissions from rice cultivation, that I wasn’t privy to years ago and that few people seem to talk about. Simultaneously, every time I have that experience, invariably, I also meet sharp teams working to help address the challenge. Hence why I haven’t (fully) burned out yet and why covering climate change is still, occasionally, an optimistic experience.

Further, the challenges and their corresponding solutions are inevitably multivariate; Mitti Lab’s story is equal parts methane, water, economic benefit, equity, international perspective, and more. We’d all do well to spend more time stepping outside of our myopic focus on EVs, power, and carbon dioxide. What we pay attention to both directly and indirectly determines what capital allocators invest in, what policymakers endeavor to support, and what consumers think about and spend money on.

Here’s a pic from Lake Como. Every day is a miracle.

Ciao,

— Nick