Roots Sustainable Agricultural Technologies makes excellent progress across a number of areas of its business

Roots Sustainable Agricultural Technologies Ltd (ASX:ROO) is making excellent progress across a number of areas of its business that positions it well for increased sales domestically in Israel and in new international markets. The company noted that as food security continues to become an increasing concern for developing and established nations, its broader business performance continues to perform well. “The company has a strong pipeline of opportunities in the agricultural and cannabis sectors and we look forward to updating shareholders on developments in the near term,” executive chairman and chief executive officer Boaz Wachtel said. Roots is developing and commercialising disruptive, modular, cutting-edge technologies to address critical problems in agriculture, including the plant's climate management and the shortage of water for irrigation. A graduate company of the Office of the Israeli Chief Scientist Technological Incubator program, Roots has developed proprietary know-how and patents to optimise cultivation performance, lower capital costs of climate management, cut energy consumption and bring maximum benefit to farmers through their two-in-one root zone heating and cooling technology and off-grid irrigation by condensation technology. Excellent progress Wachtel added: “Roots has made excellent progress on a number of fronts and we have significantly strengthened our business and established some excellent catalysts for growth. “While the global pandemic is presenting us with some obvious challenges, our team is being innovative in pursuing opportunities so we can continue to expand. “We are also rapidly building our presence in Israel in the agricultural and cannabis sectors and we expect further sales to materialise here.” Significant global player Roots’ vision is to become a significant player in the global agricultural technology space by developing technologies that help growers to meet the ever-increasing global demand for food and water, and mitigate the impact of extreme weather temperature conditions on both indoor and open-field crops with minimal energy and environmental signatures. Its vision also includes producing technologies that are accessible to low-income farmers around the world. Talgil The company has teamed up with global irrigation control system manufacturer Talgil, giving the company access to Talgil’s global dealer network in all the markets where it has a presence. Roots’ system is now integrated with Talgil’s SAPIR2 controller - an internet-enabled, medium-to-large scale, professional irrigation controller, supported 24/7 in multiple languages. Heat Exchange Device In July, Roots engaged Ultraplast industries Ltd, an Israel-based extruder, to upgrade and manufacture its proprietary and revolutionary vertical T-shaped Heat Exchange device (HED), which offers a possibility to optimize root zone temperatures as well as providing accurate range with minute amounts of energy inputs compared to air heating and cooling. Roots' former manufacturer in China ceased operations due to Covid-19 for a few months and an alternative manufacturer was located in Israel to meet the growing demand for the HEP-based heating and cooling of roots in any substrate. A 3D prototype of the second generation HED has been tested and approval to advance toward the mould creation has been granted. Early products are expected to roll-out from the Israeli factory in September. Profit margins are expected to increase as shipping from China is now avoided and manufacturing costs are competitive. Roots continues to expand in Israel, with a third re-order by the same hydroponic (NFT) customer installed in Bnei Atarot. The system is operated by a ground source heat exchange only allowing for low energy consumption. Two new cannabis growers The company has also installed two paid demonstrations among two new cannabis growers. Based on previous experience, these installations are expected to lead to sales of systems with much greater coverage area as the demonstration is concluded over one or two growing cycles. A third demonstration is about to be installed at a cannabis growing operation near the Dead Sea and will cover 150 Heat Exchange Probes (HEP) compared with 150 plants under control. Design patent in Turkey The company received Notice of Allowance for its design patent in Turkey, the seventh-largest agricultural sector in the world with 3.5 million farmers and 20 million hectares of production area. To achieve the goal of being the top five food producers by 2023, the government has enacted a National Agricultural Project to support and grow the sector, through crop diversification and improved productivity. Major new sales channel with ‘buy-now pay-later’ strategy Roots secured a major sales channel into the Israel market for its proprietary Root Zone Temperature Optimisation (RZTO) technology via a strategic deal with large retail and wholesale agricultural supplier Amir Marketing and Investing in Agriculture Ltd (TLV:AMRK). The agreement includes a ‘Buy-Now Pay-Later’ component aimed at lowering the barriers of entry for farmers and expediting product uptake. The company plans to adapt this type of sales plan and roll it out in other countries if it is successful in Israel. Wachtel said: “This strategic agreement is a significant milestone for the company as it provides a major sales channel into the Israeli market, as well as visibility for our solutions in over 23 retail stores throughout the country at little expense. Increasing demand for RZTO technology Roots is seeing an increasing demand for its RZTO technology in Israel and multiple international markets. It has set up an in-country supply chain to fulfil any orders from potential customers quickly and efficiently. Wachtel said: “Roots is well positioned with a strong supply chain and has a number of initiatives underway to drive sales domestically where RZTO is being well-received and accepted. Well-funded Roots recently received firm commitments to raise around $2.51 million via a private placement to fund the commercialisation of its RZTO systems and advance other initiatives in the artificial meat market. New plant-based meat department It has also set up a new plant-based meats department aimed at capitalising on study results that show the positive effects of its RZTO technology on the yield of protein-based plants. The department will focus on collaborating with industry partners and developing go-to-market strategies that would allow growers and product creators to use RZTO technology for protein-based plants used in the growing artificial meat industry. This initiative will be led by world-renowned researcher Professor Zohar Kerem who is a professor of food chemistry and holds positions at the Robert H Smith Faculty of Agriculture and Hebrew University of Jerusalem amongst others. POC study The department was set up following encouraging results from a proof-of-concept (POC) study at Roots’ R&D facility in Bet Halevi, Israel which saw RZTO use resulted in weight increase per plant and more pods being generated per plant. The company is confident that this will have significant benefits for commercial growers. The plant-based meats industry provides a major opportunity for Roots, with the expected value for the total market in 2019 being US$12.1 billion. This is expected to grow at a compound annual growth rate of 15%, to reach US$27.9 billion by 2025. Demand for plant-based meat alternatives is being driven by consumers seeking healthier dietary options and research & development efforts from health experts and food manufacturers.