AgTech Innovation in Japan

May 30, 2017

Hundreds of agtech startups, investors, policy makers, and enthusiasts gathered in downtown Tokyo at AgSum to discuss the future of agriculture in Japan and the implications of agtech around the world. It was a massive conference and I missed a ton of the good stuff in Japanese, but here are a few takeaways…

Macro Trends Driving Investments Back to Nature

Beyond oft-cited “hot” areas like protein, food waste, water, and soil health, macro trends are driving investment theses. Rob Leclerc (AgFunder) specifically mentioned robotics, automation, and digitization in emerging markets. S2G Ventures’ Sanjeev Krishnan is focused on opportunities created by the growing general distrust of the food system, as well as the effects of social media (transparency), millennials (shifting consumer preferences), and an aging population (functional foods).

Investors are also paying attention to a paradigm shift away from the synthetic inputs and processes that have been the status quo since the green revolution, and toward products based on- and that work with- natural systems. To be clear, this shift does not represent a movement away from technology; rather, investors and startups are finding ways use technologies to enhance, complement, and better understand environmental processes. Example companies from AgSum include Terramerra, AbCelex Technologies, MycoTechnology, Algama, and MiraculeX.

Innovating for the Developing World

The international audience of AgSum brought diversity and new perspectives to the agtech conversation. Mark Kahn of India-based VC Omnivore Partners led a panel and a workshop on agtech in the developing world, with participants and attendees hailing from Africa, Cambodia, Vietnam, India and of course Japan. Startups Mimosatek (Vietnam), Agribuddy (Cambodia), and Eruvaka (India) also pitched during the Innovation Showcase.

Agricultural innovations in these environments face additional challenges, such as lack of access to finance, unreliable conditions, farmer behaviors (e.g., access to education and training), regulatory constraints, and lack of technical, agricultural, and entrepreneurial talent. But opportunities abound with so many farmers- and people- in these countries.

AgTech Valuations…Too High?

Will innovation in the food system require a different model than other industries? This question is becoming increasingly common as we’re seeing a need for strategic and patient investors, longer timeframes, and even different valuations. One reason that came up at AgSum is leftover fatigue and concern from the cleantech crash that Silicon Valley VCs experienced in the early 2000’s. More broadly, nature is just…slow. And, complex channel dynamics mean that agricultural technologies experience slower adoption.

Though by no means a comprehensive solution, stronger (and more authentic) marketing and communications efforts can help. Even the most amazing, transformative innovations need to find their way into the hands of customers and the wallets of investors. Given the complexity of many agricultural solutions, and the overwhelming demand for transparency along supply chains, effective and engaging communications are critical. Comms (and yes, marketing) can also help attract talent, letting everyone from interns to potential executives know about the commercial and societal benefits of company or technology. But at the end of the day, it’s about distribution. This is a nut that remains uncracked for many agtech startups.

Corporations Can Do Better

Though patient and strategic capital offer huge potential for agtech innovators, corporates are still struggling to work effectively with startups. Panelists in the “New Partnerships and Business Models for Growth” session offered a few suggestions:

  • understand that startups will pivot and plans will change;
  • bring more than money (e.g., distribution, marketing, connections); and
  • consider ways the startup can help you as a corporate become more innovative and flexible (e.g., by seconding interns to expose them to a culture of innovation)

Panelists also offered a word of caution to entrepreneurs. Though appealing, not all partnerships work out. Corporates or investors have their own incentives and ways of operating that may not align with a startup’s goals. Distributors may smash fragile parts, Big companies may string entrepreneurs along only to deplete their patience and cashflow (or worse, steal their IP). And investors can put pressure on timelines and exit options as they solve for their own Limited Partner’s interests. Startups must choose wisely, and be sure they’re ready for the time commitments and scrutiny that come with partnerships.

Urban Ag / Vertical Farming / Plant Factories

It makes sense that an agtech conference in Japan would feature these technologies, and attendees were not disappointed. Innovations ranged from Spread, a massive “Techno Farm” established in 2006, to Foop, a toaster-sized countertop farm currently incubated by Delta Electronics. American startups Freight Farms, Farmshelf, and Local Roots were also in the mix, along with ECF Farmsystems (Germany) and BW Global (Canada).

As enabling technologies like LEDs decrease in cost, these companies are creating increasingly viable opportunities to meet the demand for fresh produce. Especially in space-constrained countries like Japan, we can expect to see more from hydroponic, aquaponic, and greenhouse systems, as well as new business models to develop, supply, and finance them.

What About Japan?

A main driver for agriculture innovation in Japan is the aging population. In 2000 the average farmer was 61.1, and in 2015 the average was 66.4. This is a concern, like in the rest of the world, but also an opportunity. Many Japanese farmers are hobby farmers, and their retirement will bring an influx of new ambition and competition. The next generation will also create opportunities for new technologies that can compensate for a smaller labor force. As this traditional industry shifts both practices and mindsets to embrace new business models and technologies, existing players will need to adapt or face obsolescence.

With all the innovation happening globally on display at AgSum, the future is bright for agtech in Japan and I’m confident the momentum sparked at AgSum will continue to grow.