The United Nations forecasts that the global population will reach a colossal 9.7 billion by the year 2050. Meanwhile, the Food and Agriculture Organization (FAO) has predicted that global agriculture production must increase by 70% in order to feed our growing population. Moreover, the FAO predicts that in developing economies where population growth is increasing more rapidly, and poverty and malnourishment is most prevalent, global agriculture production must grow by 100%. Simultaneously, consumer preferences (particularly the millennial generation) have shifted to demand sustainably sourced, chemical-free food, that is produced by guilt-free, transparent supply chains. In other words, more people are demanding “better” food.

Increasing crop yields without having to clear more land for agriculture (or, “sustainable intensification”) has been emphasized as the favored resolution. Yet, crop yields are plateauing and it’s not clear we will be able to increase production within the current system at the pace required.

The increasing number of extreme climate events- from droughts to floods to extreme temperature variations- are serving to exacerbate the issue. The implications are tremendous.

Let’s rewind.

On October 2nd, 2013, multinational agrochemical biotechnology firm, Monsanto, purchased weather insurance company, Climate Corp, for a hefty price tag of $930 million. The acquisition would forever change the way investors and farmers considered the intersection of technological innovation and agriculture. Monsanto stated its motivation for the purchase as the ability to leverage Climate Corp’s expertise in agronomy, data acquisition, and data analytics to provide value-added services to the farmers already purchasing Monsanto chemicals. One year later, in 2014, the AgTech sector grew 170% as it attracted a total investment of $2.36 billion across the entire agriculture value chain. In 2016, AgTech as a sector experienced total investment of $3.23 billion: 580 deals across 670 unique investors.

THE AGTECH OPPORTUNITY:

According to McKinsey & Company, the food and agribusiness market is $5 trillion and growing. Yet, it remains the least digitized.

The agribusiness industry has generated significant negative environmental effects, such as ecosystem destruction, soil erosion, biodiversity loss, pollution, natural resources and water waste, in addition to social consequences, such as obesity, poverty, gender inequality, and labor injustice. Today’s agribusiness accounts for about thirty percent of global greenhouse gas emissions, a 75% increase from that of 1990.

Yet, agribusiness need not be destructive. Sound agriculture practices can protect biodiversity, sequester carbon, increase soil health, create jobs, and of course produce delicious, nutritious food.

The opportunity to build such a food system is driving innovators to AgTech. Five chief global developments have enthused investment in AgTech over the latter half of the past decade:

• Increasing demand for food from a growing, urbanizing population
• Changing characteristics of this demand, including for healthy, protein-rich food produced by transparent supply chains
• Increasing effects of climate change and the urgency to mitigate said effects
• Growth of private funding for agriculture innovation from ag-specific and traditional tech funds, as well as corporates
• An advent of technologies applicable to agriculture

THE FUTURE OF OUR FOOD SYSTEM

The Internet of Things (IoT), a rapidly emerging ecosystem of sensors connected to the Internet, offers tremendous efficiency and profitability advantages for agribusiness. IoT providers are working to deploy connected sensors across farms to measure and monitor on-farm conditions, such as soil moisture, animal health, and grain quality. An IoT use case is also emerging around finance as companies explore ways to use sensors to lower the risk or lending to farmers and the supply chain. Vast potential exists in this space for sensors and algorithms that are able to provide real-time insights to the conditions of soil, plant and animal health, pest and disease presence, and predicted yield. Sensors and algorithms can also help agronomists and famers optimize their businesses.

Precision Agriculture technologies**,** loosely including drones, irrigation, satellite & aerial imagery sensors, and smart hardware, have the potential to remove excess human labor and improve operating margins. Although precision agriculture is not new, the space has room to mature. Farms and supply chains must become more comfortable with aggregating and using data, and startups must find relevant, commercially viable solutions to help farmers and agronomists use these technologies. The problem that remains unsolved is that while data and technologies exist, companies are struggling to articulate a value proposition that will resonate with farmers and solve a real problem. The vital question that must be asked is how farmers can use this plethora of technology in an integrated approach that effects the bottom line.

Aerial and Satellite Imagery in particular show potential to enable greater supply chain transparency and risk assessment. Deep learning, or machine learning that uses neural networks to extract patterns from data, can help farmers make sense of images taken from satellites, e.g. to identify diseases and anomalies.

Coupled with other technologies such as blockchain and virtual or augmented reality, we start to see potential to go beyond the farm, transforming agribusiness transactions, supply chains, and even customer experiences. Companies are working with these technologies to decrease costs, time delays, and risks in supply chains, as well as to improve the experience of producing, transporting, and eating food. These technologies are immature and compelling use cases are still emerging, but the anticipated benefits are exciting: lower transaction and financing costs through digital payments, readily available provenance information across the supply chain, and enhanced eating and purchasing experiences.

At the consumer end, the sharing economy and other e-commerce and direct to consumer marketplace models have transformed both developed and developing countries. These technologies help farmers access equipment (e.g., tractors), inputs (e.g., fertilizers), and finance, as well as create new supply chains that connect farmers to consumers.

CHALLENGES:

Building this technology-enabled future is already happening, but challenges remain.

• Interoperability: Although massive amounts of technologies and data exist, solutions are highly specific in nature and the industry has not yet been able to build integrated solutions. In other words, there is a lack of interconnectivity between existing technology solutions. The desired future is a world in which data is aggregated from multiple sensors, analyzed by many algorithms, and compared across time zones and geographies. In this world, farmers easily make use of multiple technologies to drive decisions that are integral to the profitability and sustainability of their businesses.
• Funding Pipelines: Due to the consolidated nature of the industry (i.e., there are only a few, and increasingly fewer, “big ag” companies), investors are concerned about the small number of exit opportunities for their investments. While Climate Corp propelled the industry forward by $1 billion, few others have exited as successfully. The uncertainty around exit pathways is a potential advantage for investors with larger wallets able to fund longer-term investments (i.e. across multiple rounds of financing.) And optimistically, as the industry evolves, successful exits will become more commonplace.
• Farmer Hesitation: One major hurdle to achieving broad-scale data integration is a hesitation on behalf of farmers to share their data. Some have cited a fear of large corporations exploiting their data, or commodity futures traders leveraging data for investment. In response, twelve major AgTech providers and farm organizations have crafted ground rules for data: a voluntary “Privacy and Security Principles for Farm Data,” attracting big names such as John Deere, The Climate Corporation, and DuPont Pioneer. This is a start, but overcoming this challenge may not be so simple.
• Timeframes: field trials based in natural systems have a fundamentally different time frame than that which is required for testing software. Thus, achieving sufficient results and return on investments might take longer (and be more expensive). This poises a problem for investors desiring short-term returns and startups on tight budgets.

Progress is evident and exciting, yet slow. Funding has increased and technologies are advancing, but exits are few and far between and the pressing issues facing our food system are not slowing down. Businesses are continuously striving to offer an integrated data aggregation platform, farmers are increasingly becoming more comfortable and adept in using technology and data to drive bottom-line decisions, and investors are increasingly gaining comfort in the space as the financial opportunities are becoming evident. While there are certainly challenges, solutions exist, and farmers, technology providers, investors, and companies in the space are increasingly working together to leap these hurdles. The future is bright.

Editor’s note: this post was written for AgThentic by Jen Ballen and Sarah Nolet. You can read more from Jen at TheSustainableInvestor.net