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.
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.
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:
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.
Building this technology-enabled future is already happening, but challenges remain.
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.
Tenacious Ventures Management Pty Ltd (CAR 001275760), Tenacious Ventures Management Partnership, LP (CAR 001298484), Tenacious Ventures Fund II Management Partnership, LP (CAR 001298483), and Tenacious Ventures Fund II Staple Co Pty Ltd (CAR 001298487) are Corporate Authorised Representatives of Sandford Capital Pty Ltd (ABN 82 600 590 887), Australian Financial Services Licence No 461981, and are authorised to provide advisory and dealing in connection with investments to wholesale clients only.