Agtech investors keep focus on sustainability despite tough market

Agriculture is facing a tough time. Inflation and added regulatory pressures are pushing costs up and margins down as the world’s population shoots towards 9 billion. Nevertheless, agricultural companies remain committed to investing in sustainability-focused startups, several corporate venturers told Global Corporate Venturing at the World Agri-Tech Innovation Summit in London.

“Even in the sort of depressed conditions we’re in with the agriculture markets, from a longer-term perspective all of the sustainability-focused aspects of agriculture are going to be critically important,” says Jason Gabriel (below), managing director at agribusiness Syngenta’s corporate venture arm.

“That means everything from replacing chemistry with biological inputs, where there are less residues, and more specific, targeted plant-based therapeutics and ways to reduce fertilisers.”

Switching from traditional pesticides to biological alternatives which can protect crops without harming the soil is a big focus for the sector, while the need to reduce carbon emissions means companies are also beginning to see the soil as a useful way to sequester carbon. Some of the largest rounds in agricultural technology (agtech) over the past two years have been for the likes of biostimulants developer Aphea.Bio and soil carbon sequestration startup Loam Bio.

But sustainability is about more than just biologicals, says Gabriel. Syngenta is interested in technology that can make sure water, fertiliser and crop protection treatments are distributed in as targeted a way as possible to reduce waste, and it recently backed a $20m round for precision spraying startup Greeneye.

Another area that appeals is nutrient use efficiency, enhancing how plants use the nutrients in the soil more effectively, Gabriel adds. That reduces the need for ammonia, which is typically sourced from natural gas, as well as the number of times a piece of equipment needs to be driven over the field, in addition to increasing plant health.

But either way, changes need to be combined with cost savings if they’re going to be widely adopted.

“A farmer is only going to adopt a new technology if it gives them a return on investment – makes them more money, makes them more efficient, solves some kind of labour challenge pain point, some resistance issue they’re dealing with from a pest pressure perspective,” says Mark Brooks, who heads fellow agribusiness FMC’s corporate VC subsidiary, FMC Ventures.

“And it has to either be as cheap or cheaper than what they’ve already got, or work significantly better, otherwise they’re not going to adopt it, period. The margins are thin enough that the pressure is there.”

“Everyone today is talking about AI and what that can mean”

Although artificial intelligence is on everyone’s lips, the technology has been slow to be adopted in agtech, where a lot of the software products concentrate on finding ways to collect data. Everyone agrees it could be important, they just aren’t seeing startups that are using it to make a difference.

“I think there’s a lot of potential, and everyone today is talking about AI and what that can mean,” says Daniëlla Vellinga (right), a director at Rabo Ventures, a CVC subsidiary of agriculture-focused bank Rabobank.

“There’s a lot of opportunity there, but it’s also still to be seen what it actually brings to the agriculture world today. The challenge in agriculture is that you’re dealing with a group of people that are not well known for being very prone to new technology and adopting that very quickly. You just need to be patient, and I think that’s sometimes hard for startups with new technology to adapt to.”

Both corporate VCs and their parent companies are asking themselves where AI can best be deployed, adds Syngenta’s Gabriel.

“But I’ll give you one use case that seems somewhat obvious,” he says. “And that is turning a phone into an agronomist. Regardless of income, every farmer all over the world, regardless of whether it’s Africa, India, the United States, has access to data.

“If you can turn on your phone, point it at a plant, take a picture and then ask it: ‘What is wrong here? What do I need to do, what’s my next step?’ And you get a real answer that has been verified and is very accurate, from either your retail partner or the agronomist you work with on a regular basis, then that provides a lot of educated power in the hands of the farmer who is an expert on his land, but maybe not an expert on the crop or the disease or the pest that they’re facing.”

A personal agronomist solution makes sense because much of the technology already exists, it just needs to be joined up. But in the longer term, investors are interested in AI helping  to develop fertilisers or crop protection products on a molecular level, mirroring how it’s used in biotech to create new medicines.

“I wouldn’t say that is super sophisticated, but it is becoming more normalised,” says Brooks. “The second category, which is relatively newer, involves using generative AI to prioritise genetic sequences that are important for silencing genes in crop protection.”

And startups are slowly beginning to emerge in this area – one of the largest agtech rounds this year involved Inari raising $103m to further develop a platform that combines AI-powered predictive design and a multiplex gene editing technology to create seeds that could potentially use land, water and fertiliser more efficiently.

The answers aren’t all high tech – especially in developing markets

Agtech needs can be varied. The large industrial farms that supply developed nations have different needs from the smallholder farmers that tend to make up more of the food supply of developing nations. Smallholder farmers aren’t typically in the market for robotic farming machinery or genetically modified seeds.

In their case, the biggest breakthrough won’t necessarily be edge technology but something that’s been around for years elsewhere: financial technology.

“In places like Brazil, there is about $70bn or $80bn of working capital need for farmers every year, and in order for a farmer to typically access credit, to buy seeds, chemistries or fertilisers, they go to the retailer or distributor,” Brooks (left) explains.

The banks aren’t there to provide financing because they focus on the largest farmers with the lowest risk profiles, or the ones that are geographically closest, he says. That means the majority of the working capital is handled by whichever retailer is supplying the framer, or by input companies like FMC and Syngenta.

“That creates a massive pain point for input companies, because it means each year billions of dollars are carried on the balance sheet of the input companies or distributors,” Brooks adds. “All of those receivables are essentially in jeopardy every year – that is a major pain point.”

Startups in those markets are starting to address that pain point. Syngenta Group Ventures co-led a $53m series C round for Agrolend, the Brazilian operator of an online financing platform that lends money to local farmers to buy seeds and crop protection products, last week. It is also, along with FMC and several other corporates, an investor in Traive, a Brazilian startup that runs a credit risk assessment platform for small farmers.

Fintech and software are appealing to invest in because they don’t require the kind of large upfront investment required by some of the most well-funded agtech startups in recent years. This is an advantage when interest rates are high and finances are tight.

“Valuations and funding in areas like vertical farming and alternative proteins reached a disconnect between the stage the technology was at and the rate at which investors were hyping up valuations,” says Shubhang Shankar, another managing director at Syngenta Group Ventures. Those kinds of sectors, which attracted big money between 2020 and 2022, are effectively “gone” in 2024, he adds.

“Farming, with its challenges, is quite efficient in many parts of the world. What you don’t want is a high-capital-expenditure, high-energy-intensive mechanism to replace what has traditionally been a low-energy-use and a more input-efficient process that exists today.”

Nevertheless, everyone agrees that startups are crucial to develop the next stage of agtech. The largest food producers spend only a small percentage of their revenue on R&D, and startups, with their high risk appetite and agility, are needed to create some of the big technology shifts. There just aren’t enough of them.

“We need more startups,” concludes Gabriel. “If you compare agtech to therapeutics, there are likely more therapeutics startups in the city of Boston than all the agtech startups around the world. There is more capital chasing that space and there are more strategic buyers of those technologies.

“So, that space should be bigger; we need more biological discovery, we need more chemical discovery, we need smart people from digital backgrounds to create game-changing AI and other tools, we need more new fintech and insurance tech solutions that make farmers lives better. We just need more. We need more technology.”