Special report: Agtech
Environmental, social and government pressures grow
Funding increases across the value chain from farm to fork
“Food is more visceral to people than fuel.”
Rob Leclerc, founding partner of venture capital firm Agfunder, who has a perhaps-surprising way with words for someone whose PhD at Yale was in artificial intelligence, said this was part of the reason he was so “astounded by the amount of capital coming in” and described the current situation as the “foie gras-ification of agtech”.
The image of entrepreneurs being forcibly fed cash by eager VCs aside, Agfunder has tracked the rapid growth in agriculture and food-related investments to at least $20.8bn in 2018 and $19.8bn last year across 1,858 deals.
Corporations, including SoftBank, Microsoft and Amazon, have played a substantial role in this rise. The complexity of the food supply chain changing through the use of robotics and indoor farming at the same time as trends demand plant-based foods and cellular or fermentation agriculture to help create alternative proteins. Simultaneously, regulatory and societal demands mean tighter standards and fewer chemicals and antibiotics to grow crops or keep animals healthy.
Also, climate scientists estimate animal agriculture contributes about 14% of the world’s total greenhouse gas emissions.
When asked why agtech is seeing such a boom, Daria Batukhtina, business development manager at Kubota Group, a Japan-based agriculture machinery maker, said: “The status quo in ag and [its related] financial sectors are changing. There is a shortage of labour and whether we will exist as demand from customers is for smaller machines not big machines with huge margins. And there are regulatory demands for chemical reductions. The future is a conservation roadmap and specialist crops for fruit, veg and vines which show greater demand than row crops. Business is not as usual.”
This need for change breaks the ag and food industry into various parts from the farm to the table. Electronic grocery, cloud retail infrastructure and online restaurant marketplaces, such as India-based Swiggy, Brazil’s iFood and Rappi and the US’s DoorDash were the largest food and agtech investment sectors, according to AgFunder. However, restaurants fell 56% last year as the market consolidated, despite SoftBank leading two big rounds in Rappi’s $1bn and driverless delivery company Nuro’s $940m. Online grocers followed, with 153 deals totalling $3.6bn in 2018 but the sector fell 7% last year even with Tencent backing MissFresh’s $700m round.
Investment to upstream startups in areas such as alternative protein production, increased by $100m over the course of the year.
All this investment is creating demand for specialist funds, such as Lewis & Clark’s second agfund at $110m, raised in January, or corporate venturing vehicles from Netherlands-based Rabobank, the agriculture sector’s largest specialist financier.
But this optimism is nothing new.
Alternative food
Winston Churchill published an article in science magazine Popular Mechanics in 1932 titled Fifty Years Hence in which he wrote that “we shall escape the absurdity of growing a whole chicken in order to eat the breast or wing by growing these parts separately under a suitable medium”.
But the person seen as the godfather of the industry is Willem Van Eelen, whose interest in cultured meat came from his experiences as a prisoner of war in a Japanese camp in Indonesia during World War II, when he suffered from hunger and gained a sense of moral responsibility to prevent unnecessary animal suffering. Van Eelen’s work eventually led to the first lab-grown burger in 2013.
The burger was funded by Sergey Brin, one of the co-founders of technology conglomerate Alphabet. Once large sums of philanthropic money started pouring in, the idea quickly went from a proof of concept to an industry – and the publicity around that first burger helped spark interest in Silicon Valley and further afield.
As replacing animals with alternative proteins starts to be proved, big rounds have been coming in for companies such as Memphis Meats, a US-based developer of cell-based meats, which this year raised $161m in its series B round from a consortium including corporations SoftBank Group, Cargill and Tyson Foods.
Some startups are turning to insects, especially in France. Ynsect raised $150m in its series C round and InnovaFeed raised about $43m, while AgriProtein, another insect protein company, raised $105m in June 2018.
Others are taking a more plant-based approach, with Beyond Meat having a genre-defining flotation and Impossible Foods, the US-based vegan meat developer that counts internet and technology group Alphabet as an investor, raising $300m last spring.
Leclerc put it: “Consumers are interested in alternative protein. Animal feed and production is shifting. [From] plant-based (Beyond Meat) to precision fermentation by microbes expressing animal proteins (cellular ag) and hence cultivating meat.”
Jay Bunte, manager for corporate strategy and mergers and acquisitions at Ingredion, said: “In regard to cellular agriculture via fermentation, given the companies we have been in close contact with and evaluating, I absolutely believe the question is when, not if. Technology and VC dollars are igniting the space and given the excitement and focus, I believe the unlocking of the market is imminent.
“Our investment thesis is technology and ingredient sector driven (proteins, sugar reduction and clean and simple ingredients) as opposed to regional. We are open to investments across the globe. I would categorise our efforts as foodtech along with agtech.”
Paimun Amini, director of venture investments at Leaps by Bayer, part of Bayer Crop Science in San Francisco, said: “Fermented protein is here today and will continue to grow in the market over the next few years. Companies like Clara Foods have a great completely soluble protein that will become a wonderful nutritional additive. Other companies leveraged fungi like fusarium to create mycoproteins and fibre to bolster our food supply. This is one of the most efficient ways to bring together you your nitrogen, carbon, oxygen, phosphorus atoms together to make proteins and fibres that round out our diet.
“Cellular agriculture is a bit farther out but we cannot ignore the big bets made on it, such as the recent Memphis Meats deal. I predict there will not only continue to be technical hurdles, but regulatory ones going forward, so we are still a way out from this solving our growing demand. Scale here will also be significant challenge in the future. These operations will need to be very large facilities with [a] very high sterility level.
“That being said, plants still represent a huge opportunity in this space. When you look at the amount of pea of acres needed to go into a Beyond burger or the amount of soy needed for an Impossible burger, we see a drastic improvement on animal-based protein sources. There are plenty of numbers out there and truth be told, I have calculated my own but the opportunity to feed the world still has a strong base in plants. Additionally, when looking at the rest of the open arable land, we focus upon Africa. Here the yields are still 25% to 30% that of what the US or Europe show today. By simply leveraging modern agricultural techniques and a few key inputs, hybrid seeds and crop protection we can easily double or triple the output for hundreds of millions of acres.”
Canada’s 3.4% global share of agtech investments, which is behind India and Brazil could be boosted by a quarter according to last year’s report by Royal Bank of Canada.
AgFunder’s annual report said: “Europe continued its trend for growth across VC industries posting a 94% increase in agri-foodtech funding, while Latin America had a breakout year, closing $1.4bn in agri-foodtech funding across 40% more deals than in 2018; that is more than the entire LatAm VC industry in 2017. Africa also more than doubled its funding in the space.”
The World Bank estimated in 2011 that sub-Saharan Africa had as much as 200 million hectares of land suitable for agriculture that was currently being farmed. That is nearly half of the world’s total arable land, but the vast majority of it is concentrated in a few countries – including Sudan, where corruption, political instability and haphazard policies have meant not much land is actually being farmed – and leaves much of the continent without suitable options to grow food, according to Thierry Heles in December’s Global University Venturing.
“Bayer describes its top four areas as ‘Leaps’ and wants to move from the idea of ‘more’ of these to ‘better’.”
Amini said: “Yield has long been and focus and is still an important topic, however, focus on better food, better nutrition, better use of land and resources are all key moving forward.”
Logistics for feeding the many
Amini was hopeful the intersection of government and agriculture would enable technologies to be used to help feed the population as it grows. “From my perspective, we are hopeful that governments will be supportive of new technologies that have the opportunity advance our goals of improving sustainability, developing healthy, nutritious food…
“As we have founded a gene-editing startup (Pairwise) in agriculture we are very supportive of this transformational technology for its ability to create a better agricultural world.”
Other changes are robotics being used to plant and harvest crops rather than people. Indoor farms are also disrupting the supply chain as salads and soft fruits can be grown closer to concentrations of people.
Amini added: “If you were to walk to any number of vegetable or orchard farmers in California and ask them what their top three worries are they would likely say: labour, water and government regulation. Realistically they would say labour three times, then the other two.
“Robotics is reaching a technology advancement curve where it can provide a real economic alternative to manual labour. Improving safety as well as efficiency on the farm when it comes to activities like pest control, harvesting, and monitoring.
“Indoor farming brings the opportunity to drastically shorten the produce supply market. If you look at companies like Sustenir in Singapore, they have a kale product that goes straight to the market from their operation. Today, produce goes from farm to trucks to distribution centre to trucks or ships or planes to market, in the best case scenario.
“Arable land can actually increase but that is mostly only in Africa and it comes at the sacrifice of grazing land. Indoor farming provides a real opportunity for countries to provide sustainable source of food that is not dependent on the availability of land and not subject to the risk of weather.”
However, Leclerc warned: “Tech development is tough as reaching the market can take six to seven years and the tech stack is really hard to build.
“The remote sensing world has been disappointing as it has not scaled and there has been no dominant successful model commercially – farmer data is not enough as you need applications to tell them what to do.”
But some more modern farming practices, such as the use of soil-based and aerial sensors, drones, data analytics, and pest and pathogen detection systems, are taking hold. When combined with advanced fertiliser formulations, digital farming technologies from startups such as Bayer-backed Joyn and Pivot Bio can substantially reduce nitrogen and nutrient loss and mitigate water pollution.
Leclerc also said there had been a lack of focus on robotics as manufacturers received just one or two orders. “It is an order or two of magnitude harder than inside a factory due to rain or whatever. Variance is hard.”
But as with the history of AI, Leclerc said: “We are now seeing world-class engineers solving hard problems. It was a supply issue of people. In AI in 2011 a seminal paper was published, but then takes three to four years to train up the scientists. It is the same in robotics and so now our last two deals were robotics ones, replacing labour with capital.”
This, plus greater attention to identifying quality and provenance of foods means the effective commoditisation of trade with a blended price could break down to differential pricing with value extracted if you can sell higher or lower quality products for different prices.
This is increasingly important as societal and demographic changes are encouraging food to be valued as a status signal – from those wanting ingredients to prepare their own food to delivery experts able to deliver whole meals; cooking-as-a-service as blogger Alex Danco describes it in his post on Counterfeit Food.
UK-listed technology and food delivery company Ocado’s head of corporate development Stewart McGuire has backed a tomato-picking robot and has done a couple of things in vertical farming The idea, according to those close to the company, is that the robot picks your tomatoes that are packed by a robot in a bag or box, which is then delivered by the drone or autonomous vehicle to your home in an integrated logistics-ag-food offering.
All this should help bring down the 25% to 30% of all food that is wasted, which creates a combined social, environmental, and economic cost of $2.5 trillion annually, according to broadcaster CNBC.
Above: Drones are one part of the modern farmer’s equipment
