Key Takeaways from the 2023 World Agri-Tech Summit
With over 2,500 attendees, the 2023 World Agri-Tech Summit in San Francisco revealed the growing investor and entrepreneur mindset that agriculture and food innovation are critical components of the net zero economy.
FoodTech is inextricably linked to the global clean energy transition, and greater investment is required…
- Globally, society cannot achieve net zero ambitions without fundamentally changing the food system. Food production processes account for over one-third of total greenhouse gas emissions – the third-largest category contributor – and yet, global food production has doubled over the past 20 years while using only 20% more land to do so by leveraging new tech-led innovations
- FoodTech funding lags significantly behind other segments of the energy transition – particularly areas like batteries, storage, and mobility. FoodTech has historically suffered from a less diverse pool of active investors relative to “core” energy providers (i.e. renewables, grids/storage, efficiency). While core energy investments totalled over $1T of public and private market annual commitments in 2022 (up 31% YoY), global FoodTech deals commanded only $30B, representing a 50% YoY decline from 2021
- The market is seeing encouraging signals from some large institutional capital providers (Blackrock, Temasek, TPG Rise, Blackstone, Carlyle Group – among others) with energy transition-focused mandates who are including FoodTech as part of an integrated net zero investment strategy. Investors see opportunities in the reverse flow from energy into food, with fundable technologies including processes to convert methane into proteins for animal feed and food ingredients
- More than 70 countries that are responsible for over 75% of greenhouse emissions have set net-zero targets by 2050 – 2070. These countries also account for >50% of the world’s population. Given the prominent role food production plays in emission generation, this further reinforces the need to invest in sustainable ingredients and production capabilities
- Society is living at a global crossroads of an increasing population with food demands that are expected to increase by 70 – 100% by 2050, coupled with a food scarcity problem driven by rising prices/inflation and inefficient supply chains. To offset this, innovation must happen locally, particularly in emerging markets and places like Asia and Africa
- Key challenges that FoodTech companies must overcome to win over investors who Lazard regularly has dialogue with include:
- Recurring sales and enterprise customer traction (solving the adoption challenge)
- Ability to manage capital intensity, particularly for those focused on production processes
- Successfully navigating a diverse set of stakeholders on the demand side – i.e. governments, regulators, seed and fertilizer companies, suppliers, consumers
- Ability to clearly communicate the need for their technology and path to commercialization. Given recent market performance, early-stage investors are more cautious allocating capital towards pre- or low-revenue FoodTech ventures
Sources: TechCrunch, U.S. Dept. of Agriculture, conference panelists
Ramblings on Agri-Tech trends: how investors see the current state of play…
- From investors’ perspective, stakeholders are still underinvesting in climate innovation and doing so at a slower pace than is needed to meet net zero goals, particularly in agriculture. Agri-Tech is receiving an estimated <2% of total ESG-related investments globally
- Investors believe that Agri-Tech and FoodTech companies have suffered over the past two years from trivializing the need to prove market adoption before taking on institutional funding; in particular, companies in these spaces have often taken a top-down approach to product development (focused on the end-suppliers), and what the industry has learned over the past few years, is that a bottoms-up, product-led growth motion that provides tangible value to farmers is critical for creating scalable businesses
- Investors also highlighted that the farmer’s job is ultimately not to improve the environment, so an impact thesis alone is not enough to drive adoption among growers. In Bushel’s latest State of the Farm survey, 77% of farmers said they would be willing to change the way they farm if it would have a positive impact on the environment. Yet, 96% said they would change if they believed it would be more profitable
- Despite adoption barriers, investors are taking a more holistic view towards agricultural innovation – for example, global investor Temasek breaks down the world of Agri-Tech opportunities into four thematic spheres spanning a mix of agriculture, food, and climate technologies:
- The decarbonization of agriculture
- The climate resilience of agriculture
- The digitization of agriculture
- FoodTech / health and wellness benefits
- Below are some sub-sector trends noted by capital providers and executives at large-cap agri-businesses where they see capital likely to flow over the next 12+ months:
- Precision farming: investors are taking a close look at companies enabling precision farming and the digitization of farming processes. Examples include AI/ML-based solutions to monitor and measure things like crop yields, irrigation patterns, and soil nutrient levels. There was a high volume of venture-stage companies in attendance focused in this area, with some focused on the IoT, surveillance, and collection technologies themselves, and other purely focused on the software to manage and analyze the data extracted at the field-level
- Bioeconomy shifting to carbon drawdown: the U.S. has the capacity to produce significant amounts of biofuels (ethanol) with large established supply chains, but over the next decade, the bioeconomy is likely to shift from one that is bioenergy production-focused to one that emphasizes carbon drawdown and the provision of ecosystem services
- Full-stack carbon solutions: riding the bioeconomy shift, regulatory tailwinds, and sizeable corporate ESG commitments, investors see opportunities across a range of carbon and emissions products, including: tech to capture and store CO2, and digital carbon accounting, utilization, and FinTech tools (including carbon-trading marketplaces and carbon-linked consumer financial products)
- Tech infrastructure: Microsoft has a vision to incorporate data and AI into the Ag industry to augment farmers’ knowledge and enable them to make better commercial decisions (much of which is guesswork today). The company recently announced Azure Data Manager for Agriculture, which provides industry-specific data connectors and capabilities to connect high-quality farm data from disparate sources
- Crop biodiversity: the industry needs solutions that can help farmers counteract climate change, poor soil quality, and commodity volatility. Funding technologies that provide growers greater crop flexibility to endure throughout the harvesting season is key to sustaining farmer productivity
- Microbes and genetics: agri-businesses are at the beginning of a decades-long journey to understanding the intersection of air culture and biotechnology. Investors believe there will be step-changes in advancements to help farmers act on this science over the next few years. One example of investor interest in this space includes Pivot Bio, who has raised $600m+ in capital to use microbes to create and feed nitrogen to corn and wheat crops, replacing synthetic fertilizers
- Digital enablement / FinTech for farmers: growers and farmers are increasingly insurable with field-level data becoming more accessible, and this same data is making suppliers smarter. FinTech solutions can help finance progressive growers who are leading the transition to regenerative practices and data-driven decision-making. Creative insurance products can mitigate risks associated with extreme weather and market dislocations
Sources: Conference panelists from: Microsoft, Temasek, MIT, BASF Agricultural Solutions, among others; Morningstar
The next wave – biologics, biofuels, and gene editing…
The conference panels highlighted three momentous, forward-looking trends developing in the broader AgriTech ecosystem: 1) biologics, 2) biofuels, and 3) gene editing.
Biologics
- Biologics are the fastest-growing segment in crop production industry; by 2035, biologics will account for 25% of the global crop production market
- These have a favorable, climate-neutral environmental profile and are less intensive than fossil fuels
- Biologics help to drastically improve the growing seasons – in 2022, 80% of the U.S. was in drought conditions, and widespread use of biologics would have vastly improved growing outcomes
- Biologics are unlikely to fully replace synthetic chemistry, but can effectively supplement existing modes
- Farmers need flexibility, and biologics offer a new mode of action
Biofuels
- One-third of U.S. corn crops go into biofuels – the agriculture industry is already a step-ahead on renewable fuels and increasingly moving towards areas like sustainable aviation fuels
- A significant new value-chain partnership – Corteva, Bunge, and Chevron:
- Agri-business leaders Corteva and Bunge announced a new collaboration with Chevron to produce new winter canola hybrids in the southern U.S.
- The goal is to increase the availability of vegetable oil feedstocks primarily for the growing domestic renewable fuels market
- Corteva will bring to market proprietary winter canola seeds and a new double-cropping system, while Bunge and Chevron will purchase the harvested winter canola crop directly from farmers and use the resulting oil to create renewable fuel; with Corteva as the producer, Bunge as the processor, and Chevron as the end-supplier to the oil market, the three large-cap industry leaders are stepping up to enact full value chain collaboration
- Some benefits of the new canola hybrid coming to market via this one-of-a-kind partnership include:
-- Adding a new sustainable rotation crop for farmers optimized for yield – serving as a food crop in the summer, and a fuel crop in the winter
-- New revenue stream for farmers, providing greater seasonal predictability
-- Using a cover crop that can enhance soil health by holding more nutrients, water, and carbon in the soil
Gene Editing
- Genome modification, gene editing, and epigenetic products will all be coming to market at the same time, but each has a different regulatory pathway
- Gene editing has the potential to be more impactful than biotech over the next decade – it has the potential to make very precise gene alterations (turning specific genes on and off), offering a faster and more cost-effective way to do breeding without foreign DNA
- Gene editing has a broad range of applications. For example, it can help reduce corn stature, a major topic among growers, and it can help reduce disease pressure on crop varieties
- Corteva cited the ability to identify genes that will protect the crop, amplify them, and move them to an optimal location to accelerate hybridization. Gene editing enables the company to do this faster than they ever thought possible
- Plant biology is still largely a black box – the agri-industry now has a greater capacity to understand what happens in the field when breeding crops, what’s more productive, and what’s more valuable to the farmer. However, there are still lots of holes to fill in assessing the macro implications for agricultural productivity and sustainability
- With genetics, what to edit, how to edit, and where to edit, are the key questions stakeholders must build knowledge around. One example – there are >20,000 known soybean genes, and right now the industry really understands only 100 of them
- Agri-businesses need rapid prototyping and predictive design capabilities, taking on an engineering mindset of design, build, test, learn. Testing limitations are currently a major constraint on the industry’s ability to leverage gene editing technologies at scale
Sources: Conference panelists from: Corteva
Tech infrastructure investments needed to spur data adoption in agriculture…
- The industry is getting more sophisticated with data collection, however managing products and supply chains for smallholder farmers is a greater challenge
- Agriculture has a fundamental tech infrastructure problem; the industry needs someone to play the role that Plaid did for financial services by becoming the integration layer across multiple banking systems – stakeholders need permission-based APIs that allow customers to control and authenticate account-level data sharing, but no provider has built the vehicle to efficiently move data across the value chain
- There is lots of fractional data available across the industry, but a high level of collaboration and integration is required to make it actionable; unfortunately, the industry lacks data standardization capabilities, and the costs to adopt point solutions are often too high for the average farmer to sustain
- The application vs. infrastructure innovation cycle in agriculture is very much skewed towards application development. Given the complexities of agri-businesses and the high volume of different data types that determine outcomes across the value chain, this reverse engineering focus has created significant integration challenges
- Additionally, the amount of data farmers are expected to manually input into applications on the market is still far too high – this further constrains tech adoption
- Beyond data infrastructure, there is a real need for predictive solutions that identify risks and revenue opportunities for farmers and value chain providers, meaning there is a role for AI/ML software to play in enabling tangible ROI that can accelerate adoption and drive shared stakeholder intelligence
- Solutions need to be very prescriptive, telling farmers exactly how to take actions like increasing crop yields; attempts at developing horizontal, “self-serve” productivity solutions have proven challenging to scale
- Other challenges with data advancements in Agri-Tech include:
- Data within agri-business organizations and across the supply chain historically has been very siloed
- It is difficult to establish interoperability when the industry operates around very heterogenous data sets – there is an overwhelming volume of complex, unconventional data points across different agri-business types (can’t just deploy plug-and-play solutions that work in other commercial industries)
- Farmers and supply chain stakeholders lack an understanding of how to monetize and operationalize learnings from the data they generate
- There is a cultural aversion to data sharing in the industry, primarily because of poor integration between farmers and supply chain participants, and unclear ROI for growers to collaborate
Sources: Conference panelists from: McKinsey & Company, Bushel, AWS, Greenstone, Publicis Sapient, Microsoft, among others
De-risking and modernizing finance to sustain Agri-Tech…
- The world is seeing higher volumes of volatile weather patterns – 8 out of the last 10 harvest seasons have been disrupted by episodic events – making risk management a critical lifeline in the industry
- Insurance companies are now building integrated risk management platforms; risk models that have been around for decades are based on retrospective models (usually 10-year histories) and no longer have the same predictive values they once did
- Lenders and insurers need new models that reward farmers performing well at the field-level; emerging tech-enabled collection mechanisms – such as field-level sensors, IoT devices, and aerial imaging and satellites – go a long way toward helping the farmers, insurers, lenders align incentives
- Behavioral change in agriculture is tough – there is a heterogenous population of growers now being asked to act homogenously, even if this results in better policies for the farmer; trust is key to aligning the growers, underwriters, and technologists
- Data needs to be treated as a crop – how it’s cultivated really matters, and how it’s harvested as business intelligence needs to meet the climate sensing demands present today and into the future
- Protection against ever more-specific weather or precipitation events, rather than whole-farm or total revenue are emerging as a goal, as are farm-management practice insurance products
- As data becomes more accessible digitally, financial service providers have opportunities to capture efficiency gains in front-end processing (underwriting), loan servicing and claims management, and back-end processing (loan / policy renewal)
- The industry needs a range of new financial tools and products to support this transition, including direct incentives and rewards, embedded risk management and insurance solutions, and models that unlock new sources of aligned finance
- Farmer adoption of data processing technologies can help them reduce risk through more precise planting, input application, and harvesting, all of which helps reduce crop loss and thus enhance the integrity of the collateral (either the land or the actual crops) pledged against loans
Sources: Conference panelists from: CoBank, U.S. Farmers & Ranchers in Action, Agrograph, Intl. Farming, Ceres Imaging
Lastly, some innovative venture and growth companies that were in attendance…
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