Riding towards Agriculture’s biggest Revolution

Introduction

The UN Food and Agriculture Organization predicts that nearly 10 billion people will walk the Earth by year 2050. In order to satisfy their daily need for almost two trillion calories, it is estimated that the global agriculture industry will have to increase food production by a massive 70 per cent. On the contrary, the dominance of the food & agriculture sector in general seems to be on a gradual decline, with their presence in the Fortune500 list almost halving in the last 50 odd years. Looking back at the same timeline, hardly 20% of the food & agriculture companies have been able to survive in the latest list. As that demand surges, digital technology is beginning to disrupt what McKinsey & Company describes as the world’s oldest and least digitally mature industry — agriculture. But as it seems, technological innovation, ricocheted from other industries — is quickly finding its way into the fields, onto ranches, and throughout the entire agriculture value chain. The digital transformation of agriculture is poised to impact billions of people, impacting every part of the production and distribution of food supply. We can see a portfolio of mainstream technologies — mobile apps, digital mapping, field sensors, big data, cloud-based business systems, smart farming equipment, autonomous aerial and field vehicles — being used to create an interconnected digital ecosystem that tracks commodities from the farm to the market, while simultaneously tracking origination of the market product back to the farm. Adding to that is an increasing number of disruptive companies emerging in the agriculture industry that are developing new technologies such as sensors, machine automation and data science.

Why does Agriculture need a revamp?

1. Rapid Population Growth
Between now and 2050 the planet’s population is likely to rise to almost 10 billion, from 7.3 billion now. Those people will not only need to eat, they will want to eat better than people do now, because by then most people are likely to have middling incomes, and many will be well off. These trends mean that market demand for food would continue to grow and feeding this humongous population adequately would require some super tech advancements. Moreover, this would also mean producing the kinds of foods that are currently insufficient, to ensure nutrition security.

2. Depleting Agricultural Land
Limited availability of natural resources such as fresh water and arable land along with slowing yield trends in several staple crops has prompted growers and companies in the farming sector to introduce innovative and advanced smart farming techniques in order to enhance farm profitability. The depletion of farmland can also be attributed to rapid urban industrial growth. And with increasing urbanization, the need to enhance farm yield has become critical.

3. Rising Pollution and Sinking Health Standards
The relationship between pollution and food quality is reciprocal. Food production contributes significantly to air pollution; in turn, air pollution can impact food production. But more than that, the significant rise in pollution in urban cities has consequentially dropped the health standards around the globe. It makes all the more sense to deploy modern farming methods, which results in high nutrient production along with minimizing the pollution.

4. Climate Changes
The global agricultural sector consumes 2,600 terrawatt-hours of energy and emits 5.3 billion metric tons of carbon dioxide equivalent every year[i]. That is roughly equal to the emissions from over 1 billion passenger vehicles driven for one year or the emissions from 1,300 coal-fired power plants in one year.

Given that data, it is evident that the traditional techniques cannot prevent the extreme climate change without considering the tools presented by disciplines of data science and artificial intelligence more thoughtfully.

Trends, Opportunities, and Challenges

With roughly 33% of global food production for human consumption lost or wasted every year, and global food demand set to increase by 35 percent by 2030, how will digital transformation of agriculture disrupt life on the farm? What will drive this? What are the opportunities? Is this sustainable? Let’s find out.

Maximizing Overall Productivity via Predictive Agriculture
The agriculture industry has enormous potential to exploit the ability of modern tech innovations. With Internet of Things (IoT), farmers can now automatically collection important information about their soil, crops, water, animals, and what not. Combine this with data analytics and machine learning, together they can inspire greater agricultural efficiency, improve financial performance, and transform yield production. The sophistication of today’s sensors, internet-enabled devices, software applications, and cloud data storage facilities can not only automate the collection of huge amounts and types of data, but can also help fuel future business decisions by predicting prospective requirements and identifying upcoming threats, in order to stay a step ahead of the future.

Predictive Agriculture Pioneers

Eliminating Land Dependency through Vertical Farming
Straight outta science fiction, this method, as the name suggests, involves growing produce in vertically stacked layers, instead of spreading out across acres and acres on land. This usually happens in enclosed structures with controlled climate, and a mix of artificial and natural light. With less land, and lesser water involved, the produced can be grown all throughout the year, essentially resolving the issue of seasonal crops. This method is are all the more important in challenging environments, where land is rare or unavailable. In the future, vertical farming methods will not only enhance food security measures, but would also reduce the amount of farmland needed, which could in turn decrease deforestation and pollution, and help urban areas be self-sufficient.

Vertical Farming Trailblazers

Enhancing Health Standards with Artificial/Cultured Meats
Growing meat in a laboratory is absolutely amazing. Artificial or Cultured Meating is a process which is based on producing ‘clean’ meat — without having to raise and kill animals for their meat. It involves taking tiny meat cells from an animal (via a painless biopsy or sample). These are then fed nutrients, which enables the cells to grow, and they eventually turn into edible meat. Not only this method would bring an end to all forms of animal agriculture, the environmental impact of doing so would be humongous. According to the UN, livestock farming takes an incredible amount of land and water per calorie of food compared to crops, and in terms of greenhouse emissions, is as bad as burning fossil fuels. Cultured Meat could provide a credible alternative to alternative meat, and will entirely remove the animal from the meat production process.

Artificial Meat Revolutionaries

Reprogramming Pesticides into Modern Microbials
According to Finistere Ventures & PitchBook’s AgTech Investment Review, over $860 million across 35 deals was invested in companies in the microbials segment, making it the single largest investment area for AgTech in 2017. Agricultural microbials are microbes that associate themselves with plant and are essential to maintaining the fertility of the soil. So instead of synthesizing new chemicals, companies are using these so called biological as the hot new pesticides. Whether pesticides or growth stimulants, carefully-designed, naturally-derived products are the current agricultural darlings, attracting both startups and heavyweights like Monsanto, Bayer, and DuPont by the billions of dollars.

Modern Microbials Innovators

Opportunities vs Challenges

  1. Agriculture is one of the least digitized sectors. However, the lack of an existing IT infrastructure provides an opportunity for tech enthusiasts to develop new systems. The agriculture market has humongous potential to be disrupted by the confluence of new generation tech, providing investors with the opportunity for high scalability and massive ROI.
  2. Existing players are aware of the transformation that technology can bring, and have gradually started participating. Not just this, the number corporates investing has also surged significantly in the past few years. Corporates from pharma, tech, agribusiness, robotics, are all becoming waking up. Agriculture corporates have been getting more involved with startup accelerators focused on the AgTech sector. This strategy gives them access to early-stage startups as they develop.
  3. The shift of Agriculture towards AI seems inevitable. Because of which, data will play an important role in shaping the future of agriculture. But tracking, collecting, and making sense of tons of data can be overwhelming for not only the farmers but data scientists, too. At the end of the day, farmers are the ones making all the final decisions, which essentially requires the farmers to understand the data first, and then utilize it in the best manner possible.
  4. Increasing urbanization has presented a major challenge for in the form of shortage of labor. More and more people are relocating from rural to urban areas, and thus do not really see a profession or career in agriculture. Technology advancements have also filtered the farming population, with most farmers being old enough to stay away from latest farming techniques.

The state of AgTech Investment Landscape

· While analysts and venture capitalists were wringing their hands and declaring that the startup boom is over, AgTech continued to move forward in leaps and bounds. In 2017, investors poured $700m into AgTech — more than double of what was invested in 2016, and triple the preceding year.

· Early -stage deals into ag tech dominated 2012–2014, with Seed/Angel deals taking off in 2014 and taking 57% of all deals. Since then the industry has slowly matured, with Series A deal share growing, and more Series B deals. There are even some late -stage deals.

· Grants are becoming an increasingly popular financing mechanism for ag tech companies. While most grants are small, some are greater than $4M. The grants come from the government at both the Federal and State level, as well as some corporations.

· Despite the massive liquidity event of The Climate Corporation, ag tech has yet to see sustained exit activity. There have been a handful of $200M+ exits, including SCR Engineers and Precision Planting (which was also acquired by Monsanto). Notably there haven’t been any recent IPOs

· The number of unique investors into ag tech companies surged after The Climate Corporation acquisition. Since then the number of active investors has tapered slightly, though 2016 was the second year with triple-digit investors that made at least one ag tech investment.

Case in Point: Africa’s Digital Farming Initiative

The food challenges in Africa are multipronged: The population is growing, but it is threatened by low farm productivity exacerbated by weather changes, shorter fallow periods, and rural-urban migration that deprives farming communities of young people. But this is about to change. African entrepreneurs are now interested in how farmers work and how they can help improve yields. The barrier of entry into farming technology has dropped, as cloud computing, computing systems, connectivity, open-source software, and other digital tools have become increasingly affordable and accessible. Entrepreneurs can now deliver solutions to small-size African farms at cost models that farmers can afford. For example, aerial images from satellites or drones, weather forecasts, and soil sensors are making it possible to manage crop growth in real time. Automated systems provide early warnings if there are deviations from normal growth or other factors.

Zenvus, a Nigerian precision farming startup (which I own), measures and analyzes soil data like temperature, nutrients, and vegetative health to help farmers apply the right fertilizer and optimally irrigate their farms. The process improves farm productivity and reduces input waste by using analytics to facilitate data-driven farming practices for small-scale farmers. UjuziKilimo, a Kenyan startup, uses big data and analytic capabilities to transform farmers into a knowledge-based community, with the goal of improving productivity through precision insights. This helps to adjust irrigation and determine the needs of individual plants. And SunCulture, which sells drip irrigation kits that use solar energy to pump water from any source, has made irrigation affordable. Beyond precision farming, financial solutions designed for farmers are blossoming. FarmDrive, a Kenyan enterprise, connects unbanked and underserved smallholder farmers to credit, while helping financial institutions cost-effectively increase their agricultural loan portfolios. Kenyan startup M-Farm and Cameroon’s AgroSpaces provide pricing data to remove price asymmetry between farmers and buyers, making it possible for farmers to earn more. Ghana-based Farmerline and AgroCenta deploy mobile and web technologies that bring farming advice, weather forecasts, market information, and financial tips to farmers, who are traditionally out of reach, due to barriers in connectivity, literacy, or language. Sokopepe uses SMS and web tools to offer market information and farm record management services to farmers.

Digital technology opens vast untapped potential for farmers, investors, and entrepreneurs to improve efficiency of food production and consumption in Africa. From precision farming to an efficient food supply chain, technology could bring major economic, social, and environmental benefits. Indeed, the sheer optimism across the startup ecosystem is that extreme hunger can be cured in Africa, in this generation, by significantly transforming the industry that employs most of its citizens.

Looking forward

2017 was a big year for AgTech. As the AgTech sector matures, we’re likely to see big disruption and innovation at every stage of the agriculture supply chain. Here are some of our thoughts for the AgTech sector in 2018.

Bigger Investments
While tech startups traditionally rely on funding from venture capitalists and angel investors, the essential nature of agriculture means that AgTech is also an attractive investment opportunity for established corporations and government departments — many of which have serious cash to invest. The appetite for AgTech investment from both the both the public and private sector has led analysts to predict that 2018 will see a wave of AgTech ‘unicorns’ — that is, startups valued at $1b or more.

Fintech & Blockchain
The financial challenges in agriculture are unlike those of any other industry, with farmers battling high risk, high debt, fluctuating market prices, thin profit margins, high capital costs and high interest rates. For founders trying to enter the AgTech space with little or no agriculture experience, these financial pressures can present barriers to adoption that they hadn’t previously considered.

Sustainable Food Systems
In 2015, the United Nations estimated the world’s population will reach 9.7 billion by 2050. Sustainable food systems are imperative to feed the growing population and minimize the effects of climate change. How food is grown and produced, what types of foods are consumed and how much food is wasted have major impacts on the sustainability of the world’s food syst

[i] http://www.fao.org/news/story/en/item/95161/icode/

Phronesis Partners Gist

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We partner with clients to ‘simplify growth’ by leveraging our research and intelligence capabilities. Write to us at: info@phronesis-partners.com

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