The Next Transformation of our Food System Is Underway

We have transformed our food system on several notable occasions in human history. Circa 10,000 BCE, we domesticated plants and animals, and the rise of agriculture transformed us from hunter-gatherers to agrarian civilizations. Trait selection hastened the development of food crops. Mechanization allowed us to grow more with less labor.

Our current food system is the result of the last transformation that occurred in the decades following World World II: the green revolution. Built on innovations in chemistry and high yielding cereal grains, we transformed our food system to increase quantity. We saved over a billion people from starvation.

But now that we have been living with this food system for several decades, we see the unintended consequences: growing massive quantities of the wrong food with massive collateral damage to the environment. While we degrade our health, our soil, and our water our future food production capacity is at risk. The time is ripe for another transformation.

In my recent post, The Three Pillars of our Next Food System, I laid out what I see as this next food system: one that solves for sustainability built on the the pillars of biodiverse ecosystems, new food crops and packaging, and digital technologies. In this post, I give you my 4 proof points as to why this tranformation is already underway:

  1. Changing consumer behavior
  2. Changing corporate interest
  3. Rise of new digital technologies
  4. Strong capital investment

1. Consumer Behavior is Changing

Convenience. Price. Taste. These three value drivers have traditionally dominated consumer decisions about food purchases. However, increasingly consumers are weighing health and wellness, safety, social impact, and experience into their decision making. In 2015, Deloitte and the Grocery Manufacturer’s Association conducted a quantitative study of US consumers and their food purchase decisions. The study found that not only are these insurgent concerns dominating choices for over half of consumers; transparency appeared to be an over-arching concern that was shared across the board.

Source: Deloitte Food Value Equation Survey 2015

Most importantly, these trends are not just a vocal minority of upscale consumers. These evolving drivers — social impact, experience, health and wellness, safety, and transparency — factor into the food buying decisions across all consumers. They are pervasive in all age groups, all american georaphies, and all income levels. They are likely even more pervasive across Europe.

2. In Response, Corporate Interests Are Changing

Any food company that has a brand with consumers — be it retailers, restaurants, consumer packaged goods, etc. — is sensitive to these changes in consumer demand. They see it most directly in their decline in sales. “Big food” companies have seen 5+ years in declining sales from their traditional brand portfolios. According to Credit Suisse, as reported in Fortune Magazine, the top 25 food companies lost US$18 Billion in market share between 2009 and 2015.

In response, they are scrambling to change their businesses. The last 5 years have seen record level of mergers and acqusitions as they buy up competitive brands that meet these emerging consumer value drivers.

They are rapidly creating or investing in venture capital funds to find the new innovations. Campbell’s invested in Acre Ventures, Kellog’s created Eighteen94 Ventures, Tyson Foods created Tyson ventures, and the list goes on.

3. New technologies make digitization possible

At the same time that consumers are changing the priorities of food companies, recent technology advances make digitization of the food supply possible and practical. Many of the components of these technologies have become cheap commodities.

Hardware. The cost of hardware has seen a 10-fold decrease in the last 15 years because of the economies of scale reached by manufacturing more than 1 Billion smart phones. Take, for example, the accelerometer. This is a microchip that measure velocity: how fast is an object moving. In the year 2000, accelerometers were so expensive that they were used in military defense missiles. Now, they come in every smart phone, and they are so cheap that you can purchase a $50 dog collar that contains an accelerometer. From million dollar defense missiles to your pet’s collar.

Software. It’s not just the cost of the hardware that has signficantly decreased. The software has gotten cheaper, too. In 2000 when accelerometers were in defense missiles, software hosted in the cloud cost $150,000/month. That’s the price that my Netscape colleague, Marc Andreessen, quotes in his famous artcle, “Software is eating the world,” as the cost for a customer to host basic software-as-service (SaS) with his company at the time, LoudCloud. LoudCloud was one of the first SaS companies.

Today, that same basic software in the cloud costs around $1,500/month. As a startup entrepreneur, it means that you need less money to get started building software than you did 15 years ago. The barrier to entry to start a software (and hardware) company is a lot lower.

Computational Power. At the same time, we have vastly increased the computational power. When I was an undergraduate at Carnegie Mellon University in 1993, the Cray Supercomputer was The. World’s. Fastest. Computer. It has the computation prowess of an iPhone 4.

The computational prowess of the world’s fastest computer, the Cray Supercomputer, in 1993 equals that of an iPhone 4.

As the proud owner of an iPhone 6, I have more computational power in my pocket now than I had as an undergraduate computer science student at one of the world’s leading computer science and engineering universities.

The result is a slew of new technologies: smartphones, tablets, wearables (for people as well as animals); inexpensive yet sophisticated sensors; robotics; breakthroughs in machine learning and artificial intelligence; inexpensive cloud computing; and big data. These technologies mean that for the first time untethered data collection and analysis is now possible and practical across the food supply from farm to fork.

4. Strong Capital Investment

These new technologies make it possible to not just digitize the supply chain of food but enable us to rethink and reconfigure how we produce, predict, transport, package, track, sell, and consume food. This is at the same time that big food brands are changing in response to new consumer demand. Thus, it is no surprise that there is a wealth of new capital that is funding new companies in the food sector. US$3.2 billion was invested in food tech companies in 2016.

Source: AgFunder, “AgTech Investing Report 2016,” published January 31, 2017.

The primary reason why investment was down in 2016 from the $4.2 billion invested in 2015 is that more early stage companies were funded. There were actually more indivudal companies funded in 2016 (580) compared to 2015 (531), but they were earlier stage and, hence, each deal was for a smaller amount. Investment in the food/foodtech sector reamains strong in 2017, and the total amount is on track to surpass the $3.2 Billion in 2016.

This new capital combines with the merger/acquisition and increased venture actvity of the big food brands. In short, a lot of new capital is being invested in the food sector to bring about transformation.

We are only at the beginning

As with the previous transformations of our food system, change does not happen overnight. But, rest assured, the transformation is well underway.