What is driving investor interest and investments in Urban Agriculture?
By Dr. Vijayender Nalla, Chaitra Bharath and Kanchan Hatwar
Urban farming or urban agriculture is attracting significant investor attention across the world. Notable investments in this space have been the Vertical farming and marketing company Plenty (plenty.ag) raising $200 million, with notable backers such as the SoftBank Vision Fund and Jeff Bezos. Another sizeable deal was AeroFarms (aerofarms.com), who raised over $80 million from two funding rounds.
We have been involved in a curriculum and content development project with APO (Asian Productivity Organization) for training more than 400 professionals operating within this space. As a part of this journey we have identified the key drivers that are giving this momentum to the Urban Agriculture industry, different technologies innovations and the business models with which entrepreneurs are trying to build businesses within this landscape.
In this piece we will try and summarize the 5 key drivers that we have identified to be driving this momentum. Before we try and get further into the drivers here is a good indicative picture which gives a good understanding of the scope of urban agriculture:
KEY DRIVER 1
GROWING POPULATION COMBINED WITH MASS MIGRATION TO CITIES
By the year 2050 we expect to touch the 9 billion people mark. In 2010, around 50% of the population started to live in urban areas. For the first time the number of people living in cities equated the number living in rural areas, and by 2050 we expect that 70 % of the people will live in urban areas.
The mighty cities that will be housing most of the population, in any country, have one terrible flaw. Estimates vary, but it is thought that less than 1% of their food is produced within the cities, which makes it a very unsustainable situation; they cannot feed themselves. Cities rely on a river of trucks coming every night to restock the shops and markets. Any break in the flow — an oil crisis, a war, a big flood or storm — and a giant city will starve. The solution is for cities to grow far more of their own food, locally.
KEY DRIVER 2
GROWING CONCERN ON FOOD SECURITY AND FOOD SUSTAINABILITY
World Resource Institute estimates that the world needs to produce 70% more food calories to secure food for everyone. From the resource point of view this looks like a herculean task, and countries (cities in particular) face a food security threat. For the period 2016–2017, public sectors reduced R&D budgets on food, and this is showing a clear impact on the overall food security index (see picture below).
From the above picture it is also clear that the drop in R&D investment of the country in Agri and Food is also resulting in its drop in the GFSI (Global Food Security Index) score, which means the vulnerability to food shortage in event of risk of these countries increased due to their decision to cut their spending on Agri & Food related R&D.
Coming to food sustainability purely from the Urban Agriculture perspective, food miles (the travel before converted into the final product) for products that are consumed in huge volumes are unbelievably high. For instance a very popular Big Mac sandwich sold by the fast food chain McDonald’s in the UK travels more than 7000 miles, demonstrating an unsustainable food chain (see picture below).
Key Driver 3.
GROWING CONSUMER DEMANDS ON FRESHNESS, NUTRITION, VARIETY, TRANSPARENCY, SAFETY AND ENVIRONMENTAL SUSTAINABILITY
The emerging demand side consumer dynamics, in a way, are conflicting with the way current food value chains are designed. While, the food chains are designed for greater economies of scale consumer demands for freshness, nutrition and transparency, call for more localized chains. The consumers are even willing to pay a higher price for locally grown food. The below picture clearly shows what the consumers are looking for.
Key driver 4.
ACCESSIBLE INNOVATIONS IN AGRICULTURE PRODUCTION TECHNOLOGIES AND INFORMATION TECHNOLOGY
The changing technology landscape that is bringing both productivity and elements are preferred by consumers. Innovations in growing system and facility types have made it easier for food to be produced within and around cities. In the next picture a clarity is provided on the growing systems and the facility types that are popular within the urban agriculture context.
Key driver 5.
GROWING INTEREST FROM EDUCATED TALENT IN AGRIBUSINESS ENTREPRENEURSHIP
Private sector is contributing to record level of investments. Contributing to the purposeful drive and interest in entrepreneurship and employment. In 2017 alone, venture capitalists have invested more than $300 in urban farming.
Each of these drivers seem to be robust and hence the opportunities within this space definitely seem to be long lasting. What we have also discovered is that the choice of technology and the business model with which the business is going into the market is having a huge impact.
We hope that these insights have provided some useful reflections points for your own business or investment portfolio.
If you are an investor holding an agri-tech portfolio, or an agri-tech entrepreneur and see value in domain expertise and a talent pipeline to scale your portfolio businesses, you can discuss your needs with us at agribusiness.academy
