VC and Agtech: Don’t Forget About the Farmer
The small-medium farming operation (production) is a vital component of the economy yet it is often neglected due to consolidation. It is more susceptible to potential unforeseen issues that affect business viability of these smaller independent farming enterprises.
By Christopher Canzano
VC contribution in the Agtech sector continues to swell.
As of August 2021, $5.6 billion of venture capital has been invested in startups in agtech. There are a multitude of technologies that have been deployed and continue to be developed as the flood of venture capital monies have influenced agriculture. New technologies abound such as: remote monitoring of temperature, wind, and humidity readings; soil moisture assessment capabilities that allow directed water allocation to crops; digital photography and live video feed of orchards; expanded drone capabilities; AI robotic implementation of pesticides; robotic control of mechanical farm equipment; automated harvesting; seed technology; compiling huge amounts of crop data; and continued efficiencies with modular indoor farming. These advances continue to alter the landscape of agriculture.
Small to medium scale farming operations are a vital part of the economic engine of agriculture but are susceptible to unforeseen market forces.
With two million American families still operating farms, food being the third largest source of household expenses, and agriculture employing 4.6 million Americans, it no wonder how farm output was responsible for adding $164.2 billion to the United States’ GDP in 2018. Clearly, the agricultural sector is essential to the success of America’s economy.
The food supply chain in the U.S. has grown more concentrated in the past few decades. Recent mergers and acquisitions indirectly shaped by the explosion of Agtech continue the relentless trend toward increasing corporate concentration across many agricultural markets. Growing corporate influence has left relatively small farms and ranches vulnerable to control by such oligopolies with which they do business. Many small and midsize farmers struggle to keep their operations running and make ends meet. According to the U.S. Department of Agriculture, around 40 percent of midsize farms, farms with gross cash receipts between $350,000 and $1 million, only had an operating profit margin of less than 10 percent.
Other factors that impact production is that many individual farmers are aging and leaving the agricultural sector. Furthermore, over two-thirds of retiring farm owners do not have a clear successor, and around ninety percent of farmers lack an organized exit plan. Similarly, beginning farmers struggle to meet the challenges of high startup and overhead costs, competition, and land acquisition.
The unforeseen factors such as climate change and its impact on crop production, water availability, global supply chain and import/export of goods, and political upheaval that alter trade agreements can threaten the tenuous existence of our smaller farming outfits.
VC: Don’t forget about the farmer
In contrast to every other part of the supply chain, the actual production of agricultural goods has remained decentralized with small to midsize accounting for nearly three-fourths of all farmland and for about half of all production according to the USDA. Still, small farms are unable to compete with large-scale productions in the long run due to relatively less time efficiency, labor, and capital. . This is where VC can help. Creative mechanisms that serve to ensure that small-medium farming operations remain financially sustainable is a responsible venture capital play. VC firms can offer expertise and guidance to farmers that decreases cost of production, improves market accessibility with affordable access to land and infrastructure, and increases scale to compete in larger markets. VC impact thus can have a decisive impact on the economic health of these smaller agricultural ventures. Moreover, VC can excel in other areas. For example, branding, consumer traceability (organic certification, green measures, labor practices, etc,), crop insurance and banking capabilities for segmented farmers and coops, strategic partnerships-finding demand for its supply (farm to fulfillment centers), and satisfying major urban areas that desire local, fresh food.
