The importance of agri-food innovations
As a critical driver of productivity and economic growth, innovation in agriculture happens across every dimension of the production cycle and along the entire value chain, including crops, livestock, or fisheries production to market access and inputs’ management.
Innovation is also much more than a buzzword or a fashionable notion. It has become a key issue for companies, policies, and society globally; it is a factor of competitiveness for enterprises that can lead to improved productivity, cost reductions, and the opening of new markets.
Several areas have a great potential for innovation in the agri-food sector (also called agtech or agrotech), including digital data-driven solutions, like data analytics and big data, automation and robotics, development and production of new food ingredients, and bio-based and biodegradable materials for packaging.
To make sure that local, regional, and global food production is prepared to surpass the future challenges, more innovation in the agri-food sector is critical. Furthermore, the industry has great potential for invention by using new technologies, such as precision farming, sustainable packaging, and blockchain-based food tracing.
Challenges of agri-food innovations
Innovation in the agri-food sector is not always easy. Businesses in the sector are interdependent and usually compete based on price rather than quality or environmental impact; this, associated with low margins and long payback periods, limits taking chances on innovation.
Payback times of costs associated with innovating in new ingredients, molecules, or food products is around 3 to 5 years, with an R&D (research and development) of 4 to 10 years and a breakeven point of 7 to 15 years. The development process of new and innovative products requires more time and money to enter the market and are, therefore, riskier. Financiers must be prepared to accept long maturity and payback periods.
Financing agri-food innovation
At a world level, public-sector spending in agricultural R&D has stagnated during the latest decade in most high-income countries but increased in middle-income countries. As a comparison, between 2008 and 2013, public-sector spending in agricultural R&D fell more than 20% in the USA but increased by 70% in China. Meanwhile, private-sector R&D spending has been thriving, accounting for more than 60% globally.
The growing investment in agricultural innovation has been led by an impressive convergence of advances in agronomy, biology, animal and plant science, robotics, and digitalization; all of which are part of the ‘digital agriculture’ revolution.
A recent EU study indicates that the demand for new financing tools in the agri-food sector has risen steadily during the last decade. In the region, several institutions, including the European Investment Bank, offer a wide range of instruments to finance the sector, such as loans, equity products, guarantees, and advisory services.
Investment in agri-food startups has grown by 370% since 2013. However, 2020 has been a year like no other. The economic fallout from the COVID-19 pandemic will impact the investment in agri-food innovations; this is already apparent when comparing the results for Q1-2020 (around US$550 million) and Q1-2019 (around US$1 billion).
In 2019, agri-food startups raised US$4.7 billion, representing a 6,8% year-over-year growth; this is particularly important compared with other economic sectors’ behavior, across which investment fell around 16%. Even though the number of deals decreased in 2019, the total investment was larger thanks to several over-US$100-million contracts, including the French Ynsect, Germany’s Infarm, California’s Plenty, and New Jersey’s AeroFarms.
Interesting agri-food startups to follow in 2021
AgBiome natural high-tech protection for your crops
AgBiome, founded in the USA in 2012, has raised US$119 million in investment. It is a biotechnology company that uses new knowledge of the plant’s biome to create innovative agriculture products. Their products help farmers combat some of the major crop production problems, such as insects, nematodes, and diseases. AgBiome’s products include the most diverse microbial collection for agricultural applications. Genesis™: is a gene and strain identification system that allows them to efficiently capture and screen microorganisms and proteins that kill insect pests, fungal pathogens, and weeds.
The Yield increasing production sustainably
The Yield is an Australian company founded in 2016 that has raised US$10.15 million in investments. The Yield is an AI-driven, microclimate sensing, analytics, and prescription platform for irrigated crops. The company’s focus is to help farmers increase yields, reduce risks associated with frost, extreme heat, and disease events, and optimize their supply chains. The company has global patents for using AI to predict weather variables at microclimatic hotspot levels. Sensing+ is an end-to-end solution for large-scale growing operations that combines sensors, data analytics, and apps.
Agri-food innovation in Latin America
During 2019, US$1.4 billion were raised by agri-food startups in Latin America. Even if Rappi accounted for a significant portion with its record-breaking US$1 billion, there was a 40% year-over-year growth in the number of deals, highlighting the region’s growing activity.
2020 has been a good year for agri-food startup investment in the region; indeed, the third quarter ended, breaking new records. In September alone, more than US$400 million were invested in three Latin American rising companies.
Among the most interesting startups in the region are:
AgroSmart insights for farmers and the agribusinesses
AgroSmart is a Brazilian company founded in 2014 in Brazil that has raised US$8.8 million in investment. AgroSmart generates agronomic models based on seed genetics, soil type, and microclimate. The company builds market intelligence by combining ground data and best-in-class analytical capabilities to provide actionable insights to develop a more sustainable and productive agriculture. AgroSmart uses sensors to monitor crops and satellite images to generate recommendations regarding irrigation, climate, and diseases; the company also generates data to orient genetic development and seed placing strategies.
Beeflow pollinating crops naturally
Beeflow is an Argentinian company founded in 2017 that recently raised US$3 million in investment. Beeflow is a provider of professional pollination services that aim to facilitate crop pollination using honeybees. The company’s bees are fed with a unique organic mixture that enhances their immune system and helps them fly for a longer time in colder climates; they also specialize in specifically targeted crops, enabling farmers to increase crop yields by up to 90%.
Polynatural natural food coatings – fighting food waste
Polynatural is a Chilean company founded in 2016 that has raised US$800 thousand in investments. The company develops a 100% natural product designed to coat agricultural products. Polynatural produces edible organic coatings made only with natural ingredients that increase the shelf life of fresh produce by reducing microbial contamination and dehydration; this also improves the product’s appearance and smell. Shel-life® is manufactured with natural extracts, lipids and plant polymers, an alternative for synthetic coatings with equal or better performance and some organic certifications.
Even if agri-food businesses have been part of investment portfolios for a long time, the convergence of climate change, the global pandemic, and food security have contributed to bringing them to the forefront of venture capitalists and private equity firms’ investments. They not only see the opportunity to contribute to society but also to have a high profit. This is the case of pension funds, which by financing sustainable agri-food companies and startups, meet their social and environmental goals while delivering healthy returns.
Agri-food startups are on the rise, and this is the time to invest sustainably and profitably.