Agtech investment has been the subject of renewed focus from investors, but can this technology deliver on its promise to transform the agri-food sector?
Think agri-food investment and for most thoughts of old fashioned fixed assets such as land, grain elevators, heavy processing plants or fleets of vehicles are conjured up. Agri-food and technology investment are seldom synonymous in investors’ minds. This perception defies the reality where the agri-food industry has long been at the forefront of developing and adopting new technologies. Now investors appear to be increasingly alive to the opportunities agtech offers.
Take for example ChemChina’s recent $43 billion bid for Syngenta, the world’s largest agrichemical company. The deal is reportedly motivated by the promise Syngenta’s seed and agrochemical technologies bring towards addressing Chinese food security fears.
Mega deals are not the sole focus of agtech investment. According to a recent AgFunder report the food and agriculture technology sector attracted US$4.6 billion in investment in 2015, almost doubling the previous year total (US$2.4 billion), and a staggering 920% increase on the 2012 figure. Average ticket size tracked by AgFunder amounted to just US$6.8 million.
While investor’s appetite for the food & beverage sector shows no sign of abating, should we be concerned an investment bubble forming?
According to KPMG, a record breaking US$128.5 was invested in venture capital backed companies in 2015. Despite growing by a factor of 9x in just three years, agtech still attracted just 3.6% of this investment – a disproportionately small share of investment, in our view, given the myriad of potential applications for technological innovation in the agri-food sector.
Figure 1: Annual AgTech Financing (US$ billion)
Source: AgFunder / Farrelly & Mitchell Research
‘Second Green Revolution’
We believe that the agri-food industry is only at the frontier of applying advancements in satellite, irrigation, drone, robotic, bioenergy, nano and other decision support technologies across the supply chain.
From working with many clients we have seen at first-hand how the application of these technologies can transform previously struggling businesses. However, not all companies are willing or open to adopting these technologies due to cultural opposition, regulatory issues or consumer pushback.
Smart farming and food production technicques have benefitted greatly from agtech by supporting what could be decribed as a ‘second green revolution’. However, the continued application of this technology in developed markets and its introduction in the less developed world will be largely influenced by consumer acceptance and government regulations.
Increased application and adoption rates in primary agriculture and food processing has the potential to significantly increase output, product quality, seasonality and shelf life.