Monday, June 19, 2017


2017 AGTECH LANDSCAPE: WHAT’S ON THE HORIZON



Just ahead of The Mixing Bowl’s “FOOD IT: Fork to Farm” event on June 27th in Mountain View, CA, Seana Day has released an updated version of her AgTech Landscape Map and provided her latest perspective on the AgTech market. Hear Seana discuss the Landscape Map and her views at FOOD IT, which coincides with our partner Forbes’ June 28-29 AgTech Summit in Salinas, CA.
We have adopted a new format (available for download here) to reflect the ever-evolving mosaic of companies entering the Food & AgTech fray. In this post, I will look at what’s happening in the AgTech field, with investment and consolidation activity as a backdrop. I will also highlight some key drivers in the post-harvest technology segment fueling the proliferation of companies popping up to meet the big challenges (and opportunities) in the supply chain.
The good news is that we are beginning to see some winners emerge in the in-field and crop / farm management segments. Using Agfunder’s 2016 Agtech Funding report throughout this piece, we see $405 million invested in Precision Ag companies in 2016 and it is clear that the big dogs are separating themselves from the pack evidenced by 38% of those investment dollars going into only six deals. Although, it is worth cautioning that big funding doesn’t necessarily equate to big winners.

What’s Happening In the Field

With Series A funding dollars down 43% in 2016, it suggests we are seeing a crunch that may drive opportunistic consolidation of in-field point solutions into more comprehensive offerings. Since the beginning of 2016, 29 AgTech M&A deals have been announced and of those, 21 were non-biological or chemical / fertilizer-based companies, with five of the 21 acquired by Scott’s Miracle Grow. This lack of AgTech technology exits does not appear to be a terribly healthy M&A environment for investors seeking short-term returns.
So what are the conditions we need to see for a healthier AgTech M&A environment? At a fundamental level, the business models should be proven and customer adoption growing on a stable trajectory. This implicitly means that people are willing to pay for a product or service and it has demonstrated value in their organization making it a “need to have”, not a “nice to have”.  The route to market and distribution should be scalable, which has proven somewhat elusive for many companies in the Precision Ag market to-date. Finally, one of the necessary conditions is a having a middle market with the currency (e.g. stock or well-funded balance sheet) to make acquisitions that fill product / tech gaps, open new markets, or consolidate customers.
My expectation for the rest of 2017 is that we will continue to see opportunistic acquisitions as Agribusiness incumbents feel the pressure to have an “AgTech Strategy” and early stage companies seek a lifeline in merging with others to bolster customer bases (paying…not just trials), look for distribution economies of scale, and save on redundant costs. Those that can successful execute the latter make themselves more attractive to growth equity and private equity investors and ultimately become those middle market consolidators we need in the AgTech ecosystem.

The Future of the Food Supply Chain is NOW

If the media hype has a hand in shaping the investment cycle, let’s hope post-harvest technologies, in particular supply chain, logistics, and traceability 2.0, will have their time in the sun in the second half of 2017 through 2018.
The Washington Post revealed massive imports of corn and soy from China that were labeled organic turned out not to be. Just last weekend, The Curious Case of the Disappearing Nuts highlighted a multi-million dollar theft problem plaguing California nut growers. When the Food Safety News reported several local restaurants in my area being impacted by seafood from the Philippines and Vietnam that had been contaminated with Hepatitis A, it begs the question, when will investors start putting some real capital behind the companies developing solutions for these supply chain challenges?
48 million Americans are stricken with illness as the result of foodborne pathogens annually and the average cost to food companies for a recall is $10 million in direct costs, plus the additional brand damage and lost sales. With so much at stake in our food system, why did we see a mere $180 million invested in Supply Chain Technologies in 2016, compared to Food Marketplaces / Ecommerce models that raked in $1.3 billion?
While many venture investors find the addressable market sizes of Precision Ag and in-field technologies challenging to align with their return expectations, the global size and scale of food supply chain safety, tracking, and optimization is massive. It is estimated to cost $940 billion a year, alone, just looking at the impact of global food waste. According to a 2016 McKinsey report, cutting post-harvest losses in half would produce enough food to feed a billion more people. Cutting energy use in food production is also a huge opportunity.  It  has been reported that the US food system uses 15% of total US energy.
Perhaps more difficult to quantify, but also of noteworthy importance, is the impact changing consumer preferences are having on the food chain, from anti-hormone to cage free and organic. Look no further than the billions of dollars spent on food delivery models, farm to consumer apps, and meal delivery kits to recognize that the traditional distribution system is changing. Beyond these new startups are also large internet players like Amazon moving more into the food space and Uber moving into commercial logistics with its new Uber Freight offering. Existing players need to make investment to meet new consumer expectations and new competitive threats and still maintain and improve margins.  Technologies that will enable these incumbent companies to more precisely predict demand, optimize transportation, and fundamentally shorten the supply chain should become more valued by these players looking to remain competitive
Yet another acute driver of change in the supply chain is labor. We’ve explored this topic in previous posts by my colleague Michael Rose, but suffice it to say growers, shippers, packers, and processors alike are all feeling the pinch of labor costs and are looking to innovation to ease the burdens. Autonomous truck delivery is probably closer than we think.
Like in-field technology adoption, the downstream or post-harvest industry still needs to walk before it runs. These are big markets with complex workflows, not to mention relationships entrenched in old ways of doing business. These often-calcified operating structures that run on excel, and not much else, are well-suited for technology intervention that integrates ever-cheaper sensors, scalable data acquisition, big data analytics, and more automation.
Accordingly, I’ve added several new post-harvest categories to the landscape and have high hopes for not only the potential economic impact of many of the companies innovating in this space, but also for the alignment of capital to help grow the post-harvest categories.
Behind the AgTech Landscape, we are tracking nearly 1,500 companies at various stages of maturity from incubation to mature equipment manufactures. As our database of AgTech innovators continues to swell, I am always keen to learn about new players and encourage companies to get in touch.

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