Ag Tech Investment Tips the Scales

November 5, 2016 02:30 AM
Ag Tech Investment Tips the Scales

Venture capital is beckoning second green revolution

Farmers might not have to think about venture capital very often, but it’s something that is radically transforming the agriculture industry.

For the uninitiated, venture capital is a type of private equity that finances startups with high growth potential. Think of it as a horse race—except those betting are putting money down on new companies instead of horses, hoping for a “win” and a big payout if the company does well.

Investment in ag tech is way up, even amid lower farm incomes. In fact, despite farm incomes being just 65% of what they were in 2013, the combined ag tech investment from agribusiness and venture capital is at an all-time high: $20 billion to $25 billion, according to a report by The Boston Consulting Group (BCG) and AgFunder.

“Agriculture is a massive industry, and a lot of interesting new technologies are applicable,” says Melissa Tilney, co-founder and head of marketing for AgFunder and report co-author.

In other words, any number of emerging technologies—from drones to sensors to autonomous vehicles to 3-D printing to rapid phenotyping—didn’t start out in the agriculture industry, but they have migrated there after discovering applications that fit well with farming. Additionally, the cost has come down on many of these technologies in recent years, which has only accelerated adoption rates.

Granted, the success rate of these new ag tech players will be far less than 100%. But that hardly matters, the report claims—the potential impact for agriculture is massive.

“Even if only a small proportion of these investments produces successful technologies, the resulting wave of innovation could increase farm yields to an extent unmatched since the early days of mechanization,” according to the report. “The surge in ag tech investment has brought the agriculture industry to the threshold of a new green revolution. The major sources of revenues are changing, and new profit pools are being created.”

What specific areas of ag tech have the biggest promise? BCG and AgFunder surveyed more than 50 executives across major global agribusinesses as well as 15 investment professionals at ag tech-focused venture capital firms about their top investment priorities. A clear top five emerged:

  • Big data and analytics
  • Food security and traceability
  • Biologics
  • Optimization hardware
  • Sensors and connectivity

Big data was the runaway No. 1 response, with 46 of the 50 executives indicating it is a top-five investment priority for their companies. That priority cut across all industry sectors as well, from farm equipment to fertilizer, crop protection, seeds and even crop and livestock processing.

Part of big data’s appeal is it requires a four-step process to work correctly, and different ag tech is optimized to perform each of the four steps. Data has to be captured, aggregated, analyzed and prescribed actions. That requires a handful of technologies working together—such as drones, farm equipment, sensors, cameras, software and more.

Automation and robotics are a little farther down this list, but Tilney says 45% of executives list it as a top-five investment priority, and this category in particular could create some interesting industry disruptions.

“If you look at some of the robot prototypes being developed, you can imagine a different agriculture system in the future,” she says. “Think of how robots would dramatically change labor and input costs with their ability to perform such targeted tasks.”

Ag tech also has the potential to transform the entire supply chain, according to the report. There is potential to optimize several processes, including crop storage, food packaging and shelf life, food security and traceability, and asset and fleet usage.

Some ag tech is even creating new ways of doing business. Examples include technology-enabled sharing of equipment or new production practices, such as indoor city agriculture. E-commerce opportunities are slowly opening up new markets and customers for some farmers.

Despite record investments in ag tech, Tilney says many agribusinesses still take a relatively conservative approach to investing. The majority turn to in-house research and development before looking to joint ventures or third-party acquisitions. That just means the upside for ag tech funding is all the greater, Tilney argues.

“It ultimately depends on market appetite, but I think we’re really just at the beginning of ag tech growth potential,” she says. 

Farmers should feel positive about the incoming swell of ag tech in the industry. “Farmers have more power when they have more options,” she adds. It’s basic economics.

It will be interesting to see which of these emerging technologies have staying power. “All of these startups have the same challenge—how do they survive the hype and prove their long-term viability in the industry?” Tilney says. 


Four Trends to Track in 2017

Ag tech can move at a blistering pace. Just think, for example, of the tools at your disposal today that didn’t exist just 10 years ago: smartphones, tablet computers, touchscreen monitors, cloud computing and drones—to name a few.

Robert Morris, CEO of TerrAvion, an aerial imaging and data analysis company, is one of many enterprises interested in helping farmers leverage new technology to improve yield. Morris has his eye on the following four trends he thinks will unspool in 2017.

1. Computer vision gets smarter. Farmers will soon be able to tap into NDVI data to gauge the health of individual plants. “Resolution is improving down to the sub-5 cm level,” Morris says.

2. Big data goes mainstream in ag. No longer a tool for the early adopters, using big data on the farm will be commonplace in 2017, Morris predicts. “New solutions make slicing and dicing data as easy as creating a spreadsheet,” he says.

3. APIs could be a game-changer. Application Programming Interfaces (APIs) allow different software packages to interface with each other. Interoperability (or more accurately, the lack thereof), has been a major barrier in precision ag adoption. Morris sees the problem diminishing over time, thanks to APIs.

4. Drone hype settles down. Drones have dominated the ag tech discussion for the past couple of years, but Morris questions if they are too costly to operate, given their limited range and the time it takes to collect and process imagery.


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