A mini guide to Latin American agrifoodtech in 2020

The year 2019 was a breakout year for Latin American agrifoodtech and 2020 is already shaping up to beat those records, in spite of the global pandemic.

Granted, Colombian on-demand delivery startup Rappi accounted for a significant portion of the $1.4 billion total raised by agrifoodtech startups in 2019 with its record-breaking $1 billion Series E. But a 40% year-over-year growth in the number of deals highlights the growth in activity with plenty of space to grow both upstream and downstream.

If you are interested in the region, join our regional conversation here and you will receive an invitation to our LatAm agrifoodtech webinar.

Latin American agrifoodtech is still nascent despite its leading position in the global agrifood industry generally. On the agricultural side, it is the world’s leading net ag export region in the world and some of its countries are major exporters of soybeans, pork, maize, poultry, animal feed, sugar, coffee, and fruits and vegetables, like avocados and bananas. It also has almost a third of the world’s arable land and freshwater, and has raised agricultural productivity (yields) faster than any other developing region. From the consumer side, foodservice delivery sales in Latin America have almost quadrupled over the last five years, becoming the second-fastest-growing region in the world after Asia-Pacific.

Downstream dominance, upstream on the up

The Covid-19 pandemic is undoubtedly impacting this growth story, and not necessarily negatively; in fact, it’s accelerating digitization and disintermediation trends both downstream and upstream. For the likes of Rappi – who is no doubt grateful to have closed that massive round last year – and other early movers in categories positively impacted by social distancing including ghost kitchens, prepared meal delivery, grocery and last-mile delivery services, Covid-19 is leading to significant growth.

Less affected by Covid-19 but another core area of innovation in Latin America is precision agriculture. This digital ag category every year leads the regional activity board but this noisy market means startups still struggle for funding due to the vast numbers of local players and an overall lack of traction on the farm. There are some key startups in this area that look promising, however, such as Leaf Agriculture with its API integration approach to solve the data siloing and a lack of interoperability among tech tools problems, and Solinftec, the digital platform aimed at increasing machinery efficiency on the farm. Its $60 million B round at the start of 2020 almost surpassed last year’s total for precision agriculture funding in the region and became the largest agtech funding event in Latin America, a record that was set only weeks before by Agrofy, the Argentinian Agribusiness Marketplace that raised a $23 million Series B.

[Full disclosure: Solinftec is a portfolio company of AgFunder, AFN’s parent company.]

While we believe that now is the time to invest in a more resilient food system — and we hope other investors feel the same — pre-seed startups will likely face significant challenges raising funding this year.

Here’s a breakdown of some of the key categories in Latin American agrifoodtech and how they could be impacted by Covid-19 more specifically.

Key Latin American agrifoodtech categories

An e-commerce sector with great potential for expansion

Online food delivery

The online food delivery category is hotter than ever in Latin America, accounting for 84% of agrifoodtech investment in 2019. The two largest Latin American agrifoodtech deals were in this category, and that doesn’t include Cornershop’s $450 million deal, yet to be approved by the Mexican regulators; that battle deserves a separate article. Even without Cornershop, the 2019 investment in Rappi showed that this trend was ready to be unleashed well before the impact of Covid-19.

Regional migration, availability of affordable labor, heavy traffic congestion, penetration of financial services, and a large and fragmented foodservice landscape coupled with connectivity growth – Latin America is the world’s second-fastest-growing market for mobile subscribers – have led food delivery apps to expand geographically and vertically integrate their offerings. Therefore, once “food-only” delivery apps like Rappi are now including retail delivery, prime subscriptions, and financial services, as well as incorporating their own ghost kitchens and dark stores. And services that once only delivered groceries or meals from restaurants, are now expanding to offer a suite of food products from their own brand as well as others.

Enabling technologies and services are key to the growth of this segment as restaurants and grocery stores have to adjust their approach to serving their clients. Customer expectations are developing; it’s no longer ok for me to receive a soggy empanada from an online order!

These tools, including ghost kitchens, dark stores, and last-mile delivery tools, are often provided by third parties. At AgFunder, we created a new category in our research reports last year to recognize these enabling technologies: Cloud Retail Infrastructure.

Ghost kitchens

Ghost kitchens try to solve inefficiencies by optimizing internal processes so foodies like I can enjoy the same quality of an onsite meal — a crispy empanada for example — efficiently delivered to our home in a single order. These services, which incorporate technology as well as real estate, could become a lifeline for the restaurant industry, as social distancing will likely remain a reality for many consumers for many more months ahead, even as governments relax regulations. That Uber founder Travis Kalanick launched his new business in this space last year — Cloud Kitchens raised $400 million in funding right off the bat — emphasizes the business opportunity here even before Covid-19 hit. That deal promoted a 6x growth in investment in this category in 2019.

Latin America has kept up with this trend; in 2019 Mimic closed a $9 million round to expand its kitchen-to-delivery service in Sao Paulo, Colombia’s MUY is surfing the wave with $19 million to expand its virtual kitchen and smart chef system, and Innovative Food companies like NotCo and larger incumbents like Rappi and Amazon are getting in on it, too.

E-grocery and dark stores

The dark store is the ghost kitchen of the e-grocery world and will become a leading trend for 2020 as e-grocery services all over the world face unprecedented consumer demand due to stay-at-home orders. But even as countries open up, it’s very likely many people will continue to purchase groceries online; this move online was already a trend pre-Covid-19 as consumers increasingly opt for convenience, it just got accelerated. So, if people are buying more groceries online, why should they be served by the same supply chain as off-site purchases?

Jüsto and Merqueo are two Latin American agrifoodtech startups that are leading the way on re-thinking the grocery supply chain. They focus on delivering fresh, frozen and locally-sourced products, directly from their distribution center (or dark store) to the client’s house. No supermarket shelf or cashier in the middle, but a supply chain that is purposefully designed to comply with online delivery requirements.

Luckily both companies are surfing the wave of Covid’s demand spike with fresh funds; Merqueo closed a $14 million investment in 2019, and Jüsto recently announced a $12 million bridge round to complement its $10 million seed round last year.

[Full disclosure: Jüsto is a portfolio company of AgFunder, AFN’s parent company.]

The newly popular messy middle

The middle of the supply chain has historically been a vulnerable space, and the pandemic has only emphasized this as disruptions and ever-growing repercussions continue to appear.

While the whole food supply chain has been affected, the messy middle is particularly at risk because it’s opaque, inflexible, long, convoluted, and also mostly analog — pen and paper still dominate record-keeping as food passes from one part of the chain to another. This limits traceability and transparency, and provides very limited ways of efficiently dealing with uncertain threats like food recalls, food waste or shortages, but also pandemics. You can largely forget about real-time corrective actions.

In 2019, investment in Midstream Technologies in LatAm increased 135 times, from $30,000 in 2018 to $5.2 million. Traceability and food safety companies like the Brazilian newcomer Suflex with its $400,000 pre-seed round and Carnes Validadas, topped the 2019 chart in a category dominated by early-stage rounds, signifying its nascency but also potential. 2020 started with more deals in this area, including the $800,000 investment in Polynatural, the Chilean shelf-life extension startup.

It’s worth pointing out that Asian countries, especially China, have become increasingly important destination markets for Latin America’s agricultural exports. Therefore, agricultural products are exposed to larger transit times, composed of unreliable cold chains and a complicated mix of on-land, maritime and air logistics. It is impossible to successfully and safely arrive in Asia without Midstream Technologies providing packaging, shelf life support, traceability and know-how to support the product during its journey to the end-consumer. It’s very likely a consumer will receive a fruit that has travelled for 30 days but that doesn’t mean they won’t expect the same quality as one that was locally harvested.

The pandemic puts the underinvested Midstream Tech category on the spot, and the expectation is that it will receive the growing attention it deserves.

Amazon meets agriculture: Agribusiness Marketplaces

Competition between Agribusiness Marketplaces has been ramping up in Latin America since way before Covid-19. Regional startups like Agrofy, international players like Indigo Ag and large incumbents like Bayer with its newly-launched platform, entered the scene aiming to digitize the way companies discover, engage, sell, pay and deliver agricultural products and services to their clients.

Coming from Brazil, Colombia and Argentina, Agribusiness Marketplace startups raised a total of $33 million in 2019, representing 21% of the region’s Upstream investment during the year. That’s 4x year-over-year growth.

The clear category leader was AgroFy, which not only finished its record-breaking year active in nine countries, with more than 200k products offered on the platform from 10k merchants, but also raised the region’s largest round for an agtech startup in December just before Covid-19 knocked on the world’s door. Agrofy was a compelling enough story to attract two US venture capital firms to make their first non-US investments, despite the political backdrop in Argentina.

Newcomers and a trendy revival

We expect the below categories, many of which were virtually nonexistent in 2018, to strengthen in 2020 in Latin American agrifoodtech, some in full glory and majesty.

Newcomers: While the region didn’t have any startups in the Bioenergy & Biomaterials, Farm Robotics, and Home & Cooking categories in 2018, they emerged and closed $3.4 million in funding in 2019.

Colombia & Mexico: The ecosystem is not just Brazil, Argentina and Chile anymore. Although those countries contributed more than half of the deal flow in 2019 – with a loaded precision agriculture focus, Colombia took the lead on the investment board thanks to Rappi and other 12 companies. Mexico surprised everyone in the third place of regional activity, accounting for 15% of it, mainly in eGrocer and Ag Biotechnology categories. 

Ag Biotechnology: BeeFlow’s $3 million seed round for its bee immune system and performance enhancement tech, AndesAg’s $3 million bridge round for its microbe-integrated-seed treatments, and Botanical Solutions, are examples of the new batch of Ag Biotech companies that are turning this category into something trendy.

Innovative Food in trendy glory: Beyond Meat’s dazzling 30x oversubscribed IPO promoted the Innovative Food category globally and Latin America proved no exception: it scored a 1,298x growth in funding in 2019, climbing to the top from an almost nonexistent 2018.

The growth came mostly from Chile’s NotCo and the Brazilian Fazenda Futuro, two AI-powered alternative protein startups that aim to replace animal-based products & ingredients with plants, without sacrificing taste, convenience or texture. NotCo closed a $30 million round after its eggless mayonnaise became the third-best selling mayo in Chile. Fazenda Futuro launched its plant-based burger in the second-largest meat consumer market in the world – Brazil – and raised $8.5 million to extend its regional operations, diversify its plant-based meat portfolio and prepare its landing in Europe, among other things. 2020 accelerated the growth of this space. With a Burger King local partnership, NotCo entered the plant-based meat race, Fazenda Futuro unleashed its products in Europe and Dubai and both NotCo and Fazenda Futuro launched ghost stores in iFood, the Brazilian food delivery app.

This innovative food trend also includes healthy and clean label products with a direct-to-consumer strategy like SuperFuds and Yema’s approach, and natural ingredients startups that serve CPG brands’ aims of achieving a cleaner label and replacing artificial ingredients and preservatives with natural and functional ingredients. Michroma with its sustainable food coloring and Protera Biosciences, a Chilean startup that closed a $5.6 million round for its protein-based ingredients, are examples of the latter. 

It’s early days for cellular agriculture in the region with the first startup Cell Farm coming from Argentina.

Below are more key stats about Latin American agrifoodtech in 2019:

4 M&As of 2019 – 2020 

1. Cornershop (Chile & Mexico) acquired by Uber (US): Cornershop is an on-demand grocery delivery service for the Latin American market. 
   
2. Ecoflora Agro (Colombia) by Gowan (US): Ecoflora offers biosolutions made from plant extracts for the sustainable protection of fruit trees, vegetables, flowers and in general of all types of crops.
   
3. Zaitt, Shipp, and LuccoFit (Brazil) by Sapore (Brazil): Zaitt is an autonomous market in Latin America, Shipp is a delivery startup from Vitória and LuccoFit develops healthy, frozen lunchboxes.
   
4. Defensive and Agrovant (Brazil) by American Vanguard (US): Crop protection and ag input companies.
   

2019 – 2020 highlights:

• 2019, a record year for VC investments (by dollar), with a31% year-over-year growth.
  
• 2019, a record year for seed activity by deal count, being the most active year of the decade.
  
• Precision agriculture saw the most deals, while Cloud Retail Infrastructure was the best funded AgFunder category in 2019.
  
• Innovative Food grew the most in 2019, followed by Midstream Technologies.
  
• Categories at high-speed evolution: Innovative Food and Cloud Retail Infrastructure.
  
• Early signs of the emergence of vertical farming, cellular agriculture, and Mexican startups.
  
• Agrofy and Solinftec raised the largest agtech deals on record for the Latin American region, weeks apart from each other.
  

To discuss emerging trends in the region, and how the space is moving forward in a post-Covid-19 world, we’re hosting a LatAm agrifoodtech webinar with three startups that are leading the way. If you are interested in the region, join our regional community and conversation here and you will receive an invitation.