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Agrifood corporates turn to startups to hedge disruptions and get an edge on trends

May 4, 2020

This post is part of a collaboration with F&A Next, an AgFunder Network Partner, ahead of its fifth annual conference, hosted virtually on Wednesday, 13 May 2020 at 4pm CET (11am ET). Registration is open here. F&A Next was founded by Anterra CapitalStartLifeRabobank and Wageningen University & Research. Read about F&A Next 2019 here.

What’s happening in the US meat supply chain amid the Covid-19 crisis offers a stark warning of how vulnerable the food chain is to shocks. Poultry and livestock farms across the US have been euthanizing millions of animals because processing facilities are grappling with the disease’s outbreak among the workforce and don’t have the staff available to manage. Controversially, the US President issued an executive order compelling meat processors to stay open—an act that has received tremendous backlash for the health risks it imposes on workers.

Such drama hasn’t similarly struck Europe. But the continent’s food producers and suppliers acknowledge the pandemic’s amplifying impact on existing challenges and vulnerabilities in growing, processing and moving food.

“There are many new technologies that could help us in the future,” says Wolfgang Heinzl, director of business development for German poultry producer PHW Gruppe. “Robotics that can replace manual labor in slaughterhouses and meat processing plants will be important, for example.”

Changing market, workforce, environmental and consumer patterns are forcing food companies like PHW Gruppe to rethink how their businesses operate and where to look for strategic inspiration. Many are looking outward, to newcomers with fresh ideas, products and technologies.

In PHW’s case, the company is not only an active meat producer, it is now also an active venture investor, focusing in particular on the fast-evolving alternative proteins sector. PHW has backed startups in plant-based alternatives like Good Catch and cultured meats like SuperMeat. It also invests in new animal feed options, like insect-farming venture Enterra, and wonkier concepts, like 3D “food printing” startup Redefine Meat.

What all of these investments have in common is that they are strategically-aligned to PHW’s core business as a “protein company.” It is possible that not all will realize equal success, of course. Wolfgang Heinzl, PHW’s director of business development, says that’s ok.

“Our target is to learn and gain access to new technologies,” he explains. “We aren’t a tech company. We raise, process and sell chicken. We need ways to monitor new developments and get involved in order to secure our learning curve. And of course, we are determined to play an increasingly active role in the growing market of alternative proteins.”

Heinzl also notes that there is another way for large companies to invest in new innovations: as customers. As food companies like PHW face business disruptions from rapidly changing consumer preferences to intensifying labor shortages, investing in new technologies that can support the core business, like slaughterhouse robotics, will become increasingly critical to survival.

Help from the “middlemen”

Getting to the point of investing directly in innovative startups can be a long process for large corporations. Often the starting point is seeking guidance and support through partnerships with programs like StartLife in Wageningen, Netherlands and Rabobank’s FoodBytes!.

Low-cost German grocery store chain LIDL, for example, has a quiet but long track record of strategizing for the long-term and investing in business preparedness and sustainability, including new products and technologies that will improve its supply chain efficiency and resourcefulness. A partnership with StartLife proactively supports the company’s ambition to scout for and vet new products and technologies aligned to emerging consumer, business and environmental trends.

“Middlemen like StartLife know what kind of concepts are really sustainable and disruptive and how those can help companies like LIDL,” says Erik van den Hoogen, senior purchasing manager at LIDL Netherlands.

LIDL has tasked StartLife with identifying startups tackling food chain sustainability, an issue of high importance to the company. That includes everything from the fast-evolving spectrum of plant-based protein products that will help “the Western world change its mean consumption habits” to combatting food waste.

LIDL sees it as “necessary” to use its buying heft to help small companies gain market traction, because long-term, their ideas enable more efficient sustainable food production overall. But left to its own devices, “There’s a lot going on that we wouldn’t find out about,” says van den Hoogen. “It can be hard for startups and retailers to connect. We think it’s easy—just give us a call. But in fact, it doesn’t work that way. Those calls don’t always make it through to the right person.”

Innovation matchmaking

Corporates’ and startups’ challenges in finding and connecting with one another are familiar to Eline Boot, executive director of Rabobank’s FoodBytes! Pilot program. Since the program launched five years ago, then operating under the name TERRA, Boot says corporate interests in the agri-foodtech startup ecosystem have escalated a lot. “Some corporates were testing the waters in the beginning, but now everyone wants to be exposed to the trends,” she observes.

But many don’t know where to look or don’t know how to vet early and emerging concepts. Others are funneling in venture capital without the “exploratory” mindset that PHW applies to its venture fund. And others yet are investing with recognition that the approach “isn’t going to move the needle much,” explains Boot. “Corporations have huge balance sheets and they’re making small investments. So they are now experimenting with new ways to find startups that are aligned to their strategic objectives.”

FoodBytes! Pilot, the new name for Rabobank’s corporate program, focuses on connecting corporations and startups when startups reach a growth stage, instead of when their technologies or models are still early in development. Through FoodBytes!’s structured program, corporates and startups receive active support from experts as they explore strategic opportunities for six to nine months. This, says Boot, helps foster more meaningful engagement, as well as a stronger culture of corporate innovation by exposing more C-suite representatives to the startup ecosystem.

“Because a lot of people on the corporate side have to interact with the startups, it helps cultivate an experimental mindset that is otherwise confined to innovation and R&D departments,” says Boot.

In one example, the program matched Mexican sugar producer BSM with hyperspectral imaging startup Impact Vision to help the company improve processing efficiency and food safety by using cameras and artificial intelligence to identify foreign objects on its sugar processing belts.

In another example, Foodbytes! Pilot connected Canadian food company Griffith Foods to “up-cycled” food company ReGrained, which uses spent grain from beer producers to make granola bars and other consumer food products. As part of ReGrained’s participation in FoodBytes!, the company completed its first commercial-scale R&D pilot with Griffith to explore potential uses for spent grain as a superfood ingredient. That engagement ultimately led to Griffith backing ReGrained’s $2.5 million funding round, with the aim of helping the company build out an ingredients business parallel to its consumer products business.

ReGrained co-founder Dan Kurzrock recalled the moment in a conversation with AFN: “I got called into a room with all of the executives including the [Griffith Foods] company chairman, Brian Griffith, and they said, ‘We are wondering if you are open to considering us investing in you,’ and that’s when it all clicked. [FoodBytes! Pilot] was a lot more than just a connection point; it was tailored matchmaking.”

The importance of tailored matchmaking goes both ways. In the startup world, founders and early teams who have built companies from scratch have to balance the resources and financial support they can secure through corporate partnerships and investment with their own cultural alignment. That is a particularly delicate balancing act for mission-driven businesses like the ones FoodBytes! supports.

“Our mission is very important to us, and while we didn’t want to raise too much too soon and lose control, we also wanted to make sure that we are bringing on partners who weren’t just strategically aligned but who were also mission-aligned,” Kurzrock said, adding, “A lot of entrepreneurs fail to realize that there are people in large companies who are just as passionate about changing the food system as they are. We can get a lot of learning especially when it comes to where we don’t need to reinvent the wheel.”

Owing to successful cases Impact Vision and ReGrained, FoodBytes! Pilot is planning to shift from a cohort model to a continuous-engagement model, where corporate partners can choose to initiate a pilot program at any time.

Coming full circle

As agri-foodtech innovation accelerates outside of traditional corporate R&D departments, some companies are stepping up as collaborators to help build the innovation ecosystem overall, as well as for their own strategic purposes. After years of experimentation and learning at Swiss flavor and ingredients producer Givaudan, the company last year launched its own innovation platform in collaboration with Danone, Mars and Ingredion. The platform, called MISTA, aims to help the agri-food sector leverage the sophistication and high-tech resources of Silicon Valley, by bringing startups together in a physical space in San Francisco to develop and pilot their products.

“Today’s food systems are so complex, and the challenges so large that no single company can address them alone,” said Scott May, Givaudan’s vice president of innovation and head of MISTA, at the time the initiative was launched.

The complexity and challenges are presently on full display, as disruptions to markets, businesses and global supply chains rage on amid the Covid pandemic. The crisis underscores the critical importance of infrastructure and a supportive ecosystem for innovation and collaboration between startups and corporations in the global food chain.

MISTA may well be one of the more ambitious and visible examples. But its work is representative of the evolution and culmination of many strategies and partnerships that are helping to build what May calls “a new business model focused on product innovation and development for the food industry, with the intention and capabilities to create the future of food.”

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