Editor’s note: Seana Day is a partner at Culterra Capital. Based in the US, she has 20-plus years of investment, M&A, and strategy experience in agrifoodtech. Her analyses on the sector are regularly used by participants in the space to understand the continuously evolving landscape, and she is a regular contributor to AFN.
The views expressed in this guest article are the author’s own and do not necessarily represent those of AFN.
As the economic uncertainty of 2023 looms, I find myself reflecting on the last decade of investment in agtech and wondering what comes next?
Overall, the basic farm support structure has not changed much in the past decade. People still either sell ag products (e.g., machinery, equipment, inputs) or ag services (e.g., financial, insurance, custom farming) to farmers to help them run their business and bring their goods to market.
Below I’ve created a simple chart that is meant to illustrate the fact that there is a finite wallet to share across these products and services (which is not necessarily to scale in terms of farmer spend).
On-farm products, services, and their primary providers
Over the last decade, I’ve seen thousands of agtech companies focused on optimizing products, primarily by improving machines or crop/feed input performance. In fact, by looking at AgFunder’s annual investment reports, we can clearly see that innovation and investment has been defined by technologies focused on products, with a scant few focused on optimizing services or service delivery segments.
One reason is that machinery manufacturers have been natural integrators of innovation because it improves machines by making them better, faster, and cheaper. A great example is John Deere’s Blue River acquisition in 2017, which accelerated its game-changing See and Spray capability.
And within the inputs segment, there are well-established relationships between manufacturers, distributors, and advisors like agronomists or veterinarians. Advisors may sell inputs as part of their service which gives innovation an efficient, trusted route to market.
Conversely, we see there has been less innovation among service providers. To date, the services category has overall failed to meaningfully harness data automation, analytics, or productivity technologies to make their services better, faster, and more profitable to deliver (cheaper).
Accordingly, as we look to the next decade, I believe there is still a big, underserved tech-driven opportunity that is under the radar for many founders and investors alike: serving the ag service providers.
In the proverbial search for “the next big thing” in the coming decade of agtech investing, I am looking at business model innovation as a result of shifting or changing value pools. A value pool calculates the theoretical available potential in the market for new revenues and avoided costs. Digital transformation will unlock and create entirely new market value across the $15 trillion food and ag global ecosystem, but don’t think this value transformation will only happen in the field.
Two great examples of this are Bushel and Milk Moovement. Both are compelling because they each initially focused on solving one big pain point: for Bushel, digitized scale tickets, and for Milk Moovement, digitized milk tickets. Both created immediate value by reducing workflow friction, data entry errors, and processing times but clearly the long play is the new value they can unlock with production datasets that can be analyzed and acted on by their customers.
To capitalize on this opportunity more broadly, the services sector needs to address some foundational barriers. I see scarcity in talent pipelines to feed the ag professional needs (finance, HR, data analytics), a lack of interoperability between management information systems, and general difficulty accessing and analyzing business data. Furthermore, I see first-hand that these shortfalls are making it infinitely more difficult for professionals to model scenarios, plan, forecast, or manage assets and risk which are all becoming table stakes as the business of agriculture gets more competitive.
There has been a small wave of visionaries who recognize the opportunity to strengthen the core offerings of service providers with digitization. While its marketplace adoption is still evolving, the underlying premise of the Conservis-Telus-Rabobank acquisition makes a lot of sense. It is a prime example of how data automation between the farmer and lender can result in less time organizing paperwork and more time providing value-added financial advice.
I am similarly interested in a handful of companies that aim to give service providers better tools, like Growers Edge, which is leveraging data to bring new insurance products to market such as warranty-backed crop plans. Because I spend a good deal of time in specialty crops, I am also optimistic about the digitization of the farm labor market by the likes of Pick Trace, Seso, and Pago. Given that California farm employers pay $40 million in wages per day and the average wage and hour lawsuit is $5 million (settled for an average cost of $775,000), it is baffling to me that more than half of the industry still use paper timecards and excel to calculate the byzantine requirements of farm labor payroll when these digital tools exist and are affordable.
I recognize that there will be some technologies that replace or make obsolete certain tasks or jobs but, by and large, I believe technology will add value to the relationship between the farmer and accountant or FLC (Farm Labor Contractor), not to replace them. And I believe many ag professionals want to use more technology to drive the efficiency and effectiveness of their work, but the software and technology offerings have struggled to keep up with the complex nature of the industry.
What is at stake in the next decade?
- The aggregation of trillions of data points is leading to an unprecedented understanding of risk, pricing, and value but the development of a skilled workforce to provide context and insight continues to lag, even current demand
- A rapidly aging professional and office workforce for which little has been done to transfer knowledge
- The cost and complexity of maintaining legacy systems and technical debt will continue to stymie progress
- Siloed data across ag value chains will continue to lead to limited visibility into cost drivers and missed revenue opportunities.
How are we going to unlock the digital solutions to meet ag’s challenges and upend value pools?
- To address ag’s complexities: investment in vertical software designed for food and ag-specific data sets (and integrates seamlessly with horizontal financial reporting software). This also means it is fundamental to overcome adoption barriers by providing consumer-quality UX/UI, as well as interoperability.
- To address the talent pipelines: S.T.E.M. and business programs and certifications for ag-specific finance, HR, machine mechanics/robotics, IT management, data analysis skills. It should be noted many strong public-private partnerships across the country have emerged to advance local and regional programs that are more responsive but we need to start moving from talking to doing.
- To address the change management that is required: a more nuanced approach to organizational design in ag and agribusiness. Business as usual will struggle to survive this generational transfer.
- To address the ecosystem: better alignment of training and business models between agtech start-ups and channel partners. A shift from transactional relationships to collaborative where the partners can use tech to create value in their own businesses, not just as a means to get tech to the farmer.
When I ask myself how it started, how it’s going … and where it’s headed, I see the progression from inputs to machinery to services. And when I look at other industries and how much digitization has moved the needle over the last decade, it gives me tremendous optimism and hope for the progress of the ag industry. There have been digital transformations across construction, education, finance legal, and healthcare that have created enormous value for service providers and investors; why not in ag?
And of course no outlook would be complete without a fresh infographic to kick off 2023. Next week, I am going to drop a new view of the FarmTech Support Ecosystem with some pretty eye-opening observations about capital allocation across the landscape. Spoiler alert: for the billions of dollars spent by U.S. farmers annually in the ag services wedge of the pie, there are only about 50 companies addressing the market opportunities and less than a handful have raised more than $30 million. I’ll unpack this in more detail in the second post.
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