Agri-foodtech is the small but growing segment of the startup and venture capital universe that’s aiming to improve or disrupt the global food and agriculture industry. AgFunder coined the term in 2017 to define the innovation taking place across the food supply chain, not just at either end per “agtech” and “foodtech.”
Globally, food and agriculture (agrifood) is a $7.8 trillion industry, responsible for feeding the planet and hiring well over 40% of it. It is also responsible for a large portion of the world’s greenhouse gas emissions; agriculture alone contributes to around one of third of all carbon emissions, without counting the contribution of supply chain processes before it reaches the consumer, such as food processing, transportation, and retail.
As with all industries, technology plays a key role in the operation of the agri-food sector, but the pace of innovation has not kept up with other industries. Agriculture is the least digitized of all major industries, according to the McKinsey Global Institute’s Digitization Index.
The industrial agri-food sector of today is largely inefficient with an increasing number of demands and constraints being placed on it, making the need for agri-foodtech and innovation ever more important. These pressures include:
- a growing global population set to reach 9 billion in 2050
- climate change and global warming
- changing consumer demands including increased demand for meat protein in emerging markets and less processed food in the western world
- limited natural resources, particularly land and water
- food waste: in the US, 40% of food that’s grown is wasted and food loss and waste account for 8% of greenhouse gas emissions. In developing countries, that figure can be even higher, with particular challenges around logistics and refrigeration
- consumer health issues and chronic disease; more than one-third of US adults are obese and 17% of children and adolescents aged 2–19 years, with similar statistics in the UK.
Agri-food is a complex industry, which makes change challenging as it includes a wide range of processes, operations, and roles as food travels from the farm to the fork. However, this creates lots of opportunities for entrepreneurs and technologists to disrupt the industry and create new efficiencies with agri-foodtech at various points in the chain.
These processes and roles include:
- Agriculture and aquaculture: raising crops, livestock, and seafood
- Manufacturing agricultural inputs: agrichemicals, farm machinery, seeds, livestock pharmaceuticals, and other supplies
- Food processing: the preparation of fresh products, manufacture of prepared food products and ingredients
- Non-food processing: extraction of bioenergy and biomaterials from agricultural crops and products
- Marketing, wholesale and distribution, logistics, transportation, and warehousing
- Retail and foodservice: grocery, farmers’ markets, restaurants, and other retailing
- Consumer cooking and food discovery
- Regulation: food quality, food security, and food safety
- Research and development
- Financial services
Food and agriculture are often viewed as separate industries meaning that the above roles are often segmented in the minds of entrepreneurs, investors, and business. But at AgFunder, we believe the interconnectedness of the supply chain increasingly demands a more holistic view of our food and agriculture system.
Today’s consumer is no longer content with a black box food system; they are increasingly sensitive about how our food is grown and how it’s processed, with growing awareness and concern about agriculture’s social and environmental footprint. The impact of food on our health is also in focus more than ever before.
At the same time, we have an inflexible and staid supply chain that makes change very difficult to effect; it will take McDonald’s eight years to transition to all cage-free eggs for example. And that supply chain is used to operating in an opaque environment with few checks and balances, which causes the many food scandals and crises that still beset large food companies, such as Chipotle, which had failed to invest in food safety & traceability resulting in incidences of food poisoning at several of its chain restaurants.
This lack of transparency and communication with consumers has created a backlash from consumers as they continue to educate themselves about how their food is grown. There’s no better example of this failure of food companies to communicate with their consumers than the success of the anti-GMO lobby, where in many cases consumers are choosing to ignore regulators’ stance on these foods, instead coming to their own assumptions about the safety of food containing GMO ingredients.
Agri-foodtech can help to mend many of these bridges, make the agri-food industry more sustainable, transparent, agile, and able to respond more quickly to changing consumer demands. Issues such as food waste, which occurs across the food chain, can be better solved with a more holistic view of the industry, for example. Viewing agri-food as a single industry that spans the value chain from farm to fork can also help engage consumers early with technologies that go into food production to avoid backlash, and raise awareness of issues on the farm such as soil health and environmental impact.
On the consumer side, companies as diverse as Blue Apron, Heinz, and Costco, are now working directly with growers to address various challenges and opportunities in their own supply chain. On the agriculture side, farming cooperatives like Land O’ Lakes are building powerful food brands, while companies like Soufflet in France have built a portfolio that spans ag retail, grain trading, food processing, consumer packaged goods (CPG) and catering. Similarly, Rabobank started as a farmer’s cooperative but has become the world’s largest food and agriculture-focused bank. We’re also seeing the convergence of agriculture and food in venture capital where VC funds like Avrio Capital and S2G Ventures invest seamlessly across the agri-food value chain.
There are many ways to categorize agri-foodtech startups — again coming back to the complexity of the agri-food industry, it’s not easy — but we’ve thought hard about it and these are the categories we will be using in our new agri-foodtech investing report due next month.
This agri-foodtech category includes most agricultural inputs including seed, fertilizer, pesticides, and animal pharmaceuticals. The large agribusinesses have been innovating in biotech for many decades to increase crop yields with synthetic fertilizers, pesticides, and genetically-modified seeds, and have created multibillion-dollar businesses out of it. But agri-foodtech startup companies are now adopting, embracing, and developing new capabilities in plant breeding, gene editing, biologicals, microbiome research and more to create new, more sustainable input products to disrupt the status quo in ag biotech. On the livestock side, consumer backlash against antibiotic use is pushing startups to create alternatives.
The trading of agricultural commodities has typically taken place regionally via in-person meetings, telephone conversations, and handshakes, often meaning farmers and suppliers are limited in their ability to market their product by the relationships they have. This also means they’re limited in the prices they can demand for their wares. The same goes for how they purchase inputs such as seeds, machinery, and other supplies. This category encompasses the startups aiming to disrupt the status quo and enable farmers, retailers, and distributors to buy and sell ag products online, reaching new potential customers and suppliers nationally or even globally. It also includes a small but growing group of leasing platforms.
Bioenergy & Biomaterials
Agricultural products have been used for non-food applications for decades, particularly bioethanol, and technologies are being developed around feedstocks, extraction, processing, and byproduct use, although the low price of oil in the US has tempered much of this innovation in recent years. This category also encompasses the use of cannabis-related inputs for pharmaceutical and non-food products.
Cloud Retail Infrastructure
A new category for us in 2019, this represents startups supporting and enabling the acceleration of at-home dining and food delivery such as ghost kitchens, last-mile delivery services, and dark stores for eGrocers. These technologies and tools aim to increase efficiencies for existing players that may also have in-person purchase options but also enables a new class of online-only food services. Accelerated by Covid-19, this category was already bolstered by the entrance of high profile entrepreneur Travis Kalanick with his new company CloudKitchens that raised $400 million in 2019.
As consumers’ lives get busier, they have less time for grocery shopping while at the same time they want to know where their food comes from, and have access to new, innovative products from across the globe. This category encompasses online stores and marketplaces for the sale and delivery of processed and un-processed agriculture products to the consumer. Startups include on-demand e-grocers selling third party-branded food like Instacart as well as farm-to-consumer marketplaces and online farmers markets like FreshDirect. It also includes specialty and niche food & beverage providers that only sell their products online, such as alcohol, spice, or tea delivery services.
Farm Management Software, Sensing & IoT
This category arguably sparked the interest of the first agri-foodtech investors after Monsanto acquired The Climate Corporation, a weather data and analytics software company, for nearly $1 billion in 2013. It’s the capture and analysis of big data using technologies that have been rolled out across other industries. It encompasses sensors and satellite imagery, online enterprise resource planning tools, decision support software, data analytics algorithms, machine learning, and Internet-of-Things (IoT) connectivity technology used across agricultural production systems.
Farm Robotics, Mechanization, & Equipment
Mechanization defined the British agricultural revolution in the 1700s and is now on the verge of another revolution with the advent of robotics & automation. While this category encompasses all on-farm machinery innovation, most startups here are working on automating many tasks farmers conduct with their existing machinery using artificial intelligence and automation. This will become crucial as labor shortages persist and the need for precision increases. This category includes startups across agricultural sectors and farming systems.
Home & Cooking Tech
As consumers spend more of their time thinking about and researching the food they are going to eat, many want to maintain more control by cooking at home more frequently. To help them do that and make it easier, agri-foodtech startups are cropping up with new technologies to disrupt, and hopefully improve, consumers’ relationships with home cooking. This category includes smart kitchen appliances, automated baking technologies, nutrition technologies, and food testing devices.
Consumer demands are changing at a faster pace than ever as our understanding of nutrition evolves. Protein-rich foods are in particular demand, but with the meat industry responsible for 18% of greenhouse gas emissions, innovators are finding alternative ways to give consumers what they want, including cultured meat and fish, plant-based burgers and cricket bars. This product-focused category also includes novel ingredients and supplements such as algae.
In-Store Retail & Restaurant Tech
Technologies are transforming how foodservice businesses operate in-store with quality control, inventory management, HR, and food waste just some of the challenges they face. New technology is also impacting how these businesses interact with their consumers in the store. Technologies in this category range from automated shelf-stacking robots and 3D food printers to point-of-sale systems and food waste monitoring IoT systems.
Increasing consumer demand for transparency, traceability and clean, safe food drives much of the innovation taking place along the supply chain — after food leaves the farm and before it reaches the consumer. Agri-foodtech startups in this category span several technology-types including food testing devices, logistics tracking software, food freshness sensors, shelf life enhancement technology, and food processing tech.
Novel Farming Systems
As the world scrutinizes the agri-food industry more than ever, particularly with regards to its carbon footprint, innovators are finding new ways to produce food and ingredients with the hope of doing so more sustainably, using fewer natural resources. This category includes indoor farms — growing produce in high-tech greenhouses and automated vertical farms; insect farms — producing protein alternatives to replace animal and aquaculture feed, and for human food; and the production of new living ingredients such as algae and microbes for use in food as well as other industries and applications.
Online Restaurants & Meal Kits
Consumers want more control over what they eat, but also want to be adventurous with their meal choices at home. Online restaurants, where the startup prepares, cooks and delivers meals to customers, are opening access to new types of foods for consumers to enjoy, often with a particular angle or theme like a special diet or vegan menu. In the same category, we include meal kit companies that prepare pre-portioned ingredients for consumers to cook at home.
As part of the same trend as e-grocery and online restaurants, take-out is being revolutionized with online restaurant marketplaces. These are online tech platforms delivering food from a wide range of vendors in the shortest amount of time possible. In Europe, many consumers are already using DeliveryHero, while in the US Seamless is one of the most popular in this category. There is also a range of services across Asia.