A Case for AgFoodTech Outperformance in the Digital Age, Biology Century and the Bioeconomy Era

Jaleh Daie, Ph.D.Partner at Aurora Equity and Chairman of the AgFood Tech at the Band of Angels

The ides of March, vintage 2020 hit our collective psyche like a hurricane and the power of biology, both destructive and miraculous, got our full attention at a time when global food insecurity was already front and center. By 2050 the world population will reach 10 billion. As Asia rises, by 2030 the middle class in Asia Pacific alone is expected to be 5x that of Europe and 10x of North America, placing enormous pressure on protein demand. We are faced with the daunting task of producing 70 percent more food and 50 percent more protein. The only way to meet the monumental test is to bring technology to bear on the problems, making prospects for outperformance of AgFood tech, arguably, foreordained.

"COVID19 pandemic created several macro and micro crosscurrents leading to emerging themes, some of which with strong staying power"

Covid pandemic created several macro and micro crosscurrents leading to emerging themes, some of which with strong staying power. Moreover, we see concurrent convergences and divergences further complicating the landscape and the scope of the challenge. How we face this upending and transformative moment in history remains to be seen, but one thing is certain: human ingenuity will get us out of this crisis as has done for millennia. The convergence of digital age with the dawn of biology century offer great hope to fully exploit opportunities offered in this bioeconomy era (a 2020 McKinsey report estimates that 60% of all global physical input will be made by bio means, using only the available technology).

The endless potential of the digital age and power of biology are mega trends and dominating forces that will bring exquisite advances in all aspects of our lives particularly AgFood and health verticals. Agriculture is especially ripe with opportunities and expected to outperform because it is one of the least digitalized industries presenting significant leaps and plenty of low hanging fruit. In fact, AgFood tech vertical is only in its 3rd inning. Furthermore, it is the last dispensable essential, defensive and a non-correlated asset class, most fitting for uncertain times.

The post pandemic convergence of major macro patterns layered on extreme weather events(climate change) are resulting in breaking of food supply chains against the backdrop of the glaring dichotomy of hunger and obesity. Nearly 500 million people are hungry of which 265 million are on the verge of starvation. Yet nearly 2 billion are overfed and obese but malnourished and struggling with chronic disease and metabolic illness.

Even before the pandemic global food security was a major issue on national agendas since in many economies it is a pillar of GDP, employment, and social stability. Today, food and nutrition security has become more of an urgency as new emerging trends accelerate and exacerbate the situation and demand sustainable and transformative approaches to production, processing, and distribution. Self-sufficiency has become paramount for all nations. For example, Singapore announced its 30x30 strategy to grow 30 % of its food by 2030 and just announced a $14 billion fund to support bio innovation. 

Evolving trends brought by the pandemic include: deglobalization and decentralization bolstering demand for fresh, clean, traceable and locally/regionally grown food; broken food supply chains leading to inflationary pressure on consumer staples; price sensitivity due to high unemployment; heightened heath awareness; digitalization, e-commerce and demand for touchless home delivery; food for health and food as medicine. These major transformations necessitate us to rethink many things including how and where we deploy precious investment resources. Global investment in 2019 in AgFoodtech was over $20 billion, nearly 40x that of 2013 when the first Agtech unicorn, Climate Corp, was acquired by Monsanto. Despite major decline in global economy in H1 2020, food sector was relatively stable. In fact, Q1 investment in foodtech saw 25.3% uptick. It is too early to know how long the current displacements will last, what fallouts will most impact food availability patterns and how consumption patterns will affect production and distribution systems. One thing is certain: there will be adjustments at all levels from government policies to venture investing to consumer choices moving us toward sustainable and resilient food systems. The beneficiaries of the realignments will be those who would make wise investment in this uniquely well positioned space. The payoffs that respond to trends will be most rewarding as they will go where the puck is going, not where it is.

Opportunities at the upstream farm level will include less expensive and sustainable inputs such as biologics and water use efficiency platforms, decision support, robotics, and new SaaS-based and “just in case” business models. The broken food supply chains, the messy middle, will require decentralized and distributed systems helped by logistics platforms to ensure undisrupted production, processing, storage and distribution including indoor and vertical farming. The downstream food/fork is already reshaped by e-commerce. Gaps in touchless trends will offer great openings in robotics, automation and direct to consumer (DTC) models. As well, alternative proteins, functional foods, and ingredients and waste management tools are promising areas.

We are at a painful but propitious moment in history. We will overcome the myriad challenge and build resilient food systems through investments along the entire AgFoodtech vertical which is ripe for the picking. The opportunities and motivation have never been so great.

Weekly Brief

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