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Despite Low Crop Prices, Corporate and VC Agtech Investments Soar

Xconomy National — 

Prices for agricultural commodities such as corn, soy, and wheat are at their lowest levels in years, but investment in agricultural technology has never been better.

Venture capital firms have increased their agtech investments by 80 percent since 2012, bringing total VC investment in the sector to a total of $3 billion in 2015, according to a new report from Boston Consulting Group and AgFunder, an online investment marketplace for agriculture technology. Adding corporate investments to the VC funding brings total agtech investments last year to somewhere between $20 billion and $25 billion, which the report says is an all-time high.

Boston Consulting Group and AgFunder based their findings on a survey of more than 50 agribusiness executives from around the world representing businesses providing agricultural equipment, crop and animal-product processing, fertilizer and crop nutrients, and crop protection and seeds. They also queried 15 VC firms. The increase in dollars flowing to agtech comes despite commodity prices that are down 65 percent from their 2013 peak, the report says.

Agtech companies currently pour two-thirds of their investments into their own in-house R&D efforts, with the rest directed to external deals, such as partnerships or licensing. Agribusiness executives surveyed say they would prefer to shift that balance to roughly half of their investments occurring through partnerships and mergers and acquisitions, an increase from about 20 percent now. To do that, big ag companies will need to source more of their innovations from outside of their own labs. The crash in commodity prices led large companies to slash their own R&D, opening the door to opportunities for some agbio and agtech startups.

Big data analytics represents the area where most investors are placing their bets, followed by food security and traceability, and biologics, the report found. In big data analytics, makers of agricultural equipment are the leaders in developing technologies for collecting raw data; developers of crop-protection products and seeds are the leaders in analyzing data and recommending actions.

Though some of these products are still in development, farmers have come around to using new technology in an effort to become more efficient and more productive. The report quotes Kip Tom, a seventh-generation Indiana farmer, who explains how technology is changing farming. Decades ago, farmers avoided experimenting with new techniques, fearing that such risk could cost them an entire crop. But today, he says, his son can monitor 800 field trials from his office.

“Come fall, we can measure all these trials and decide how we should spend our money,” Tom told BCG and AgFunder. “This is what has revolutionized the industry—the ability to fail in small ways more frequently and to understand where we can win.”

Though farmers like Tom may now feel emboldened to pursue new technology, big ag feels less so. Despite investing record amounts of money in agtech, nearly 90 percent of agribusiness respondents say their investments are linked to a product or technology already in their portfolios, or the investment is meant to scale or strengthen an existing pathway to the market. Just 10 percent of corporate investments were made to build new technological capabilities, the report says.

Venture capitalists are similarly cautious. Just 27 percent of VC respondents say they aim to disrupt the existing agribusiness companies, and none say that they are developing a new business model. Perhaps that’s because they see acquisitions as the most likely path for an exit. Respondents say initial public stock offerings or buyouts by private equity are “the least likely exit strategy.”

Photo of corn field by Flickr user fishhawk under a Creative Commons license.