A Case for Agfood Tech Outperformance In the Digital Age, Biology Century and The Bioeconomy Era
Jaleh Daie, Ph.D.Partner, Aurora Equity and Chairman of the AgFood Tech, 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 the 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 meetthe monumental test is to bring technology to bear on the problems, making prospects for the outperformance of AgFood tech, arguably, foreordained.
COVID-19 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 upendingand transformativemoment 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 dawnof biology century offers great hope to fully exploit opportunities provided in this bioeconomy era (a 2020 McKinsey report estimates that 60 percent of all global physical input will be made by bio means, using only the available technology).
The endless potential of the digital age and the power of biology are megatrends and dominating forces that will bring exquisite advances in all aspects of our lives,particularlyAgFood 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 postpandemicconvergence of major macro patterns layered on extreme weather events(climate change) is resulting in the 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.
COVID-19 pandemic created several macro and micro crosscurrents leading to emerging themes, some of which with strong staying power
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 30percent 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 health awareness; digitalization, e-commerce and demand for touchlesshome delivery; food for health and food as medicine. These major transformations necessitate usto 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 the major decline in global economy in H1 2020, the food sector was relatively stable. In fact, Q1 investment in foodtech saw a 25.3percent 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 towardsustainable and resilient food systems. The beneficiaries of the realignments will be those who would make wise investments in this uniquely well-positioned space. The payoffs that respond totrendswill be most rewarding as they will go where the puck is going, not where it is.
Opportunities at the upstreamfarm 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.
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