Are food and agtech investors deploying their funds correctly? That’s the query I asked myself this week when comparing data from two recent reports. In fact, the potential for profitability is a baseline for any good investment. But in a world on the point of ecological collapse, investments also have to have meaning beyond money. So how are investors doing on that end?
Listed here are my two sources:
- AgFunder’s 2022 agrifoodtech investment report analyzed over 3,000 investments, mostly from enterprise capital firms and accelerator funds, backing technology-focused startups across your entire food and agricultural value chain in 2021.
- The Intergovernmental Panel on Climate Change’s (IPCC) latest report synthesized the world’s leading science, identifying actions governments, corporations and individuals can take to scale back and sequester emissions.
While these two reports aren’t an apples-to-apples comparison, and the topics in each don’t align entirely, there’s enough overlap to see how recent startup activity pertains to mitigation needs.
Let’s start with the mitigation potential and implied practice changes. The IPCC identified seven significant opportunities for net emissions reduction in agriculture, food and other land use, shown within the chart below. I won’t get into the third and fourth bars focused on ecosystem restoration, afforestation and sustainable forest management, as they don’t relate on to food and agriculture.
Throughout the food systems realm, it recommends the next actions, listed so as of mitigation potential:
- Protect forests and other ecosystems: Reduce deforestation drivers (agriculture, mining, urban expansion) and forest degradation (overharvesting, poor harvesting, overgrazing, pests, wildfires) and establish effective protected areas.
- Sequester carbon in agriculture: Deploy efforts to enhance soil carbon management in croplands and grasslands, scale agroforestry and using biochar.
- Shift to plant-rich diets: Incentivize the adoption of balanced, healthy and sustainable diets, including a transition towards more plant-based consumption and reduced consumption of animal-based foods.
- Reduce methane and nitrous oxide emissions: Improve enteric fermentation, manure management, nutrient management and rice cultivation.
- Cut food loss and waste: Approaches to reinforce harvesting and post-harvesting technologies in developing countries, incentives to scale back waste in developed countries, reporting and goal setting for big food businesses, use of imperfect products and behavioral changes.
How is the agri-food innovation ecosystem meeting this need? Not thoroughly — at the very least if we take last 12 months’s investments as a proxy for where the sector goes. 2021’s biggest checks don’t closely mirror the mitigation opportunities outlined by the IPCC.
The most important miss: 35.8 percent of last 12 months’s funding went to eGrocery. That’s an $18.5 billion investment distributed across 343 deals in online stores and marketplaces that sell and deliver food on to consumers. Chinese company Furong Xingsheng (Chinese) led this category, and overall investments in 2021, with a $3 billion round. The grocery store is on the helm of a growing trend in China, where consumers band together in groups to buy fresh produce and other items in bulk, securing higher deals.
This latest model could tie into some mitigation opportunities. More direct bulk purchases from wholesalers and farmers could reduce waste and cheaper produce may lead to more vegetable consumption. However the marketplace doesn’t actively incentivize these outcomes and doesn’t appear to have a giant sustainability focus generally.
Many other online grocery startups that raised big rounds work on quick delivery. This includes goPuff, Gorillas and Flink. Ordering groceries on the fly might result in some food waste reductions, but that’s not the first goal of those startups, and I haven’t seen evidence of that occuring. Quite the opposite, smaller and more frequent grocery-related deliveries might increase transportation-based food emissions. For my part, quick grocery is a luxury good the world doesn’t need. The cash and brainpower going into these platforms could be higher spent solving real climate problems.
The closest match: Modern food (defined as cultured meat, novel ingredients and plant-based proteins) shared the second spot with cloud retail infrastructure (defined as on-demand enabling tech, ghost kitchens, last-mile delivery robots and services). They each pocketed $4.8 billion, accounting for 9.3 percent of the 12 months’s total. Alternative proteins directly match the third biggest opportunity of the IPCC report, supporting weight-reduction plan shifts from meat to plants. Inconceivable Foods, Nature’s Fynd and Perfect Day led this category last 12 months.
I’m surprised on the carbon front, as carbon market startups reminiscent of Indigo and Nori have seen overwhelming demand.
Alternative protein startups also not directly contribute to the IPCC’s primary opportunity — reducing deforestation and other land-use change — as their products have a significantly smaller land footprint than animal-based counterparts.
The center ground: There’s some decent activity in midstream tech and agricultural biotechnology, which made up 7.3 percent and 5.1 percent of last 12 months’s investments, respectively.
Apeel Sciences emerged because the leader in midstream tech with a $250 million raise and its climate-relevant deal with stopping food waste. The Web of Things (IoT) startup Williot got here in second with a $200 million raise. By improving supply chain tracking and transparency with a cloud-based monitoring system, the startup also hopes to make a dent in food waste and other supply chain efficiencies.
Corporations working on gene editing and microbial fertilizer, which translated to the 2 biggest raises on this category, dominated Ag biotech last 12 months. At $430 million, Pivot Bio scored the most important deal. The startup is developing microbial technology to switch synthetic nitrogen, a big emission source in agriculture. Inari uses predictive design and gene editing technologies to create higher-yielding seeds and raised $208 million. This might help reduce land-conversion pressures by producing more food on less land, thus tying into the IPCC’s priority areas.
What holes does this leave us with? Food and agtech investments appear to be missing the mark on deforestation, carbon sequestration solutions and methane reduction approaches in comparison with their mitigation potential. I’m especially surprised on the carbon front, as carbon market startups reminiscent of Indigo and Nori have seen overwhelming demand.
AgFunder’s methodology for this report might explain a portion of this gap, which focuses on investments in solutions that “are particularly high tech or utilize proprietary technology” relatively than listing more traditional farming updates. Similarly, the report won’t capture deforestation-related investments in the event that they’re indirectly tied to agricultural supply chains, explaining some missed opportunities here. (I didn’t hear back from AgFunder in time for this piece to make clear these questions). Either way, we now have a protracted option to go.
