02 March 2020

Feeding the Future: An Overview of the Agrifood Industry

By Francesco Castellano, Riccardo Pignatti and Letizia Ingaldo


The world’s population is expected to grow to 9.7 billion by 2050, creating a number of challenges over the next few years. There will be increased demand for high-value animal protein food, a trend that is being driven by urbanization and rising income worldwide.

These trends will inevitably threaten the availability of natural resources; in fact, projections for 2050 indicate the emergence of growing scarcities of agricultural land.
In this scenario, climate change has a large impact too. Natural disasters like prolonged dry spells and floods cost the agricultural sector an unbelievable amount in damaged or lost crop and livestock production.
The most important action to implement is, therefore, increasing agricultural productivity and ensuring a climate-resilient agricultural system. More entrepreneurs and technology experts have joined the agritech movement in recent years, as the traditional approach of the food industry is undergoing a fundamental transformation. Investors also are showing greater interest in the Agrifood industry and its startups. The amount of money pouring into Agrifood tech has increased more than sixfold since 2012: from $3 billion to almost $18 billion, according to AgFunder.

A wide range of solutions is being developed by Agrifood entrepreneurs. We analyze some relevant technological trends that will have a huge impact in the coming years, focusing on vertical farming, precision farming, alternative proteins, and agricultural biotechnology.

In the second part of this series, we will explore each technology in detail and examine funding trends and startups by technology.


1.The Changing Scenarios of the Agrifood Industry

The food industry is facing a variety of challenges that need to be addressed. The most relevant and impactful ones are: (1) socio-demographic; (2) scarcity of natural resources; and (3) climate change.

1.1 Socio-demographic Changes

The world’s population is expected to grow to 9.7 billion by 2050. This growth will result in increased demand for resources and raw materials, including food. In particular, demand for food is estimated to increase by 56% in 2050 compared to 2013.
In addition, in 2050, about 68% of the population is expected to live in cities. Urbanization also affects food consumption patterns—higher urban income is reflected in increased demand for processed food and meat, one of the most impactful industries worldwide.

1.2 Scarcity of Natural Resources

Furthermore, the increasing global population poses a threat to the availability of natural resources; in fact, projections for 2050 indicate the emergence of growing scarcities of natural resources. In this regard, agriculture plays a pivotal role because, in order to meet the aggregate demand for food, more and more resources will be exploited, causing land degradation, deforestation, and water scarcity.

The expansion of agricultural land continues to be the main driver of deforestation, with as many as 56,000 acres of land being cleared per day. Therefore, competition for natural resources will become more acute unless more efficient agricultural systems are implemented. To this extent, farming livestock should also be restructured in order to reduce the impact on the environment and the consumption of resources.

1.3 Climate Change

Resource scarcity is not only due to a growing population; climate change has a large impact too. According to FAO, between 2005 and 2015, natural disasters like prolonged dry spells and floods cost the agricultural sector $96 billion in damaged or lost crops and livestock production. Furthermore, climate change is going to affect every aspect of food production and lead to a decline in crop yields of 10/25% by 2050. Due to climate change, oceans are facing a rise in temperature that will eventually reduce marine fish catches by 40%. Without efforts to adapt to climate change-related hazards, food insecurity will likely substantially increase, particularly in the least developed countries.


2. Immediate Challenges for the Agrifood Industry

Due to the increasing demand that agriculture will face in the near future, the most important challenge to address is to improve agricultural productivity in a sustainable way.
Furthermore, people are increasingly moving from the countryside to cities, or around cities. This will suggest an increase in their income and, therefore, changes in dietary habits. Meat products will be more in demand, endangering further the agricultural capacity to meet the increasing food requirements. Livestock farming requires an incredible amount of natural resources: from the land and the water consumed to the food for animal feeding. Consequently, a shift toward the consumption of alternative proteins will occur, as covered also by a Toptal article: Beyond Meat.

Global meat market forecast:

To improve agricultural productivity, it is necessary to increase the efficiency in the use of natural resources, expand the output with the same amount of inputs, and reduce food waste and food loss. In this regard, approximately 1.3 billion tonnes of food are wasted yearly
The image below shows that, in developed countries, food is wasted mostly at consumption level, while in the least developed and developing countries, food is wasted throughout the harvest and post-harvest phases. 
This issue is crucial—when food is wasted, water, soil, and natural resources used to produce it are wasted too. In terms of electricity consumption, for example, food accounts for 30% of the total usage of energy, and 1/3 of that fraction is wasted yearly.

Moreover, addressing climate change and the intensification of natural hazards through the implementation of adaptation measures will be unavoidable. Actually, climate change is affecting every aspect of food production, and crop yield is expected to decline
Without efforts to adapt to climate change through agricultural innovation, food insecurity will likely increase substantially.


Distribution of food losses across the supply chain:

3. Investments and Technologies for the Agrifood Market

Although agricultural investments have increased, the level reached is still insufficient to abolish poverty and hunger by 2030, according to the SDGs (Sustainable Development Goals). If we consider the realization of those goals as a proxy to prevent this scenario, it will require additional investments of $5-7 trillion.
In order to efficiently and effectively cope with all these challenges, it is necessary to tackle other urgent problems. Eradicating extreme poverty, reducing inequality, ending all forms of malnutrition, and making food systems more efficient, inclusive, and resilient are just four of the SDGs that will be key challenges in order to build a better world. Incrementing the profitability and the productivity of agriculture will be a driver to reduce inequalities and diminish malnutrition.


4. Emerging Technologies in the Agrifood Sector

The need for technological development in Agrifood to achieve more sustainable and productive agriculture has become more urgent.
A growing number of entrepreneurs and technology experts have joined agritech in recent years, as the traditional approach of the food industry needs to undergo a fundamental transformation.
Root AI, for example, is a US-based research company that is developing artificial intelligence and robotics to strengthen the indoor farming sector.
Another interesting example is Israel-based startup Taranis, which has developed a scientific engine that analyzes field data related to the crop production cycle and weather and indicates the perfect time and locations to deploy agrochemicals.

In the last 40 years, cereal yields rose more than 300% due to modern farming practices. Anyway, efficiency gains are now dropping, and agriculture must face the challenges of the future years. New technologies must be implemented not only for the sake of innovation but to improve and address the real needs of consumers and re-engineer supply chains.
Agriculture will no longer have to depend on applying water, fertilizers, and pesticides. Farmers will use minimum quantities, or even remove them from the supply chain, exploiting for example seawater. This will have an overall positive impact on the environment, both in terms of GHGs emissions and resource exploitation.
Agricultural technology startups have grown to meet these needs and challenges, and investors are showing greater interest in the Agrifood ones. The amount of money pouring into the Agrifood tech has increased more than sixfold since 2012, as shown below:

In particular, according to an AgFunder report, European Agrifood startups attracted investments of about $1.6 billion in 2018, of which $900 million for startups operating from farming to food processing—a huge 200% increase over the prior year.
In the US, Agrifood startups took $8 billion in venture capital in 2018, almost half of total investments worldwide. Most deals were located in California, which accounted for $5 billion, representing 63% of total US investments, followed by Massachusetts at $799 million and New York at $539 million.

Agrifood technological trends can be divided into Upstream, related to farming and food processing, and Downstream, related to food delivery and consumption. The Upstream tech trends are the ones facing the main agricultural challenges of the coming years, and they include new farming systems, precision farming, alternative proteins, agricultural biotechnology, and others:

Upstream technologies received $6.9 billion investments in 2018, growing 44% year-over-year, the most relevant among them being agricultural biotechnology, which attracted $1.5 billion investment in 2018, followed by precision farming with $1.4 billion and midstream with $1.3 billion.

Upstream financing growth:

Upstream technologies are enhancing agriculture in a way that can increase productivity and efficiency, developing also climate change adaptation measures. 
Following this path, an impactful answer to the increasing population trend and increasing food demand would be provided, tackling the scarcity of resources issue. In this regard, four technological areas, in particular, can be considered more relevant: agricultural biotechnology, vertical farming, precision farming, and alternative proteins.

Agricultural biotechnology is based on new approaches to genome editing (like CRISPR), which allows greater selectivity and reduces the element of chance. These techniques can not only create breeds with high resistance to adverse conditions, but they can also be used to propagate them with vitamins and nutrients.
One of the leaders of agricultural biotechnologies is Indigo Ag, a US-based startup founded in 2016, which supports growers in the transition to regenerative farming practices through year-round partnership, microbiome treatments, and the support to optimize regenerative systems. It has raised a total of $809 million in funds.

Vertical farming is the process of growing food in vertically stacked layers, working in environments where arable land is not available. Thus, it is an easy answer to providing high-quality food without occupying other lands. Combined with urban farming, it adopts soils, hydroponic, or aeroponic growing methods providing the chance to grow, for instance, vegetables in the city centre using 95% less water, fertilizers, and soil.
One interesting reality that employs vertical farming is Bowery Farming Inc., a US-based startup founded in 2014, which - within its internal technology platform - combines sensors, control systems, computer vision, robotics, and machine learning to optimize many of the processes around the farm. The company has raised $172.5 million.

Precision farming encompasses everything that makes the practice of farming more accurate and controlled when it comes to growing crops and raising livestock. A key driver of this practice is the use of information technology and a broad range of items such as GPS guidance, control system, sensors, robotics, drones, autonomous vehicles, automated hardware, and software.
One promising reality in precision farming is represented by CropX, an Israel-based startup founded in 2015, which has developed a rechargeable wireless sensor solution for soil moisture monitoring. It has raised $22.9 million to optimize and automate farm management.

Alternative sustainable protein startups are reinventing the industry with new food technology, allowing for the production of meatless and cell-based products that closely resemble traditional meat in taste and texture, without increasing the final price. Employing these technologies allows a considerable reduction in terms of inputs used, increasing efficiency in the food chain.
Impossible Foods is one of the most mature plant-based meat startups. Founded in 2011, this US-based company designs vegan burgers that resemble traditional meat in texture and taste. It has raised a total of $687.5 million.

All these technologies ensure smarter use of resources, as well as a reduced amount of resources, thereby increasing the productivity and sustainability of the agricultural processes. On the other hand, Downstream includes in-store retail & restaurant tech, restaurant market places, eGrocery, and home & cooking tech. Deals increased up to $10 billion in 2018, a 41.8% growth compared to 2017.
These solutions are more about reshaping the way we select and consume food and less about facing the main Agrifood challenges—even if some solutions might help in decreasing food loss.


5. Conclusion

Food security, climate change, and sustainability are increasingly shaping individual consumption choices and becoming important themes at a policy and social level. As a result, the Agrifood industry is being increasingly eyed by entrepreneurs and investors. A crop of new, promising technologies that have the potential to reshape agriculture is emerging.

The next post in this series will further detail the presented technologies and consider how they can respond to emerging global challenges. 
It will also focus on the main actors that are developing them and on what is piquing the investors’ attention.

Article originally published on Toptal: www.toptal.com/finance/market-research-analysts/agrifood-industry