The Impact of Technology in Agriculture

Jun 13th, 2013

You may have noticed over the last few months that we’ve expanded our focus to technology in agriculture. After years of investing and months of research, “ag tech” is now an active sector focus, but it’s always been an area of interest for us. In fact, two of our portfolio companies, SlimTrader and Promethean Power, deploy their technologies with farmers. Over the last few months, we’ve seen a flurry of activity in the ag tech space and we’re excited about the trends and innovations that are making it a smart and high-impact investment opportunity.

Global Shifts

Projections show that there will be 9 billion people in the world by 2050. The Food and Agriculture Organization (FAO) estimates say we need a 70% increase in food production from 2005 levels to feed all those people, and we have to grow, harvest, distribute, and consume our food more efficiently. Our growing population is becoming increasingly urban: the World Health Organization (WHO) estimates that 7 out of 10 people will live in a city by 2050. We’re not gaining additional resources like land or water, nor are we gaining more farmers.

As economies continue to develop, the percentage of the people employed in the agricultural sector declines. In general, a 1% increase in GDP leads to a .052 decrease in the percentage of people employed in agriculture, controlling for growth in the labor force. The regions that will have the largest population gains, Sub-Saharan Africa and South Asia, also have the highest percentage of their population working in agriculture today: 60% and 50%, respectively. This is bound to decline dramatically as their economies progress. To put this in perspective, less than 2% of the U.S. population is employed in agriculture. It was above 50% in the mid-1800s.

A shift to decentralized production models and increasing consumer conscientiousness are positive signs that we can make our food supply chain more efficient. We’re starting to become more aware of how our consumer choices and policies affect the environment, our food, and the laborers who produce the food we buy. Still, this conscientiousness demands technology, tools, and innovation to inform smart and sustainable choices.

Innovation and Technology

There is a lot of innovation in the mobile/IT and energy spaces that have the potential to make a huge impact on the farm. For example, smart power systems, precision agriculture tools, farm management software, and affordable sensors are all within reach of even the smallest farmers today. From Nairobi to San Francisco and from Tallin to Sydney, entrepreneurs are taking advantage of new technology that makes these products possible. We see potential in radio frequency technologies (RFID, NFC, Bluetooth), the Internet of Things and the big data that comes along with it, as well as in clean technology advances from ambient energy, to waste-to-energy, to renewable sources.

Ultimately, we think that all of these technologies, when deployed effectively, will work towards achieving the following long-term objectives.

Long-Term Objectives

Efficient farm management and resource efficiency – As mentioned earlier, a declining percentage of farmers in the world have to produce more for a growing population. Fortunately, advances in technology can have significant impact, as did irrigation systems, tractors, and other mechanical innovations in the 19th and 20th Centuries. Further, a “whole farm approach” optimizes the farmer’s efficiency, including use of water, waste, soil, energy, and most importantly, time. Precision agriculture technologies, for example, can optimize fertilizer applications, saving time and money by creating a more productive field.

Traceability  – You’ve heard of the horse meat scandal and countless other food recalls. People want and need to know what’s in their food and where it comes from. This requires tools and processes that manage and monitor the flow of inputs. This would improve efficiency, product differentiation, food safety, and product quality. Further, traceability and transparency in the food supply benefits the farmer in the long run, by opening up opportunities to access credit and markets.

Supply chain efficiency – A third of the food produced annually is wasted. In the U.S., most of our food is wasted at the consumption stage. In Sub-Saharan Africa, food is wasted before it even reaches the consumer. (See more here). Whatever way you look at it, the supply chain needs to become more efficient.

Where do we go from here?

We’re keeping our eyes open for opportunities in the ag tech space. We’re looking for startups offering technologies that can:

  • Increase farmer profitability, productivity, and efficiency.
  • Improve farmer, animal, and consumer livelihood with better work environments, food safety, and food security
  • Protect the planet and its finite resources.

We’re not alone. Ag tech is catching the attention of everyone from The Economist to BusinessweekVC and angel investment in the sector topped $100M over the last year.  Solum, a startup with an innovative soil nutrient technology, has already raised a $17M Series B round.

Stay tuned for updates on new deals, and if you’re an ag tech startup seeking funding, send us your business plan on Gust: http://bit.ly/applyID.

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