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The Digitization Of Global Agriculture And Agtech Startups Poised To Profit

Last updated on August 5th, 2018 at 02:45 am

The agtech startup scene is booming with venture capital funding climbing steadily over the past few years. According to data from PitchBook and US fund Finistere Ventures, the agtech industry raked in US$ 1.5 billion in investments in 2017, most of which were in early stage startups.

The flurry of interest in agtech startups is driven by a number of reasons. From climate change to increasing water scarcity, the global agriculture industry faces numerous long term challenges which, if unaddressed could affect global food availability in the future due food supply growth being far outpaced by food demand growth which is driven by a growing population and rising income levels.

Today’s approximately seven billion population is forecast to grow to 8.5 billion by 2030 and 9.7 billion by 2050, according to data from the United Nations Department of Economic and Social Affairs (UN DESA). Consequently, the demand for food is projected to be 60% greater than it is today.

Global rice consumption is poised to increase by around 1.1% annually from 2016 until 2025 when rice consumption is expected to reach 570 million tons according to market research firm IndexBox.

Per capita meat and dairy consumption is expected to see tremendous growth, particularly in China and India according to information from the World Resources Institute; global per capita, per day livestock products consumption is forecast to grow 23% while global per capita, per day consumption of beef and mutton is projected to grow 30% between 2006 and 2050.

Bar chart and scatter chart showing livestock products consumption (Kcal/person/day) and beef and mutton consumption (Kcal/person/day) and percentage change in 2016 and 2050 (forecast). From 2006 to 2050, world livestock products consumption (Kcal/person/day) is forecast to increase 23% while world beef and mutton consumption (Kcal/person/day) is forecast to increase 30%.

Yet, resource availability is growing increasingly scarce due to pollution and climate change among other reasons. Globally, agriculture uses 70% of freshwater worldwide according to data from the National Groundwater Association, making it the biggest consumer of the world’s freshwater. Water consumption for domestic use is second, accounting for about 10% of global freshwater consumption.

With agriculture having to feed a population of more than 9 billion by 2050, water demand from the agriculture sector is expected to increase substantially in the decades to come; without improved water-use efficiency measures, water consumption by the agriculture sector is expected to increase 20% globally by 2050. However with climate change affecting rainfall patterns, the world’s freshwater resources are being depleted faster than they are being replenished by rainfall.

About 50% of the world’s habitable land is used for agriculture. However, soil erosion and pollution have resulted in the loss of nearly 33% of global arable land in the past 40 years, at a rate faster than the ability for natural processes to replenish diminished soil, according to a study by the University of Sheffield’s Grantham Centre for Sustainable Futures. The study found that soil erosion had been occurring at a rate of up to 100 times faster than the rate of soil formation.

Environmental challenges coupled with rapid population growth and urbanization has resulted in a steady decline in arable land per capita; according to data from the Food and Agriculture Organization (FAO), arable land per capita declined from 0.35 hectares per person in 1965 to about 0.19 hectares per person in 2015, which is about a 40% decline over four decades.

Line graph showing global arable land (hectares per person) from 1961 to 2015. From 1961 until 2015, global arable land per capita has declined by about 40%.

Therefore, in order to feed the world’s population that is growing in number and purchasing power, the agriculture industry is compelled to solve these challenges by achieving greater productivity gains such as by reducing input cost, increasing yield, and increasing environmental sustainability and thereby increase food supply with limited resources.

Technology is emerging as a key solution and this growing digitization of the global agriculture industry is an opportunity numerous agtech startups are working to profit from. According to a report by Accenture, the market for digital agriculture services will expand 12.2% between 2014 and 2020 to reach US$ 4.55 billion.

WeFarmUp – France’s Airbnb of agriculture

Launched in 2015, French startup WeFarmUp could be described as the Airbnb of agriculture. The farm machinery rental platform allows French farmers with underused machinery to rent equipment to other farmers in need of such machinery which ultimately boosts farmer bottom lines since underutilized machinery could be converted into assets generating extra income and farmers can be relieved of the potential debt burden that comes with purchasing costly farm machinery.

Although France is the biggest recipient of EU farm aid under the EU’s Common Agricultural Policy (CAP), French farmers struggle with debt and weak farm incomes which are more volatile than wages and salaries in other sectors according to a report from the European Commission.

With the UK, a net contributor to the EU budget, reportedly not contributing to the CAP after 2020, the subsequent budgetary gap could result in a downward review of the Common Agricultural Policy which represents one of the biggest expenditures under the EU budget.

It has been estimated in 2016 that without the current level of subsidies under the CAP, more than 50% of all French farms would not break even, which suggests that any reduction in subsidies under the CAP could result in bigger losses for France’s farmers. This presents an opportunity for a platform such as  WeFarmUp which indicates bright prospects for the startup. WeFarmUp is currently focused on France but plans to expand to Belgium.

 Gold Farm and EM3 AgriServices – disrupting India’s agri sector with Farming as a Service (FaaS) platforms

Agriculture is one of the most important sectors of India’s economy. The country has the world’s second largest amount of agricultural land after the United States, is the world’s second largest producer of horticultural crops and fruits after China, and is the world’s largest producer and consumer of dairy.

However, the industry is challenged by low productivity and low profitability. While at least 50% of the country’s workforce depends on agriculture, the sector contributes just about 15% of India’s gross domestic product.

India lags behind countries such as China in terms of crop yields. For instance, India produces 2.4 tons per hectare (t/ha) of rice (nearly half of China’s yield of 4.7 t/ha) and 3.15 t/ha of wheat (compared with China’s 4.9 t/ha).

According to data from the World Bank, as of 2016, agricultural value added per worker in India amounted to US$ 1,202, far behind the world average of US$ 16,730, ranking India 119th in terms of agricultural productivity out of 155 countries.

Farm mechanization could help boost crop productivity however, much of India’s farmers have small-scale farming operations and are often heavily in debt, which constrains their ability to invest in expensive farm machinery; almost half of India’s agricultural households are in debt and the average farm land size in India is estimated at 1.15 hectares according to India’s Agriculture Census conducted in 2015. 65% of Indian farmers are marginal farmers holding less than one hectare of land, while less than 1% have large land holdings of 10 hectares or more.

The challenge is an opportunity for Indian agtech startups such as EM3 Agri Services and Gold Farm which manage platforms that aim to improve India’s poor farm mechanization levels by allowing farmers to rent, rather than purchase, expensive but much needed farm machinery. Using their respective mobile apps, farmers choose and book the machinery required and pay based on the amount of time the machines are used (hence the term Farm as a Service) which cost-efficiently boosts farm productivity.

Of India’s approximately 120 million farmers, just about one-quarter or roughly 30 million are equipped with smartphones. However, smartphone and mobile internet penetration are on an uptrend among rural Indians, including rural segments such as farmers, aided by increasing affordability of smartphones and mobile data, as well as government initiatives to help digitize Indian farming as part its Digital India program, such as the Government of India’s AgriMarket app.

This factor coupled with an increasing trend among younger Indians to move away from agriculture, rising input costs and rising labor costs, could result in greater demand for FaaS solutions such as the outsourced farm mechanization services offered by Gold Farm and EM3 Agri Services. According to data from Bain & Company, total investor funding into FaaS startups in India is currently about US$ 105 million to US$ 115 million, and more than 40% of funding rounds are at “series stage”.

Gold Farm partners with local entrepreneurs and farmers who have the financial wherewithal to invest in farm machinery and helps them with demand generation by renting out the machines to India’s rural, small-scale farmers through the Gold Farm platform, creating a win-win situation for all parties. The payback time for the entrepreneur is reportedly around two years.

Stellapps – improving productivity along India’s dairy supply chain through IoT and Big Data

 India is the world’s largest producer and consumer of dairy and the country has been the largest milk producing country in the world since 1997.

However, despite per capita milk consumption in India steadily rising over the past few years, there is still ample potential for growth; Indian per capita milk consumption is just about half that of countries such as the United States, Australia and New Zealand.

Bar chart showing annual per capita milk consumption (kilograms per capita) during 2012 and 2017 in Ukraine, New Zealand, Australia, United States Russia and India.

As India’s middle class expands and incomes grow, protein needs are expected to grow as well which should drive demand for milk and milk products. India’s urban dwellers being wealthier on average tend to consume more milk per person than the average rural Indian.

But with just about 31% of the one billion plus Indian population living in urban areas, there is tremendous potential for growth in per capita milk consumption as India’s remaining half a billion or so population urbanize over the longer term.

While India could meet this additional demand by growing its huge livestock population which is already the largest in the world (58% of buffaloes and 15% of cattle), the country may be better served by increasing efficiency and productivity in its dairy industry; according to India’s Agriculture Ministry, the average milk yield for cross-bred cattle stands at around 7.1 kg per day which is significantly lower than developed countries such as the United Kingdom, the United States and Israel which boast daily milk yields of 25.6, 32.8 and 38.6.

Indian agtech startup Stellapps Technologies, which is backed by the Bill and Melinda Gates Foundation is aiming to address this issue. The company’s solution uses technologies such as IoT, Big Data, Cloud and data analytics to help dairy farmers, cooperatives and private dairies optimize their dairy operations and covers all aspects of the dairy supply chain across milk production, procurement, cold chain, animal insurance and farmer payments. The full dairy technology solution, brand named SmartMoo™ uses different types of sensors which gather data through wearable devices. For instance, on the farm, data on the animal’s health and yield is gathered,  while data on milk quality (such as fat content) is gathered at dairy collection sites which assists with pricing. The data is automatically sent to relevant parties across the supply chain such as the dairy farmer and dairy companies with the ultimate aim of helping participants improve efficiency, quality and productivity by improving milk yields, improving animal health, reducing pilferage, spoilage etc.

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