February 17, 2016

Michael Raymont, PhD Managing Director VAC Capital

Robots for planting and harvesting are receiving considerable attention in North America and Europe, but are they a priority need in India, SE Asia or Africa? Cold chain storage and transportation is a sophisticated multi-billion dollar industry in North America with revenues of ~US$50B/yr in 2015, but it’s almost non-existent in some tropical parts of the world that need it most. In India, >US$8B of food rots or spoils before being used. Indonesia and China have less than 10% of the US per capita cold storage capacity.

So, from these two examples alone, it’s pretty clear to see that there are huge variations in key needs for innovative Ag and Food solutions in different parts of the world — perhaps not a surprising conclusion. But are we, as “AgTech” innovators and investors, paying enough attention to these differences? And do we really understand the market challenges of taking AgTech innovations from North America and Europe to other parts of the world? Are they even needed (in a list of priorities from 1-5), and can they be modified to suit the needs of other regions?

The answers are not too hard to figure out – AgTech innovators and investors need to spend more time looking into needs, priorities, crop-types, ag practices, traditions and cultures before they assume that market regions outside North America and Europe will be “no brainers” their “revolutionary new product/service.

In many regions, the developing world simply needs to catch up with the practices already used in the developed world. And while IP protection of known practices would be a challenge, there are huge opportunities in Africa and the less developed parts of S. America, S. Asia and SE Asia to introduce modern farming practices, which can generate a 3-5x increase farm incomes in these regions.

Let’s look at the differing needs of farmer/producers in developed regions versus developing regions:

Developed Region – advanced farming practices, most pressing needs are:

• Reduce financial risk (hedging, commodity markets, etc)
• Reduce labour costs
• Go organic
• Improve quality and yield
• Increase productivity and profit

Developing Region – unsophisticated farming practices, urgent needs are:

• Reduce crop failure risks (drought, infestation, fertility, etc)
• Sell crop/get crop to market
• Improve profitability/margins (new crops, higher yields, etc)
• Improve efficiency (mechanization, automation)

So, even with such a simple needs analysis, it’s easy to see that the most indispensible technologies/opportunities (and therefore most likely to be successful, both by wide adoption and high profitability) differ depending on the region and other market pull factors.

If we also look at a consumer needs analysis by region (particularly differentiating developed and less developed areas), we see the same sort of sharp differences in needs, and therefore opportunities which are likely to return high IRR’s. Think, for example, “organic, healthier/more nutritious, more convenient” in developed regions versus “more calories, more protein, food security (availability!) and affordable pricing” in developing and undeveloped regions. These differing needs will demand different technologies solutions.

To make life for AgTech investors and entrepreneurs a little more challenging, there are also uncontrollable inputs, which vary from one part of the world to another and even within countries which are large. Some of the more obvious factors include climate, culture, landholding rights and laws, pedology/edaphology (soil type), local diet/demand, and export infrastructure/services.

So in this brief editorial, I am not going to presume to provide a decision matrix that would identify the best investment opportunities for a specific region, but it’s clear that investors, in particular, need to do a little more homework and due diligence with a greater eye on detail as it pertains to local needs and market opportunities if they want to rack up some big returns in AgTech. To be sure, huge returns in AgTech are out there. Finding them may be a little more challenging than some may expect.

Michael Raymont is a member of the speaking faculty at GAI Middle East in Dubai, February 29 – March 2, 2016

The opinions expressed in this editorial are the authors’ own and do not reflect the views of GAI News.