The Farm Goes Digital

Digitization is transforming products, processes, and industries across the economy. The Internet of Things—which augments traditionally non-digital objects with sensory and connectivity capabilities, allowing for autonomous and remote tracking, monitoring, and control—has been one such set of key innovations. Digital technologies, like these, could be the key to sorely needed productivity growth across a wide range of sectors in the coming years, from manufacturing to mining, and from healthcare to home automation.

One area of the economy that stands to benefit greatly from the coming wave of digital disruption is the oft-forgotten agricultural sector. Not only are the digital applications compelling, but agricultural innovation is an imperative—with no end in sight for global population growth, environmental degradation, and growing ecological constraints, increased productivity in the farming sector is a must. However, agricultural productivity growth has been steadily declining the last few decades, making a sustainable and inclusive global food source all but guaranteed.

Technological innovation can—and indeed must—play a big role. Though in the early stages, emerging “AgTech” innovations have begun to show promise.

What is AgTech?

AgTech describes technological innovations that apply “software and hardware technology to all aspects of the farming process from production to supply chain,” with the purpose of enhancing “the sustainability of the practice by increasing productivity, improving the efficiency of resource use, and reducing ecological impacts.” [1],[2]

Practically speaking, that means farm performance innovations such as weather, soil, and equipment monitoring systems, information systems on crop prices and futures, farm management, and fully integrated “connected farm” software systems. It also includes consumer-focused platforms that connect local farmers with customers, or technologies that improve sustainable home gardening.

Emerging AgTech Companies

Industry giants in agriculture (John Deere, AGCO), chemicals (DuPont, Monsanto), and software (SAP, IBM, Google) are playing a big role—either from internally driven innovation efforts, or most of all, through the financing or acquisition of AgTech startups.

This last part is key, as disruptive innovations will most certainly come from entrepreneurs, though partnerships between startups and established players have proven to be a fruitful model for innovation in many cases—and an increasingly popular one.

Venture capital funding—a good proxy for startup activity in AgTech—has grown significantly in recent years, from nearly non-existent in 2009 to $300 million invested in 2014, and another $286 million invested already this year (I estimate that figure will reach nearly $450 million by year-end). This was spread across 190 deals, for 82 AgTech companies globally.

Though still a small portion of total venture capital funding, AgTech’s share has quadrupled in just six years, and nearly $1.2 billion in venture funding was raised during this period. Typical deal sizes have increased steadily in recent years, as a number of companies are pushing into later stages.

More than two-thirds of global funding has occurred in the US, and nearly half of that is in the San Francisco Bay Area. Even so, AgTech startups like MachineryLink in Kansas City, Farmers Business Network in Davenport, Iowa, or Door to Door Organics in Lafayette, Colorado, among many others, show the geographic scope for these companies.

One encouraging sign is that some of Silicon Valley’s most successful venture investors are getting involved—firms such as Andreessen Horowitz, Khosla Ventures, Y Combinator, and Google Ventures are leading the way with multiple AgTech investments in recent years. Investors like these have established records of helping startups become high growth businesses.

Though still in the infancy, a number of successes have occurred—such as the $930 million acquisition of The Climate Corporation by Monsanto, and The Climate Corporation’s acquisitions of 640 Labs and the soil science business of currently active VC-backed cloud computing company Granular (formerly Solum). Other companies like MachineryLink and Good Eggs have stayed private, fetching valuations north of $90 million in the last year, while early stage companies Blue River Technology and Farmigo are reaching healthy valuations relative to the amount of capital raised to date. Ultimately, it is strong returns that will bring investors and entrepreneurs into the sector.

The AgTech Imperative

A number of challenges will face global food supply in the coming years, and AgTech innovations must play a role in shaping better outcomes. With population expected to swell over the next few decades, farmable land held relatively constant (even in an optimistic case), a shift towards more resource-intensive foods (meat) as global incomes rise, and great uncertainty introduced by a changing climate and urban development, farms will have to become substantially more productive. But that is not what has been happening the last few decades, as productivity growth in the farm sector has been trending steadily downward.

In short, something has to give, and technology may provide the force that’s needed to climb our way out of what could be a limited food supply. For entrepreneurs and investors out there looking for a worthy and noble cause to sink their teeth into, this may be it. For policymakers and other observers, AgTech is an emerging technology sector that requires attention and support if we are to ensure a stable food source for future generations.

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[2] Dutia, Suria (2014), “AgTech: Challenges and Opportunities for Sustainable Growth,” Ewing Marion Kauffman Foundation