Agtech, General

The food value chain (Newsletter #2)

How to unfold the industry

We thought long and hard about the way to approach the industry and we started with asking – how and where can we play an important role?  These and many other questions lead us to use the broadest approach to gain an understanding of these highly complex industries.  

Despite the agricultural industry being centuries old, there are still parts of the industry value chain that have not consolidated yet, while other parts are highly consolidated and the likelihood of new entrants or disruptive innovation does not look probable nor possible.

In order to find the areas that, we believe, are most likely to be disrupted in the foreseeable future, we broke the food value chain down into 4 main categories.  Each category has distinctive characteristics.  The 4 boxes below show the categories and the components of each.


The 4 main categories of innovation

Definition

Too crowded and no interaction

Crop Science is a crowded sub-industry with most of the funding coming from Monsanto or Bayer, who use this segment as an option on future successes (at perhaps lower cost than their own R&D). Considerable capital is currently flowing into this segment of the market.    

Digital Farming is also popular in the sense that Precision Agriculture is attracting significant VC funding.  We seeing particular focus on those areas where tech is supporting farmers with forecasts.  Unlike consumer start-ups, we believe that one of the biggest issues with the low success rate in the industry has been the inability by Techies to understand the farmer’s needs and problem (and farmer’s general apathy towards technology).  In recent months though, we have seen a marked increase in the number of startups realising that they will only succeed if they integrate the actual needs of the farmers, even if that is through the farmers’ agronomists (consultants that advise farmers on crop and yield decisions).  Agronomists will empower solutions that really add value.  Startups that manage to save agronomists’ valuable time and deliver deep insights into their customers’ crop and yield prognosis at a decent price can actually turn the wheel around.  We are following the latest developments with great excitement and might have to update this opinion soon.


What are the hottest categories?

We can’t answer this question definitely, but we can say that in our eyes Agri-Tech and Food Processing are currently the most interesting ones.

Why Agri-Tech?

Another field of interest is agri-tech with its nifty gadgets and tech developments around efficient farming under controlled conditions.  There are many applications that deserve the spotlight.  We believe that the biggest opportunities in this sub-industry exist in bringing the farm closer to cities to cut down distribution time, distance and cost. Growing under controlled conditions in advanced locations close to cities is a new way to produce fresh in a shorter distribution chain, saving time and costs due to reduced resources.  Having high opex (but low capex) costs, those companies that manage to minimise input costs will have a strong competitive advantage.  We found the most interesting indoor farm and no it’s not Plenty…


Why food processing?

Various, very interesting developments fall under the category of food processing. Pendulum identified alternative protein as one of the major drivers in the near term. Especially novelty foods like insects for animal feed consumption and different ways of generating protein from various gases are of great interest to us.  Over many months we collected a great amount of data and we now have a good understanding of alternative protein.  Only a few companies have a competitive advantage in insect farming as well as gas to protein but we have identified the most interesting and promising companies in this segment.


If you want to be signed up to our F&A-Tech newsletter please do so here or contact me directly: fabian@pendulumadvisors.com

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