Quietly, and to a surprising degree, new technologies are revolutionizing agriculture. A seventh-generation Indiana farmer, Kip Tom, described the farm-level changes this way: “A Midwestern crop farmer has 40 opportunities in his lifetime to produce a crop. If we fail, we risk losing it all. So we typically haven’t wanted to experiment with new ways of farming. But, in the past few years, this mindset has changed. Now my son uses new technology to set up 800 field trials while he sits in the office. The equipment takes care of the rest. Come fall, we can measure all these trials and decide how we should spend our money. This is what has revolutionized the industry—the ability to fail in small ways more frequently and to understand where we can win.”
Such technological advancements and the prospect that they will lead to the next green revolution have promoted a wave of startup activity in agriculture technology (agtech). Seeking to profit from this trend, venture capital (VC) firms have increased their investments in agtech at an annual rate of approximately 80% since 2012, with investments totaling $3 billion in 2015. (See Exhibit 1.) This surge in investments has occurred even as lower commodity prices have driven down net farm income to 65% of the peak reached in 2013. Even if only a small proportion of these investments produces successful technologies, the resulting wave of innovation could increase farm yields to an extent unmatched since the early days of mechanization.
The startup activity and VC investments in agtech coincide with advancements in a wide variety of nonfarm technologies, including ubiquitous connectivity, data collection and processing, autonomous robots, rapid phenotyping, and gene editing. The use of these technologies has become increasingly cost effective, spurring their adoption by a growing number of farms.
The scope and scale of these changes threaten to disrupt the markets and profit pools of mature agribusiness companies. To win in agtech, these companies must cut through the hype and develop a strategy that leverages their unique competitive advantages. The Boston Consulting Group partnered with AgFunder to better understand executives’ perspectives on agtech investments and capture insights to inform a potential path forward in this rapidly evolving area.
Our study sought to answer three questions:
- How much are agribusiness companies and VC firms currently investing in agtech and how do they anticipate their levels of investment changing in the near term?
- Which technologies are these organizations prioritizing for investment?
- Which investment strategy (such as internal development, acquisition, or partnership) is being deployed by agribusiness companies and what challenges have they encountered?