Lessons from the Frontlines of the Agtech Revolution

Lessons from the Frontlines of the Agtech Revolution

          
Article image

Lessons from the Frontlines of the Agtech Revolution

  • Add To Interests
  • SAVE CONTENT
  • PRINT
  • PDF

  • Related Articles

    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.

    exhibit

    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?

    ABOUT THE STUDY

    We surveyed more than 50 executives from leading agribusiness companies globally, which included most of the world's largest agribusiness companies. Respondents were primarily senior leaders—80% were C-suite executives, business unit leaders (such as presidents or general managers), or function leaders (such as heads of innovation or strategy). Companies in the sample were allocated roughly evenly among four agribusiness sectors: agricultural equipment, crop and animal-product processing, fertilizer and crop nutrients, as well as crop protection and seeds. We also surveyed investment professionals at 15 VC firms.

    The analysis of patent activity in the agtech area since 2010 was conducted by BCG’s Center of Excellence for Advanced Innovation Analytics using Thomson Innovation data.

    To inform this study, we augmented our experience working with agribusiness companies and developing winning agtech strategies by surveying a broad set of senior leaders at many of the world’s largest and most respected agribusiness companies. We also surveyed investment professionals at leading agtech-focused VC firms as a point of comparison. Additionally, we conducted a detailed analysis of agtech patent activity since 2010. (See “About the Study.”)

    In this report, we delve into our key findings in order to answer the questions above:

    • In 2015, the combined agtech investments of agribusiness companies and early-stage investments of VC firms totaled an estimated $20 billion to $25 billion. Most respondents expect investment levels in 2016 to match or exceed last year’s record.
    • Three-quarters of executives cited a technology that fosters data-enabled agriculture as a top investment priority. Building big data and analytics capabilities is the key focus for these executives.
    • Executives report that their company’s investment strategy is primarily defensive, evolutionary, and conducted in-house. Companies face a wide variety of obstacles to success, including a risk-averse culture, a lack of capabilities, and internal financial hurdles.

    The surge in agtech investment has brought the agriculture industry to the threshold of a new green revolution. The major sources of revenues are changing, and new profit pools are being created. To emerge as the winners in this shifting landscape, companies need to identify the most valuable technologies to pursue, given their capabilities. They must also think differently about their investment strategy and take a more rigorous approach to executing their selected strategy.

    To support companies in acting on these imperatives, we present data that helps executives understand the technologies that other players have prioritized. We also provide a framework that facilitates decision making on which technologies to invest in and how to win.

  • Add To Interests
  • SAVE CONTENT
  • PRINT
  • PDF