More money went into funding agricultural technology startups last year than the previous two combined, as battle lines were drawn between traditional Big Ag companies and some of the Silicon Valley venture capitalists looking to upend the multibillion-dollar industry.
Investors plowed more than $700 million into agricultural tech companies in 2017, according to research firm CB Insights, a big step up compared with the $332 million and $233 million invested in 2016 and 2015, respectively.
The spending splurge on startups using robotics or data science to make farming more efficient contrasts with the straitened financial situation in rural America.
Farm incomes have eroded since a commodity boom peaked in the early 2010s, leaving oversupply and low prices. According to the U.S. Department of Agriculture’s economic research service, the United States has now had three consecutive years of falling farm incomes.
In Broken Bow, Nebraska, Clay Govier’s relatively small arable farm of about 3,000 acres has seen revenues fall about 50 percent since corn prices began to crash in 2012. “With land prices and property taxes going up … it puts the squeeze on the little guy,” he explained. At the same time, input costs like seeds and fertilizer have stayed high, eating into Govier’s profits.
This is a situation that encourages investment that can improve the farmers’ lot and increase the efficiency of the industry, analysts say.
[Agricultural] retailers have fought tooth and nail to prevent online competition. It was already a small market and [it is] getting a lot smaller.
The significant late-stage capital increases suggest the ag tech sector is maturing, says Rob LeClerc, co-founder and chief executive of AgFunder, a specialist research company. He points to a $203 million series D fundraising round closed last month by Indigo Ag, a Boston company that wants to use microbes to improve plant health and crop yields.
But some startups are aiming more directly at making pricing for essential commodities such as seeds and fertilizers more transparent from the Big Ag industry.
Nearly one-quarter of 2017’s ag tech investments were made by corporations or their venture capital arms, including those of giants Monsanto and Syngenta, up 7 percentage points from 2016 — raising a question about whether Big Ag will be friend or foe to the industry’s disrupters.
One tech start-up, Farmers Business Network, which raised $110 million from investors including Google’s venture capital arm last year, says it wants to help farmers avoid being ripped off by manufacturers of chemical agricultural necessities, following a spate of consolidation that has prompted concerns of an emerging oligopoly.
The so-called “big six” agricultural chemical companies could soon be down to four, after the $142 billion merger of Dow Chemical and DuPont in September, Syngenta’s $44 billion acquisition by ChemChina, and a proposed merger of Bayer and Monsanto, which is subject to an EU antitrust probe.
Testifying before the U.S. Senate Judiciary in 2016, Tim Hassinger, Dow AgroScience’s chief executive, sought to reassure Washington that his company’s merger would “bring more competition to the market, not less.” DowDuPont plans to break into three companies.
An FBN study found wide pricing differences across the United States for seeds and chemicals like fertilizer, particularly in remote locations where farmers had few choices. Some farmers were paying three times more than other growers for the same product.
California-based FBN, founded in 2015 by Charles Baron, a former Google project manager, and Amol Deshpande, a former tech venture capitalist, pools data from its nearly 5,000 American and Canadian member farms and, for an annual fee of $600, analyzes the information to produce insights for farmers, from accurate pricing for chemicals to pointers about seeds and soil.
According to Baron, farmers have not had the benefit of internet pricing wars when it comes to buying seeds and chemicals. Although you can buy some agricultural products online, agricultural “retailers have fought tooth and nail to prevent online competition,” he says. “It was already a small market and [it is] getting a lot smaller. There’s naturally less choice and competition.”
FBN’s series D round was led by T. Rowe Price and Temasek, the Singapore wealth fund. Existing investors including Google’s venture capital arm GV, Kleiner Perkins and Acre Venture also invested in the latest round.
Big Ag is not waiting around to be disrupted. Bayer alone has invested $600 million to $700 million in the past 18 months in more speculative “moon shot” life sciences companies, including an ag tech project with Ginkgo Bioworks, a biotech company recently valued at over $1 billion, to create seeds pre-coated with a microbial fertilizer.
Monsanto Growth Ventures led a $30 million series C funding round for NewLeaf Symbiotics, a Missouri startup trying to use bacteria to help crops grow better. And last month, Syngenta Ventures led a $12 million series B funding round in Asilomar Bio, which uses chemistry to improve crop yields.
The Big Ag companies are also acquiring outright, as well as investing. In one of 2017’s biggest deals, Deere & Co., the Fortune 500 tractor maker, bought Blue River Technology, a Silicon Valley startup that uses machine learning to make agricultural spraying equipment more precise, for $305 million. DuPont spent $300 million to acquire Granular, a San Francisco–based company making computer software for farmers.
Ben Belldegrun, founder and managing partner at Pontifax Agriculture Technology Fund, forecasts that big companies looking to keep up with changing technology will continue to spend, likely making 2018 another strong year for ag tech fundraising.
“The interest in the sector is not going away,” he says. “The fundamentals demand innovation.”