Alexandra Health FOREWORD
2 Foreword
The Asia Food Challenge report Rabobank reflects a shared view within It is our shared responsibility and our three organisations that the interest to help accelerate the shift significant challenges facing to a more sustainable agri-food Asia’s agri-food industry create economy through climate-smart an outsized opportunity for ecosystems. With our strong innovation. Simply put, Asia is global network and growing a at a crossroads: huge growth in better world together mission, demand creates an attractive Rabobank strongly believes that opportunity for investment; but partnerships are an essential collective action is required to link in the innovation process in unlock this opportunity. solving Asia’s food challenges. In a nutshell, our shared ideals, shared PwC knowledge and ability to work Now is the time to take concrete together is key to creating a strong steps to address the major food sustainable agri-food chain. challenges we are facing; an issue that hits close to home Diane Boogaard and is central to PwC’s purpose Chief Executive Officer, to build trust in society and Asia, Rabobank solve important problems. Asia is poised to take advantage of Temasek this "perfect storm" although With the growth of the middle- investment currently lags income population in Asia, we behind other markets like the at Temasek see a corresponding United States and parts of demand for more safe, nutritious Europe. Greater collaboration and sustainable food sources. between governments, the We can put our capital to private sector, innovators, good use across the whole financial investors and academia agri-food value chain, from across the food and agriculture increasing farm yields, reducing industry can turn the tide, and the environmental impact of ignite this game-changing farming, to improving the safety, opportunity for all of Asia. traceability and nutritional value of food. Together we can do well, Ong Chao Choon do right and do good for our Deputy Chairman and Advisory current and future generations. Leader, PwC Singapore Robin Hu Head, Sustainability & Stewardship Group, Temasek International
3 Executive Summary
Asia’s food and agricultural industry will undergo significant change over the next decade in response to population growth and changing consumer requirements, coupled with the major challenges presented by climate change and environmental degradation.
For the purposes of this report, Asia is defined as China, India, Southeast Asia, Japan and Korea.
4 The Asia Food Challenge
These are real challenges that require urgent By 2030, 65% of the world’s middle-class 2 action and shared responsibility. Technology population will reside in Asia. will be essential in helping to solve this food These consumers will ask more of their food challenge, although this requires investment supply chains, seeking highly nutritious, fresh and collaboration across the food and and safe produce delivered conveniently and agricultural industry, including corporates, on demand. They will also pay a premium to start-ups, investors, academia and businesses able to deliver on this. government. While the requisite investment However, the agri-food industry is has not yet materialised, it represents a struggling to keep up. Current trends show large-scale opportunity for those able to that growing populations and urbanisation foster innovation successfully. Together, we have led to high wastage and poor quality can help to solve the Asian Food Challenge, as supply chains are stretched and broken. and ensure a healthy, sustainable future for Taken as a whole, Asia is unable to feed itself, all Asian citizens. relying on imports flowing through long Asia is experiencing far-reaching supply chains from the Americas, Europe and demographic change. By 2030, Asia’s Africa. Climate change and environmental population will be 250 million larger, the degradation will hit Asia hardest, impacting equivalent of another Indonesia. The available arable land, yields and farm output, growing population will increasingly reside in exacerbating these production challenges. megacities: Asia is urbanising faster than any other region and will house all of the world’s expected three 30 million+ cities by 2030.1
1 United Nations 2 Global Economic Development at Brookings: The Unprecedented Expansion of the Global Middle Class, https://www.brookings.edu/wp- content/uploads/2017/02/global_20170228_global-middle-class.pdf
5 EXECUTIVE SUMMARY
Limited Investment In Asia To Date
Lack of investment is a key barrier to There have been some major the uptake of new technology across Asian success stories, notably in the the food and agricultural ecosystem. downstream segment. China is a Investment comes from many sources; global leader in e-commerce, food principally corporates, but also investors, delivery and other consumer-facing governments and non-governmental platforms. Significant investment has bodies. All of these will play a key role, focused on these areas in response to often in collaboration, if the sector is to consumer demand for convenience. overcome the key challenges it faces. But the supporting food infrastructure A number of key factors have driven — allowing for just in time, consistent, this lack of investment. The food and high-quality production — has not agricultural industry is large, complex and received the same attention and could diverse, creating a challenging investment hold back the roll-out of consumer- environment but also significant facing innovations. opportunities for knowledgeable investors. The immaturity and pre- commercial nature of many technologies can mean longer timelines for investment returns. Furthermore, there is a range of specific challenges for Asia, including the diversity of countries, levels of economic development, regulatory systems, currencies and dietary preferences. Asian farms are also typically much smaller than their American or European counterparts, with lower capacity or capability for investment in technology. As a consequence, many innovations from other markets have proven less relevant in the Asian context.
6 7 EXECUTIVE SUMMARY
Ripe for Innovation
Asia will not solve its food challenge inputs, farms, processing, production, through a continuation of traditional distribution, retail and food service; all farming practices nor through linear critical and intertwined. modernisation. New technologies We estimate a cumulative will need to be deployed to increase investment requirement of US$800 yields, reduce the environmental billion above existing levels over the impact of farming, improve the safety, next 10 years. The majority of this traceability and nutritional value of (around US$550 billion) will help to food, reduce waste, shorten the supply satisfy demand for better-quality food chain and bring food to consumers (including safer, healthier and more in their increasingly urban settings. sustainable food). The remainder These technologies will reflect the (around US$250 billion) will drive diversity of the farming environments increased quantities of food to feed and populations they serve; some Asia’s growing population. high-tech and high-cost, others Overall, these numbers imply a involving better farm practices to raise total annual investment requirement standards, improve yields and reduce of US$290 billion in 2030 across Asia, waste as well as disintermediation a significant increase from the current to reduce price volatility. Innovation US$130 billion. This investment would must stretch across the whole food unlock market growth of around 7% and agriculture supply chain — per year, with the region more than doubling its total spending on food to over US$8 trillion by 2030. The scale of this transformation represents a significant commercial opportunity for investors, given the broad requirement for development and adoption of new technologies. The economic prize for the innovators who are able to meet the food requirements of 45% of the world’s population in 20303 should serve as a powerful motivator for increased activity in the space.4
3 World Bank (this refers to China, India, Southeast Asia, Japan and Korea) 4 World Bank, IMF, OECD-FAO, USDA, Capital IQ, PwC analysis
8 Unlocking the Opportunity
The magnitude of this opportunity Government-coordinated will draw interest from investors ecosystems and the development and corporates; but a concerted of regional agri-food tech hubs are effort will be needed to fully critical catalysts for investment and unlock the investment potential. innovation. By creating space for This will include greater innovation, encouraging public- collaboration between corporates, private sector interaction and investors and academia; the drawing in entrepreneurs, such establishment of corporate hubs will play an outsized role in venture capital teams and driving investment and innovation incubators; greater acceptance in the region. of new technologies and food We have identified many of the products by large corporates; characteristics that make these and greater support from global hubs successful; applying governments, including coherent these to the Asian context provides legislation and supportive examples of cities that we believe policies to foster technology have the potential to be Asian development and support agri-food tech hubs. These include investors. The key underlying Bangalore, Beijing, Hong Kong, theme is greater collaboration Mumbai, Shanghai, Shenzhen, and shared responsibility. Singapore and Tokyo. We believe The agri-food sector presents these cities can drive development, many characteristics that make it funding and collaboration across attractive for investment. Food is the food and agricultural sector. a necessity, demand growth will They have the potential to become be strong, changing demand will global agri-food powerhouses, drive complexity, and regulatory exporting technology and barriers are high, whilst climate knowledge across Asia to improve change will drive an urgency to food production and ensure a adapt. Disruption potential is healthy, sustainable future. therefore significant. While we expect this innovation and investment to be predominantly driven by the private sector, government will also have a crucial role in developing a suitable ecosystem for growth.
9 THE CHALLENGE
Rising Demand
Asia will more than double its total spend on food over the next decade, from US$4 trillion in 2019 to over US$8 trillion by 2030.5
5 World Bank, IMF, OECD-FAO, USDA, Capital IQ, PwC analysis
10 11 THE CHALLENGE
Considerable population growth, people look for healthier, more nutritious combined with changing food and tastier food options. In common with requirements, will create significant the global trend, a burgeoning interest in challenges for the food supply chain in health and where food is sourced ensures its current form. producers have to be transparent about By 2030, Asian consumers will be farming husbandry and processes — while wealthier than ever before, spending continuing to offer value for money. more than twice as much on food as By 2030, while the silver population today. Consumer preferences and (especially in Japan and China) will be requirements will continue to change, significant, the average age of Asia will with a greater demand for higher-quality still be very young. Asia will account for and more nutritious food. Consumers will around 56% of the world’s population of want to know where their food comes 15–24-year-olds. India will be home to one from, and will want greater confidence in of the youngest populations in the world its safety. However, Asia is also diverse, with an average age of 28.7 with large populations at each end of the Having grown up in a world where the economic development spectrum. For environment, sustainable development many people, just having access to safe, and conscious consumption is affordable food will still be imperative. valued, Asia’s consumers will demand With rising incomes, food consumption transparency. They will look to purchase is rapidly shifting from being food which is nutritious, and also leaves carbohydrate-reliant to protein-heavy as minimal impact on the environment.
Within Asia-Pacific, Millennials and Generation Z account for
of the population; and will continue to have a strong influence on Asian consumers’ behaviour.6
6 Millennials defined as generation born in 1980–1994; and Generation Z born in 1995–2010, % calculated based on United Nations population data 7 United Nations World Population Prospects
12 13 THE CHALLENGE
By 2030, Asia will represent
65%of the global middle-class population.8
Rapidly increasing urbanisation for taste, traceability, value, and quality presents a further challenge for the sector. — all at the same time. By 2030, Asia will be home to an additional The trust level of Asian consumers 250 million people. The UN expects there about the quality and safety of to be three cities in Asia with a population domestic agricultural products remains of over 30 million and 17 of the largest low. Asian farmers currently focus 25 global cities will be in the region. This almost exclusively on crop volumes, will further stretch supply chains and instead of consumer need; as they are exacerbate the challenge of getting food to disconnected from the consumers and the consumer.9 therefore are not able to understand For food producers, this is a challenge their requirements. on an enormous scale. China alone For both consumers and governments, accounts for more than 26% of the global nutrition is an increasing focus. Asia is requirement for protein.10 The current home to half of the world’s overweight overall food spend in Asia of US$4 trillion children under five years11 and yet at is expected to more than double over the the same time, the Asia-Pacific region next decade. As a result, dramatic shifts contains more than half of the world’s in both the shape and composition of the malnourished children.12 Dietary Asian food basket will occur. conditions are risk factors for diseases Farmers and producers will find it such as diabetes, which affects over 100 difficult to address this demand. The million people in China13, creating future challenge is not only in meeting the public health problems across Asia. While required quantity, but also the demand this is an increasing focus for consumers,
8 Global Economic Development at Brookings: The Unprecedented Expansion of the Global Middle Class, https://www.brookings.edu/wp-content/uploads/2017/02/global_20170228_global-middle-class.pdf 9 United Nations 10 Organisation for Economic Co-operation and Development; Food and Agriculture Organisation of the United Nations 11 The Asia Pacific Infant and Young Child Nutrition Association 12 Food and Agriculture Organisation of the United Nations 13 Asian Development Bank
14 PwC survey — what do you believe will be the biggest challenge facing the Asian agri-food sector over the next decade?
Climate change/ environmental Farmer education/ degradation farming practices Lack of infrastructure/ Access to government support finance Labour Water Other shortages shortages
9% 13% 19% 26% 10% 9% 14% Source: PwC Asian agri-food survey 2019
governments are also beginning to reduce the country’s meat "One of the fundamental to understand the benefits of consumption for health as well a balanced diet in combating as environmental reasons. developments in Asia will poor health, which in turn leads Asian consumers are be a booming middle- to low productivity and higher amid a social, economic class population who medical costs. and demographic transition will increasingly demand which is impacting their Asia is further challenged more premium products." by the diversity within the food choices. The digitally region. It is not possible to connected consumer has dictate the same dietary resulted in a shrinking world. – Founding Partner, Hosen Capital prescriptions, which are Trends initiated in one part dependent on each country, of the world are quickly each locale and individual spreading and influencing conditions. Governments habits elsewhere. The young, need to build education and aspirational Asian consumer awareness of public health is constantly changing their and nutrition. Certainly, preferences. This accelerated people in some countries pace of change in consumer need to increase their intake behaviour is resulting of animal-sourced food while in a complex operating others need to reduce protein environment; with its impact intake. For example, the being felt across the food Chinese government is trying supply chain.
15 THE CHALLENGE
Fragmented Supply Chain and High Waste
By 2030 Asia will be the biggest policies. In the midstream and global generator of food waste, downstream, food losses come contributing around 500 million from inefficient traditional tonnes a year.14 industries and processing, and Globally, about 30% of poor infrastructure for storage all food that is produced is and distribution. Even more wasted. It is a stark statistic so, wastage is a consumer that food waste is responsible problem, partly as a result of for over US$1 trillion in world growing wealth, but also economic losses every year.15 due to overindulgence and Most food waste ends up in poor awareness. landfills or incinerators, where Food waste and loss, and it produces methane — one food safety issues in Asia of the largest contributors to also suffer from weaker climate change. The increase integration between farming, of urbanisation and a long and processing and logistics. fragmented supply chain adds Fragmentation in livestock to the generation of waste — farming, for example, exacerbating this problem. typically requires third-party From the upstream, waste consolidators to increase is in the form of water losses scale in processing; but often through leaky irrigation, increases price volatility ineffective application of farm given the perishable nature inputs, poor pest and disease of livestock products; while control on crops and animal individual farmers lack losses, low feed conversion bargaining power. Improving ratios in livestock farming, price visibility would reduce and distorted production food overproduction, while level due to asymmetric increasing cold storage information and government capacities would provide
14 The World Bank 15 Global Panel on Agriculture and Food Systems for Nutrition; Food and Agriculture Organisation of the United Nations
16 17 THE CHALLENGE
18 "Before we focus on buffers in both oversupply and of fresh food e-commerce, undersupply situations. more cold chain capacity is producing more food, we We believe the push to required for both agriculture should be finding methods address carbon footprint, and fresh products. While big to save food waste. This sustainability, soil, water/air companies are expanding and requires new technologies contamination and waste will building sophisticated cold that can be deployed at a become mainstream. This is chain storage and logistics, not only to mitigate climate simple cold chain is needed for cost lower than the value of change; but will also help in smallholder farmers. Cold chain the waste." competitive positioning to effectively extends the cycle of consumers. Those food brands the agricultural product market. – Vice President, HNA Cold Chain which declare and reduce their It also helps to regulate supply carbon, water and land footprint and demand relationships, and will stand out. extends the industrial chain of We believe the solution agricultural products, increasing lies in a stronger focus on the income of farmers and innovation and improving reducing losses along the entire operational efficiency across supply chain. the supply chain. In developed countries, the Significant food loss and rate of post-harvest rot and fruit waste in the past has also been and vegetable waste is 5–10% as a result of Asia’s lower cold while in China it is 30–50%; and in chain capacity. With the boom India 30–40%.16
16 United Nations Development Programme
19 THE CHALLENGE
Asia’s Food Supply Cannot Cope
Even today, Asia cannot water-intensive high value- feed itself. Net imports of add crops like fruit and food have tripled since the vegetables is expected to turn of the century, and are exacerbate this challenge. now standing at around 220 In China, groundwater from million tonnes a year.17 86% of monitoring points and Some 486 million people in shallow groundwater from Asia are still undernourished. 76% of monitoring wells was Climate-related disasters will characterised as poor or very By 2030, with exacerbate this situation, poor in 2018.20 further impacting food security only one-fifth of and the access to quality, the world’s nutritious food. By 2030, natural resources agricultural land, will become even more scarce Asia will be home than they are now. Even today to almost half of the over 250 million Asians do not consistently have access to 17 global population. safe drinking water.18 Both land and water issues continue to hamstring Asia. While the agricultural sector still withdraws 70% of all global freshwater, population increases will exert growing pressure on water resources.19 Agriculture and industrialisation have resulted in more than 50% of India’s groundwater becoming too contaminated to use. A growing shift towards
17 Food and Agriculture Organisation of the United Nations 18 United Nations Centre for Regional Development 19 The World Bank 20 Report on the State of Ecology & Environment in China 2018
20 Arable land per capita, regional comparison
US Brazil India Southeast China Asia
Arable land (hectare/1,000 people) World average
Source: Food and Agriculture Organisation of the United Nations (2017)
Competition for water In Asia, farming practices Production from dwindling access will be only one of the are yet to transform from agricultural lands will be further challenges the region has to extensive agriculture towards hampered by this ageing face. Add to that disparate modern agriculture with working population, unable to economic development and new technologies and up-to- keep up with demand. poor wealth distribution which date farming practices. It is will continue to remain a important that supply chain challenge in improving farming fragmentation is addressed in practices in Asia. These result relation to food security. in poor pricing, poor yields and In most cases, fragmentation food safety issues. in farm sizes, coupled with In addition to inadequate urbanisation and the younger water (both quantity and generation’s unwillingness to quality), food production will be remain in the sector have led limited by fragmented arable the average age of farmers to land, inadequate resource increase and to succession management, low farm yields, problems. Older farmers increasing labour costs and are less likely to adopt new insufficient infrastructure. technologies or farm practices.
21 THE CHALLENGE
Yield comparison by geography
Corn
4.41 tonnes/ha. 10.56 tonnes/ha. 5.58 tonnes/ha.
Rice
4.97 tonnes/ha. 8.48 tonnes/ha. 6.25 tonnes/ha.
Soybeans
1.39 tonnes/ha. 3.22 tonnes/ha. 3.33 tonnes/ha.
Wheat
Asia 3.39 tonnes/ha. US 3.47 Brazil tonnes/ha. *Note: Asia includes Middle East 2.59 and Central Asia tonnes/ha. Sources: USDA (2019)
22 "Yield gaps in Asia are still significant in many important food crops… It is crucial that we develop and deploy packages of cost-effective technologies to increase the productivity of Asia's smallholders if we are to meet the anticipated increases in food demand."
– Dr Paul Teng, Nanyang Technological University
Indian agriculture is dominated by The implementation of new small farmers, who account for technologies in agriculture is of key importance in helping to increase the supply of food. However, this needs sizeable financial investment and know-how. Improved access to finance and markets are important for greater transparency and fair prices, although this is a barrier for many small farmers. A better appropriation of margins and prices will also encourage production that better reflects the demand and of the country's total farm landholdings. supply gap and provides a basis for This has a direct impact on crop productivity, more resilient agriculture systems. 86% Even as Asia ramps up its agri-food with India lagging significantly behind other sector to feed this growing demand, countries in the yield per hectare of most crops. sustainable agriculture practices, including restoring nature and regenerative agriculture, are yet to be widely recognised and practised. Unless acted upon, future supply will be further impacted by the continuing depletion of land and water.
23 THE CHALLENGE
Trials of Nature
Globally the food and agriculture industry has faced challenges over the last decade including price volatility and over/ undersupply issues. By 2030, these challenges will be exacerbated by climate change, as highlighted in many recent environmental reports from the likes of the IPCC, World Meteorological Organization, and the UN. Climate change and its impacts are accelerating, while extreme climatic conditions will become more frequent. There is an urgency to act now.
24 More extreme weather to cope with these demands events will cause falls in without social support. crop production and change Asia’s economies, planting structures. The particularly in the food and warming climate will also agriculture sectors, will face exacerbate the damage more uncertainty as a result of caused by disease and pests. geopolitics and trade tensions. Desertification and salinisation More competition will become are already a growing problem the norm and the urgency to in many parts of Asia. By 2030, be more cost-competitive will the amount of arable land per require a fundamental shift in person in Asia is expected to the way that food is produced fall by 5%. Climate change and consumed. policies and regulations will tighten with the adoption of international norms and as Asian governments start implementing regulations to adhere to the commitments of the Paris Agreement. The sustainability agenda from the West is exerting pressure on farming practices, but economic, regulatory and social development differs across Asia. The less developed countries are yet to be able
"We must produce food that is abundant, affordable, healthy, safe and nutritious — without degrading natural resources, reducing biodiversity or adding to climate change. That’s a pretty tall order."
– Lead Climate Change Specialist, World Bank
25 NEW TECHNOLOGIES
From Challenge To Solution
The yield gap in Asia is substantial. Productivity improvement opportunities exist in all countries. However, Asia’s diverse farming community presents added challenges, with no universally applicable ways to close the food deficit and nutrition gaps.
26 27 NEW TECHNOLOGIES
Low productive agricultural to adopt the best practices systems in resource- used in horticulture and constrained countries in many vertical farming. Within parts of Asia have limited this infrastructure, higher critical mass, and limited technology intensity per knowledge and financial hectare should aim to control means to change their formerly uncontrollable traditional farming practices. factors to push production Moreover, physical and boundaries, while at the legal infrastructure hampers same time decreasing the the development of farm environmental footprint. consolidation which is For example, a focus on prevalent in many mature soil conditioning through agricultural markets, such bacteria cultures can alter as the US and Australia. As microbiological ecosystems a result, there is a need to and soil structure to enhance develop farming innovations both the root development customised towards the and nutrient uptake. sizeable smallholder base; It is clear that a wide- as well as to embed these reaching transformation of smallholders in a stimulating the food supply chain will agricultural environment. need to happen to meet Standardised productivity- these challenges, with enhancing tools which are technological innovation at not technologically advanced its heart. Fortunately, a and are easy to apply powerful ecosystem of would allow smallholders innovation is beginning to to improve their farming develop in Asia — involving practices. Offering the same a mix of both low-cost and packages of seed, fertiliser, higher-cost solutions at pest-monitoring equipment every stage of the value and application equipment, chain. In many cases, these such as drip irrigation, coupled technologies are already quite with easy-to-follow farming mature — with the remaining recommendations through challenge in Asia being one of IoT services would help these deployment and distribution. farmers increase productivity. It is true that the breadth of Other parts of Asia, like innovation has, to an extent, Singapore and many large been a drag on investment Chinese cities, must rely on — making the challenge of breakthrough technologies assessing the most promising that enable crop farming areas more difficult.
28 Nevertheless, if investors requires innovative solutions are able to select and and investments throughout commercialise the most the entire value chain, from favourable technologies, the upstream high-tech inputs to impacts will be significant. sustainable protein, modern Despite the breadth of aquaculture and controlled innovation, there are environment farming in the technologies which will have a midstream, through to particularly significant impact efficient marketplaces, on the sector. digital adoption and greater One such technology traceability in the downstream. is digital platforms, which can connect all those along the food and agriculture supply chain. By 2030, new technologies such as artificial intelligence and blockchain will help make food supply chains more traceable, nimble, secure and sustainable. To achieve more efficient access to high-quality food, producers will need to seek new partnerships and new financing solutions. To do this, there needs to be connectivity among farmers and between farmers and consumers. The application of new technologies should also be adopted throughout the supply chain to predict end demand (big data-driven through cloud computing) to reduce cost, increase efficiency, manage inventory, and reduce waste. This includes participation in e-commerce platforms. The growing demand for food across the region coupled with dwindling farming land
29 NEW TECHNOLOGIES
High-tech Inputs
One of the largest opportunities is to to ensure crops remain resilient to changing get higher-quality inputs into the hands and extreme weather patterns, and further of smallholder farmers across Asia — environmental degradation. including seeds, fertilisers and pesticides. For example, the “scuba rice” developed Whilst the “Green Revolution” occurred in by the International Rice Research Institute Asia many decades ago, crop yield growth (IRRI) has generated exceptional interest. has declined over the last decade and the Rice is particularly vulnerable to flooding penetration of modern inputs across the at the wrong time of year — an eventuality region remains mixed. made more likely by climate change. “Scuba Application of agricultural inputs rice” can withstand floodwaters for two constitutes an area that can most easily weeks — and will help protect the security of be enhanced, facilitating the quickest approximately 49 million acres of rice fields improvements in farmer yields, and in Asia that are susceptible to flooding. accelerating additional investment in The cost of developing such inputs technologies such as mechanisation and technologies makes it the preserve and irrigation systems. Asia is also ripe of large corporates with significant for precision agriculture. The spectre of budgets. Nevertheless, it is clear that the climate change increases the urgency of industry is still struggling to adopt as fast this adoption — with the additional need as would be required.
"Smallholder farmers produce
of the food we consume in Asia — it is critical that we involve them 80%in the technology revolution by giving them access to higher- quality inputs. Achieving this will require close collaboration between like-minded partners across the food ecosystem."
– President, Asia-Pacific, Corteva
30 It is commonly cited that Asian farmers are price-sensitive and reluctant to invest in higher-quality inputs, with a persistent practice of choosing the cheapest products. However, many seed and feed companies have characterised the challenge more as one of distribution and training. Asian smallholders are willing to invest in higher-quality inputs, although the benefits of these need to be clearly explained and demonstrated to farmers. This problem may be best solved by building more transparent distribution networks. This potential may increase further as new types of GM (genetically modified) seeds are developed and gene-editing technologies become more mature. However, the industry will need to be flexible in countries such as Japan, South Korea, India and China where GM crops are generally not accepted.
31 NEW TECHNOLOGIES
Sustainable Protein
Meat consumption — though Increased productivity plateauing in developed (through genetic markets — will continue to improvements, better grow in most of Asia. Asia’s farming practices, better feed meat consumption — on a per conversion, improvement capita basis less than half that in gene pool, feed formula of Europe21 — is due to expand optimisation, and water over the next decade; reaching recycling) will need to be 176 million metric tonnes balanced with biosecurity by 2030. This prospect will and animal welfare to offer "The industry is automatically also raise animal sustainable solutions. This searching for alternative feed demand, impacting the requires the application of proteins because global supply chain for feed new technologies (such as grains and oilseeds. Asia’s biotechnology, land-based increasing meat capacity constraints to meet recirculating aquaculture production will not demand for meat will likely systems, robotics, IoT and be able to satisfy the increase the supply gap to AI). With more requirements, protein needs of the 16.9 million tonnes from 14.5 securing additional premises Asian population million tonnes today. for expansion will also become Yet, the animal protein increasingly difficult, in view going forward." and dairy supply chains still of the necessary requirements risk being challenged (both in and resource constraints. – Senior Director, Food and the short and long term) by This shift will require higher Consumer, A*STAR disease outbreaks, regulatory capital outlay, limiting changes, consumer trends, smallholders’ participation. and climate change; as well as Healthy livestock is essential technological advancement in in improving access to food. farming and processing. Cases of microbial resistance We expect faster structural in humans have put this change towards modern issue to the forefront of the livestock farming, driven by regulatory clampdown on demand for safe and nutritious antimicrobial use in Asia’s protein products from Asia’s livestock farming. Asia’s growing urban middle-income fragmented and long supply population. Limited resources chains in livestock farming will require increased scale and processing create high and productivity that only cost in animal protein/dairy modern farms can provide. For products — with a high margin example, the feed conversion for error in food safety — and ratio of sow-to-finished hog waste. Consolidation towards farming averages 3.0 across larger-scale farm (e.g. through 21 Organisation for Economic Co-operation China; while world best smallholder cooperatives) and Development; Food and Agriculture Organisation of the United Nations practice is 2.4. will help integration towards
32 processing and retailing needed to improve farm challenges around formulations, for better pricing visibility. practices, and to cope with including allergenic properties Better infrastructure would challenges. New technologies and an unappealing taste, have encourage disintermediation. would need to be developed historically hindered their uptake. The application of new to balance price stability (i.e. The development of technologies should also be returns) and farm productivity/ appealing alternatives to meat- adopted throughout the supply yield losses. This is necessary based protein is a significant chain to predict end demand for the livestock industry to opportunity for investors. Most (big data-driven through cloud maintain the SLO. publicised have been plant-based computing) to reduce cost, Midstream/food processing meats. Foods such as these use increase efficiency, manage industries, which include staples natural ingredients to imitate inventory, and reduce waste. like protein and dairy, are likely the experience of the authentic This includes participation in to witness speedy integration products. While meat imitations digital platforms. and expansion both vertically have existed in Asia for a long time, By 2030, media-savvy Asian and horizontally. Persistent Western-style plant-based burgers consumers will be well aware concerns around food safety, can still find some market share, of issues associated with environmental safeguards, and along with Western dietary trends. sustainability, animal welfare, quality are pushing the protein Insect-based proteins can transparency, and livestock and dairy sectors towards full also contribute to increasing the farming, and their impact on the traceability in the food chain. energy efficiency and sustainability environment. For Asian animal While it is necessary for of animal-based demand. For protein producers, there will be animal protein production example, aquafeed ingredients increased reputational risk over capacity to expand, there is developed using insects will have the next decade if they ignore also a need to diversify protein a fundamental role to play in these issues. To some extent, sources to include plant- delivering the full sustainability Asian consumers are likely to and cellular-based protein. potential of Asian aquaculture — adopt alternative protein (driven Alternative protein, in both avoiding shifting the problem to by food safety, and health and feed (i.e. insect-based) and the over-exploitation of wild stocks wellness motivations, and less food (i.e. plant- and cellular- for fish meal. so sustainability and animal based), will also continue to welfare reasons). be developed. Plant-based or Some of the means and cellular-based meat is likely efforts to maintain the social to grow faster than the overall license to operate (SLO) protein market given its low may work against a higher base and will gain consumer productivity of livestock acceptance, but will continue farming. Regulatory frameworks to remain niche across Asia. across different territories also The rationale for alternative have different approaches; protein lies in sidestepping many adding confusion in definitions of the inefficiencies of converting for consumers. Constant feed into meat and dairy, as monitoring, as well as consumer well as to achieve lower carbon and farmer education, are footprint. However, technical
33 NEW TECHNOLOGIES
Modern Aquaculture
Whilst Asia leads the world in the scale of its aquaculture industry (contributing 90% of all global employment and production),22 it still lags behind countries such as Norway in both the efficiency and sustainability of its production. Seafood, and in particular controlled fish-farming (aquaculture), has an important role to play in meeting Asia’s growing protein demand. Asia’s fish farms are highly fragmented and largely still follow very traditional farming practices, with survival rates as low as 20%.
22 Food and Agriculture Organisation of the United Nations
34 "Algae presents a big opportunity in alternative fish feed. We are already seeing companies such as Cargill, Calysta and Nutreco making strategic investments in companies developing feed ingredients based on algae or bacteria."
– Product Manager, INVE Aquaculture
Innovation in this area is As impressive as on a number of levels of both aquaculture innovations cost and sophistication. One are, they are still open to is the development of large, the accusation that they high-technology offshore are pushing the issue of farms that are comparable to sustainability up the supply the models already existing chain, via the over-exploitation in Norway. These use the of wild fish stocks for fish feed. latest innovations in feeding, Fortunately, an ecosystem environment control, and of start-ups is emerging that treatment, producing annual specifically addresses this outputs of up to 5,000 tonnes. problem, developing aquafeed Nevertheless, such ingredients from more energy- farms are incredibly capital- efficient and environmental intensive and require sources such as insects and significant investment. This is algae. Whilst there are dietary exacerbated by the lack of a limits on the inclusion of mature-solutions industry in such alternative ingredients, the region. High-tech farms, it is clear that they have a whilst important, cannot meet fundamental role to play in the requirements of Asia alone. delivering the full potential of Other models are needed — Asian aquaculture. including medium- and lower- tech solutions that provide a great deal of the benefits of offshore systems at a fraction of the price. For example, low-cost IoT-enabled fish feeding systems are gaining impressive traction in parts of Southeast Asia, improving the productivity and yields of small-scale fish farms.
35 NEW TECHNOLOGIES
Controlled Environment Farming
"Looking ahead, Another farming sector which Asia is already home to over is creating completely novel 500 plant factories with Japan vertical farms are likely systems is indoor farming. This contributing over 200.23 The to be present in every moves production completely largest, such as SPREAD just major city in Asia. The away from the field, and into outside Kyoto, produce over a the greenhouse, warehouse or tonne of fresh vegetables a day. economics will drive tower block. Indoor farming This trend is spreading to the size of the farm, offers higher yields per hectare, other countries, with Singapore via the careful manipulation of hosting an increasing number whether large-scale, environmental factors and the of sophisticated farms. A or as a series of de- capacity for stable, year-round Singapore-based vertical clustered farms that are production — detached from farming business is currently sunlight hours and volatile building the largest farm in close to the retailer or weather conditions. For import- Singapore to date, covering an point of consumption." dependent countries with a lack area of 18,000 square metres. of arable land this will make an Singapore has also launched important contribution to food its own national organic – Director, VertiVegies security. This is complemented standard for vegetables and Agrimax Ventures by a number of sustainability grown in urban environments, benefits — shorter intra-urban regulating the quality of supply chains reduce emissions produce and increasing its and wastage (especially when appeal to consumers. there will be more megacities Indoor farming employs a across Asia), whilst soil-free range of methods at different methods can use 70–95% less levels, from relatively lower-tech water than outdoor farming. greenhouses to high-tech plant
The scale of the opportunity for urban plant factories in Asia is significant, with the region projected to have 27 megacities with over
people each by 2030.24
23 Newbean Capital/Singapore Farming 24 United Nations World Urbanisation Prospects
36 factories and container farms. the model can already be Plant factories have naturally profitable, whilst innovation attracted the most attention in areas such as lighting and — given their use of highly solar energy can be expected sophisticated technologies and to continue to drive down intense vertical use of space to operating costs. produce impressive yields. This Plant factories are already can be up to a 400-fold increase producing leafy greens at a cost over traditional methods.25 below premium outdoor-grown "Growing fresh, 26 However, challenges organic products. Some are high-quality remain, such as the highly already expanding into crops capital-intensive nature of such as radishes, turnips and produce closer plant factories and profitability. beetroot. Indoor farming may to the point of In Japan, only around 30% of not be the “magic bullet” for the consumption will plant factories are currently food requirements of Asia, but achieving profitability. Of those it is clear that it will remain an play a significant that are profitable, payback exciting area of innovation and role in Asian an important contributor over can be as long as 10 years — a agriculture in difficult sell for investors used the coming decade. to larger and quicker returns. Lower-technology the future, whilst This is primarily driven by the greenhouse practices and helping to place complexity of the technology management will also involved. Whilst the current cost bring about significant the region at of LED lighting has received improvements in quality the forefront a lot of attention, other pain and quantity for the cities of agricultural points remain — including that they will serve at a more ventilation, air conditioning and accessible cost. China is the innovation." the requirement for manual world’s biggest greenhouse pollination in an insect-free user but most are basic, like – CEO, Bowery Farming environment. This has been plastic tunnels or mulch, compounded by the lack of a which create microplastic mature supplier industry and problems in food. This can be costly requirements for custom compared with horticulture technology from each farm. in the Netherlands, where Many high-profile investors glass greenhouses utilise are however taking the view sophisticated technologies that indoor farming has an such as climate computers, important contribution to irrigation systems, heating and play in overcoming Asia’s food ventilation systems. challenge. The most successful indoor farms have proven 25 Aerofarms 26 Bowery Farming
37 NEW TECHNOLOGIES
Efficient Marketplaces, Digital Adoption and Greater Traceability
It is becoming increasingly apparent Platforms also offer a powerful way to that deploying effective technologies improve the traceability of food, which is available to improve farm production will particularly important given food safety require changes to the structure of the issues in countries such as China. Several supply chain. The supply chain in Asia is supermarkets in China have recently particularly opaque, long and fragmented. launched blockchain platforms that allow The lack of visibility also works in the other consumers to scan QR codes on product direction — with smallholders having a packaging, receiving detailed information limited awareness of alternatives. To be including the source farm, journey along effective across Asia, technologies need to the supply chain and information about be precise, and farmers need to be aware product inspections. This should drive an of risks and returns so that they can adopt increased consumer willingness to pay for innovations. A more transparent supply healthier and more sustainable products, chain will also enable sustainability and by providing data to substantiate the externalities to be priced appropriately. necessary product claims. There are also Technology-driven platforms can help good examples of initiatives in India which to connect participants along the food are focusing on grading and traceability of and agriculture supply chain. Platforms agricultural produce. will have the opportunity to both facilitate Furthermore, the data collected by such this transformation and disrupt existing platforms has a number of highly valuable models. A range of “marketplaces” are uses. Farmers, with the help of these being developed across Asia to meet these platforms or vendors, are able to compare challenges — connecting parts of the their crop performance with benchmarks supply chain, facilitating the exchange of of other farmers in their area and beyond, data and transactions between parties on whilst being able to exchange expertise an integrated digital platform. These have on inputs and farming methods. From a a number of benefits. They also reduce the buyers’ perspective, visibility of the supply need for intermediaries, allowing a better chain allows for identification of issues deal for farmers, processors and retailers. in a way that was never possible before, In turn, this should provide more capital allowing for targeted intervention in areas for farmers to invest in new technologies to such as food wastage. What is perhaps improve yields. Many of these platforms are most powerful is how the data collected on naturally found in countries such as India, farmers can potentially be used to facilitate China and Indonesia, where farmers are access to micro-finance at significantly least connected and engaged with the rest lower loan rates or for input payments. of the supply chain. Many make use of the A number of players are developing increasing penetration of mobile phones, their own platforms, including trading digitisation, drones and satellite maps to houses, processors and retailers. It remains grow their platforms quickly. to be seen how the new ecosystem of
38 platforms will collaborate, compete or consolidate — although the net effect should still be a simpler and more efficient value chain. Competing views on how aggressively blockchain technologies should be pursued still abound. Nevertheless, such platforms have enormous potential and delivering them effectively will be fundamental to meeting Asia’s food requirements. This will require continued collaboration between all stakeholders in the value chain, as well as telecommunications and finance partners.
"Mobile platforms enable smallholders to receive information and crop- specific advice to improve productivity and become more resilient to extreme weather and pests. These farmers become more interesting to buyers offering higher prices, input providers supplying greater quality and financial players providing lower rates."
– Founder and CEO, Impact Terra
39 A HUGE INVESTMENT REQUIREMENT
Ready for Consolidation
Asia’s long and fragmented supply chain is ready for consolidation. The region’s agricultural and food industries will have to revolutionise to increase production and facilitate income growth for farmers.
40 41 A HUGE INVESTMENT REQUIREMENT
42 In addition, Asia will have to While this is a call to action, plug in to the global supply it is also an opportunity. Huge chain to secure the technology demand growth will present and capabilities to upgrade significant opportunities farm practices and production for Asian food corporates. — and to address climate Adopting a technology-led change and sustainability. Asia approach will also enable also need to develop its own them not just to catch up with innovation and know-how. their American and European However, these counterparts, but leapfrog to developments are expensive be world leaders in their field. and require significant investment, far beyond existing levels. If this does not materialise, Asia faces a difficult future of poor nutrition, continued environmental degradation, and an even greater dependence on foreign food producers and imports.
43 A HUGE INVESTMENT REQUIREMENT
A Sector-wide Opportunity
Investment comes from various "The complexities of sources, including corporates, investors, our industry can make it government and non-governmental bodies. While all of these are critical for challenging to pursue a the development of the industry, we are structured and tailored focusing principally on corporates as the innovation programme on a largest contributor, and investors, which are heavily involved in the development proprietary basis." of new exciting technologies. We acknowledge that other types of – CEO, South and Southeast Asia, investors also play an essential role and Louis Dreyfus Company cannot be ignored.
Corporate R&D and Capex spend as a % of revenue, 2012–18 average
Telecom services Consumer discretionary 16% 11% IT Healthcare Materials 16% 15% 10% Utilities Energy 14% 10% Financials 10% Industrials 8% Consumer staples 5% Agri-food 5%
Capex R&D Sources: PwC, CapitalQ
44 Deals investment in agri-food tech by geography 2018 Implied investment per capita (US$)
US Israel 24.1 19.8 China 2.5
India 1.8
Sources: Agfunder, IMF, PwC analysis
Some players within accelerators given the the agri-food industry are relative immaturity and conservative by necessity. pre-commercial nature of This is partly a function many technology developers of operating in a highly in the agri-food sector. The competitive industry, often development of corporate with low margins, but also venture teams will also driven by the short-term help to drive investment shareholder requirements in innovation, although that all corporations face. many Asian corporates have "We need to continue Major corporates within been slower to establish to see the likes of the agri-food sector will these compared with many play a significant role of their American and Cargill adopting high- given their scale and as an European counterparts. technology inputs integral stakeholder across So far, M&A investments the agriculture and food in agri-food tech businesses and Nestlé using supply chain. This is likely in Asia have lagged behind sugar substitutes and to include the adoption of other regions, particularly new technologies, and also when compared with the alternative proteins the acceptance of innovative population and overall in their products." ingredients within traditional food requirement. food products. – Investor, Openspace Ventures Private equity will also play a major role, as well as venture capital and
45 A HUGE INVESTMENT REQUIREMENT
Challenges to Overcome
PwC survey — what do you think is the most important factor holding back greater investment in the agri-food sector in Asia?
Other Investors are still building 2% their understanding of sector
Scale of required investment is too great 19% 8% Time to generate Regulation is not fit for purpose returns is too long 11% 17%
Insufficient government incentives Shorter-term considerations are 12% too pressing (e.g. profitability/returns over Investment risk is too high next 1–2 years) 15% 16%
Source: PwC Asian agri-food survey 2019
46 PwC survey — what is the main reason Asia does not constitute the most attractive expansion/investment region for your organisation?
19% The complexity/diversity of Asia raises challenges
14% Asia is too distant from our core operations
11% Localising our product/service will be more difficult
11% Regulations are less attractive
10% Cultural and language barriers
9% Supplier relationships will be more difficult to build 5% Some of these factors are Government incentives are less attractive consistent across global 5% Local competition will constitute more of a threat regions. The agri-food industry is large, complex 16% Other and diverse, creating a challenging investment Source: PwC Asian agri-food survey 2019 environment. The immaturity and pre-commercial nature of many technologies can Average farm size in selected countries (ha) be a disincentive for many US UK France Brazil Thailand India Japan China investors looking to make traditional private equity or VC returns. Asia has a range of specific challenges, including the diversity of countries, levels of economic development, regulatory systems and currencies, not to mention dietary preferences. Asian farms are also typically smaller than their American or European counterparts, with significantly lower capacity or capability for investment in technology. As a consequence, many of the innovations from other markets across the globe have so far proven less relevant in the Asian context.
Source: Food and Agriculture Organisation of the United Nations
47 A HUGE INVESTMENT REQUIREMENT
Some Success Stories, Although a Step Change is Required
There have been some major Asian "We can’t forget about success stories, particularly in the some of the major Asian downstream segment. Asia is a global leader in food delivery and convenience success stories in agri- technology, with Chinese companies food tech. Asia is a leader such as Alibaba and Tencent driving in convenience food, and growth through Ele.me and Meituan respectively. The likes of Swiggy in has some of the most India and Gojek in Indonesia are seeing advanced food delivery similar success. Food delivery now accounts for a market of over US$100 companies in the world." billion, and is expanding rapidly across the rest of China and wider Asian region. – President, Southeast Asia and China, Olam International
Most funded Asian agri-food tech companies, sum of deal investment 2012–19 (US$ million)
Ele.me (China) 3,300 Swiggy (India) 1,466 MissFresh e-commerce (China) 1,400 BigBasket (India) Meicai Grofers 1,000 (China) 793 (India) Yijupi Yiguo.com 532 (China) (China) 511 500
Food delivery E-grocery Agricultural e-platform Sources: AgFunder, Crunchbase
48 For all other areas, it is generally chosen to focus clear that a step change in on the large convenience "In China, more investment will be required and e-commerce players; than 80% of food in Asia over the next decade. business models that are Much of this is expected to be well understood by private innovation start-up directed towards upstream equity and have historically investments today and midstream businesses; attracted higher profitability. are downstream, inputs, farms, processing and Current low commodity prices distribution — the key areas may inhibit some upstream including meal required to boost output and investment in the short term, delivery and improve the safety, nutritional although this should correct value and sustainability of as higher prices return and the e-commerce. To our food. These have been scale of necessary investment transform the food neglected by investors in becomes apparent. recent years, who have system and address its key challenges like protein security, Global deals investment in agri-food nutrition and tech companies by stage of supply waste, we need to chain, 2012–18 (US$ billion) invest in upstream
2012 2.7 and midstream technologies that 2013 2.1 can adapt to the
2014 5.4 needs of the Chinese supply chain.” 2015 8.5 – Founder and Managing 2016 8.1 Director, Bits x Bites
2017 11.8
2018 16.9
Upstream Downstream Source: AgFunder
49 A HUGE INVESTMENT REQUIREMENT
The Greatest Opportunity
It is clear that a significant increase in The scale of this transformation investment will be required in order to truly represents a significant commercial satisfy consumer demands and to build a opportunity for investors, given the broad more secure, safe and sustainable supply requirement for development and adoption chain over the next decade. We estimate of new technologies. The economic prize this cumulative investment requirement for the innovators who are able to meet the at US$800 billion27 above existing levels food requirements of 45% of the world’s over the next 10 years. This implies a total population in 2030 should serve as a annual investment requirement of US$290 powerful motivator for increased activity in billion in 2030, a significant increase from the space. It is clear from existing initiatives the current investment of US$130 billion. that many of the technologies needed to At first glance, the scale of this challenge meet these challenges already exist. may appear overwhelming. The forecast The agri-food sector presents many Asian population growth of approximately characteristics that make it attractive for 250 million over the next decade is roughly investment. Food is a necessity, demand equivalent to the current population of growth will be strong, changing demand Indonesia, with a changing dietary mix will drive complexity, and regulatory implying an additional regional protein barriers are high, whilst climate change will demand of more than twice Indonesia’s drive an urgency to adapt. The disruption current consumption. Yet, we estimate potential is significant. this requirement for increased quantity represents around 30% of the total investment requirement, with the demand for better-quality food (including safer food, healthier food and more sustainable food) being even more substantial. In total, this will mean the region more than doubling its total spending on food from US$4 trillion in 2019 to over US$8 trillion by 2030. If this investment does not materialise, we believe the industry will struggle to keep up with demand, resulting in poorer food outcomes for Asia's population.
27 World Bank, IMF, OECD-FAO, USDA, Capital IQ, PwC analysis, expert interviews (US$800 billion figure does not include downstream, i.e. retail/food service.)
50 Agri-food investment requirement in Asia, 2020–30 (US$ billion)*
300 Total 2020–30 cumulative 250 US$550 billion 200 Total 2020–30 cumulative 150 US$250 billion 100 Total 2020–30 cumulative 50 US$1,500 billion 0 2020 2025 2030
Existing investment Quantity Value-add
*Note: Does not include downstream, i.e. retail/food service
Agri-food investment requirement in Asia by country and supply chain step, 2020–30 (US$ billion)
Japan/Korea Inputs Wholesale/ Southeast distribution 4% Asia 5% 19% Farm 17% production 20% China 51% India 27% Processing 57%
Sources: World Bank, IMF, OECD-FAO, USDA, Capital IQ, PwC analysis, expert interviews
51 A HUGE INVESTMENT REQUIREMENT
Global agri-food EV/EBITDA multiples by supply chain stage, 2018
Production 25x
Food +79% service
Processing 18x Agribusiness 17x Wholesale Retail
15x 15x 15x +50% 14x +55% +25% +50% +67% 12x 12x 11x 10x 9x 9x 8x 7x 7x 7x 6x
0
25th percentile Median 75th percentile
Sources: Capital IQ, Company websites, PwC analysis, expert interviews
52 Agri-food businesses with greater technology, data or innovation focus are able to achieve higher valuations than their more traditional counterparts. These higher performers include businesses with a greater IT focus, high levels of R&D and intellectual property, use of modern technologies, and links with other high-tech sectors such as telecommunications and e-commerce. These are all key factors that are helping to drive strong growth trajectories and higher profitability. This presents a significant value creation opportunity for knowledgeable investors who are able to drive innovation in the sector. This has been further demonstrated by notable (largely North American and European) investments in recent years. Merck’s acquisition of Antelliq (formerly Allflex), a French provider of digital livestock monitoring products, for around US$3.7 billion in early 2019 is a powerful example. London-based BC Partners and its co-investors were reportedly able to achieve an estimated US$1.3 billion total capital gain, and an IRR of over 30%, over a holding period of six years.28 Whilst future Asian investment returns will clearly vary across technologies, sectors and geographies, such examples show the potential prize on offer for investors who can knowledgeably navigate this rapidly developing space. Investment in the Asian agri- food sector is not just an imperative, but also a great opportunity.
28 PE Hub
53 HOW CAN WE MAKE THIS HAPPEN?
A Concerted Effort for Change
Many of the factors holding back investment in agri-food tech in Asia are a function of the immaturity of the sector. These include investors still building their understanding of the sector and new technologies, and the length of time required to generate sufficient returns.
54 55 HOW CAN WE MAKE THIS HAPPEN?
Nonetheless, a concerted effort will be needed by all stakeholders to make the relevant changes required to boost investment to meet the key consumer trends and requirements to 2030. This will include:
• Establishment of corporate venture capital teams and incubators to provide additional funding to the sector, and bring significant sector and technical expertise. • Greater collaboration between corporates, venture capital, private equity investors, and financial institutions to help spread investment risk whilst also providing commercial opportunities. • Greater acceptance of new technologies and food products by large corporates, e.g. the use of alternative proteins within traditional processed food products. • Greater collaboration between agri- food companies and other industries with involvement in the sector, e.g. finance, telecommunications and distribution; industries that are critical in enabling a positive environment for start-up activity. • Greater government support, including the streamlining of support for start- ups, and financial incentives. • The establishment of agri-food tech innovation and investment centres or enterprise zones to bring relevant market players together, and promote additional investment and interest in the sector.
While we expect this innovation and investment to be predominantly driven by the private sector, government will also have a crucial role in developing a suitable ecosystem for growth.
56 PwC survey — what is the most important area for governments to focus on to encourage increased "We have started to partner investment in agri-food tech in Asia with VCs and incubators, over the next decade? and we are also making more direct investments ourselves. We see this as one of the ways to Addressing fragmentation of landholding 15% (e.g. encouraging co-operatives) drive innovation within our business, and expect to see more corporates 15% Developing appropriate national regulatory frameworks entering the venture
Financial support for commercial space either directly or innovators and investors (e.g. tax through partnerships." 14% breaks, research grants)
– Head of Business Development/ M&A, South and Southeast Asia, 14% Investment in core infrastructure (e.g. roads, warehousing) Louis Dreyfus Company
11% Educational initiatives for farmers and consumers "The sector will require
Government-coordinated more involvement and ecosystems (e.g. incubators, support from government 10% accelerators, physical facilities) in order to succeed. The importance of 9% Financial support for farmers (e.g. subsidies, cheap credit) government in advancing the agricultural and food sector can be seen in the 6% Harmonising international standards with key trading partners efforts of the Singapore government with their 2030 food security vision and 3% Strengthening academia/universities associated initiatives."
– CEO, Trendlines 3% Other AgriFood Singapore
Source: PwC Asian agri-food survey 2019
57 HOW CAN WE MAKE THIS HAPPEN?
The Role of Hubs
Establishing hubs or gateways for agri- Nevertheless, we can learn a lot from food tech innovation and investment some of the characteristics of these cities could be one option to further support that could potentially be applied to key development in the sector. While some Asian centres. These include: government intervention would be required to foster a suitable environment • Existing presence of large for start-ups, large corporates and agri-food businesses investors, the private sector would then • Government initiatives supporting be the critical driving force. innovation and investment Global examples of agri-food tech hubs • Start-up ecosystem and include the likes of Tel Aviv, St Louis, San entrepreneur culture Francisco and Rotterdam. Tel Aviv serves • Technology availability as a particularly impactful example — • Quality and engagement of despite Israel’s small size, challenging academic institutions climate and geopolitical challenges, it has • Talent competitiveness become a world-leading developer and • Quality of working and exporter of agri-food tech. living environment The country now has over 700 • Existing presence of venture agri-food start-ups, and a deals value capital activities per capita close to that of the United • Current levels of venture States (around US$20 vs c. US$24).29 capital investment in agri-food Indeed, in 2017, Israel received more tech businesses upstream investment (US$187 million) • Local market for agri-food technology than China, despite its population being over 150 times smaller.30 There are of course a number of factors unique to the development of each global hub. In Israel’s case this includes the legacy of “kibbutz” communities and the distinctive entrepreneurial culture associated with military service. Many Israeli investors are also now taking their expertise and capital overseas, with a number starting to look at investment opportunities in Asia.
29 AgFunder 30 AgFunder
58 These characteristics provide agri-food experience, a positive regulatory environment for start- ups and investment, technical expertise, talent and a strong pool of investors, the key criteria required for success. We have ranked 30 of the largest Asian cities based on these characteristics, to determine a shortlist of centres that we believe have the key facets to become an “agri-food tech hub”. Key cities with many of these characteristics include: • Bangalore • Beijing • Hong Kong • Mumbai • Shanghai • Shenzhen • Singapore • Tokyo
59 HOW CAN WE MAKE THIS HAPPEN?
Future Asian agri-food tech investment and innovation hubs — relative strengths
Bangalore Beijing Hong Kong
Mumbai Shanghai Shenzhen
Sources: Capital IQ, Crunchbase, Economist Intelligence Unit, Eden Strategy Institute, INSEAD, Martin Prosperity Singapore Tokyo Institute, Pitchbook, Quacquarelli Symonds, World Bank, PwC analysis
Quality and engagement of academic institutions Existing presence of venture capital activities Talent competitiveness Technology availability Quality of working and living environment Existing presence of large agri-food businesses Start-up ecosystem and entrepreneur culture Local market for agri-food technology Government initiatives supporting innovation Current levels of venture capital investment in and investment agri-food tech businesses
60 We believe that these cities the use of new technologies have the potential to drive which could become more innovation and investment universally accepted, providing within agri-food tech, which a much larger opportunity for can then be applied across innovators and investors alike. Asia. Other regional cities will Some good examples of also play an essential role, government policies and including acting as deployment initiatives that would help to hubs for agricultural expertise create a successful agri-food and technology, although tech hub are provided by "We welcome the these major centres combine Singapore. However, while development of the knowledge with access to these clearly demonstrate the capital, and the ability to exert right sentiment, there could multiple investment regional, if not global, influence. perhaps be greater focus on hubs across Asia This will present a significant creating an outward-looking opportunity for investors, as centre for export of technology given the scale of companies from these hubs and regional development in the region and look to expand across Asia addition to the current inward and help to address the key focus on food security. the complexity of consumer requirements and Singapore presents one local dynamics." challenges of the region. We good example, although each believe that multiple hubs will of the cities highlighted has a be required given the size and key role to play in helping to – Founder, ID Capital diversity of the region; these further develop the Asian agri- cities provide the geographical food sector. This presents not breadth to achieve this. just an opportunity for regional Beyond acting as locations development, but a real for the coming together of opportunity for Asian cities to expertise, technology and become global powerhouses capital, these cities have the within agri-food tech, and ability to exert “soft” influence, major exporters of cutting- such as regional standards and edge technology. We believe quality marks. Perhaps one day these cities have the potential consumers will choose (and to drive development, pay more for) a food product funding and collaboration because it bears the Singapore across the food and or Bangalore stamp of approval. agricultural sector, exporting “Produced with Singaporean technology and knowledge technology” could become a across Asia to improve food trusted regional hallmark for production and ensure a Southeast Asian food in years healthy, sustainable future for to come. Consolidating regional the population of Asia. standards would also pay significant dividends; a strong hub could help to achieve this. Consistent standards across the region would help to improve food safety and drive
61 Report Authors PwC Rabobank Temasek Richard Skinner Ping Chew Anuj Maheshwari Richard leads PwC’s Deals Strategy & Ping is Rabobank Asia Head of Anuj is Managing Director at Temasek, Operations team across Asia Pacific Food and Agribusiness Research, part of the leadership team that makes and has worked with governments, where his team harbour rich local investments in agri-food companies corporates and financial investors F&A knowledge to engage in deep globally and helps these companies throughout the agri-food value chain. dialogues with key stakeholders along grow and create meaningful impact [email protected] the entire agri-food chain. through their businesses. [email protected] [email protected]
Special thanks to the following organisations who have contributed sector insights to this report:
Agency for Science, Technology and Research (A*STAR) Monde Nissin Aquaculture Centre of Excellence (ACE Aquaculture) N-Drip AGR1 Nutrition Technologies Agrimax Ventures Olam International Aquagrow International Omnivore Partners Asia Biobusiness Openspace Ventures Biteback Insect Paul Teng Bits X Bites Peakbridge Partners Bowery Farming Ridley Corporation Cainthus ScaleAQ Commonwealth Capital Shanghai AgNet Continental Grain Company SIFOOD Corteva Singapore Economic Development Board CrowdFarmX SPREAD Co DouxMatok StarAgri eFishery TaniGroup Food Industry Asia (FIA) TreeDots HNA Cold Chain The Trendlines Group Hosen Capital VertiVegies ID Capital Wilmar International Impact Terra WorldFish InnovoPro The World Bank International Finance Corporation (IFC) XAG INVE Aquaculture The Yield Lab JuiceInnov8 Yoma Heavy Equipment Louis Dreyfus Company
The Asia Food Challenge report was launched at the 2019 Asia-Pacific Agri-Food Innovation Week in Singapore. This annual summit explores the latest innovations and opportunities in Asia’s agri-food supply chain, and new models for technology investment, incubation and commercialisation. www.agrifoodinnovation.com
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