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From Agriculture to Agtech an Industry Transformed Beyond Molecules and Chemicals

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From Agriculture to Agtech an Industry Transformed Beyond Molecules and Chemicals From Agriculture to AgTech An industry transformed beyond molecules and chemicals Executive summary 04 Disruption drivers in the agricultural industry 06 Key challenges and growth opportunities 08 Planting the seeds for disruption 13 How venture capital fertilizes the revolution 17 Monitor Deloitte GrowthPath® services 20 Your Contacts at Monitor Deloitte 23 From Agriculture to AgTech: Executive summary The agricultural industry is about to be disrupted and will transform into a high-tech industry From Agriculture to AgTech: an unseen Disruption driver No. 2 Three high-impact growth boom in agricultural venture capital in- Partly complementary, partly concurrent, opportunities vestment leads to a major disruption industry-specific change accelerators in As a consequence of the identified disrup- and foreshadows the millennial shift three categories are amplifying the speed tion drivers, the agricultural ecosystem fac- from family farms to smart “food fac- of disruption in agriculture: es new challenges, from which three signif- tories”. icant growth opportunities for current and 1. New consumer preferences: future players can be derived: Today’s agricultural industry is on the verge the demand for personalized, on-demand of turning into a high-tech industry, as the products and increasing awareness for 1. Improving yield efficiency growing number of agricultural startups health and sustainability. The world population, of which 10% re- and investors shows. main undernourished, is rapidly growing, 2. Emerging technologies: thereby creating severe urgency to in- Disruption driver No. 1 developing biological tissues, advanced crease yields. Ten global megatrends that impact agricul- manufacturing technologies, autonomous ture clearly intensify the transformation: vehicles, and connected devices. 2. Increasing supply chain efficiency Reducing the average value chain loss of 1. A growing population 3. Changing value chain and firm 33% of initial production is a substantial- 2. Societal and demographic changes configurations: ly stronger lever in increasing effective 3. Increasing urbanization growing trend towards horizontally and/or output than upfront yield improvement. 4. Climate change vertically integrating adjacent offerings. 5. Smart agricultural technologies 3. Decreasing complexity along farm- 6. Biotechnology ers’ value chain 7. Servicization around core products Since today’s farmer already faces high 8. Increasing value chain integration complexity and tomorrow’s farmer will 9. Globalized trade deal with even more players and tech- 10. Changing international regulations nologies after the disruption, farmers are willing to pay for integrated solutions and ecosystems. 04 From Agriculture to AgTech The fourth agricultural revolution is already on its way and you should invest now How innovators capitalize on growth 4. Food technology and artificial meat: Why it’s the right time to invest opportunities and plant the seeds for since it takes eight kilograms of grain to in AgTech the fourth agricultural revolution. produce one kilogram of meat, firms are developing plant-based meat and eggs 1. Unseen, rapid growth: Various innovators are trying to harness to harness “sustainable protein”. AgTech is not on the radar of tradition- the three growth opportunities. While tra- al investors yet, but investments grew at ditional venture capital firms are only slowly 5. Contained and vertical farming: 63% CAGR from 2010–2015, like FinTech. getting involved, large agrochemical players one of the youngest innovation fields, are already investing heavily in agricultural smart greenhouses and contained farm- 2. Low-hanging fruit: technology – "AgTech". Looking at the agri- ing are about to take off. existing players are willing to invest 10-15 cultural ecosystem, there are five major in- years and up to $250 million per product novation fields in which innovators are in- How venture capital is fertilizing launch, while innovators are finding lean creasingly active: the revolution solutions and going for low-hanging fruit. After more than doubling from 2014 to 1. Rerouting value chains: 2015, AgTech investment is on an exponen- 3. Huge market potential: multiple players are trying to bridge or skip tial growth path and follows the steps of by tapping into the large 3 trillion dol- value chain steps by direct-to-consumer FinTech, surprising traditional and long-es- lar global agricultural market, investors delivery, meal kits, food e-commerce etc. tablished players. can expect high scalability and signifi- to reduce supply chain inefficiency. cant ROI. Where the revolution is blooming 2. Crop efficiency technology: Starting from the US, other countries like The fourth agricultural revolution is about start-ups and cross-industry innovators Israel, China and India are also catching on to disrupt the industry – to be ready to har- offer drones, robots, big data and shar- to the fourth agricultural revolution, dig- vest, have your GrowthPath® strategy pre- ing platforms as well as irrigation, soil, and ging into more innovation fields along the pared. crop technologies to increase effective way. The investment focus will shift away yield. from the mature food e-commerce sector to a more diversified portfolio of innovation 3. Bio-chemicals and bio-energy: fields and targeted value zones. attempting to reduce the ecological foot- print, innovators develop biologically-pro- duced agrochemicals and bio-materials and engage in producing bio-energy. 05 Disruption driver No. 1 Ten impactful megatrends are creating the foundation for transforming agriculture into a high-tech industry Growing population Globalized trade The world’s population will Crops are grown in most suitable locations, reach 10bn in 2050 then processed and sold internationally Urbanization Biotechnology 50% of the world’s population Genomics and genetic modification lives in urban areas help improving existing varieties Integrated value chain Agricultural technology Large firms start integrating New technologies trigger vertically to optimize higher yield and cost their value chain reductions Societal changes International regulations The need for resource-intensive Global exports lead to regulatory food products increases entanglements between countries Climate change Servicization Changing weather conditions Agrochemical suppliers offer a range affect soil quality and crop yields of services around their core product The ten global megatrends will lead to a dis- ruptive transition in the next 5-10 years, in in- terplay with more industry-specific change accelerators. 06 Source: Deloitte Expert Interviews; Destination 2025: Focus on the Future of the Food Industry (Deloitte and Biobusiness Alliance of Minnesota); The Food Value Chain (Deloitte); UN DESA From Agriculture to AgTech Disruption driver No. 2 Industry-specific change accelerators will amplify the intensity of the transformation, varying by time and level of impact New consumer preferences Short Long Small impact 1 Demand for personalized products and term term solutions 2 Increased health awareness in food Medium impact consumption and supply traceability 3 Expectation to consume services and products on demand Large impact 4 Reduction of ecological footprint and demand for sustainability Emerging technologies Short Long 5 Advanced application of biological term term technologies, tissues, and organisms 6 Advanced manufacturing technologies including 3D printing and robotics 7 Autonomous vehicles that perform tasks like phenotyping or fumigating plants 8 Devices and sensors communicating data via mobile and smart connectivity The agricultural disruption will be Changing configurations Short Long accelerated by new consumer 9 Horizontal integration of adjacent term term preferences, emerging technolo- offerings along the agricultural ecosystem gies and changing firm and value 10 Accessing, processing and analyzing big chain configurations, leading to data to optimize yield new challenges for agricultural 11 Vertical integration of input suppliers to players. While the intensity of the optimize cost, efficiency and complementarity impact varies, most change accel- erators will happen in short- to medium-term. 07 Key challenges and opportunities Due to the effect of disruption drivers, agriculture faces challenges that offer significant, untapped growth opportunities Growth opportunity Growth opportunity No. 2 No. 1 Wholesale and Even though technology distribution Feeding a growing and in- has already reduced supply creasingly urbanized popu- chain losses, the average lation, of which about 10% losses of 35% of initial pro- is still undernourished, duction means that a large there is severe urgency to amount of value is lost increase yields. Waste management Yield efficiency Supply chain Market efficiency volatility Processors Producers Energy Capital and water Confronted with availability efficiency global trends, regula- tors, and strong mar- Innovation and Growth opportunity ket forces, agribusi- technologies Globalization No. 3 nesses are driven to Since today’s farmer al- rethink their busi- ready faces high complex- ness models, which ity and tomorrow’s farm- offers veritable Storage and er will deal with even more growth opportuni- transport players after the disrup- ties for existing and tion, farmers will be open new players alike. to integrated solutions and ecosystems. 08 Growing population The world’s population will reach 10bn in 2050 Integrated value chain Large firms start integrating vertically to optimize
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