“Buy land, they don’t make it anymore” is a seductively simple investment strategy.
A smarter one is to invest in clean agricultural technology, particularly where applying proven software is involved.
Non-government organisation campaigns against “land grab”, and now water grab”, in developing markets have greatly increased the political and reputational risks of land acquisition and turned many would-be investors off.
By contrast, software-enabled agricultural innovation poses relatively little political risk, is typically not capital intensive and is addressing a profound and incontestable need – to increase agricultural output relative to the environmentally-intensive inputs like fertilisers and irrigation, so that a growing world population can be fed.
Mark Kahn, managing partner at Omnivore Partners, a $50mn India-based venture fund seeded with $5mn from the conglomerate Godrej Group, told me earlier this year that the impact of software-enabled agricultural innovation would be “transformative”.
“In North America and Latin America, agricultural software is about big data – machine-to-machine data. Your planting and harvesting devices gather data on field conditions, which can then be overlaid with information about inputs – seeds, fertilisers and agrochemicals,” says Kahn, who previously worked with Syngenta, where his responsibilities included corporate venturing.
“It is different in India and probably China too. We do not have much farm data. The use of combine threshers and auto-planters is still nascent. Omnivore is certainly interested in companies that can fill this gap by gathering and using this data.”
For me, Omnivore’s seven-strong portfolio conjures up images of heroic Indian farmers feeding the nation by consulting real-time cloud-based weather forecasting systems from their smartphone to make sure the solarpowered drip-feed irrigation is set to optimise the production of fish curry. Okay, I made up the last bit, but the portfolio will stir your imagination.
In Europe and North America, software-based agricultural start-ups are also catching venture capital (VC) attention. Farmeron was established in 2010 in Croatia by the son of a dairy farmer who witnessed his father struggling to capture data on spreadsheets. His innovations eventually became a cloud-based software-as-a-service package that enables dairy farmers to manage herds more efficiently. Farmeron has raised funds from Californian VCs NextView Ventures and SoftTech, and is expanding internationally.
Khosla Ventures has backed US-based Solum, for mobile on-site rapid measurement of soil nitrogen and potassium levels, and Blue River Technology, for robotic weed recognition and elimination. Andreessen Horowitz, the VC firm co-founded by Facebook and Linkedin investor Marc Andreessen, who coined the phrase “software eats the world”, led Solum’s last investment round.
Further down the field-to-fork supply chain, the need for traceability is driving software-enabled innovation in food processing and logistics, providing reassurance to British burger fans, for example, who like beef, not horsemeat, in their bun.
Helveta is a British venture-backed company whose software is used to trace the origin of products in both the food and timber sectors. Increasingly, consumers not only expect to know their food’s provenance, they might also want guarantees on environmental, social and hygienic standards, and be prepared to pay more to get them.
Larger quoted agricultural service companies are venturing in software, in some cases also providing an exit or at least a route to market for start-ups. For example, in August Nasdaq-quoted Trimble Navigation bought IQ Irrigation of New Zealand, the most recent in a series of acquisitions of smart GPS-based technologies that optimise fertilisation, irrigation and planting.
The overall significance of this convergence of agriculture and software is that it opens up agriculture to a much wider investor universe, whose capital is desperately required if the world’s growing population is to be fed without destroying the environment.