Where does the transformation in agriculture come from?

We cannot afford to keep thinking exclusively about incremental gains

This is an expansion of a LinkedIn Post in August 2024. This year, I’ve had an incredible opportunity to travel around the world on a Nuffield Scholarship. The question “where does innovation in agriculture come from?” is one that I have asked on five continents. However, now that I am back home, I've realised that I was using the wrong word. 

“Innovation” is everywhere. (Almost) every farmer, every person in the industry I have ever met, is trying to innovate. Everyone is trying something new all the time. 

We’re not lacking innovation. What we are lacking is transformation. 

We have a huge amount of focus on incremental gains in agriculture. Taking something that we’ve got and making it 1% better. These aren’t always a waste of time, but I think the mindset is misguided. We have problems in our food system that are not going to be fixed with a 1% mindset. 

If I reframe my question towards being one of transformation, rather than innovation, what have I learned? 

My honest reflection is I think agriculture is in a bit of a mess with regards to its ability to develop transformative technologies and approaches to food production.

First, let’s look at what happens in other sectors. 

As an overly simplistic test of the ability for new innovations to come into an industry, let’s have a look at the founding date of the biggest companies.

Take the 8 biggest companies in the world by market cap (founding dates in brackets)

• Apple (1976)

• Microsoft (1975)

• Alphabet (1998)

• Amazon (1994)

• NVIDIA (1993)

• Tesla (2003)

• Meta (2004)

• TSMC (1987)

Now look at the 8 biggest companies in agriculture:

• John Deere (1837)

• CNH (Merger of three companies that were formed in 1842, 1902, 1895)

• Kubota (1890)

• AGCO (Merger of companies formed in 1870 and 1856)

• Syngenta (Merger of companies formed in 1857, 1859, and 1913)

• Bayer (1863)

• BASF (1865)

• Corteva (Merger of companies formed in 1802, 1897 and 1926)

The problem is obvious. In the last 120 years no new companies have successfully managed to come into the agriculture space and establish a position of market dominance. These were all companies that really established themselves in the post World War Two “Green Revolution” era, and since that time not a single transformative innovation has come into agriculture which has been able to make a new company one of the biggest in the world. 

In other sectors, new technologies have come in and transformed an entire industry. They have made things 10x quicker, cheaper, more efficient and so on. This happened because they were all startups. If you are an established company, with revenues and market share to protect, you do not think with a 10x mindset - you think with a marginal gains mindset. You are looking to protect what you have, not start with a blank sheet of paper and re-define what is possible. 

As was pointed out when I posted an abbreviated version of these thoughts on LinkedIn, it is harder to do this in agriculture than some other sectors. Some of the innovations developed in the first list were “pure” innovations, establishing markets that didn’t even exist before they built them. Agriculture and food production is a highly mature market with significant constraints. We need corn and wheat in our food chain. They have physical requirements of space and logistics to develop the seeds and then turn those seeds into consumer products, and this makes the entrance of transformative technologies more challenging.

Farming is a long way behind

Nevertheless, I still believe that these two lists are the main reason that farming is already decades behind other industries in terms of digitisation, automation and the use of AI to support decision making. We could be far further ahead than we are, but these new technological advances are at odds with the existing revenue streams of the incumbents. Where they are being developed, the companies developing them are too small to be relevant.

But of course, there have been some innovations in the ag space in recent years. Look at auto steer, variable rate spraying and GMO crops as examples ( writing this from my farm in the UK, I have to point out that this last one is only available in some countries!). 

These are big innovations for the sector.

Where are they deployed? All of the significant, industry wide innovations have come first into the broad acre arable sector. Yes, there is some interesting innovation going on in the edges of the horticulture and vegetable sectors, but the machinery and technology being used on the biggest farms that I visited in Saskatchewan is far further ahead than the machinery being used on the largest vegetable farms I visited in California.

This is because the machinery for the biggest arable farms is being produced by some of the biggest corporations in the world with R&D budgets measured in the billions. But look again at the major technological breakthroughs; autosteer is a marginal gains innovation, designed to protect existing revenues; variable rate spraying is a marginal gains innovation. They are not 10x innovations like NVIDIA, Microsoft, Apple and so on.

The latest genetics, chemistry and fertiliser are all developed for the broad acre sector as well because each new chemical developed for corn, wheat, soy and cotton has the potential to be a multi-billion dollar market. An innovative way to automate strawberry harvesting, weed lettuce or spray cauliflower does not have that potential, and so the biggest companies are not developing anything for those markets.

So where does transformative innovation come from? It comes from new startups, but these are almost always underfunded because they do not fit the model for success established under the VC model developed in Silicon Valley.

I visited the California Central Valley, the epicentre of this activity, and spoke to farmers who had regularly engaged with, and sometimes helped to fund, these startups. 

In an effort to make their innovative ag tech company fit the Silicon Valley VC model, these startups have focused on developing solutions for tiny, ultra specific markets with a very small number of growers. Start with a small market you can dominate, and then grow from there is the thinking. But of course, anyone who understands farming knows it doesn’t work like that. A dominant solution for strawberries does not lead to a dominant solution for lettuce, never mind corn and soy. These are specific solutions grown in specific conditions; if my global travels have taught me anything it is that farming is an incredibly localised industry. 

There is no such thing as the Uber for farming. 

However, these startups find it incredibly difficult to raise significant enough funds (and it takes a lot of money to try to bring a really workable solution to the farming industry). Where successful exits have happened, they have really had very little to do with the company being acquired, certainly in terms of fundamentals like multiples of revenue. I do not mean that these companies have not developed excellent technology or that the entrepreneurs did not deserve their success in being acquired. However, I don’t think it is unfair to say that the headline acquisitions from this industry have had much more to do with the need of the acquiring company to demonstrate competence and progress in a specific area, such as autonomy in the case of Bear Flag Robotics (acquired in 2021 by John Deere for $250m) or digitisation in the case of Climate Corp (acquired in 2013 by Monsanto for $1bn). It’s not clear how, when or if similar acquisitions could be achieved, because the acquisition was driven by circumstances rather than fundamentals, and therefore there isn’t an obvious and reliable path to exit that VCs can confidently invest in.

Whilst some companies have had moderate success with fundraising, it pales in comparison to the amount going into, for example, AI - even though transformative technologies for farming are just as urgent for the future of humanity as the emergence of AI. Most of the funding comes from California, and therefore the majority of companies that get significant funding are delivering solutions for the crops that are big in California but relatively tiny on a global scale.

All of this is terrible news for the farmer - it doesn’t really matter what you are growing or where; transformative technology is not being successfully developed and implemented for you.

If you are a broad acre arable farmer, the only people delivering any meaningful technology are the giant incumbents, who will move very slowly and primarily act in a way that protects their existing revenue streams, which means very little in the way of transformative innovation. 

If you are a speciality crops farmer, it’s bad news because although you get to play with a massive range of technologies, they are all delivered by underfunded and insecure startups. There tend to be two paths for that engagement:

1. The company runs out of money and dies, and so all of the time and money you into that business goes up in smoke

2. The company is able to stay alive long enough to be acquired, almost certainly by a large incumbent who will then almost certainly divert the work of that company towards delivering value for large arable rather than the speciality sector (see Blue River). In which case, all of the time and money invested by the farmer goes up in smoke.

Acquisitions are not always bad. However, we do need a third path here which is where the startup is able to build enough financial strength to remain as an independent business, retaining its customers and scaling its solutions.

If we can’t look at today's startups and believe that they could be as big as John Deere or BASF in 25 years time then we have a problem as an industry and we are at a major disadvantage when compared to most other sectors.

Is it possible for the funding model to change?

One of my key takeaways from my Nuffield travels is that the ‘Zero to One’ philosophy of Silicon Valley is not going to work for agriculture -  we need something else, a different model for venture capital within agriculture.

What is the path to success then? 

This is something that I am still trying to work out.

Two possibilities spring immediately to mind. 

I think there is a future in regional start up ‘incubators’ or ‘venture studios’ which are locally funded by and supported by farmers. The returns would be slower, and the focus would be on building stable, independent and profitable companies which could grow to deliver meaningful results to a region over a number of years. A ‘region’ would be defined primarily by geography and climate. For example, I think it’s feasible that Northern Europe could be covered by a single incubator, but not that the same solutions could be expected to be deployed on the Canadian prairies, where another incubator would need to be established. I think this has potential to deliver positive returns to the farmers and food consumers who need it most. Individually, farmers do not have enough money to make this happen, but there are many parts of the world where collectively there is more than enough funding to drive long term change

The second possibility is that some of the biggest companies in the world listed above decide that agriculture is an industry they really want to back. I’m less clear that this will definitely be beneficial to farmers, but it is worth considering. 

It needs institutional level funding, and so the backing of cash rich, non-agriculture companies could be something that takes the industry forward. However, I do believe that it needs to be non-agriculture companies for transformative thinking to truly be backed over the long term. New acquirers could change the game. If Google, or Amazon, or Microsoft etc wanted to get into the business of operating farm technology at scale - if they had the ambition to be a bigger agriculture company than John Deere then that would change the game. If the major venture players came from outside of Silicon Valley and were willing to put billions to play in attacking the billion dollar markets, that could change the game too.

Rhishi Pethe has pointed out that, worryingly, many of these larger companies are already pulling back from their engagement with farming.

I remain optimistic that we can find the right funding solutions to bring long lasting change to this crucial industry. If we don’t we are doomed to stay stuck in an unsatisfactory loop which is bad for the farmer and does not take the industry further forward. Occasionally startups will achieve big exits, but it’s not yet clear that these really benefit the long term future of the industry.

As I continue to look at agriculture in technology, this is the question I am going to keep asking myself; is it potentially transformative or is it just incremental?

(Thanks Mahmumdul Hasan Shawon for the image)