Geopolitical developments in 2022, notably the Russia-Ukraine war, exposed some of the vulnerabilities of the global food system, increasing the focus on food security.
However we also saw groundbreaking innovation in the agricultural sector and some encouraging shifts in global policy.
For 2023, we confidently predict further disruption in the food sector where technology will prompt exciting opportunities for agri investors.
Macro themes to persist
Inflation across all agricultural inputs and commodities coupled with increased labor prices and scarcity of agricultural workers, have challenged the food and agriculture industry in the past year.
Higher input costs and the cost of capital are cyclical phenomena, but labor availability challenges are here to stay. Furthermore, demand for lower-priced staples is testament to a buyers’ strike on luxury food.
Retailers’ consequent inability and unwillingness to raise prices is just one of the headwinds impacting domestic producers. However, with imperative comes innovation. Developments in agricultural robotics are fast progressing, with greener, more cost-effective energy solutions for growers evolving quickly.
Good COP, bad COP or COP-out?
COP26 brought the debate of net zero to the private sector; disappointingly COP27 did not see any significant strides in mitigating greenhouse gas emissions. The historic loss and damage fund agreed during COP27 shows continued regulatory support for sustainable investments and addressing the impact of climate change. We foresee this providing some tailwinds for the sustainable investment sector more broadly. However, the road ahead remains long as fossil fuels live on.
We were encouraged to see a dedicated Food and Agriculture Pavilion at COP27, a positive sign that the UN is recognizing the wide-reaching impact of food insecurity.
We call on governments to drive change through targeted, ambitious legislation in 2023. We will continue to see agricultural technology disrupt current processes and expand possibilities. The industry must continue to incorporate novel solutions that improve the agronomics of its operations, whilst reducing environmental impacts.
A year ago, we observed public market valuations for the agrifood tech growth sector trading significantly in excess of private company valuations. Most public valuations focused on B2C alternative meat and dairy and synthetic biology spurred on by strong investor appetite.
2022 saw a dramatic reversal of this public-private valuation relationship. Public markets savagely re-rated the sector following disappointing revenue growth, a heightening of risk premiums and concerns around cash runway. Examples include Beyond Meat (down 79 percent from its January high with 3Q22 sales down 22 percent year-on-year) and Oatly (down 78 percent year-to-date).
Private market valuations have corrected less dramatically than public markets. We expect to see valuations bottom out about halfway through 2023.
With exit options such as the IPO market constrained and financing options increasingly expensive, the agrifood-tech venture sector will have to amplify focus on the forward-looking cash runway and provide growth via new disruptive business models that address key macro trends.
A disruptive technology we are excited about in 2023 is ‘metagenome mining’. Metagenomics is the study of genetic material recovered from the environment. A spoonful of soil may contain 100 billion organisms of 1 million different species, providing a vast amount of DNA, of which only a small faction we know and have genetically sequenced.
Low-cost genomic sequencing is allowing scientists to identify segments of DNA within these metagenomes, and the identification of new genes that code for new proteins. This sequencing and data analytics can now be conducted at a scale and price never envisaged, allowing the development of solutions for food, health and biomaterials.
While the energy transition has garnered significant global attention over the past decade, the agricultural revolution is now critically gaining speed. We are energized by the innovative solutions to the sector’s challenges that we observe across the agrifood value chain.
Rob Appleby is founder and Alastair Cooper is head of venture at Cibus Capital