Agtech: The year in review

A renewed focus on the importance of diet and nutrition, as well as enthusiasm for more sustainable crop inputs and alternative materials, continue to provide opportunities for agtech investors.

This year witnessed an unprecedented sequence of industry dynamics in the food and agriculture sector. The war in Ukraine, coupled with legacy covid-related supply chain disruptions and labor shortages, has significantly disrupted global grain production and fertilizer exports, sending agricultural commodity and input prices skyrocketing to historic peaks.

However, these challenges have given rise to opportunities for strategic investment in the technological innovations needed to build a healthier world for future generations. Additionally, global policy initiatives and sweeping commitments from corporations to address climate change, environmental degradation, global food security and improved population health, brought wider attention to sustainability in food and agriculture.

Possibly the defining event of 2022 was the spike in commodity prices resulting from the Russia-Ukraine conflict. Natural gas and grain prices soared, reinforcing the imperative of innovation to address supply chain pressures.

Growers began exploring alternatives to nitrogen-based fertilizers, which saw a 3x run-up in prices. Most commodities specialists predict the sector will continue to see elevated pricing.

Challenges and opportunities

In addition to causing price spikes and market disruptions, the war also highlighted the inefficiencies and insecurity of the global food supply chain.

There was a heightened focus on health and nutrition and the fundamental impact that food and agriculture have on our healthcare system in 2022. Recognizing that nutritional deficits burden the healthcare system and create a drag on the economy, the White House held a conference in September focusing on diet and nutrition, the first such initiative in 50 years.

Diet and nutrition are increasingly recognized by the healthcare community as key causes and solutions for chronic disease. This trend towards food as medicine clears a path for new technologies to revolutionize food and nutrition. We found one such opportunity in Kate Farms, the market leader in plant-based clinical nutrition for tube feeding and supplemental nutrition.

This year also saw President Biden signal his administration’s robust support for climate change and imperatives with The Inflation Reduction Act, the single largest investment ever in reducing emissions.

2022 brought a renewed focus on adopting sustainable crop inputs and synthetic chemical alternatives, especially biologicals. We’ve seen a lot of enthusiasm from growers around biostimulants, bio crop protection and biofertilizer, but also from strategic corporates, who are increasingly focused on more sustainable product portfolios as they evaluate acquisitions.

And there has been increased interest in alternative materials, focused on sustainable production of a wide array of commercial and industrial inputs (concrete, packaging, leather, etc) to mitigate the pollutants and emissions that come from non-biodegradable substances.

Wage inflation highlighted a broader set of issues around labor, always a pinch point in the sector, especially for more specialized crops and food processing. We’re looking to address this through advances in robotics, data measurement and other methods that improve efficiency for workers.

2023 outlook

In 2023 we expect the industry to enter a period of more conservative investment valuations. There was tremendous exuberance in the space in 2021, with sustainability driving ESG and aggressive commitments from institutional investors. This year that all corrected, starting with the public capital markets.

Agtech and food tech investing are not immune to the challenges of a market correction, so even though the sector has seen a boom, fundraising has become more difficult, and investors want better valuations and better terms for capital deployed.

The agtech sector has always been unique in aligning ESG principles with profitability; other industries are finally realizing the two do not necessarily conflict.

The market is demanding more accountability from corporations, which have begun taking steps to ensure that their ESG efforts are measurable. President Biden has demonstrated ongoing support for a broad-based orientation towards healthier food and a sustainable planet, and an entire day of the UN’s recent COP27 summit was devoted to food security and climate change.

Add in a passionate younger generation keenly attuned to these issues and 2023 will likely see continued prioritization of decarbonization and the reduction of harmful emissions, increased investments in nutrition and health, and improved efficiency and productivity in agriculture on a global scale.

Ben Belldegrun and Phil Erlanger are the co-founders and managing partners of Aliment Capital (formerly known as Pontifax AgTech).