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What bubble?

As more and more high profile names invest into agtech, questions have been raised about whether the sector is overheating.

This week another heavy hitting investor entered the agriculture technology (agtech) space – Google Ventures invested into a farmer networking tool called Farmer Business Network (FBN). The VC arm of the technology giant invested alongside venture capital heavyweight Kleiner Perkins Caulfield & Byers, which last year told Agri Investor of its intention to invest more in agtech.

Google Ventures joins other big names in the start-up world such as Founders Fund, the VC firm invested in Facebook and Spotify that was established by Peter Thiel, co-founder of PayPal. Founders Fund is invested in cannabis-focused private equity firm Privateer Holdings.

So to say that the agtech market is heating up is obvious. In fact, some commentators have moved the debate on and are now arguing that a bubble is forming in this burgeoning sector.

At the Milken Institute conference a couple of weeks ago, Scott Jacobs, chief executive and co-founder of San Francisco-based investment firm Generate Capital expressed concerns that the agtech market was heading into a bubble and made comparisons with the clean tech market in the late 2000s. And with the increasing level of activity in the space – online fundraising platform AgFunder recorded over $1 billion raised during the first quarter of this year compared to over $2.3 billion in 2014 overall – these concerns are not surprising.

But during research for our upcoming Agri Almanac supplement magazine (due to hit desks next month), Agri Investor heard several arguments to the contrary.

Yes, there will be a level of consolidation as increasing numbers of start-ups focus on providing a similar solution for farmers and operators, and yes, there will be some local players that fail to create a sustainable and scalable business, which is the case with every sector.

But estimates cited by several sources indicate that the vast majority of farmers have yet to embrace agtech; figures as low as 1 percent globally have been mooted.

There is also so much further to go with the sector. In precision agriculture and agriculture data, for example, technologies exist to help measure performance, yields and returns, but there are few platforms for farmers to integrate all of this data and apply it to practical decisions about sales, sources have argued.

And other subsectors of the agtech industry, including drones and cannabis-related start-ups, have only scratched the surface of the multi-billion dollar industries experts say they will become. The Association for Unmanned Vehicle Systems projects that the drone industry could be worth as much as $140 billion over the next decade, with most of the growth coming from precision ag, and the illegal recreational cannabis market in the US alone is said to be worth between $50 billion and $100 billion, according to Leslie Bocskor, managing partner at Electrum Partners, a fund management company focused on the sector. With states such as Nevada eyeing recreational legalisation next year, the market will start to deliver on this potential.

While we would hope that big names such as Google and the investors in huge tech successes such as Facebook and PayPal would have a good grasp of the technologies that will succeed, there also appears to be a long way for agtech to go to penetrate the global farming community. Amid increasingly harsh and unpredictable weather systems globally, and of course a growing global population, farmers and agribusinesses the world over are looking for yield and efficiency improvements. Agtech has a huge role to play in this.