The agricultural sector is under pressure from several directions, including depressed commodity prices, increased regulation, climate change, and changes in consumer tastes. This pressure creates a demand for technological progress, and that in turn creates a market for agtech.
Two years ago, Finisterre Ventures and Pitchbook combined their data gathering operations with the intention of producing comprehensive reports about investment in agricultural technology.
They have since produced three global overviews. But they have come to believe that their emphasis on the Big Picture has limited their ability to get granular, to “dive into intra-segment trends,” as they say. Now they are putting together shorter, more targeted posts on topics of importance to agtech investors in what they call a “new, more relaxed format.”
In this spirit, Pitchbook has posted an article on crop protection and inputs management. In 2018, $2.2 billion was invested into agtech, and one third of that, or $737 million, in this crop protection subsector of agtech. Throughout the past couple of decades, investment in this subsector has skyrocketed, and there has been an unprecedented level of vertical and horizontal consolidation, that is, merger and acquisition activity. The agchem giant created by this consolidation are outsourcing innovation.
Areas of Activity Within the Subsector
But let’s pause and ask ourselves: what does crop protection and inputs management involve? The Pitchbook article identifies the following four areas of activity: synthetic chemistry; naturally derived inputs (biologicals); formulation and enabling chemistry; and new emerging technology.
Companies involved in the second of those listed fields, naturally derived inputs, have dominated investment interest in recent years, whether as measured by deal numbers or total capital invested. Companies developing these products commanded more than 92% of all the capital deployed into this subsector in the period beginning 2012. 2018 was a growth year, with $686.6 million deployed into this sector.
The reason for the dominance of the biologicals is not a mystery. Such products have a simpler and quicker path to market. They enjoy a more favorable reception from both consumers and regulators. But this activity hasn’t proven itself at the bottom line “despite the availability of capital for product development, to date no naturally derived crop input product has achieved the level of market success of leading synthetic chemistry products.” The biologics have “not yet been able to prove out conclusive advantages relative to synthetic treatments.”
Agtech investors recently woke up to this misalignment between capital available on the one hand and actual market demand for the resulting products on the other. Only two years ago investment in companies that are involved in the development of novel synthetics—companies such as AgriMetis, AgPlenus, and Enko Chem—was a mere $1 million (2016). But in 2018, that number was $48 million.
This trend of the advancement of the synthetics at the expense of the of-late-dominant biologics, may yet intensify. Biologics typically have narrow spectrums of efficacy, are less efficacious than their synthetic counterparts, and tend to have costly manufacturing processes that can be tricky to scale.
That doesn’t mean that biologics are a dead end. It means that they may have to develop in tandem with complementary technologies. This thought brings us back to the third of the fields of activity named above, formulation and enabling chemistry. This includes “synergists, adjuvants and delivery design platforms.” Some companies active in this area are: Terramera, Vive Crop Protection, and Agrymex.
Terramera in a Vancouver-based concern that, on its website, describes its IP portfolio as extending across key geographic markets, (Europe, North America, South America, and Asia) and product markets with “innovative delivery compositions.” For example, Terramera recently acquired a portfolio from Exosect Ltd., for products that counteract a variety of crop diseases and pests without the use of synthetic pesticides.
Finally, under the heading of “new emerging technologies,” the Finistere/Pitchbook paper addresses agrochemical companies that have “invested heavily into digital strategies.” No less notable a corporation than John Deere recently acquired start-up Blue River just so that it could have a finger in this particular pie.