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If the Agtech bubble bursts, who will the survivors be?

Posted by Andrew Whitelaw on 22 January 2018
Andrew Whitelaw
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In recent years there has been an upsurge in agtech funding to previously unheard-of levels. A day doesn’t go by without a conference, media coverage or new product launch in the agtech space.

As with all start-ups there will be winners and losers, but what factors will help make a successful product?

The city stereotype of the farmer being conservative in nature and slow to change is outdated. As farmers struggle with the reality that in real terms market values for crops are little improved from the 1970’s, efficiency has become the key to success in agriculture.realwheatprice.png

In the race to become as efficient as possible and extract as much crop or protein per acre, farmers have invested heavily in technology, from biotechnology to GPS controlled autosteering seeding and harvesting equipment. 

The next phase of technological developments being introduced are principally in the software and data fields, an area in which few in the industry have experience.  

There are hundreds of new start-ups which are touting for investment dollars, however there is a large degree of duplication of ideas. As was the case during the dotcom boom and bust at the start of the century there will be winners and losers. Which businesses will become the industries webvan and which will become our Google?    

The agriculture industry is unique, with its own set of challenges. If you are considering investing in a new agricultural tech start-up or are considering developing your own, then it’s important to contemplate the following factors.

What factors will determine the success?

Does it address a need?

The sheer number of new ideas produced in incubators by computer scientists and engineers, has led to an issue of whether the products meet the needs of consumers.  A number of these solutions being developed aim to resolve issues which the farmer does not recognise as important, or in many cases the ideas are just technology for technologies sake.

The number 1 cause of start-up failure is lack of market need (CBS Insight), and there will be no exception to this rule in the Agtech space.

It is important to find solutions which address a need, and improve efficiency and/or profitability. The greatest example of an agricultural technology meeting the needs of farmers is the introduction of genetically modified crops in the United States.

Whether you love them or loathe them, it is clear that the American farmer has embraced this technology, with adoption rates above 90% across Soybeans, Corn and Cotton within ten years of introduction.

This is due to them addressing the needs of the farmer to A) Increase yields and B) reduce chemical usage.

Push-Pull vs Push

The push approach to introducing a new product is unlikely to be successful with farmers. If you attempt to develop a product, and then push it onto farmers, the success will be limited.

The most effective approach is to adopt a method of push & pull. There is no one with more knowledge of a farming operation than the farmer who has been running it for decades.

The most successful start-ups will be those who take direction and ideas from farmers as opposed to pushing solutions. This could be a form of co-investment with farmers or utilizing the expertise of organisations with existing experience.

Legacy Integration

mistake-3085712_960_720.jpgThere are a multitude of different technologies employed on farm already from account systems to yield mapping programs. As is the case in the wider world, integration between legacy and new systems can be tiresome.

The average farmer does not have the time nor the knowledge to link together different applications, with disparate programming languages. At the same time, they do not want to dispose of all their existing data or physical investment.

It is therefore of paramount importance that any new solutions take into account legacy systems, and how they can integrate their software with other sometimes competing software packages.

Cost-benefit analysis

When all is said and done, money will always be a driver in the decision-making process. Earlier in this piece we considered that crop prices are little removed from 1970’s levels, it is therefore important to improve efficiencies, but farmers will be examining closely the cost of any efficiency gain.

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There are many technologies which will potentially increase crop production, however at a greater cost than the benefit gained.

There are however other ways to considering the adoption of new technologies,  are there opportunities to contract in technology, or pay on a subscription model instead of a large upfront payment. It is a terrible situation to pay for a product, only to find the company later folds, removing any capacity for on-going maintenance or updates.

The adoption of aerial drones may be a key example of where farmers may lease or contract instead of purchasing outright. The use of a drone is not required year-round on farm, and requires a new skillset (not to mention health and safety assessments). It may therefore be advisable to contract out as opposed to a sizable capital expenditure.

The final thought

The products and businesses which consider the previous factors will have a higher success rate. Albeit, many will still fail, especially with a large degree of duplication already evident in much of the agtech space. 

We'd love to hear your thoughts on the start-up scheme in Australian agriculture, who do you think will be the winners and losers?

Topics: innovation, agtech

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