After a smashingly successful 2021 (check out my 2021 end-of-year review), the ag and foodtech industry is looking to the future. So what trends, disappointments and maybe even a few jaw-dropping shake-ups may dominate the agri-foodtech headlines in 2022?
As the CEO of CS Partners, an agri-foodtech talent search company, I’ve talked to lots of companies about their plans for 2022, but nobody has their finger more firmly placed on the future pulse of agri-foodtech than my friend and colleague Adam Bergman, Managing Director, Clean Energy Transition Group and Global Head of AgTech Investment Banking for Citi.
Bergman’s journey into AgTech started with the solar energy investment boom back in 2005. That led him to be one of the first investment bankers to focus solely on the CleanTech sector, working in transportation, energy, and food and agriculture. Bergman helps food and ag companies in all stages of development raise capital and pursue M&A transactions, supporting visionary leaders and innovative technology and business models dealing with the twin challenges of climate change and global digitization.
Bergman joined me in May 2021 for a “Leaders on a Mission” podcast exploring trends and opportunities in agri-foodtech and graciously agreed to let me pick his brain once again, coming
up with 12 hot takes for the next 12 months of agri-foodtech.
Bergman’s 12 Ag and Food Tech 2022 Predictions
1) Alternative Proteins Hiccup… and Keep Growing
Bergman warns what we’ve seen recently in alternative proteins has been a “fad within a trend.”
“Long term, alternative protein is going to grow tremendously. That said, the level of growth we’ve seen in that sector was wholly unsustainable,” Bergman says, pointing to alternative meats in particular.
Much of the excitement for alternative meats was underpinned by the likely one-time marketing investments by food retailers like Burger King and Dunkin’®. As a result, consumers were encouraged to try alternative meat, that’s good, but we’re not “at the point of full-scale adoption,” whereby consumers have added plant-based meats to their weekly shopping list. On the other hand, alternative dairy has made significant inroads and is positioned well ahead of alternative meat at the moment, capturing 15% or more of the marketplace.
All that said, Bergman is still bullish on the long-term future for alternative meat products.
Concerns over nutritional quality issues will be addressed in 2022 or 2023 with “healthier, more nutritious substitute products.” In addition, expect to see more cellular meat and dairy products and regulatory movement, following on the heels of cellular meat’s first regulatory approval for chicken nuggets produced by Eat Just under the GOOD Meat brand (Singapore in December of 2020).
And watch for a play on the ingredient side (think alternatives for eggs!) as well as the blending of regular protein and alternative protein to get consumers used to the idea of eating alternative protein products daily.
2) Working Out the Kinks in Vertical Ag
Indoor, greenhouse technology is well-established and making money. Vertical farms, however, is still working out the kinks.
“Remember, that only in the past decade did the cost of LED lights drop to a point where they made economic sense for vertical farming,” Bergman says. “So, it’s not surprising that many of these companies are still early on their development and commercial roadmap. That said, they are making tremendous, tremendous progress and have a very bright future.”
Rather than everyone “chasing leafy greens and herbs” or building warehouses in cities, Bergman sees opportunities in more innovative applications of vertical farms. For example, build a vertical farm next to a distribution center right outside a city (rather than in it). Expand into crops like berries and other high value produce rather than just leafy greens and herbs and create branded products using the produce grown, like dressings and sauces. Developing new genetics specially adapted to vertical, controlled ag conditions are likely to be game changing innovations for vertical farms.
Small, modular applications, like in-store farming units, are intriguing but will the economies of scale work out?
“Although growing produce in a grocery store where you’re actually harvesting it yourself is really innovative, I just wonder whether you can make money? If your roadmap to getting profitability seems unrealistic, you’re probably not going to get there.”
3) Investors Will Join the Ag and Food Tech Party If Their Friends are There
Investors into ag and food tech are starting to “club together,” Bergman says, creating a two-tiered system that supports some companies very well, but ignores those who hadn’t caught the investment community’s attention.
Those companies, including early-stage startups, that do attract established investors’ support, or an investment syndicate will have an easier time raising even more money. On the other hand, those operating on a shoe-string that have been around for a few years, struggling to get commercial traction, will be increasingly overlooked.
“I’m finding more and more that the investor community wants to see familiar names among the existing investors. If they don’t see other well-known, well-respected investors, then they are much more skittish to get involved,” Bergman says.
4) More Public Offerings Coming the Second Half of 2022 (and into 2023)
AgTech companies are maturing, scaling their commercial operations and getting market traction, which bodes well for more IPOs and SPAC deals like the sector started to see in 1H 2021.
However, Bergman thinks those offerings will start during the “second half of 2022 and then accelerate into 2023.”
There is a lot of investor education yet to be done in the AgTech and FoodTech sector, especially with public market investors.
“We have a whole class of public investors who are relatively unfamiliar with this sector. There are only a couple of indoor farming companies that went public through SPAC deals and a few alternative protein companies that used traditional IPO processes,” Bergman says. “So, there’s a tremendous amount of education needed to assist public market investors to become more knowledgeable and comfortable with these companies. I think that’s going to take some time.”
5) Supply Chain Opportunities Derailed by Cost
Especially in the enduring Covid world, supply chain innovation has been an enormous opportunity. But, new ventures will struggle if it means increased costs to consumers.
The supply chain is “hugely under-invested in,” which is in large part because there just aren’t that many great business models out there yet, Bergman says. Ideas like increasing food safety through traceability or streamlining farm-to-retail ordering through technology have potential.
Still, will consumers be willing to pay more for their groceries at the end of the day?
“There are too many middlemen driving up distribution costs. Technology can be used to make the distribution system more efficient and less expensive, enabling the implementation of more food safety and traceability without raising food prices. However, the distribution system will be slow to change, so I am a little concerned whether we’re going to see a huge increase in the amount of technology that’s coming into the supply chain in the near-term as it costs money and I don’t see consumers willing to pay extra for it at the moment.”
6) FinTech Coming to the Ag Sector
The time is ripe for banking innovation for the agricultural sector.
The traditional banking system has “failed the ag sector,” and farmers and agricultural companies are looking for alternatives, Bergman says.
He foresees fintech opportunities and a shift toward banking innovation in agriculture.
“The ag sector is going to respond by using the latest financial technologies to figure out ways to more effectively finance innovative technologies and work more efficiently, cutting banks and others out of the middle of this because they’re just inefficient and taking money for doing very little,” Bergman says.
7) Focusing on Food Waste
With increased consumer demands for solutions to climate change and food-production challenges, expect to see more innovations on the food waste side of the problem, Bergman says.
“That 20% of what goes into landfills is food is just a shocking statement. It’s not just that we throw it out and the emissions caused by rotting in the landfill. It’s that we grow 20% extra food, use 20% more land than is necessary, 20% more water, 20% more chemicals and 20% more fertilizers. It’s just a waste,” Bergman says.
Countries looking to lower their carbon footprint are targeting food waste as an obvious solution to not only appease concerns over climate change but to save money, Bergman says, pointing to recent statements from Chinese President Xi Jinping about food waste.
“If you’re China, a country that imports a tremendous amount of food, you can’t justify wasting it,” Bergman says.
8) Consumers Drive Carbon Markets
Bergman sees potential in carbon markets because consumers rather than government-backed programs are driving them.
Unlike the governmental tariffs and incentives that underscored solar energy’s initial investment drive (and then market collapse), the impetus for carbon markets is coming from consumers. That has staying power, Bergman says.
“Consumers are going to stay vigilant and they’re the ones driving this change. They’re going to keep pushing the retail side, consumer packaged goods, big ag, to support sustainability. And carbon sequestration in the ag sector is one of the main ways that this could be done,” Bergman says.
9) Biologicals for the Win
Investors aren’t interested in supporting more efficient chemical-based technology in farming. Instead, they want to support biological solutions.
“The investment community is looking to the future,” Bergman says, and most believe chemical-based solutions are a dying sector. “A growing number of investors are ambivalent about more efficient chemical solutions and remain laser focused on biological solutions”
Bergman says it parallels what happened in the investment community with natural gas vehicles. Natural gas was heralded as a bridge between petroleum-fueled and electric cars, but investors were not interested in supporting natural gas, a fossil fuel solution. Instead, they wanted to go straight to electric vehicles, even if the time horizon was more than one decade away. It is the same thing we are seeing with crop input as a growing number of investors prefer to skip more efficient chemical solutions in favor of biologicals.
10) A Deep Dive into Soil Health
Following close on the heels of the interest in biologicals will be big wins in a deeper understanding of soil health, Bergman says.
Expect to see continued movement in digitization and other innovations in understanding and tracking the complex world of the soil microbiome.
“It’s interesting to me how little we still know about the soil,” Bergman says. “We’re going to see a lot of growth in this area over the coming years because to implement plant health solutions more efficiently, we’re going to need to have better knowledge of the soil.”
11) The Money Will Keep Growing — But Rate of Investment May Slow
The bubble isn’t about to burst anytime soon when it comes to total investment into AgTech and FoodTech as there are plenty of new investors coming into these markets that need to “put their money to work,” Bergman says.
“I think there could be some bubbles around valuation, but I don’t think there’s a bubble around the investment dollars. The amount of investment capital is appropriate for a sector of the economy that’s worth trillions of dollars annually,” Bergman says.
That said, he foresees the number of investments slowing down but the amount of money per investment increasing, a trend that started to appear in 2021.
“So, the investments are bigger, but there’s fewer of them.”
12) Sector Consolidation is Coming
This year or next, Bergman predicts more consolidation in the marketplace. Expect to see the big, established ag and food players and well-capitalized AgTech and FoodTech companies making strategic acquisitions.
It’s also part of that emerging two-tiered system in the AgTech and FoodTech investment sector. Those companies that haven’t raised significant capital and are unable to scale profitably will go bankrupt and their assets will be acquired.
Unlike the big energy and transportation companies that largely ignored the initial drive into sustainability start-up innovations, the big food and ag companies have really embraced technology innovation and positioned themselves well for long-term shifts in the sector, Bergman says.
“In the end, the established players are likely to be the long-term winners. However, a number of AgTech and FoodTech companies are emerging that could also be winners, by leveraging technology, making opportunistic acquisitions and being nimble in a sector where incumbents are slow moving. But we’re not going to see incredible disintermediation where all the CPG brands and big ag companies that exist today won’t exist in five or 10 years from now.”
Is Your Company Ready for 2022?
Thanks, Adam. Those are some great insights for the upcoming year!
Whatever 2022 might hold for ag and food tech companies, the year is guaranteed to be another record-breaking one! So, make sure you’re ready with the talent your agri-foodtech company needs to make your 2022 vision a reality.
Reach out to me at S.Leich@cs-partners.net and let’s talk about activating your company’s talent pipeline.
