Innovations in Agriculture: A Lucrative Field for Investors

iFarm - vertical farm in Finland
  • Investor interest in vertical farming surged in 2020, reaching $929M in the US alone.
  • Vertical farms enable non-agricultural market players to produce enough food to justify a need for their services.
  • AI can increase the efficiency of harvesting and give added value to agricultural equipment.

Disruptions in the tech industry have influenced several verticals. Big Data, Artificial Intelligence, and Machine Learning have changed the way many businesses operate. The same also goes for one of the oldest activities that humankind has been engaged in, agriculture. Digital solutions applied to farming, might not only be a potential answer to the global food crisis, but also a lucrative field for investors looking for innovative products.

The overlap emerging between traditional agriculture and IT is often labeled AgriTech or ‘smart farming.’ Several use cases have already become common, for instance, drones and satellites that monitor vast areas of land to evaluate crop conditions; smart sensors that inform farmers about soil processes; automatic systems that distribute water and fertilizers according to the needs of the crops.

The AgriTech sector is also one of the most dynamic areas for investors. According to Tracxn, this market has an overall funding of $28.6B with 2.2K+ companies. “It is also interesting to note that more than half of the funding was raised in 2018-2019,” says the platform. During the M&A Community webinar, we examined more closely a couple of smart farming business cases.

The iFarm Case: Smart Farming as SaaS

Vertical farming is a relatively new development where crops are grown in vertically stacked layers within a controlled environment that optimizes plant growth. iFarm introduced automated vertical farms with growing modules that can be located at retail chains and restaurants. ‘This is an innovative agricultural tool, and a rather unconventional one. So, the financing is also unconventional, mainly venture funds, focused on the IT industry,’ says Alexander Lyskovsky, Founder and President at iFarm.

He admits that they aren’t talking about billions of dollars of funding since the sector itself is relatively new to the market. Lyskovsky explains that the main iFarm product is vertical farms that supply ‘ultra fresh’ food–vegetables and berries. They do not undergo any heat or freeze treatment as they are intended to be consumed as soon as they are picked. With vertical farms, he continues, in winter, you can have the same salad from tomatoes and arugula that you have in the summer. The demand for such products remains stable, regardless of the season.

‘It may be an answer to the question of the need to import. For example, in winter, Russia buys tomatoes from Morocco. Imagine what a poor tomato has to suffer on its way here! There is nothing left to taste,’ as he so vividly puts it.

Lyskovsky believes that the iFarm solution enables crop production even in the periods in which it is usually impossible to grow them for geographical reasons. It can also tackle the burning issues of food production, namely the optimization of supply chains, chemical-free horticulture, automatization of processes, and incentives for local farming.

The iFarm founder lists the following benefits of vertical farming:

  • ‘Hyperlocality’: the greens are grown near the customers. Small and medium businesses running such farms aim at delivering in their vicinities, thus reducing the transportation costs, and the need to apply chemicals to preserve the freshness of the products.
  • This solution uses up to 90% less water and 99% less soil than traditional farming.
  • Such farms can operate 24/7/365, all the while reducing their carbon footprint.

According to Pitchbook, investor interest in Controlled Environment Agriculture (CEA), also known as vertical farming, surged in 2020, reaching $929M invested across 41 deals in the US. ‘This is over 2x greater than the 2019 aggregate deal value. Technology advancements in robotics, computer vision, artificial intelligence and machine learning (AI & ML) are reducing the cost to build and operate CEA facilities and improving productivity, thereby enhancing the sector's attractiveness,’ the report says.

This market will reach ca. $131B in volume by 2025, Lyskovsky adds. Venture Capital is already showing great interest in it. The iFarm founder lists a couple of significant deals in the industry, such as investments in Plenty (US, $140M in series D), Infarms (Germany, $304.5M in series C), and AeroFarms (US, $238M in series E).

The iFarm business model is SaaS-like: they provide their customers with software to launch vertical farms, and they also deliver monthly supplies. ‘Our software enables our clients to set up production without agronomists, agricultural chemists, or engineers. Our customers are often people that have never dealt with production agriculture before. These are stores, restaurants, airlines, etc.’ Lyskovsky’s company plans a series A round in 2021, a series B in 2022, and is eyeing an IPO in 2026.

Cognitive Pilot Case: Adding Value to Agricultural Equipment

“What we’re doing is more than ‘hype,’ jokes Andrey Chernogorov, Co-Founder of Cognitive Pilot, ‘We’re doing AgriTech combined with artificial intelligence, bringing cutting-edge technologies to agriculture.’ He says that the Russian domestic market is an excellent launchpad for AgriTech startups since government support enables big and middle producers to modernize their approaches and equipment. Currently, they are actively buying new tractors and harvesters.

His company addresses one of any agricultural producers’ critical pains: finding the proper time to harvest and doing it in a well-organized manner. As the critical window for harvesting is usually short, delays may result in substantial losses. Cognitive Pilot employs digital solutions to make existing harvesters up to 25-30% more efficient. For that, they use just one sensor device–a special camera installed on the cab to automate harvesting.

Last year, Chernogorov says, the solution was used by 22 large agricultural holdings in Russia–in three climate zones, for 12 different crops. ‘Our main value is our data set–imagery of various agricultural products and their peculiarities in different regions and at different maturity stages.’ Each new customer adds to this data set, thus enabling neural networks and AI to become ‘smarter.’

‘Ultimately, we are a kind of an informational hub for anything you want to do with your agricultural equipment,’ Chernogorov explains. With this in mind, his company is thinking about upselling via creating an app store within its C-Pilot ecosystem. Cognitive Pilot is planning to expand to Brazil and Argentina soon, both among the world’s largest crop producers.

‘I would also like to point out another global trend, crop production on new arable lands. In Russia, for example, the current cropland bank could be up to 30% bigger. In Brazil, we can talk about an eightfold increase, a sixfold one in Argentina. European countries and the USA have practically no such advantage.

The AgriTech market is poised to boom, Chernogorov believes. While the cost of new agricultural equipment can be hundreds of thousands of dollars, his company aims to create an added value to it by applying technology.

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