Consumers look for ventures that aim to conserve energy, water and chemicals and fight disease with natural methods
WINNIPEG/KANSAS CITY (Reuters) — North American investors are pouring money into agriculture technology despite turbulent financial and commodity markets as cutting-edge advances that enhance farm production bring opportunities for profits.
Investment in this technology, which spans plant and soil technology to drones, amounted to $2.06 billion in the first half of 2015, which is on pace to smash last year’s record $2.36 billion, according to AgFunder, which matches startups with investors.
Technology that reduces reliance on chemicals and fertilizers is one area of interest. Glyphosate, the most widely used herbicide, was classified this year by the World Health Organization as a probable human carcinogen, and farmers also face scrutiny for over-applying fertilizer.
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Biologicals, which use natural sources such as bacteria, are especially attractive. In this field, researchers harness soil and plant microbes and bacteria for products that protect plants from disease and drought.
Biological solutions face fewer regulatory hurdles and are seen as more environmentally friendly than chemicals while still yielding crop production benefits, agricultural experts said.
“This kind of capability is really what we believe is necessary for the future of food production,” said Sonya Franklin, director of microbial traits at Monsanto.
Some companies in the sector could see revenue growth of 20 percent per year for five years, said Todd Solow, a partner in Norwest Equity Partners of Minneapolis.
Norwest’s sale of agriculture technology company Becker Underwood to BASF Corp. for $1.02 billion in 2012 came after its revenue increased four-fold to $246 million from the time of Norwest’s 2004 purchase of a controlling stake.
“If you have differentiated technology and can prove to the market that you have yield-enhancing capabilities, you have the potential for very significant growth,” said Solow.
That kind of return has attracted the interest of Bank of Montreal, which is looking to help companies raise funds before initial public offerings and facilitate mergers and acquisitions.
“There are all sorts of new technologies being developed in and around crop nutrients, crop efficiency, seed efficiency,” said Greg Pearlman, head of the bank’s food and consumer group.
“We think this is a hot area.”
Monsanto, Syngenta and the Bill & Melinda Gates Foundation have invested in AgBiome of North Carolina, which recently raised $34.5 million for research and the launch of a new biological fungicide.
“The industry has an ongoing need for new and innovative products. We have a lot of people to feed in the coming decades,” said Dan Tomso, AgBiome’s chief science officer.
Agrium has also invested in the sector, buying stakes in two plant technology companies last year.
“In the last two years, definitely it’s picked up in the number of companies willing to talk about joint ventures or all-out acquisitions,” said Brent Smith, vice-president of Agrium subsidiary Loveland Products.
As well, Intrexon Corp. recently bought Oxford University spin-off company Oxitec, which specializes in controlling insect damage to crops, for $160 million.
Venture capital firms have also been attracted to the sector, with funding up two percent from July 2014 to June 2015 from a year earlier, despite a 16 percent dip in the broader “clean tech” sector, according to professional services firm PwC.
Symbiota of Massachusetts, launched two years ago with $7.5 million from Flagship Ventures, is testing products to help crops yield more with less water and fertilizer while fighting disease.
“The potential for this space is absolutely astronomical,” said founder Geoffrey von Maltzahn.
At the ground level, farmers are paying more to grow more.
Mark Nelson uses modern technology on much of his Kansas farm, but he said the costs are high.
Still, he sees improved yields from the latest farming advances.
“It’s not our father’s agriculture anymore.”
