Agriculture has always involved innovation. From stump-jump ploughs to electric fences, innovation has not stopped and there is not a single organism grown on a modern-day farm that hasn’t been heavily genetically shaped from the original wild variety (even the weeds have evolved to be herbicide resistant).
So, if agricultural innovation has been advancing since the first crops and animals were domesticated in Mesopotamia, what is this movement called Agritech (or Agtech for the alphabet efficient)?
According to the Agritech Association of Australia, Agritech is the application of technology to agricultural production, food and the food supply chain. But what is technology? Is plant breeding involving CRISPR gene editing considered ‘tech’? Not necessarily. As Dennis Denuto said in “The Castle”, it’s about the vibe… and specifically for Agtech, it’s about the digital vibe. So, generally speaking, there needs to be software and coding somewhere within the tech solution.
The old delineation of whether the value proposition is the business of selling the digital technology (eg, a software subscription or licence), as opposed to selling something enabled by technology, no longer seems to apply. Amazon took care of that concept decades ago. Nobody buys Amazon – they buy a toaster through Amazon. Amazon clips the ticket just like a traditional retailer except Amazon’s business model is enabled by the digital interface, rather than a physical shop front. But when so many manufactured products have a digital microprocessor within, including the toaster you just bought on Amazon, isn’t everything, other than a shovel, enabled by ‘tech’ now.
The vague ‘vibe’ delineation continues further. For example, automated vehicles are tech but a software enabled tractor isn’t. A drone is tech but a Boeing 737, kept in the air through millions of lines of software code, isn’t. A controlled environment, vertical salad greens growing facility is tech, but a greenhouse isn’t. The vibe is that ‘tech’ must involve a new business model (the risk wary may prefer the word ‘unproven’).
It’s about now that a look back at history is useful. The late 90s internet-driven wave of digital investment (the dot.com era) was infamous for writing off ‘old economy’ organisations such as car manufacturers and mining companies. New economy internet-enabled businesses were the in-thing. However, importantly, the low interest rate environment in the late 90s fuelled the business models that drove tech and gave rise to the vernacular of ‘start-up’. Cheap money was looking for a home and the age of the internet spawned a multitude of good (and many bad) ideas that sucked up those dollars like a V8 powered Hoover.
Perhaps that gives an insight into the origins of ‘tech’ in today’s context. We have just lived through the age of free money, driven by quantitative easing. At no other time in modern day history did negative interest rates exist. This flush of bucks was seeking significant returns and had to look outside the boundaries of ‘normal’ to attempt to find them. Is it any surprise that some of it flowed to new business models devised using the concurrent spread of connectivity? Everyone has a data-enabled computer in their pocket (i.e. smartphone) that is connected through a network to massive data storage and processing capacity called the Cloud. This tech has disrupted the taxi industry (Uber), the movie industry (Netflix), the recorded music industry (Spotify) and so on. The same connectivity allowed rapid pursuit of automation which has nicely collided with electrification and tech has advanced into the physical world as the Internet of Things. And that is the doorway that Agtech has truly entered.
All new business models must: create a new category; compete with incumbents by doing things more efficiently (cheaper); and/or develop a proposition that customers will pay more for. In the world of agriculture, value creation is intrinsically related to the physical world. Freighting a tonne of hay involves fighting friction and gravity through the utilisation of equipment and energy. It is difficult for a digital solution to materially change those costs and hence Agtech has had to look very hard to find models that work in a vast physical environment with few users and poor connectivity. Simple information solutions were the low hanging fruit, complex information solutions involving sensors and algorithms the next frontier, and fully automated farming systems the Agtech holy grail.
As we saw in 2000, the rubber hits the road for new tech-models once the cost of capital increases, which is happening right now - fast. Once investor money is expended, cashflow, the lifeblood of a business, is reliant on profit, and if there is one thing tech companies historically struggle with, it’s generating a profit.
Agtech models will be under stress in the coming months and years - which do you think will survive?
