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By Robin Saluoks, co-founder and CEO of eAgronom.
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A few years ago, writing an article about agriculture in a business outlet would have appeared very out of place. Who would have been interested in a bunch of farmers plowing their fields with tractors? However, with the realities of the climate crisis becoming ever clearer, wars and natural disasters destroying livelihoods across the globe and threatening food security on top of the global finance sector being under pressure to clean up portfolios and promote sustainable futures, agriculture is now a hotbed for investment and innovation. It is also where clever tech and business brains should be heading.
Without agricultural transformation, there will be no future.
It’s that simple. We all need to eat and drink to survive, but the food system is in urgent need of transformation. To reel off a few stats, on average 70% of global freshwater is used for agriculture, the global food system accounts for nearly a quarter of greenhouse gas emissions and 25% of the world’s land has been degraded, all against a backdrop of the need to adapt to climate change and be prepared to feed 10 billion people.
Agriculture is an industry with extremely complex and multifaceted challenges that require visionaries, strategists and doers. It is a sector full of potential to make a substantial contribution to the future of the world. With many people burned out and questioning their purpose on the corporate treadmill since the Covid-19 pandemic, helping to transform the agricultural sector brings fulfillment, purpose and hope. There is also room for financial success. Doing good does not exclude financial reward.
Focusing on access to finance for farmers provides an agritech boost.
Agriculture is becoming increasingly popular with an investment community under growing pressure to join the climate fight and stop funding polluters. This trend is in large part a result of major legislations and regulations in the EU and USA. The Inflation Reduction Act of 2022 (IRA) that directs new federal spending toward reducing carbon emissions, among other things, includes nearly $40 billion in provisions for the agricultural sector to boost things like climate-smart farming, agricultural conservation, clean energy provisions and agroforestry.
Across the pond, the EU Taxonomy provides a set of guidelines setting out what is defined as a sustainable investment and aims to redirect investor capital toward projects that inflict no harm. Large corporations and financial institutions are required to report on sustainability efforts, which has led investors to zone in on suitable industries, including agriculture. In Europe, two-thirds of the economy is financed by banks, giving them immense power and responsibility to assist in the transition to a sustainable future.
One trend that is emerging is the use of sustainability-linked loans to provide businesses with more favorable lending terms for adopting sustainable practices and taking action on climate change. For example, in the agriculture industry, these loans are tied to specific sustainable farming requirements that farmers must meet during the loan term. To this end, banks are starting to partner with technology companies to provide the necessary mechanisms to effectively administer these new types of loans, including the measurement, verification and validation of sustainability-related practices of farmers receiving the loans.
The same measurement tech in combination with the emergence of carbon credit pre-payment mechanisms has given farmers the chance to earn extra income by embracing regenerative farming. While fraught with controversy, high-quality carbon credits that are measured, verified and validated are an important element in the transition to a low-carbon future and provide a crucial source of funding for the farming sector that has an age-old problem with access to finance.
While the global economy is going through an incredibly challenging time, the agritech sector is in a better position than most to weather the storm. AgTech VC deals jumped from $6.5 billion in 2020 to $11.4 billion in 2021, and while growth is likely to slow down, the eyes of the investment community look favorably on the sector. In addition, thanks to the emergence of new finance mechanisms for farmers, we are going to see a lot more demand for transformative agritech throughout 2023 and beyond.
What should you know before entering the industry?
Given these trends, some entrepreneurs might be thinking about entering this space. While I believe now could be a good time to do so, here’s what to consider.
The agricultural sector is a very highly subsidized industry, which at the same time is heavily regulated. The regulatory environment is likely to change drastically over the next decade as governments come under increased pressure to implement actionable strategies to address the climate crisis. While this is opening up many new opportunities for innovative entrepreneurs, it also creates a minefield of red tape and bureaucratic hurdles that need to be taken into consideration. Nobody should be put off by this, though—the rewards of working in the industry that feeds us are worth the effort.
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