INVESTING IN AGRICULTURAL PRODUCTIVITY AND FOOD SECURITY: THE NEXT INTERNET FOR VENTURE CAPITALISTS
Jim de Wilde (www.jimdewilde.net)
Students of agricultural chemistry, industrial ecology, food security and agricultural sciences are about to create the Apples and AOLs of the next generation of innovation. This is 1980 in the life-cycle of the next round of economic growth. Many policy analysts have noted that the real world of health, environment and agriculture has already converged. Pharmaceutical companies started to invest heavily in nutraceuticals at the end of the 20th Century. The relationship between food and health gave rise to the concept of nutrigenomics, proteomics and diet-based therapies. Causal links between diet and health outcomes started to work their way into epidemiology, immunology and oncology research.
The push or “tipping point” for a new way of investing comes from a number of factors: (a) the concern over diet and the deterioration of food quality which reaches the public eye through concentration on “obesity” research; (b) a growing awareness of the tradeoffs in environmental concerns which reaches the public eye through the discussion of the implication of biofuels investment on food production and food pricing; (c) the rapid changes in global food supply, reaching a public eye through the declining fish-stock and the mismanagement of ocean resources from cod to tuna; (d) the question of the security of the food supply-chain as both an issue of politics and an issue of resource management.
Canada, which is an agricultural superpower, has both a leadership role in this area and also a set of responsibilities. There is awareness of this in certain aspects of investment behaviour: the success of companies like Potash Corporation and Agrium, as pure plays on agricultural productivity through soil-enhancement and innovation in fertilizer usage. Bioengineering of food products to have insect-resistance and high-yield crops remains the most visible area of agricultural research, partially because of a need to find commercial prospects for the oversupply of biotechnology research in the scientific system. But the whole change in the economics of agricultural productivity remains as obscure a question when venture capitalists meet as was the notion of a personal computer in 1980 or the notion of a digital network for information exchange in 1990. There is no way given market demand that this cannot be the next giant wave of innovation, disruption and venture capital opportunity.
How can venture capitalists today play a constructive role in the next generation of agricultural productivity? The cereal company Kellogg’s (commercializing new technology for the processing of grain and the creation of new products like cereal) was a success in the intersection of what would now be called venture capital and commercialization of technology.
First, there is the development of new crops with high nutritional value and a capacity for yield per acre (Brazilian berries like acai).
Second, there is question of reusable products like bamboo cultivation for efficient yield per acre of products that can be used for biofuels and hardwood substitutes. An interesting case study is Madagascar Bamboo.
Third, there is the emerging area of food toxicology and the measurement of nutrient values. The Institute for Food Technologists annual meeting may be a good starting point for the next generation of venture capitalists, learning about food production and food preservation the way they used to learn about bandwidth. The Rudd Center for Food and Obesity at Yale similarly pioneers analysis of the linkages between food and health which create new business models for knowledge commercialization. The growth of food sciences as an academic discipline also creates new sources of knowledge. In Canada, the success of the University of Guelph attests to the competitive Canadian position.
Fourth, there is the medical area of food ingestion and health impact. New buzzwords like nutrigenomics capture the intersection of food and health and will create new markets for scientific research.
Fifth, there is the area of pesticides, herbicides and environmentally sound crop management. Pesticides are a key point of intersection between technology and efficient food production. Agraquest has received venture capital financing. The Israeli start-up Botanocap is an interesting case study as is what can be learned from the Canadian case study of Hedley Technologies, now owned by BioSyent.
Sixth, there is the area of new food sources, whether cultivated or harvested and research on everything from high-protein sources that provide better yield per acre than (for example), raising beef cattle.
But there are no Steve Jobs in this space yet, no Steve Cases and no Bill Gates. The debate over the food supply focuses on temporary disruptions as in bad meat or jalapenos. My purpose today is to suggest a few areas which are beneath the radar screen in which significant new companies may be capitalized.
- A global map on soil erosion, restoring soil fertility and land use is required. The National geographic published recently an intriguing article on this by Charles C. Mann. Other activities in restoring soil fertility include the Tigray Project in Ethiopia.
- Scandinavian research in industrial biotechnology has led to some interesting developments in “functional foods”. Research at the University of Toronto is developing in this area. The venture capital community is starting to look at nutrigenomics as an area, but activities in this area are at an early stage, Asia-centered. One North American case study to monitor is Salugen.
- Endeavour capital in New Zealand has financed a technology commercialization and design project at the University of Waikato on using animal waste to create some specific biodegradable plastics.
The point of this investment strategy note is to look at global venture capital activity in the food sciences and agricultural productivity spaces and look at the shape of a new generation of industries taking shape. For MBAs looking at venture capital trends and profiles, they will know that we cannot guarantee the fit and contours of industries. Cisco was not supposed to be a router-based technologies company. The disruption taking place is that food sciences is becoming a cornerstone of health/environment/economic development strategies. Within this, there are some clear categories ripe for high-skilled, venture-backed management teams to create significant niches until the restructuring of global food production and global food-health management takes some new disruptive shapes.