Current environmental trends in the food tech space
Current environmental trends are impacting M&A, VC & capital raising transactions in the food tech space. We are living in a dynamic, complex, and changing world, with high rates of population growth. We are trying to get past a pandemic that seriously affected the world economy in 2020 after the first Covid19 infected case was detected by the end of 2019. We are in the last quarter of 2021 with some positive economic signs while we still navigate the pandemic and other challenges all over the globe.
According to the United Nations during the last 70 years, the world population has increased more than 200%. In 1950 we were 2,500 million people, today we are near 8,000 million, and by the end of this century, we will live in this world more than 11,000 million consumers, yes… consumers that will need food and water to survive. This population growth signifies a logistic challenge to satisfy food demand needs and at the same time the challenge to reduce the environmental impact as a consequence of these activities. (1)
Effects of changing the food industry
The changing of the food industry, the M&A, and capital raising activity in this space are rapidly changing.
The overall food industry is directly impacted by current known phenomena: climate change, food security, the depletion of natural resources, technology applied to agriculture, ESG policies, logistic constraints, and costs, among others.
The development of sustainable agricultural practices, the protection of biodiversity, the development of rural areas, the efficient use of water, and the reduction of food loss and food waste are among key challenges but also investments opportunities for restless investors.
In this scenario, investing in the food and agriculture industry can play a key role in providing solutions to the many challenges we are facing. Investors are taking action over opportunities to invest in technological solutions that can make a measurable, beneficial social and environmental impact in the food sector toward a sustainable economy.
According to the Pitchbook Food report “Journey to a more sustainable Food System,” technological innovation over the past 100 years has been critical in increasing farm productivity to meet the demands of a growing population. However, agricultural industrialization and the current focus on short-term productivity gains have created long-term sustainability issues that affect the environment, human health, and farm fertility. These issues include pollution in the form of greenhouse gas emissions (GHGs) and fertilizers, drought and water scarcity, food waste, and soil degradation.
Considering these challenges, the Agtech industry is leading the way in developing products and solutions to help farmers address sustainability challenges and adapt to changing environments. Some of the more transformative areas of Agtech innovation include indoor farming, which can dramatically improve resource efficiency; alternative proteins, which can reduce GHGs; automated field robotics and drones, which can improve farm productivity and soil health; and advances in biotech such as microbial biochemicals, which are leading to the development of safer fertilizers and more resilient crops.
The venture capital and M&A activities in this space during the last several years with an emphasis in 2020 & 2021, are a good signal of how this phenomenon is motivating investors looking for opportunities to capture value through these trends.
According to the Pitchbook Foodtech report Q1 2021 the food tech market opportunity was valued at around $369 billion in 2020, expecting to grow in the mid-teens annually to reach $777 billion by 2025. As this report says the fastest-growing opportunities are in the food suppliers and intermediaries & delivery sectors, which are experiencing rapid digitization of traditional models, further accelerated by the pandemic.
Venture funding surged in Q1 2021. Investors deployed $10.1 billion across 241 venture capital deals led by online grocery and food apps & marketplaces providers, marking a 122.3% QoQ increase. While deal activity fell significantly in Q2 2020 because of the pandemic, it has steadily climbed as investor confidence has risen. Investment activity was dominated by e-commerce providers enabling consumers to purchase food at home. Demand for food delivery and pickup spiked during the pandemic, and that interest will only grow as e-commerce product offerings become table stakes for foodservice and retail providers and as an investment in e-commerce infrastructure leads to improved user experience.
Online grocery has been one of the fastest-growing food tech categories over the past six years, driven primarily by the aggressive efforts of large retailers including Amazon—with its acquisition of Whole Foods in 2017—and Walmart (NYSE: WMT), to gain a share of the market. The COVID-19 pandemic has also acted as an important catalyst for online grocery, spurring traditional grocers to accelerate investment into e-commerce capabilities.
Delivery apps & marketplaces:
Sales through restaurant delivery apps and marketplaces surged at the onset of the pandemic. Indexed US sales roughly doubled in the first months of the pandemic and have continued to climb through March 20214 due to shelter-in-place orders, closed dining rooms, and ongoing fears of virus transmission from the public congregation. The massive influx in demand for food delivery apps bolstered VC activity in the space in 2020, with $9.0 billion invested across 49 deals, marking a 9.6% increase in deal value.
Existing plant-based proteins have faced supply chain constraints as well as environmental challenges. For example, strong demand for pea protein, which is used by Beyond Meat, Meatless Farm Co, and other plant-based providers, has led to increased prices and supply chain shortages. While production of microalgae is currently expensive, the industry does not face the same kind of supply chain challenges, and we expect prices could decline as production scales (3)
These are some market trends and challenges that came to stay in the Food Industry. Not so many years ago Technology R&D was focused and linked to more traditional sectors like manufacturing, aerospace, automotive, pharmaceutical, etc but regarding current market movements explained above we will be seeing in the coming quarters a wave of investments from VC and PE looking for opportunities to solve food production challenges in the current environment. Up to the reader Being an Observer or protagonist?
• United Nations World Population to 2300 report (1)
• Pitchbook Food report “ Journey to a more sustainable Food System
• PitchBook Q2 2021 Emerging Tech Research Foodtech. (3)
• Pitchbook Foodtech report Q1 2021
• Mckinsey: “On food processing and handling ripe for disruption
By Daniel Boutmy / CDI Global Managing Partner