written by Ana Beatriz Zanforlin, agtech specialist @ Endeavor Brazil
Brazil’s agricultural system has gone through significant changes in the last decades. Until the 1970s, we depended on the import of many agricultural products and even on donations from developed countries. Considering this, it is a huge achievement to be one of the top leaders in agricultural production and exports nowadays. Brazil agtech ecosystem is just being created!
According to data from Empraba, a public research company for agricultural sciences, Brazil has only 7.8% of its territory occupied with agricultural production. We are probably one of the few countries with minimal infrastructure and stability that still has the potential for farmland growth. This has been noticeable in recent years in a region called MAPITOBA (the union of four states in central Brazil – Maranhão, Tocantins, Piauí and Bahia).
Farming keeps growing
To give just one example how agriculture has developed quickly: in 1975 we harvested 39.4M grain tons. In 2016/2017 this number jumped to 238.7M! Different structural factors played an important role on this path to becoming a global agriculture leader for many commodities. But the main reasons are related to the country’s blessed natural resources, investments in technology that made tropical agriculture possible and agricultural policies of the last decades.
Until 1985, the agricultural policy focused on securing the rapidly-growing urban population supply with price control and R&D investments. It was done to adapt cultures to environments considered hostile for agriculture. Today’s main areas for grains have acid soils, drought and no winter – which means a higher concentration of plagues and were thought not to be arable.
From 1985 to 1995, Brazil went through a financial crisis with uncontrollable inflation, lack of credit, and a later liberalization process. It exposed farmers to the market, naturally selecting those with higher productivities and excluding unprofessional businesses. Efforts in the beginning of the century were then directed to familial agriculture incentives, land reform and income support.
Brazil is huge – so its arable area
When we compare different geographies, we can categorize agriculture in three main regions with distinct characteristics. South Brazil is structured around farmers’ cooperatives, due to a mixed production and smaller land farms. These associations were formed with the coming of European immigrants at the end of the 19th century, that provided credit, technical assistance and agricultural inputs. Southeast Brazil is heavily marked by contract farming with high vertical integration between farmers and industry. This region is rich in citrus, cellulose, sugar cane and coffee. The third region is in central Brazil, mentioned before, where most grain and extensive cattle farming is located.
Given the importance of this industry, it was natural to expect a boost in agtech founding. Brazilian agriculture is highly mechanized with one of the best productivity numbers, but digital farming, remote sensing, data analysis and biotechnology are all areas still currently being addressed by startups.
… face big challenges specific to this industry – besides all the bureaucracy, lack of human talent and capital that all startups have to deal with here. While analyzing dozens of companies and interviewing experts, I noticed an interesting fact. Hardly ever the founder’s team composition included both someone with a tech background and someone with experience in agribusiness.
There are some clusters being established now – Londrina, Piracicaba and Cuiabá, for example – but typically these two profiles don’t meet. We end up with either good solutions for solving specific and real problems lead by first-time entrepreneurs. These executives often have no idea how to scale a business. Or end up with an incredible technology and business knowledge, but with no practical application for their potential customers. The ecosystem still has much maturing to do and our progress tends to be slower given the lack of capital and risk aversion, but the size of the opportunities is huge, so I hope to see great changes soon.
Another challenge faced by entrepreneurs in this industry is the difficulty of testing their products. Usually farmers will only agree to use their solutions and if so, in a very small area. Results then can only be validated after that harvest, extending development cycle times. Once products are minimally validated, distribution is a hard task given the country’s territory extension, strong players in the supply chain and a traditional mindset that resists technology (although, we do see many second generation members assuming farm management, different from what happens in Europe, which is facing trouble from a lack of interest in farming among younger generations).
VC and M&A Activity in AgTech Brazil ecosystem
Recently, we’ve seen some interesting movements in the agtech scene. Last year, Solinftec, one of the biggest digital farming tech companies in terms of monitored machines, was invested in by TPG, and more recently caught the media’s attention due a minor funding round from US-based startup and investment marketplace AgFunder. Strider, a startup providing tools for plague monitoring, and also one of the best-evaluated agtechs here, is being acquired by Syngenta. In a more quiet move, Bug, a company that produces wasps to substitute pesticides, was acquired by Koppert, a Dutch biotechnology company.
It is still early to say. This market seems to have good exit possibilities for entrepreneurs. The natural exit path for agtechs seems to be acquired by agricultural corporations – as those seen last year in the US. Agribusiness. This industry is rich, and there is more capital in those companies for investments. Besides this, the dominant players see digital farming as the next strategy for incremental productivity gains and are in a run for winning the market with their solutions. They are mostly acquiring companies with specific solutions such as remote sensing, precision agriculture and data analytics for later bundling them all in a stronger value proposition for their clients. This creates great exit opportunities for entrepreneurs. Still, few of them already have the mechanisms for such acquisitions, even less than their corporate venture capital funds.