In this blog series, Dr. Will McKay takes a closer look at one of the hottest sectors in VC at the moment – agri/foodtech, that is everything at play on the fields, farms, and factories where food is produced, to the final consumer via their favourite app.
New Zealand agri/foodtech
Given the role of primary industries as considerable contributors to NZ’s GDP ($14B, about 7%) there is considerable risk in ignoring global megatrends and sticking to business as usual. Instead, this is an incredibly exciting time to take advantage of opportunities in this changing landscape, building upon our technical strengths and the innovation ingrained in our nature, but we have much work to do yet. Revenue from NZ agritech businesses has been relatively slim (~$1.4B) and flat ($1.2B in 2018), compared with the incredible growth rate of the sector globally (30% CAGR) in recent years. This is despite our relatively good R&D spend compared to GDP in the primary industries sector.
This may suggest that our current mindset is largely in developing knowledge that improves company level operations, rather than industry wide and exportable or tradable products and IP. However, in some cases, there is also an inherent constraint in our local market size and specificity. Being that many of the production systems that make our primary industries world renowned are unique, the technological solutions that could enable improved performance are likely not implementable overseas. As a result, the potential growth rate and scale required by high risk investment in early stage companies developing these technologies is often not met.
This is not to say there are no opportunities in the NZ agri/foodtech ecosystem. Encouragingly we are seeing investor focus increasing in this space with international funds engaging. With this interest we also have the filling in and development of commercialisation skill sets which will be critical to enabling the scaling of novel technologies.
The government has also recognised the need for change releasing an industry transformation plan (2020) developed alongside industry, academics, investors, and research organisations. AgritechNZ has largely been tasked with its rollout with a task force including MPI, MBIE, MFAT, NZTE, Callaghan Innovation, NZGCP, Te Puni Kōkiri, and the Treasury. The vision: “A globally competitive agritech ecosystem, producing ingenious value-adding companies that provide meaningful jobs, solving New Zealand and the world’s sustainability problems.”
Local Innovation Focal Points
Alternative proteins are a particularly interesting space in the New Zealand context given the level of disruption they could have on our key revenue generating industries dairy, meat and fish. Established players are already starting to get involved, with Fonterra investing in Motif (2019) (Boston, USA) making plant-based and fermentation dairy and meat products. One of their competitors, New Culture, is Kiwi founded but has exported operations to California. However, we are also well placed to contribute and take advantage of the burgeoning industry at home given our level of expertise in protein research, taste sensory science and food product development. Furthermore, due to our biosecurity, food and animal health standards, and range of endemic raw materials, our products are well trusted by biotechnology, manufacturing, and consumer markets globally.
The large majority of activity in the alternative protein space in New Zealand is plant-based. Notable companies include Sunfed (peas), Food Nation (fungi and algae), Powered by Plants (low grade potatoes and kumara), Kabocha Milk Co (butternut squash), Sustainable Foods, Aotea Organics Marine, and Leaft Foods. Some of the main challenges to be solved in this sector include the availability of local raw materials as well as the extraction and purification of plant proteins at commercially relevant scales.
Cellular and and fermentation alternative proteins activity is growing at an exciting pace, with Daisy Labs recently receiving their first round of investment to commercialise fermentation based dairy. We have also seen multiple government grants going to various research groups, including Plant and Food Research to develop alternative fish products, and Prof. Laura Domigan’s research group at the University of Auckland to develop cellular agriculture technologies.
Hardware has been another strong point of development in New Zealand’s agri/foodtech space with Halter, Rocos, Robotics Plus, and Invert Robotics receiving international investment from the likes of Finistere Ventures and Yamaha Motors. A Horticultural Robotics, Automation & Sensing Institute is being proposed in the Tauranga region given its positioning to key high value primary industries, an ideal testing ground given the primary industries and technology experience in the region. This stemmed in part from a signed partnership agreement between AgritechNZ and Western Growers (producers of 50% of North America’s fresh produce) to supply their robotics requirements. Critically, this would give access for local expertise to well informed insights into problems with globally relevant crops to better enable solution development as well as significant market access to ready buyers.
New Zealand’s expertise in genetic plant and animal optimisation can be challenging to develop into an IP position that allows global scalability with total value capture beyond our borders. However, crop protection and pest control are proving to be another focal point among our research community with a variety of projects currently being undertaken by Plant and Food Research, University of Otago, Victoria University of Wellington and AgResearch in particular as well as plant promotion via fertiliser technologies.
Given the challenges of developing agri/foodtech solutions locally, the government grant system is vital to making the first R&D steps through CRIs and universities. Matū has developed deep connections to many of the relevant organisations through long standing relationships which enable better sightlines to emerging opportunities. Given the stage of companies that stem from these research activities, and often the gap in commercialisation experience, we are well aligned with our desire to get hands on and stuck in to help create success. We are not just about providing capital but also capability! Furthermore, Matū’s depth of experience has developed an eye for the best opportunities and connections to primary industry stakeholders means we are well placed to facilitate critical research and routes to market.
With a pipeline brimming with opportunity we look forward to updating you with developments in this space very soon.
Will McKay is an Analyst in Matū’s research team. He is an aquaculture technologist whose PhD research focussed on enabling the commercialisation of whitebait farming and is currently developing farming systems for native shellfish species. Will chairs the Return on Science Agritech and Foodtech Investment Committee and is a member of Auckland Momentum.
The information contained in this blog post is published for educational purposes only and is only intended to provide general information or opinions. It does not constitute financial advice or a recommendation of any financial product and should not be relied upon as such. You should not use any information in this blog to make financial decisions and we highly recommend you seek professional advice from someone who is authorised to provide investment advice. While all reasonable care has been taken in the preparation of this blog post, no member of the Matū Group accepts any liability for any errors it may contain.