The number of Brazilian startups focused on agribusiness – the agtechs – grew 40% in 2020 compared to the previous pre-pandemic year, according to the Radar AgTech Brasil 2020/2021 report, a document prepared in partnership by Brazilian Agricultural Research Corporation (Embrapa, in the Portuguese acronym), the Ministry of Agriculture, Livestock and Supply, the venture capital manager SP Ventures and the consultancy Homo Ludens. Brazil already has 1,574 technology-based companies focused on creating solutions for the agricultural sector; in 2019, there were nearly 30% less with only 1,125 agtechs in existence.
The vast majority of Brazilian farm techs (747) were founded in the state of São Paulo, followed by Paraná (151) and Minas Gerais (143), but the Northeast region, for example, saw its agtech-innovation ecosystem almost double in size, going from 37 companies to 72. In addition, the mapping registered more than 20 agtech-innovation hubs throughout the country.
When looking at the stages of the production chain in which these startups operate, most of them (718) develop post-farm solutions, including marketplaces and distribution logistics. The on-farm solutions total 657 and include all types of farm management systems and precision agriculture; and the pre-farm solutions total 199 and focus mainly on the demand for fertilizers and inoculants.
These are the numbers. Beyond them, the digitization process in the farm gives us clues about the future of an activity that already accounts for 26.6% of the Brazilian GDP, according to the Brazilian Confederation of Agriculture and Livestock. In 2020, despite the adverse scenario due to the pandemic, agribusiness grew 24%, a record annual increase that suggests a vast number of business and investment opportunities.
In an article for the Distrito AgTech Report 2021, Martiniano Lopes, partner at agribusiness consultancy KPMG, reported the agricultural sector is experiencing a similar disruption to the mechanization of harvesting in the 1990s: “The transformation of the mental model will be critical, […] entrepreneurship, propositional posture, digital-first, and open-mindedness will be watchwords. Also, concepts of experimentation (take risks and move fast) or experience (customer experience) will be part of this mental model. Technology will no longer be a necessity for productivity gain and will become a strategic lever.”
The agtechs boom lies at the intersection of a global shift in perception about how the production chain and consumption impact the preservation of natural resources and of the need to optimize processes and operational costs to achieve more efficiency, but in a sustainable way. In other words, in an increasingly populated world with an ever-growing demand for food, the agricultural sector’s digitization is not only strategic for business but urgent from a social and environmental perspective.
Agtech Investments
Despite the relevance of Brazilian agribusiness for the country and the world, investments in agtechs are not being made in the same proportion. According to AgFunder’s 2021 report, Brazil is not even on the list of the top-15 countries that invest the most in agtech. The list is topped by the United States, China, India, and Great Britain, all with investments that exceeded $1 billion by 2020. The only Latin American country that appears among the world’s top-15 is Colombia, in eighth place, with investments of $359 million. The sector raised $70 million last year in Brazil.
A historical series made by the Distrito AgTech Report 2021 shows how the venture investment in farm tech is volatile; between 2012 and 2014 there was growth, and during 2015 and 2016, a sharp decline. The investments grew again in 2017 (to $15.5 million) and reached a record in 2020 ($67.3 million). Note: there is a small difference between the figures indicated by the District and by AgFunder due to the methodology adopted.
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Moreover, when looking at investments by business stage, Distrito’s survey shows an over-concentration in the early-stage phase, typical of young but growing ecosystems. Considering the performance categories, the most heavily invested-in Brazilian agtech sectors are precision farming ($85.6 million), marketplaces ($27.6 million), and automation and robotics ($22.2 million).
Technology transference
While the development of the ecosystem inevitably goes through more financial investment, there are other key incentives. The researchers of the Radar AgTech Brasil report, when mapping the investments in Brazilian farm techs, considered the participation of startups in investment rounds, in addition to those in incubation and acceleration programs. It listed a total of 337 investment events involving 223 startups.
In Brazil, Embrapa has played an important role in encouraging this ecosystem as a public company and the main developer of agribusiness technology in the country, explained Adriana Regina Martin, executive director of innovation and technology.
The company operates through a technology-transfer model, in which startups develop products for the market, based on technology transferred by Embrapa.
“As a public company, we cannot accelerate startups or put a product on the market. We develop technologies and transfer this technology, this knowledge, to startups that take the product to the market, reverting in value to the rural producer and the society,” said Martin.
Among the agtechs that develop technologies transferred by Embrapa are the agri fintech GIRA, Blue Agro and Agribela, a biological inputs producer, Bem Agro and AdroitRobotics, focused on automation, and Amazonica Mundi, focused on creating animal-protein substitutes.
According to Martin, in many cases, investors provide resources to startups for them to develop the technology transferred to them by Embrapa. In addition, the company offers mentoring with agribusiness, technology and business experts, and opportunities for startups to pitch their ideas to representatives of the production sector and investors, such as the Bridges to Innovation program, which connects agtechs to investors and partners.
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Why invest in agribusiness?
In Brazil, the venture capital manager SP Ventures is dedicated exclusively to investing in technological solutions for agriculture throughout Latin America and usually brings early-stage startups to its portfolio, which already includes more than 30 agtechs.
The manager’s third venture capital fund, AG Ventures II, brought together major investors such as Syngenta Venture Capital, Basf Venture Capital, FoF Capria, and the International Finance Corporation (IFC), the World Bank’s private sector arm, among others. AG Ventures II has already raised BRL 200 million and the goal is to close at BRL 300 million. The manager expects to invest in 20 startups with the funds. SP Ventures has about BRL 405 million under management today.
In a talk with LABS, Francisco Jardim, CEO of SP Ventures, explained that the manager was started in 2007 as a more generalist venture capital firm, but soon realized the huge potential of agribusiness in Brazil and Latin America.
“After about 20 pitches from agribusiness entrepreneurs, I thought: ‘The only sector that gives me confidence that we are going to create a powerful, global, transformative ecosystem is agribusiness. The Brazilian agribusiness has a brilliant entrepreneurial history,” he said.
Here are the interview’s highlights:
Defensive investment
“Agriculture is a defensive sector. When we say that from a portfolio-allocation perspective, it means that it is an investment strategy that is supposed to do well even when the economy goes bad. One characteristic of defensive investments is that they are usually conservative, they don’t grow much, but they guarantee a good performance.
Agro is an ultra-defensive investment because of the irrefutable prospect of increasing global food demand, because it is denominated in dollars, and because it is embedded in the global supply chain, so Brazilian agro is not dependent on the domestic market.
Francisco Jardim, CEO of SP Ventures
A technological revolution in agro
“The main variable in agriculture is climate. At the time we started investing, there were already many studies on the impact of climate change on agro. And it was already very clear that the only way to make a leap in production under increasingly adverse conditions would be through the massive adoption of technology. Here we are talking about adaptation, about resilient agriculture.
When we talk about mitigation and the impact of agriculture on the environment, greenhouse- gas emissions, forest conservation, soil management, among others, the need for greener agriculture becomes clear. So, on the one hand, we have the need for greener agriculture, and on the other hand, we need agriculture that can survive and feed the planet under these conditions. In other words, we need much more technology in agriculture.”
Investment thesis
“Today we see some great theses in our investments: e-commerce and marketplaces for agribusiness, fintechs for agribusiness, and management tools for agribusiness. We believe we are building a new distribution structure for agricultural services and products, a high-tech financial services industry for agro, and a new bioproducts industry for agro. As an investor, our portfolio is very diversified. We have a farm-management company, SaaS for agro, predictive solutions, digital barter, biological solutions, soil analysis…”
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Access to technology
“The big business for startups is to sell at scale. In agro, it’s no different. In general, I would say that the main target audience for agtechs is the medium-sized producers who need management software, predictive solutions, soil monitoring, etc. However, the technology power is very democratizing. Technology will become cheaper and more accessible. Agri fintechs are going to play a key role in expanding rural credit, which will enable small farmers to access technology and good products.”
Regrets
“There are two kinds of investments you can regret: the very wrong one you made, and the very right one you didn’t make. The investment you made that you lost money on, that’s okay, it’s part of the business. What hurts is that investment that went right that you missed, one in which you didn’t see the potential.”
Solinftec, Brazilian funding champion, is already present in 11 countries with SaaS agribusiness solutions
The national champion of funding is Solinftec – from the $67.3 million raised in the agritech sector last year, $40 million went to the Series B raised by the company in a round led by Unbox Capital –, a world reference in precision agriculture. Its SaaS (Software as a Service) solutions enable the monitoring of agricultural processes in real time and, according to the company, generate savings of more than 30% and an increase in machinery efficiency by up to 50%.
Solinftec’s starter solution is equipment monitoring to support rural producers in decision-making. The company’s products are modular, meaning that customers can choose the ones that best meet their needs. In addition, the agtech company developed ALICE, an AI platform that brings together all these solutions; making the connection and integration of applications simple and fast. Every day, 35,000 pieces of farm equipment are connected to ALICE 120,000 users interact with its AI.
Founded in 2007 by a group of seven Cuban automation engineers who came to Brazil for a technological exchange program, today the agritech monitors nine million hectares in 11 countries in Latin America and North America and has offices in Brazil, Colombia, and the United States.
The company started when the group led by Britaldo Hernandez, current CEO, realized that there was very little control in sugarcane farming, predominant in the Araçatuba city region, where they were based. That is how the first solution developed by Solinftec came about, to standardize cane cutting without human intervention. The agtech currently monitors 86% of the country’s sugarcane farming area.
Around 2015, the demand for connectivity began to grow and the company expanded its portfolio with solutions for grain monitoring. Thiago Rodrigues, COO of Solinftec for Brazil and Latin America, explained that the adoption of technology by agribusiness in Brazil varies according to the culture and size of the company. The strength of agtech is to respond quickly to newly identified problems.
Each market has a specific pain. Solinftec is recognized as a developer of solutions in partnership with its customers to meet their specific pains. This is one of the main factors of success because, until we emerged, the solutions available in the market were more reactive. The agriculture of the future goes through digitization.
Thiago Rodrigues, COO of Solinftec for Brazil and Latin America
Rodrigues explained that in grain crops the key point is the harvest “window” – and the search for the perfect time to start a new planting depends on the climate and water conditions. Because it’s a short production cycle, operational efficiency is crucial. Efficiency demands data that allows the producer to plan the operation and mitigate the risks related to external factors. Solinftec’s AI software platform offers all this information and variable forecasting.
“When we started to monitor grains, we realized that the machines worked for a short time, due to climactic, administrative and operational variables, and we understood that it would be necessary to unify all this data, in real-time, and create parameters, to guide the producer in making proactive decisions, and to avoid operational errors.”
In perennial crops such as oranges and coffee – products with high-production costs per hectare and a high added value – it is necessary to have a very efficient cost-control, and one of the most relevant issues is spraying for pests control, which can jeopardize an entire crop.
“For perennial crops, we have traceability solutions, in order to create a certification of origin and a quality seal, which add value to export products,” said Rodrigues.
