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Feeding the next 10 billion without increasing greenhouse gas emissions: the technology investment opportunity

By Arama Kukutai, co-founder and partner, Finistere Ventures, and Kyle Datta, Senior Advisor

Climate change represents the biggest challenge to the food and agricultural system in modern history. How can we provide health and food security for a rapidly growing population approaching 10 billion people, despite more constrained land and water resources, while mitigating the resulting greenhouse gas (GHG) footprint?

Today, that footprint stands at 10 to 19 gigatons of carbon dioxide equivalent (Gt CO2e) [1]  or 25% to 35% of total human emissions. As global population and affluence grows, GHG emissions are predicted to more than triple to 31 Gt CO2e unless new technology and better management practices arise to mitigate this huge impact, a change on par with that seen in the Green Revolution [2]. Taxing carbon works in the energy system, but applying the same mechanism to food will lead to hundreds of millions more food-insecure people. In the developed world, consumers are highly price inelastic when food producers pass on taxes by increasing food price, but in the developing world, lower-income consumers are very sensitive to changes in staples like rice, milk, or meat, and will go hungry. Can we find a way to feed the planet without burning it down?

There is a better way. At Finistere Ventures, we believe that the $7 billion of venture funding committed to innovation in agtech since the start of 2009 has the potential to:

•    Catalyze new business models and management practices
•    Enable structural changes in the food and agriculture system that could achieve the policy goals of lower GHG 
•    Improve food production, affordability and farmer profitability
•    Improve population health equitably through better diets and nutrition 

Our technology investment thesis focuses on sustainable intensification of production, climate neutral meat supply chains, digitization of supply chains, and acceleration of carbon sequestration, coupled with consumers shifting to more plant-based diets that leverage the urban consumer trends of convenience, health, and fresh. But investment into agtech that can contribute to these goals has historically lagged venture committed to cleantech.

While much has been written about the need for increased productivity to feed 10 billion people by 2050, this comes potentially at massive GHG and environmental impact. Even if historical productivity trends continue, most authoritative studies expect net GHG emissions to increase from 10 Gt CO2e to between 12 and 14 Gt CO2e [3]. Agriculture is responsible for 70% of human water use, about 78% of eutrophication and 61% of land deforestation. Most of the impacts are caused by animal husbandry, particularly beef and dairy cattle. Can technological innovation and farmer practices solve this latest twist on a Malthusian conundrum? Changing Demand Patterns Offset  Changes in demand patterns do not mean that the world’s population must stop eating meat. In fact, overall, we expect meat consumption will increase. In urban centers, a dietary shift is already underway in the high meat consumption countries being enabled by technology clusters around alternative proteins and sugars, coupled with climate footprint labeling in institutions and restaurants. These developments combined with technologies that automate delivery, order fulfillment and traceability at scale could collectively reduce meat consumption. However, this is offset by rising developing country population and affluence increasing meat and dairy consumption, leading to a projected 76% global net [4] increase in animal protein production [5]. Climate Neutral Meat Within Reach? We will need to move towards climate-neutral meat production. This audacious goal is within reach. Already precision pastoral systems for dairy and beef cattle generate just 40% of the GHG emissions of typical feedlot systems (20 kg CO2e/100 g protein) and the majority of remaining emissions are enteric methane production for rumination. These can be reduced by 30% to 40% [6] via a combination of genetic traits, selective breeding (natural variation is 11% to 24%), accelerated progeny dissemination, gene-edited forages with higher yields and energy, and optimized feed additives or vaccines that inhibit methanogenic bacteria in the rumen without compromising milk quality, or milk or beef production. When the soil carbon sequestration of approximately 3 tons CO2e per hectare annually from multi-paddock intensive grazing is included, the net result is nearly climate-neutral cattle production. The recently announced corporate commitments of Danone and Danish Crown to be climate neutral by 2050 are the start of a market for identity-preserved low carbon meat and dairy market, effectively de-commoditizing this sector and creating competitive advantage. This shift is likely to be accelerated by climate emissions cap legislation that includes livestock, as in New Zealand and California.

Venture capital commitments to the animal tech subsegment of the wider agtech space represented 47 deals comprising, in aggregate, just under $312 million last year alone, per PitchBook data. This sub-segment represents a large proportion of investments towards technologies that improve the sustainability of animal husbandry through reduction in antibiotic use, improvements in feed conversion, and reduction of methane emissions through technology. Examples of such companies include the French biotech startup InnovaFeed, which produces insect-based proteins for use in animal feed and aquaculture. The company secured some €55 million (approximately $61.25 million) in 2018 to bring its technology to scale. As financings in this space continue to grow, a legitimate question remains as to which of these technologies pathways are scalable and economically viable. Novel Production Systems Eliminate Land and Water Constraints In the US alone, to meet the dietary demands for vegetables in USDA My Plate guidelines [7] would require another 6 million acres of scale growing regions with Mediterranean climates, which simply don’t exist. Sustainable intensification using controlled environment agriculture (CEA) coupled with machine learning and automation is already restructuring production of high value crops such as leafy greens, berries, and fruiting vegetables that are land use restricted, high in water use and labor dependent. CEA promises 200x to 300x the land productivity, less than 5% of the water use, requiring no pesticides, and has zero fertilizer run off with a lifecycle carbon footprint approaching field emissions parity with the next generation of vertical farm companies like Plenty. In 2017, we joined the $200 million Series B round for Plenty led by SoftBank, which brought the indoor ag startup’s total funding to some $226 million following our initial commitment to their Series A raised the prior year.

Last year, venture investment into indoor ag represented some $274 million in total capital raised across 43 completed financing rounds, topped by the $90 million raised by Bowery in a Series B round led by GV, per PitchBook data. The availability of regional fresh produce with on-demand production and short supply chains has enabled “Amazoned” e-food and e-grocery delivery models to provide the fresh, health, and traceable food that urban consumers are already experiencing as the new standard. Genetic Aikido Unleashes Step Change Productivity Natural genetic and physiological processes in plants create feedback loops that regulate photosynthetic productivity. What if we worked with those processes via gene editing? A cluster of fundamental life sciences technologies underpin tremendous gains in agricultural productivity. One of our companies, Biolumic, unlocks the genetic plant potential through biomimetic light treatment of seeds that increases growth by 20% to 30%. Another, ZeaKal, improves the photosynthetic efficiency of plants by stimulating their feedback loops with oil fixation driven sugar scarcity, effectively turning C3 plants into C4 plants—a metabolic improvement of 20% to 24% across a wide number of species, from soybeans to rye grass. Field trials show that the 24% increase in biomass equates to a 5% increase of yields in soybeans, combined with a 17% in oil yields without loss of protein, which collectively improves US soybean profits per acre by 100%. In forage grasses, the 24% increase in biomass and 7% higher oil yield not only improves feed productivity, it also fixes more than 20% of soil carbon and may reduce enteric fermentation. And we’re not alone in backing these technologies. In 2018, VC firms committed $280.4 million to companies operating in this space across 21 completed deals, per PitchBook data, with rounds raised by the likes of Cibus, Benson Hill Biosystems and Inari leading the way.

These same technologies, when coupled with CEA systems’ ability to enable multiple field trials in a single year, facilitate rapid prototyping in breeding to meet the adaptation challenges of drought tolerant and salinity tolerant staples, required to feed the rapidly growing populations where climate change disruption will be the greatest. Digitization of the Food System: Mining for Improved Profitability  Impact investment in the food system can fundamentally increase productivity and eliminate waste, providing both improved profit and sustainability outcomes—not a trade-off but a multiplier. Globally, 25% to 30% of food is wasted [8],  albeit for different reasons in developed vs. developing economies. There are already startups tackling this opportunity, which we see as “found money” for both farmers and their supply chain partners.

Food waste will be radically reduced by employing digital supply chain technologies in a largely analog system. In developed countries, 20% of the food produced is left in the field, when it could be captured and sold to food processors via regional market-making technology being realized by startups like Aggregator and Full Harvest. The same type of regional market-making technology, coupled with sensors, data analytics, and automation applies to pre-consumer waste across the distribution supply chain and retail inventories. On the demand side, data analytics and AI on consumer behavior can reduce overproduction waste in institution cafeterias, restaurants and vending. 

Between 100 and 400 grams [9] for each kilogram of nitrogen applied is wasted to denitrification or run off, which causes water pollution of nearby lakes and streams. The digitization of farmer practices through technologies such as soil-based and aerial sensors, drones, data analytics, pest and pathogen detection integrated into a prescriptive dashboard have multiplied over the last five years without delivering fully on the promise of increased profits through improved suitability and management practices. But digitization will continue to evolve and grow in scale, pushed by input producers, channels and platform companies, and demanded by food companies and consumers dissatisfied with a food and farming “black box” approach. 

One solution we see is the services developed by pioneer ag-fintech startup Growers Edge Financial, who are addressing both adoption and transparency through the coupling of new financial insurance instruments that underwrite the technology prescriptions improving crop yields while simultaneously addressing environmental impact.

When combined with advanced fertilizer formulations, this technology cluster can substantially reduce nitrogen loss and other nutrient losses along with the water eutrophication it causes. The same technology will reduce the administrative and compliance burden on farmers as well as improve traceability and aid clean labeling.  Scaling Globally: Leapfrog to Profitable Sustainability Conventional climate models assume that developing nations in Asia and Africa will expand their agricultural systems using conventional technologies. It does not have to be that way. Just as Africa and Asia leapfrogged copper wire telephones for cell phone communication, advanced productivity systems can be designed for developing nations to catapult their agriculture into the 21st century.

Our thesis is that the food system is poised for the same radical efficiency improvements and structural transformation that we witnessed in the energy sector over the last decade. As prudent investors, this does not mean that all the valuations of over-hyped new foods are justified. Indeed, we expect a market correction and shakeout will occur, which happens in all venture-backed categories. VC activity in US-based cleantech vs. agtech companies, 2009-2018  
Food and agriculture contribute more than 25% of greenhouse gas emissions, yet agriculture mitigation technologies have received only 1% of cleantech venture investment over the last decade [10]. In the US, agriculture and food technologies internal rates of return have outperformed most cleantech investments, returning 16% compared to cleantech’s 13%, per PitchBook data. Despite its potential to help mitigate the worst effects of GHG, overall agtech investment in the US since the start of 2009 has significantly lagged cleantech commitments, comprising just 11% of combined venture capital invested through last year. This represents a call to action for impact investors, mission investment philanthropies and endowments to shift their attention to the food and agricultural sector, where the trajectory of the innovation continuum and scaling of dissemination is an immense opportunity.
 

Catch up with Finistere Ventures for additional industry insights.

 [1] IPPC Report on Land and Climate 2019, Panel 2
  [2] WRI 2019
  [3] Using the FAO and CGIAR Baseline of 10 Gt CO2e
  [4] “World agriculture: towards 2030/2050,” Food and Agriculture Organization of the United Nations, 2012
  [5] Ibid.
  [6] Report of the Biological Emissions Reference Group,” New Zealand, 2018
  [7] UCS estimates 88% increase in vegetable farmed lands to meet diet vs. USDA vegetables, fruits and nuts base of 8 million acres
  [8] IPPC Climate and Land Use 2019
  [9] Farm 2050 nutrient white paper, Poore Science 2018.
  [10] Cambridge Associates, cited in Stanford Innovation Review article by PRIME