Welcome back to the Agri Fintech Newsletter and a warm welcome to the 22 new subscribers since my last issue. 😃 I value each and every one.
🧐 Thoughts ‘📝 Financial Value Chains ⛓️ ’
🗞 Relevant News
Updates from Indigo Ag, CropIn, De Haat, AquaConnect and US based Mad Capital.
💵 Fintech Reads
Now is the time to double-down on Fintech from Nik Milanovic.
Winning in Embedded Finance from Simon Taylor
P.s. Have you subscribed yet? Don't forget to if not.
📝 Financial Value Chains ⛓️
In this issue, I want to capture some of the key punch points I have learned in 2022.
🥇Financial value chains matter
As much as the agricultural value chains matter, so too do the financial value chains.
I now consider 3 key markets as driving the future of Fintech in Agriculture: India, Brazil and the United States. However, they are driving in 3 different directions.
Indian Agri Fintech ➡️ building 🔗 value chains and digital ecosystems. Partnerships are flourishing with Banks.
India is a gigantic market and its' Agricultural Finance value chain is dominated by state banks and Priority Sector Lending requirements, whereby banks are required to allocate 18% of net bank credit to priority sectors including Agriculture.
Government mandated bad debt waivers are also a threat for the financial sector, so their reluctance to dive into the sector are understandable.
Agribusiness commentator Venky Ramachandran has recently profiled the sector and the efforts Agri Fintech is making, which I would recommend if you are interested in that market, or how other markets might evolve.
But make no mistake, the opportunity is huge.
Brazilian Agri Fintech: building 🏗️ the Agri Banks of the future.
Earlier this year, I hosted a panel to share more information with readers on the scene in Latin America, which is buzzing.
In 2021, Latin American Agri Fintech raised $214m as a whole and this number increased in 2022 to $218m in 2022 with a lot of that going to the Brazil ecosystem.
Companies are investing now as banks are retreating and have been inefficient in allocating capital. To further support the nascent sector the Brazilian government started a scheme to allocate credit to rural areas via Agri Fintech companies.
Looking at all the major Agri financial centres, Brazil feels like it has a blank canvas on which to start designing the future of agricultural finance.
The United States
US Agri Fintech: building infrastructure 🛣️ on established value chains.
The US agricultural finance landscape is fascinating and this figure below relates to just the specialist Agricultural Banks in the US, all 1,061 one of them.
Obviously, this leaves out the non specialists and the entire Farm Credit System, itself with assets of $240bn.
Agri Fintech in the US is evolving from some of the earlier plays such as FBN trying to disrupt Ag Retail and offering a range of financial services, into digital infrastructure being built on top of established value chains.
There is also a very early cohort of sustainability focused companies. See the news item below relating to Mad Capital as an example.
Financial value chains are important in how you decide to build a product. But that also brings me to the underlying value chains.
🥈Value chain > technology
They disrupted the value chain by not disrupting it. They kept the value chain intact but added a digital layer which allowed the companies to do new things. They disrupted it, by not disrupting it.
I made this statement with respect to Bushel at the AcreTrader client conference in October, where I spoke about ecosystems in Agritech.
Digital ecosystems are great, but they only work if the underlying value chain works.
Bushel are an example of a company who have not tried to reinvent their particular value chain, in this case Grain Co-Operatives across the US, storing or buying grain from producers and selling this to the main processors.
Bushel offer digitised records of grain inventory (quality and quantity) for the cooperatives and these stakeholders. Digitised records.
The alternative is technology focused solutions which I would call 'all brain and no mind'.
One exception to this rule applies if the underlying value chain is so fragmented that building some form of connections make sense e.g. Carbon.
🥉 Building on Blockchain
As we sit down with our family and Friends this Christmas remember the rules of polite conversation - don't talk politics, religion, money or blockchain.
After publishing my piece on Real World Assets I received an amazing response from an entrepreneur in the asset finance space.
For context, his company started out on blockchain but quickly found it pointless. Why?
The problems in being on BC [blockchain] are
a.) the contracts need to be standardised to go on to a BC
b.) A public BC isn’t practical and a private BC doesn’t add enough trust and
c.) you need the majority of the market on the BC for it to add value – hard!
d.) issues with GDPR once you include director level data.
I believe the benefits are marginal.. the assets are ultimately esoteric, and it is standardisation rather than ‘chaining’ you need for improved liquidity/reduced transaction costs.
I agree standardisation is 🔑 . For everything.
What's in store in 2023?
I already have some excellent topics in the pipeline including:
1️⃣ Final VC Investment numbers for 2022 💵
2️⃣ A profile of 10 🚀 Seed or pre-Seed companies
3️⃣ Getting to the Crux of Carbon ♻️
4️⃣ Farmer Mac overview 🏪
and lots more.
If you haven't subscribed already, you definitely should. If you know someone who should be reading this, please do share it.
⦿ Indigo Ag made an investment into Grow Indigo, a Mumbai based natural capital solutions provider.
🧐 This is very interesting - Grow Indigo is a joint venture between Indigo Ag and MahyCo Grow, a large agribusiness in India. At a time when there is scepticism among producers in the US about carbon markets, maybe it will be markets such as India which lead the way.
After all, the market price for Carbon - which is a data product - should be universal and that price may mean a lot more to a small farmer in Maharashtra than one in the Midwest.
The JV has access to 10m farmers in India according to the press release but I doubt these are active clients - De Haat referenced below have 1.5m farmers on their platform and they are considered one of the largest players in the country.
⦿ CropIn are closing the year with an additional $14m in cash as a result of their Series D which included Google, Chiratae Ventures, Japan based JSR and Impact Assets.
⦿ DeHaat - staying on the sub continent, DeHaat have raised a further $60m Series E round.
The company is targeting break even after generating $155m in sales on their platform for FY22, up from $42.8m in FY21 also according to Entrackr.
⦿ AquaConnect - continuing the news Indian connection - Aqua Connect have raised a $15m Series A from investors such as Louis Dreyfus Company Ventures, Omnivore and Aquaculture specialists Hatch.
⦿ Mad Capital raised a $4m Seed round to expand their team and full stack capital offering for regenerative and organic agriculture transition in the US.
Alongside this fundraise, they are closing a $25m Perennial Fund to finance an additional "100,000 acres of farmland in 2o23".
💵 Fintech News and Reads
⦿ Fintech has come a long way in the past 2 years and as Nik Milanovic mentions in this mindful write up on why now is the time to double down on fintech, we have gone from "pre-product, pre-team founders raising at $100 million valuations for their first rounds" to very few people, raising very few dollars for very few rounds.
Talent is becoming abundant and the froth has gone from the market, which makes this a great time to start new projects.
Will that talent make its' way into Fintech for Agriculture?
⦿ Simon Taylor gives his take on winning in embedded finance in 2023.
This thought piece from Simon specifically outlines 2 key challenges in this space - rising interest rates and regulation.
To win in embedded finance, companies building in that space, whether they are Banks, Fintech or the vertical focused non finance companies must win with their compliance and regulation programmes.
THATS ALL FOR THIS ISSUE. THANK YOU!