Welcome back to the Agri Fintech Newsletter
This will be the first of my revised format where each issue will walk through these 3 sub headings:
🧐 Thoughts ["Why now for Agri Fintech?"]
🗞 Relevant News [FBN, Terra Magna, Acre Trader, Traction Ag, Full Harvest]
🖼 Company Profiles [Concept Dairy]
Why now for Agri Fintech?
I would love to think I have convinced absolutely everyone that Agri Fintech is now a need rather than a want but I am sure that is not the case. 😀 ...yet
✅ In Issue 2, "If all companies will be a fintech, what does this mean for Ag" I elaborated on the financial stack and how Agritech companies in particular can act as distribution channels and/or as providers of data to manage financial risk in Agri portfolios. Those are perfectly good reasons and a lot of the dramatic change across the entire Fintech landscape is driven by those two things.
In fact, this has been expedited by COVID 19 and SP Ventures, for example, recently attributed COVID induced digitisation across agriculture as the KEY reason for their conviction on Agritech and Agri Fintech.
✅ If that wasn't enough, I went further to bring numerous examples to life in Issue 3, "The top Agri Fintech companies".
But why now?
The answer is sustainability. The time for Agri Fintech is "now, now" as my South African friends say.
This is for two reasons.
1️⃣ Social (Wants)
Climate has moved mainstream from traditional corporate and social responsibility efforts and consumers are demanding more accountability for Greenhouse Gas (GHG) Emissions, water usage, pollution, biodiversity and social responsibility.
According to a Capgemini Research Institute study, "Sustainability in Consumer Products and Retail", 79% of consumers are changing purchase preference based on social responsibility, inclusiveness, or environmental impact.
Similar trends exist for investment preferences. Funds into sustainable investments have grown at 108% per annum since 2012 and now make up 18% of the wealth and asset management industry according to Ernst and Young
Food and Agriculture, which is responsible for up to 20-25% of GHG (depending on where you 👀) and 70% of fresh water withdrawals globally, has become something of a focal point and there is increased emphasis on development of ecosystem services (where the ecosystem is mainly seen as soil, water, and biodiversity)
For example, Carbon credits as a means to manage climate risk, and in particular soil as a means of storing carbon, which brings the opportunity to farm producers. This has led to many Agritech companies in this space such as Indigo Ag, Nori, Regrow Ag to grow quickly and receive investor attention.
Or just look at what Acre Trader or Farm Together have built - these are two US based farmland investment platforms, with an emphasis on sustainability investments.
This represents a huge opportunity for any Agri Fintech companies to leverage these pools of investment and deploy them directly across land investment, appropriate equipment and inputs or other working capital transactions.
From a financial perspective these investments can be made via equity (buying shares in these companies) or possibly debt (i.e. lending to them for their activities) and I have tagged some recent announcements below in the news section just to reiterate this 😊.
These investments are serving "wants" but are there any needs?
2️⃣ Regulation (Needs)
Hmm, well... yes. Financial regulations. 🙋♂️I'm sure I admitted somewhere to having a keen eye for financial regulation 😅😅. I promise to see someone about that in 2022, but in the meantime...
These are changing whereby companies and regulated financial institutions will need to report on climate based financial risks.
This is kind of a big deal ...
The TCFD (Taskforce on Climate Related Financial Disclosures) exists to work on behalf of investors, lenders and insurers to create a clear view of the financial risks and opportunities.
Their disclosures are generally regarded as best in class, have been endorsed by the G7 and the G20 and have even been adopted for mandatory reporting by Switzerland (from 2021), the UK (2022) and the EU and New Zealand (2023).
The US has already committed to TCFD aligned reporting, with the Commodities Futures and Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) already recommending implementation (which they will be).
Climate metrics will be embedded in financial metrics.
🔎 This opportunity is huge for Agri Fintech companies and compounds the consumer preferences. The real innovation in Financial Services comes from regulatory change and this is one that is sitting right in front of us.
You ask: "Why Now?". It is sustainability.
My question to you: "Why wait?"
If you are an Agritech company focused on sustainability, you need a financial element. If you are a Fintech company looking at sustainability, you need a plan for the Food and Agriculture sector.
If you want to delve a bit deeper into the regulatory element, this is an informative and contextual interview on the "AgTech So What" podcast with Dr Ken Henry, a former Australian Treasury Secretary and Chair of National Australia Bank. ⤵️
Dr. Ken Henry predicts “an explosion” in financial instruments to measure soil carbon, vegetation, biodiversity and other aspects of nature.
There have been a flurry of announcements to start the new year, mostly funding 💰related
⦿ FBN and the Environmental Defense Fund launch operating credit for producers who meet water and climate targets 😎;
⦿ Terra Magna in Brazil have landed a $10m investment from SoftBank (the SoftBank) to expand their agri fintech product. This was complemented by a further $30m debt facility from them;
⦿ Acre Trader have also raised a $40m Series B round to expand their farmland investment platform;
⦿ Traction Ag, a Farm Accounting Software provider announced recent investment from Hageman Group to further their development;
....and this caught my eye in December which I found fascinating, also with a large sustainability angle ...
⦿ Full Harvest raised a $23m Series B to expand their marketplace for imperfect food which is difficult to sell via normal channels.
I came across Concept Dairy late last year and was fortunate to hear an interview with them on Irish radio last weekend. Their product allows dairy farmers to hedge milk prices up to 2 years out and they work directly with milk processors in Ireland at present to do this.
The dairy market has become more open and competitive in recent years and although market prices are available for milk, there is no solution at the processor level to manage this. The founders realised that a facility for hedging at producer and processor level wasn't available and have created a platform to manage this.
The founder Diarmaid has a background in commodity risk management and identified the problem working for Ornua, a giant in the Irish dairy industry.
Risk management for small and medium sized businesses is a passion of mine. The potential is staggering, especially at a time when sectors like dairy and livestock are under pressure from the environmental uncertainty discussed above. Locking in revenues, will allow both farmers and processors to invest in sustainability initiatives and transition.
Thanks for tuning in.
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