Australia agtech: Tending the seedlings

The green shoots in Australia’s agricultural technology space say much about the growing pains of an emerging ecosystem – a landscape of paradox and promise that has yet to prove it can replicate the success of established agtech regions.

Notable activities include the Australian IPO of CropLogic, a New Zealand-based company backed by Powerhouse Ventures and focused on technology-enabled agronomy systems for improving crop yields. Like many of its agtech counterparts, the company has significant overseas ties – including an operational focus on the US – and reflects an uneasy fusion of confidence in strong sentiment for the farming industry and wariness about unproven venture plays.

The A$8 million ($6.3 million) IPO was fully subscribed at an issue price of A$0.20, but the stock dropped 35% during its first fortnight of trading. Jarringly, this followed a two-year spike in Australian agtech investment and coincided with an ambitious growth plan, including the formal establishment of a national corporate structure and a major potato market services acquisition in the US.

We think we’re only seeing the tip of the iceberg - Andrew Kelly

“Those regions where agtech development is progressing well, such as Israel, the US and Europe, all enjoy very good capital channel support at the different stages of development,” says James Cooper-Jones, CFO at CropLogic. “We are seeing similar development in Australia with increasingly significant amounts of money being focused on agtech. As a believer in regional development, this is encouraging as I believe Australia and New Zealand have a lot to offer the global agtech ecosystem.”

The offset of CropLogic’s long-term prospects and short-term marketing woes represents a typical start-up rite of passage, but as an early success case in a space considered overdue for a boom, the stakes appear higher this time. If Australia’s fledgling agtech ecosystem isn’t able to carry its pioneers to the next level, the inflow of capital currently being enjoyed may fall off the pace.

Bright prospects

According to AgFunder, a US crowdfunding marketplace that is currently raising a fund with a view to expanding its investment activity in Australia, venture capital aimed at Australian agtech has increased from around $4.5 million in 2015 to more than $24 million as of the first half of 2017.

During this period, Michael Dean, AgFunder’s Australian co-founder and CIO, began scouting his home country’s ecosystem and was asked to join the board of SproutX, a local accelerator managed by Artesian Venture Partners. The program recently raised A$10 million for agtech investments and has already backed 11 start-ups, including IoTAg, an internet-of-things player focused on GPS cattle monitoring.

Much of the enthusiasm is underpinned by plans to connect Asia food security needs with Australasia’s reputation for food quality. Potential is also attributed to regional research leadership, especially at the government-backed Commonwealth Scientific & Industrial Research Organization (CSIRO).

“We see enormous potential for more resources to flow into the Australian innovation system,” says Andrew Kelly, executive director at BioPacific Partners, an investor focused on promoting partnerships between multinationals and regional entrepreneurs. “We’re overseeing a deal every eight weeks currently where money flows from global to local, and we think we’re only seeing the tip of the iceberg.”

Traction in this type of cooperation can be seen in Bayer, a world leader in cotton technology that is distributing CSIRO-developed cotton varieties and showing increased interest in Australian venture investment. The company has backed the latest agtech fund by US investor Finistere Ventures with an understood intention to promote cross-border marketing opportunities between its US and Australian footprints. 

Finistere closed its second fund this year at $150 million after a bump in Australian LP support inspired it to direct a portion of the corpus toward Australia. The firm is currently mulling two potential deals in the country based on technology from academic research organizations – the preferred hunting ground for local talent.

“We’ve seen growing sophistication in the venture capital market there around finding local partners, the government approach to innovation and the entrepreneurial atmosphere,” says Spencer Maughan, a partner at Finistere. “There is a reasonable likelihood that some really great start-ups in the agtech space are going to be born in Australian around now, and we wanted to make sure that we had eyes on that.”

Top targets

Maughan sees opportunities in genetics and financial and professional services, as well as indoor farming, which is considered a key enabler of e-commerce for groceries. “There’s a lot of interest around supply chain because of changes in domestic consumer preferences and, more broadly, support for the Australia-New Zealand brand for clean, healthy food,” he says. “Traceability is probably going to be a big issue, so having technologies that can track what happens to a commodity from the field to the fork will become valuable.”

Other segments seen as growth areas include the geo-fencing work being undertaken by IoTAg, pest control and soil quality maintenance. Automation is also tipped to attract interest in the near term on the back of apple-picking progress in the country by venture-backed US player Abundant Robotics.

Meanwhile, AgFunder emphasizes the opportunities related to bolstering Australia’s rural internet connectivity infrastructure, an essential ingredient of increasingly robotized farms. These areas are expected to pick up in the near term due to pressures related to Australia’s high labor costs – and despite an often disappointing show of support from the government.

“If you go to other markets, there are definite subsidies for farming. We don’t have that in Australia and that’s a key differentiator,” says AgFunder’s Dean. “But as we see more capital and venture money coming into the market, it will attract more entrepreneurs, so I think we’re going to see pretty accelerated development in Australia over the next 24-36 months.”

AgFunder has contributed to this acceleration with participation in a $6.5 million Series A round for IoT and predictive analytics start-up The Yield, alongside KPMG and German hardware giant Bosch. The company, which has raised $11.5 million to date, specializes in allowing farmers to improve operational economics by informing real-time adjustments in the field.

Importantly, the business highlights one of Australia’s key agtech inroads: the integration of data across complex environments at an almost plant-level degree of granulation. This approach may be necessary given the fact that the relatively small scale of Australian farms likely represents a more subtle opportunity set.

“Technology uptake on local farms hasn’t been an issue historically – we’re a very fast adopting society – but I fear it may become so with the digital revolution,” BioPacific’s Kelly says. “Many Australian farmers see the future as one where more technology is available and adopted, but not so many see the disruptive effect that it could bring.”

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• Topics
• Australasia
• Technology
• Industrials
• Early-stage
• Australia
• Venture
• Agriculture