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Agribusinesses Respond to Low Commodity Prices with Big Bets on Agtech, Study Finds

/EINPresswire.com/ -- BCG Estimates That Agtech Investments by Agribusinesses and Venture Capital Firms Have Surpassed $20 Billion Annually, with Data-Enabled Agriculture as a Top Priority

CHICAGO, IL--(Marketwired - Oct 25, 2016) - A wave of startup activity in agriculture technology (agtech) has promoted unprecedented levels of investments by agribusiness companies and venture capital firms. Yet more than 80% of executives say that their investments are primarily intended to defend or enhance their core businesses, rather than to create a new business. These findings, presented in a new report by The Boston Consulting Group (BCG), suggest that agribusiness companies must change the way they think about investing in early-stage agriculture technologies -- not only regarding how much they invest but also where and how. The report, titled Lessons from the Frontlines of the Agtech Revolution, is being released today.

The outlook for agtech investments is of great interest to both industry participants and government regulators. Some of the largest agribusiness companies have announced plans to merge. The proposed combinations have raised questions about how greater market concentration will affect companies' incentives to innovate and the prices they charge farmers for their products and services. Farmers are facing an especially difficult business environment, as lower commodity prices have driven down net farm income to 65% of the peak reached in 2013. Investments in agtech may be part of the solution to the current low-price environment.

The report discusses a study conducted by BCG and AgFunder that sought to understand agtech investment levels, priorities, and strategies. The study included a survey of more than 50 executives at leading agribusiness companies globally, including most of the world's largest agribusiness players, and, for comparison, 15 investment professionals at different agtech-focused VC firms. The authors also conducted a detailed analysis of agtech patent activity since 2010. Among the key findings:

  • In 2015, the combined agtech investments of agribusiness companies and early-stage investments of venture capital firms totaled an estimated $20 billion to $25 billion, which is an all-time high. This figure represents 4% to 7% of company revenues, depending on the agribusiness sector. Most respondents expect investment levels in 2016 to match or exceed last year's level.

  • Three-quarters of executives cited a technology that fosters data-enabled agriculture as a top investment priority. Building big data and analytics capabilities is the key focus for these executives.

  • Executives report that their company's investment strategy is primarily defensive, evolutionary, and conducted in-house. A lack of internal capabilities is the most commonly cited obstacle to success.

"To survive and thrive in the next decade, agribusiness executives must understand the technologies that other players have prioritized and develop a strategy that leverages their company's unique competitive advantages," says Decker Walker, a partner and a report coauthor. "They need the flexibility to pursue both offensive and defensive investments and must be open to taking nontraditional investment approaches."

"Our study shows that the major sources of revenues are changing, and new profit pools are being created," says Torsten Kurth, a partner and a report coauthor. "To emerge as the winners in this shifting landscape, companies must identify the most valuable technologies to pursue, given their capabilities, and think differently about their investment strategy."

Agribusiness executives believe that their unique competitive advantage in agtech stems from their ability to provide scale and a path to market for new technologies. However, the survey findings indicate that agribusinesses' strategies and capabilities do not yet support the ambitions reflected by their high levels of investment. For example:

  • Companies direct nearly two-thirds of their investments to in-house R&D, with smaller amounts invested externally through, for example, partnerships or licensing. 

  • Only 10% of investments are linked to building new capabilities, with the lion's share linked to an existing product or technology in the portfolio or targeted to achieving scale or strengthening an existing channel to market.

  • When asked to identify their primary challenge, 36% of respondents cited a lack of internal capabilities or talent for scouting and developing technologies. Many respondents also cited internal financial metrics, agreeing on investment priorities, and a risk-averse company culture.

To rethink their agtech investment strategy, agribusiness companies need to start by considering customers' needs, not technologies. The report discusses a combination of six steps that offer a customer-focused, systematic approach to winning in the agtech revolution.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please visit bcg.com.

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