Agtech: An investment that benefits family offices and the environment
It's an exciting time to invest in agtech, not only because of the environmental and social good, but also the huge potential for growth.
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Canada is an agricultural powerhouse, generating 7 per cent of its GDP in 2022 and $143.8 billion in revenue.1 Essential to the country’s balance of trade, this Canadian success story has as much to do with a generous endowment of arable land and a favourable climate as it does the resourcefulness of the sector in adopting new technologies. As agtech assumes an enhanced role in improving crop yields, trimming producer costs, and reducing both food prices and environmental impact, family offices have an important role to play by backing those companies that have the right stuff to keep Canada’s agricultural sector at the forefront of innovation.
“Each generation has its own idea of what constitutes agtech,” says Mohamad Yaghi, agriculture & climate policy lead at the RBC Climate Action Institute. “The industry benefited greatly from the invention of anything from the steam tractor to the self-propelled combine, which was invented in Canada. Today, it’s about using data analytics across your operations, whether through hardware, the use of sensors or employing services that can crunch numbers to give you the best insights into your operation.”
Agtech can assist farmers to: manage the use of pesticides and control pests as part of an integrated protocol; develop methods of sequestering greater amounts of carbon in the soil to improve fertility; precision-apply fertilizer with the assistance of drones and satellite imagery; monitor precise rainfall and the ongoing health of livestock; and improve water management. Yaghi notes that these technologies are equally available to agricultural conglomerates as they are to family farmers, who are often early adopters.
Some important Canadian agtech success stories include Livestock Water Recycling, a global leader in manure treatment technology that promises to reduce greenhouse gas emissions by concentrating and segregating nutrients for strategic fertilizer application, while recycling clean, reusable water. Bee Vectoring Technology has pioneered a method of using commercially-raised pollinating bees to precision-apply a beneficial fungus that destroys harmful microbes just as fruiting flowers are opening. This increases crop yields while eliminating the use of chemical fungicides.
But Canadian agtech firms face funding challenges. In the U.S., public R&D funding totals US$5 billion annually against Canada’s US$400 million. Inequities in private funding indicate greater opportunities to deploy private capital, with U.S. R&D spending totaling about US$14 billion per year against Canada’s lagging US$108 million.2
Other challenges to Canadian-made agtech include a lack of sufficient broadband capacity in rural areas to allow the ingestion of mass data to implement machine learning. It’s part of an overall challenge that sees much of the investment in technological infrastructure lavished on urban areas.
“We also have to think about investing more not only in technology but also in rural development, so that these communities remain strong,” Yaghi says. “Strong rural communities can support both farms and agtech companies, allowing agtech infrastructure to build out with the talent they require, while ensuring that these rural communities also have access to well-paying jobs.”
The North America Family Office Report 2022, developed by RBC and Campden Wealth, notes that North American family offices remain committed to agricultural investments, with 76 per cent intending to maintain their investment in this class and 18 per cent looking to increase it.
But rather than looking broadly across a wide field of agtech start-ups and young companies, Yaghi believes that family offices can best deploy capital to the sector by finding a niche in the marketplace and developing a better understanding of opportunities there.
“Biologicals are a really interesting space,” says Yaghi. “Instead of chemical fertilizers, for example, we have some Canadian companies looking at more natural solutions including kelp. It’s conceivable that we could reduce the use of chemical fertilizers by blending an arsenal of more natural biological solutions such as biofertilizers, bioinsecticides and biopesticides so that future generations will have access to healthy soils.”
Other promising areas include improved telecommunications and broadband Internet services aimed at rural communities and developing new methods to accurately assess carbon sequestration in soil, as part of an effort to make those soils healthier and more productive. Recent federal legislation has also cleared the way for a gene-edited wheat crop that provides greater resistance to heat, drought and insects.
“It’s a really exciting time to invest in agtech, not only because of the environmental and social good, but also the huge potential for growth,” Yaghi says. “There’s no one leader in the space that dominates the industry and so many verticals to explore. Our producers are already some of the most sustainable farmers in the world. Support from the leading edge of agtech will give them a chance to capitalize on their existing practices to help ensure that Canada can continue to be the sustainable bread basket of the world.”
1 Based on data provided by Statistics Canada
2 Based on the latest data available from the U.S. Department of Agriculture and Statistics Canada
This story was created by Content Works, Postmedia’s commercial content division, on behalf of RBC Investor Services, which is a member and content provider of this publication.