Inflation is everywhere and the increase in food prices is apparent “across the board,” as Miguel Patricio, chief executive of Kraft Heinz, told the BBC in the fall, adding that the rising cost of basic ingredients such as cereals and oils has led the company to up prices on more than half of its products in the U.S.
The situation has only worsened since Patricio made these comments. The cost of food in the U.S. increased 6.3% in December from a year ago, according to data from the U.S. Bureau of Labor Statistics. It’s the highest food inflation since October 2008.
It’s not just due to more expensive agricultural commodities. Supply chain disruptions have also impacted food processors’ productivity and higher energy prices are pressuring distribution costs.
Consumers are using different strategies to adapt and minimize the pain. They’re planning their shopping trips to the supermarket and making substitutes for cheaper items when they can.
But it doesn’t have to be this way. Innovation can help us lower the cost of food in the long run, just like it has helped decrease the cost of goods such as computers, flat-screen TVs and washing machines.
The food industry has already proven that innovation can be deflationary.
Since World War II, the Big Ag has shown it can productionize the food system in the U.S. By using soy and corn in particular, it has been able to affordably deliver high-caloric food at scale to Americans. It has resulted in cheaper food. Alas, it has also led to ultra-processed and high-sugar content food, which is contributing to the obesity problem in America and which has become a burden on the U.S. healthcare system. This is not sustainable.
Healthy, more nutritious food is available in the U.S. and has been met with strong interest from a portion of the population within the last decade. But healthy food remains expensive. It is certainly more pricey than processed food.
If innovation is deflationary, recent investments in new agriculture technologies should have contributed to cheaper healthy food. But it hasn’t been the case, despite AgTech investments in food-related businesses booming in the last few years. In 2020, agrifood tech startups globally raised $30 billion in funding, breaking records, according to data from AgFunder. It’s likely 2021 also broke a new record as in the first half of the year startups had already raised $24 billion.
Despite such increases in spending in AgTech startups, many of which focus on healthy food, why haven’t we seen the same deflationary trend in healthy food costs? My thinking is that it is still not enough. There continues to be a dire need for money backing the smart entrepreneurs and the successful companies that can innovate and that can create technologies that will help lower the price of quality healthy food.
If you look at the U.S. only, investments in agtech startups in the first half of 2021 stood at less than $10 billion. In venture capital, dry powder soared to $220 billion last year, leaving ample room for investors to fund AgTech entrepreneurs and support them.
Categories within agtech that truly focus on innovation such as innovative food or Ag biotechnology collected less than $1.5 billion respectively in the first six months of last year. Instead, the bulk of the funding still goes to egrocery. Downstream AgTech startups that are closer to the consumers have generally raised more funding than upstream startups, although this is slowly changing. The trend reversed for the first time in 2020.
Still, more funding should go to R&D and startups operating closer to the farmers and the supply chain. If that continues, it will create innovative new technologies that deliver quality foods at scale and lower cost.
At iSelect, we are making it a priority to invest in the entrepreneurs who are focused on making innovations happen. Areas such as improvements in nutritional value, better resource efficiency and better cost controls in the agriculture industry need our attention.
Some of our portfolio companies like Benson Hill and Brightseed are using sophisticated proprietary cloud biology and AI to design healthier and more nutritious food. Companies like Plant Response, Kula Bio, and PatternAg are enabling biological solutions for better soil and crop health.
But only with additional backing of such agtech startups will innovation really take off and translate into lower prices for quality healthy food. We’ve seen a fintech revolution transforming digital payments in the past few years. Innovation is deflationary; we now need an agtech revolution.