Zachary Cefaratti and AIM Summit Panel Identify Ways to Make Food Security Investments More Lucrative

Experts in the vital field of food security discussed the main impediments to making lucrative and effective investments in the sector and identified ways to overcome them at the AIM Summit Dubai 2023 in early November. Hosted by founder and investment banker Zachary Cefaratti, the panelists said that mismatches in investors’ expectations, as well as challenges to effectively applying technology and value chain logistics, have been the key impediments. However, the panelists agreed that these issues can be addressed to avoid “sleepwalking into a major food and water crisis,” as one put it.

Cefaratti kicked off the discussion by asking Jamie Burrows, founder and CEO of vertical farming technology and data company Vertical Future, what he sees as the key issues facing the sector. Vertical farming is a type of controlled environment agriculture that is 95-98% more productive than traditional agriculture and uses far less water. Unfortunately, Burrows noted, “Investors look upon it with a bit of skepticism because we’ve had a lot of disruption in the market over the last couple of years. It’s a very embryonic, burgeoning market, which has had a lot of capital inflow over the last ten years, but it has not necessarily succeeded in its goals.”

One reason for this is the misalignment between the expectations of the types of investors who have backed it, mainly private equity and venture capital firms with two- or three-year time horizons, and the actual time it takes these projects to pay off, which can take decades. “This led us to conclude that vertical farming and food security should be a long-term infrastructure investment,” Burrows said.

“When we look at our projects, and we build the technology and provide the data to the farms across the world, we have to look at them with a 20, 30, 40, or 50-year time horizon. The type of capital that’s appropriate is obviously infrastructure investment.

Burrows said his firm works with a lot of infrastructure funds that are happy to invest on a long-term basis and pick up an 8% yield. While he believes the sector should remain privately financed, he said it needs investors that are willing to exchange some of their return expectations for the attainment of food security goals.

Panelist Lisandro Bril, founder and managing partner of Oikos Venture Capital, pointed to his firm’s view that the digitalization of agriculture is a major challenge, especially for the farmers who need technologies that make their products traceable. “The traceability of coffee, of potatoes, of corn, of soybeans, of meat is important because people want to know what they drink, what they eat, and that these things are being made in a climate-sustainable way. Investors have not understood that this is where the opportunity is. “If you want to eat bread, chicken, meat, you need traceable corn, you need traceable wheat, you need traceable soybean and meat. So, my fund is focused on monitoring all these value chains with deep tech.”

Cefaratti asked panelist Yoram Layani from Pure Salmon, who has taken a nontraditional approach to funding his company, about his experience raising capital. “Essentially, Layani explained, “I’m a partner in a private equity boutique structure which is very unique in the sense that we only have one company in our portfolio, and it is the one we created from scratch: Pure Salmon.”

Layani and his fellow Pure Salmon entrepreneurs avoided doing typical rounds of venture financing and instead launched a private equity firm themselves to own and fund the business. This gives them the ability to apply investment and technology to the agriculture sector at scale. “When it comes to applying investment and technology to agriculture, you need huge amounts of capital. This, again is due to the sector’s long investment cycle,” he said.

“Take aquaculture, for example, which has been the fastest-growing food sector on the planet for the past 20 years. There are very few large financial institutions invested in the space,” Layani said. “And one of the things that we were trying to bridge with a structure like this was to basically bring investors like sovereign funds and large pension funds in because we’re going to need the kind of capital they can mobilize. Today, we’re backed by four sovereign funds.” He also noted that agriculture is just about the last sector to be disrupted by technologies like big data and AI. “To be able to roll them out, the amount of capital that is needed is huge.” Getting large offtake agreements in place that can tackle food security for an entire region or a country requires much more investment capital than investors traditionally provided.

Cefaratti noted that this built on Burrows’s point about the necessary term structure of financing for the sector. “These pilots can look great, but to achieve the scale, think of the unit economics that is necessary for them to be financially not only feasible but financially attractive, particularly in a world where capital is becoming very expensive, and investment returns are available quite widely in the market.” He asked, “How have you been able to tackle these challenges and how have the roles of the public sector versus the private sector worked out?”

Burrows emphasized that the private sector needs to lead on this and has been. Some governments, like Singapore, have been supportive; others, like the UK, less so. “There’s a lot of talk. There are a lot of buzzwords like ESG, AI, and machine learning. But there hasn’t really been much action, or where there is, it takes too long. And these are long-term projects that need to be given adequate thought and consideration, and governments are not moving quickly enough,” he said.

Lisandro added that the need to scale up effectively cannot be accomplished simply by approaching farmers. You need to get your technology adopted by Whole Foods, Walmart, Tesco, and others with the influence to get farmers to undertake the necessary investment in technology, to have metrics to show that they are monitoring what is produced in a sustainable way. “And it’s going to take time.” The entities that provide these incentives are the big distributors of food and beverages around the world that will implement these technologies with the farmers.

Layani said another reason not to rely on governments is that it is difficult for them to structure effective incentives. “It’s not just about food scarcity. It’s also about nutritional scarcity,” he said. “We don’t have so much of a problem of hunger anymore. We have a problem with obesity. We certainly have the hunger issue in developing countries and some of the poorest countries, but in the developed world, deaths from obesity for many years now have vastly outnumbered those who are being underfed. There is a strong incentive that’s being put in by the government to have not only enough food but also the right quality and the right type of food. You have all these issues that all the governments, all governments, I think, have a role in terms of planning.

Zachary Cefaratti asked, despite the need for the support of the big, consumer-led distribution platforms like Whole Foods, where are the consumer incentives? Where would Tesla be today if there was not a consumer incentive to buy one? Why have we not seen any consumer-driven incentives to nudge consumers towards the right product mix, and would that not enable some of the other incentive structures to better align?

It depends, Burrows said, on what consumer-driven incentives should be long-term, once the sector figures out the financing and logistics. Should it be health, sustainability, climate change, or other issues?

“And really, that kind of collective effort is needed to address what is a major issue. But in the short- term, I think people focus on how much money is in their pocket.”

Source: https://www.fastcompany.co.za/technology/zachary-cefaratti-and-aim-summit-panel-identify-ways-to-make-food-security-investments-more-lucrative-018d458b-946e-4114-8a01-31afae7ee8b2