Research and Development is an important aspect of the Agrifood process. Here we detail more about the Agritech sector in Latin America, it’s challenges and what’s next for the region
How are start-ups doing in innovation?
By 2019 there were more than 450 AgriFood startups in the region focused on technological innovation, of which 51% were concentrated in Brazil, and 23% in Argentina.
Endeavor & PepsiCo meanwhile, reported that only 22% of entrepreneurs outsource technological development. As a result, 78% of entrepreneurs are developing their own technology in this new field. The most common being biotechnology, big data, mobile applications, and machine learning.
Tierra de Monte, for example, offers products based on different communities of microorganisms as an alternative to traditional pesticides and chemical fertilizers. For its part, PolyNatural, designed ShelfLife, an emulsion manufactured by vegetable polymers, natural extracts and lipids, which extends the life of the export fruit. The majority of fruit exporting companies use synthetic waxes for their coatings, that are made up components from petrolium. PolyNatural, by the other hand, was designed to respond to the demand for food without synthetic coatings in European markets.
Limited budget and in the hands of the public sector
A key challenge for research and development in the agricultural and food sector is the budget. And according to ECLAC, compared to other more developed countries, the countries of Latin America and the Caribbean have little spending on R&D.
Furthermore, In Latin America only 35% of the R&D budget comes from private companies. Meanwhile, in more developed countries they contribute 80% of R&D spending in China; in the OECD member countries and the European Union, 60%.
In the USA, research and development remains in the hands of state, they are subject to changes in political priorities as well as in the willingness of the public sector to invest in innovation and technology.
Basic research takes most of the budget in Latin America
Another challenge is the distribution of expenditure according to the type of research. The first place is taken by basic research, followed by applied research, ending with experimental development. This can lead to the generation of gaps between the knowledge and results of research, and its application in technological solutions for the AgriFood sector.
In this regard, the Global Innovation Index differentiates the challenges to turn biotechnology research into commercial developments according to different sub-regions in Latin America. Argentina, Brazil, Cuba, and Mexico are countries with considerable developments in genetically modified crops and organisms. However, they face difficulties in developing commercial applications of such technologies.
Those with intermediate capabilities – Colombia, Costa Rica, Chile, Peru, Uruguay, and Venezuela- unfortunately concentrate their capabilities to use modern and conventional techniques. The rest of the countries in the region have limited capacities to innovate in biotechnology.
In addition, Agrifoodtech startups with a high R&D load faces multiple challenges, which constitute barriers to them scaling up. This is because they require large amounts of capital to cover their production costs, extensive initial research, marketing, among others.
Moreover, if they do not have a clear roadmap for scaling up, it is difficult for institutional investors to bet on their capital injection to these startups. This results in under funding of these initiatives and makes it difficult for startups to grow.
On the other hand, startups focused on creating new foods, as they grow and expand, face difficulty of finding talent specialized in STEM fields (such as food engineers, biotechnology, research and development engineering, process engineering).
How to improve the outlook for startups?
The convergence of multiple factors that provide a fertile field is required for startups in the sector to develop R&D. In this regard, the Inter-American Development Bank identified and promotes the innovation ecosystem in Brazil and Argentina, leaders of the new wave of technological AgriFood innovation. This ecosystem comprises of:
- Technological convergence: Availability of affordable technologies and reducing development times.
- Environment: Development of more sustainable and efficient technologies driven by the effects of climate change, global warming and land and water degradation.
- Consumers who demand sustainability of the production of the food they consume and who want a healthy diet.
- Public policies promoted by ensuring food security, mitigating climate change and protecting natural resources can generate pressure to create a regulatory framework on waste reduction, food loss, the use of biological products, and the traceability of food as solutions to these problems.
- Agricultural producers of all sizes must make decisions under the pressures of the other actors in the chain (consumers, public bodies) on the environment, the pressures on the margins of the business, and the understanding of technology.
Key actors in the broad value chain of agriculture and food must generate actions for the creation of this ecosystem. Particularly, entrepreneurs, corporations, the public sector and academia, In particular, they can advocate for the generation of collaborative regulatory frameworks between startups, companies, academia and the public sector that promote research and development.
The invitation is to strengthen links between universities, where research and development is carried out. As Leonardo Álvarez, CEO and founder of Protera, a Chilean biotech protein startup, points out: “Educational programs have not kept pace with the industry. The technological experience is incipient and most of the professionals in the area are self-taught. It is especially difficult to find experts in artificial intelligence and biotechnology”.
So creating programs such as internships for STEM students in startups ,and curriculum in dialogue between academia and the private sector could be extra tools to get closer to an innovation ecosystem.
Finally, Corporate Venture Capitals (CVC) are key in the technological innovation processes of startups. The invitation is to strengthen the ties between CVC and startups since their relationship in FoodTech is a win-win. The former, obtaining strategic and financial rewards; and second, opportunities to generate their own R&D and other benefits (such as legal and financial advice and access to infrastructure for distribution, logistics and research).
Perhaps the FoodTech with the highest VC investment (which also has a strong research and development component) is NotCo. The Chilean company that uses Artificial Intelligence to replicate animal products based on plants and vegetables, reached the category of “Unicorn” after receiving support from multiple investors throughout different investment rounds.
In 2019 it received $30 million in a round led by The Craftory and also participated Expeditions, MAYA CAPITAL and Kaszek Ventures. In 2021 NotCo received $235 million in a D round led by Tiger Global, with the participation of DFJ Growth Fund, ZOMA Lab, Roger Federer and others. In total, NotCo has raised more than $350 million in VC.