DEC 2020
This is a article written by Seana Day and Brita Rosenheim, Partners at Culterra Capital, an advisory firm focused exclusively on tech-driven innovation across the food system. This Food Supply Chain Tech Industry Landscape and analysis are intended to help operators, entrepreneurs and investors in the food system to understand the quickly evolving themes and trends currently impacting the food supply chain sectors. You can also find their 2020 Farm Tech and Food Tech Industry Landscapes and analysis at Culterra Capital.
We have been covering the Food Tech and AgTech sectors for the past decade, yet the COVID-19 pandemic thrust the Food Supply Chain into the spotlight as we could have never anticipated. As we saw scores of COVID-19 driven shortages on the shelf, and supply disruptions and dislocations in production and distribution, we were left with a complicated question: what does it really take to get data flowing from the farm to your plate? It was that question that launched our odyssey into Food Supply Chain Tech.
The food supply chain differs in some respects from our traditional understanding of Food Tech and AgTech because it encompasses industries with relatively well-established players and technologies, many of which are horizontal software (with a multi-industry offering) and logistics companies. Due to this, as well as the highly-regulated and labor intensive nature of the supply chain, it has been a more difficult industry for nimble start-ups to penetrate.
Thus while we’ve seen the lion’s share of investment in recent years flowing into the end-points of AgTech and Food Tech, we believe there is still a tremendous, untapped opportunity for vertical-specific technology companies which are focused on serving the unique needs of the food supply chain.
It is with this sense of urgency and optimism about new frontiers of innovation, agility and investment that we launch Culterra Capital’s inaugural 2021 Food Supply Chain Tech Landscape.
Delivering the Goods: A Preview of the 2021 Food Supply Chain Tech Landscape
For the purposes of this analysis we have highlighted a handful of predictions for the year to come, as well as emerging themes and key innovation trends that we believe will impact the four supply chain pillars (Supply, Production, Logistics/Distribution, Demand) in 2021 and beyond.
While we cover a number of digitalization-driven opportunities for food system participants to strengthen their resilience, profitability and agility, we will reserve deeper dives into the sector-specific drivers and practical adoption obstacles in later reports.
Digitalization Will Remain a Food Supply Chain Catalyst for the Next Decade
It is well understood across the food industry that modernization and investment in data infrastructure collectively represent a necessary and essential first step towards digitalization. A first step that many participants still need to take - which is why food and ag still represents the lowest penetration of digitalization relative to every other sector of the global economy.
Digitalization is the key enabler for new business model innovation across the Food and Ag sector. For farmers and ranchers, it creates the foundation for opportunities to access new markets, decommoditize or differentiate their products based on quality and sustainability, employ new B2B or B2B2C models, or explore new revenue streams like carbon sequestration. For example, new carbon marketplaces are popping up almost weekly, yet how can buyers be confident with the reporting and verification if the infrastructure is not yet in place to reliably track that grain, beef, or hog through the value chain?
With expanded supply chain digitization, retailers, CPGs and foodservice companies, will increasingly be able to leverage real time demand data, which will help drive real time planning / visibility, optimized inventory, replenishment and ordering, agile omni-channel execution, reduced waste, and better customer experiences.
At the same time, digital supply networks, which connect the physical and digital worlds via networked trade, supply and logistics platforms, will increasingly unlock the potential of vast data sets from physical assets and facilities in real time. For buyers, processors, distributors and logistics participants, these platforms will help to weather supply chain disruptions via larger trading networks, real time visibility and integrated demand planning.
Post-Harvest Digitalization: The First Mile Paradox
The activities that occur within the first mile, from initial harvest to processing, represent the most important predictors of fresh/perishable food quality and shelf life. Thus it should come as no surprise that there are a pair of big, macro trends that are fundamentally dependent on improving digitalization within the first mile: food waste and traceability.
From pre-harvest planning and yield forecasting, to producer management and payments, to load logistics and temperature monitoring, to grading, sorting and cooling, the activities involved in the first mile have far-reaching consequences for food quality, safety and waste. Yet for all the well-orchestrated logistics (phone calls, texts, dispatchers, print-outs and excel schedules), not to mention intensity of labor, it remains the least digitized pillar of the food supply chain.
We continue to see expanded pressure on fresh / perishable suppliers to adapt to the dynamic demands of buyers, which include increasing the speed of delivery, decreasing waste, real time inventory visibility and traceability of products. However the widely-used legacy recordkeeping systems (some digital, some not) have struggled to keep pace with advancements in data sharing through APIs, mobility and cloud infrastructure.
This is creating openings for innovative start-ups like Procurant, Bushel, AgroFresh’s FreshCloud, and Milk Moovement who are helping customers digitize and automate existing workflows, which result in improved efficiencies, better asset utilization and increased profitability.
Disrupting Inertia: Food Production / Processing is Ripe for Digital Transformation
Although not often the subject of innovation fanfare, and mostly overlooked by venture capital investors, food production and processing (primary and secondary) are ripe for Industry 4.0 value drivers like asset utilization, labor automation and management, advanced quality control and supply-demand matching. This is especially the case given the magnitude and likely increasing frequency of global disruptions, whereas to date, much of the investment in processing innovation has been reactive to regulatory externalities like wastewater treatment, utility consumption, and food safety compliance.
The broader technology landscape is already shifting from a traditional manufacturing automation stack to an IIoT stack (Industrial Internet of Things), which leverages a combination of app development, platform cloud, connectivity, and hardware. Implementing an intelligent manufacturing stack within the food industry will be central to unlocking the promise of a more agile, visible and collaborative food supply chain.
For example, while increasing acceptance of IIoT has been paving the way for recent internal investment by producers and manufacturers, COVID-19 sharply elevated the importance of investment in automation systems supporting worker safety, which is aligned with longer-term, systemic change in food production. We see big potential for AI/ML-enabled vision systems, like Lumachain, which can monitor shop floors for both worker safety, as well as yield improvement and waste reduction.
As core business data combines with IIoT data to power AI/ML applications, we also see the role of predictive technologies becoming an important driver of efficiency and profitability in the processing sector. Companies like Seebo, Seeq, Augury and Sight Machine have employed some innovative use cases in food production.
Linking Demand to the Rest of the Supply Chain
The further demand data gets from the source, the more diluted it becomes. Many CPGs experience a period of virtually zero visibility between the warehouse and POS (point-of-sale), and even further upstream, most Ag producers have very little visibility into who, when, where their raw materials are purchased, and how they are marketed and sold.
As we have talked about in our AgTech and Food Tech analysis for years, data standardization and interoperability are not only a challenge at the end points (on-farm and in-retail / foodservice), but also within the value chain. And while retailers are increasingly able to share more demand data upstream to producers and brokers, they do so in a variety of formats, each with distinct product numbers and degrees of granularity, requiring the collecting and harmonizing of data that is often spread across multiple unconnected ERP, POS and logistics systems.
In this case, digitization alone is not enough. There is a pressing need for well-integrated systems and standardized data layers, which are vital to provide dynamic visibility to inventory, costing, sales/trading and logistics and better responsiveness to supply-demand fluctuations. With better, integrated demand data flowing upstream into the distribution, logistics, production and supply pillars, companies can better manage over / underproduction and reduce waste as well as improve the utilization of their own assets (equipment, labor, utilities, storage, etc.).
The emergence of Ag Value Chain Platforms like Indigo, Farmers Business Network, and Stellapps are good examples of business model innovation through integration. Digital Supply Networks like AgriChain, Project44, Elemica and Controlant are showing how real-time trade, inventory management, and logistics data are creating end-to-end supply-chain visibility, and startups like Backbone.ai, Gro Intelligence and Ripe.io are laying the groundwork for integrated supply chain infrastructure. In discussing this topic with Brian Aoaeh from REFASHIOND Ventures, he offered some strong advice for the next leaders in this space: startups which are able differentiate themselves with proprietary, unique data cleansing tools have an especially important edge in this category.
Looking Ahead to 2021 and Beyond
We recognize that each pillar of the supply chain is at a different point in the digitalization journey, with first mile lagging significantly behind, yet facing mounting pressure to provide sustainability data in addition to the already complex sharing of origin, quality and safety data to partners. Comparatively, the innovators closer to the retailers and CPGs are much further developed along the digitalization journey, with more demand insights and integrated planning capabilities.
The real complexity comes in the middle, where some progressive food processors have advanced ERP and Manufacturing Operations Management systems to enable traceability and batch-level insights, while others have failed to keep up with the demands of worker safety, automation and food safety, and have consequently suffered significant setbacks during the pandemic. It is the latter that we believe will further struggle unless they begin to prioritize the necessary investments in their management information systems.
We see the capital inflows and large incumbent activities within the digital logistics space becoming a key driver in supply chain efficiencies, load optimization and dynamic functionality. While most of the high flyers are not currently vertically-focused on food and ag, and it is still difficult to differentiate many of the offerings and value propositions, we expect the well-funded disruptors to begin to look carefully at business model innovation in the food and ag sectors.
As we reflect on our inaugural Food Supply Chain Tech odyssey, we found that understanding how data moves through the value chain often left more questions than answers, yet it revealed tangible and compelling investment themes. There is considerably more analysis and insight ahead, however as a 2021 priority, we urge participants up and down the food supply chain to continue to invest in and prioritize increased data infrastructure. While digitization alone will not solve our massive issues with food waste, loss, or supply chain disruptions (e.g. climate, trade, geopolitical, pandemic, food safety), we are certain it will continue to be the food system megatrend of the next decade.
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Navigating the Food Supply Chain Tech Landscape: A Primer
“Food Supply Chain Tech” here generally refers to the technology enabling the processes and movement that occur between the farm gate and the loading dock / back door of the grocery retailer / food service provider. Integrated LivestockTech solutions are a key enabler of end-to-end production and processing visibility in the food supply chain, however those technology companies will be featured in Culterra Capital’s 2021 LivestockTech Landscape.
This is a heatmap, not a comprehensive catalog: While clearly not exhaustive, this map is meant to illustrate the layers and variety of technology solutions, early stage to mature, and primarily enterprise or B2B-focused. We have generally filtered the companies based on their food and ag customer base, and while mainly US-focused, have included a handful of global companies. Our FarmTech (inside the farm gate) and Food Tech (retail / food service / D2C) landscapes cover the other end points of the food system.
IT-Driven Focus: The landscape focuses predominantly on digital technology-related companies, and although hardware is (mostly) unplugged from this landscape, there is a strong recognition that hardware is an essential part of the technology landscape, especially as it relates to key trends around Industry 4.0 and networked equipment.
In order for us to drive down and understand the many, extraordinarily complex functions involved in the supply chain, we have organized the market around four key pillars of activity:
First Mile (Supply): the harvest forecasting, logistics, producer / order management, monitoring, quality and safety control, B2B procurement, as well as trade analytics technologies;
Production / Food Processing (primary and secondary): the CPG product innovation, ERP, manufacturing automation and robotics, as well as manufacturing operations management (MOM) technologies;
Distribution and Logistics: the supply chain analytics, cold chain logistics / 3PL, warehouse automation, vendor / order management, logistics marketplaces, and transportation management and visibility technologies; and
Retail / Food Service / D2C (Demand): the food & beverage demand data analytics, demand planning and management, omnichannel / D2C logistics, B2B procurement, and food recovery technologies.
And finally, across the bottom of the Food Supply Chain Tech Landscape, we included the variety of value chain players which integrate across multiple pillars including: Ag value chain platforms, traceability, enterprise supply chain platforms, integrated business planning, and networked supply + trade + logistics platforms (a.k.a digital supply networks).
Seana Day and Brita Rosenheim are Partners at Culterra Capital, and Venture Partners at Better Food Ventures, each with 20+ years of investment, M&A, and strategy experience within the food, ag and tech verticals. Their analysis on the Agtech and Food Tech sectors are regularly used by participants in the space to understand the quickly evolving landscape. This article originally posted on Ag Funder News.