The Missing Middle
Venture capital finance has tightened in the current economic environment, but food systems investors remain keen to participate in transformation.
Every type of farming system works - from fresh local eggs to bulk grain exports, in that a market exists. But each individual food system works differently in moving products off farms to end users.
Understanding market demand is the critical starting point in developing new value chains because right or wrong, farming is a business. Even if it’s a side hustle alongside an off-farm job, a farm’s not sustainable if it’s running out of money.
The ‘missing middle’ is an investor term for navigating the chasm between small/transparent and large/opaque value chains, and opportunities for bringing the market closer to the farmgate. Margins are in there to be earned, but it can also be a minefield, for example due to the black market in local meat.
The purpose of this report is to classify the pools of infrastructure that need to be built, in order for new types of farm products (field data, nutrient density and ecological outcomes, for example) to connect into emerging consumer segments. Much ink is being spilled these days on the role of robotics and AI to close the gap - now let’s unpack some moving parts in the background:
Laboratory testing of soil samples, plant tissue and sap analysis, as well as nutrient density in foods;
Software API’s to connect data gathered by equipment on field activities to marketing platforms;
Dedicated cleaning, processing, and packaging capacity to preserve the identity of the field of origin, and the value of the data that it carries into the market;
Brands that communicate new features and benefits to consumers, validated back to the land and the ecological footprint of the landowner.
Grounding in scientific understanding and academic validation.
Agroecology
Working backwards up the list, consider the advantage of basing a new value chain on ‘agroecology’ vs. ‘regenerative’ or ‘sustainable’. Agroecology stands on pre-existing scientific principles that have been taught in academic institutions around the world for decades.
Ecology is concerned with the relation of living organisms to one another and to their physical surroundings.
Agroecology, therefore, is the application of ecological principles to agricultural systems and practices.
Agroecology seeks to establish agricultural landscapes that are complex and rich with life.
Agronomy relies on linear formulas geared to establish more sterile farming environments.
Storytelling
Brands with integrity communicate to consumers the features and benefits of their product offers, and back it up with proof. To combat the plague of greenwashing by food brands around regenerative, markets and consumers are starting to demand true stories about new work being tackled by brands to clean up their ingredient sourcing systems.
Some of the early models for valuing carbon offsets predicted emissions avoidance, for example, related to deforestation reduction. Now that they’re being audited, negative brand stories abound about actual avoidance having fallen short of projections. Storytelling cuts both ways.
Segregation
Similar to the risk of selling stories based on untested formula-based estimates, ‘mass-balance’ carbon accounting is weak insurance against greenwashing complaints. ‘Physical segregation’ requires more up front work and supply chain adjustments, but holds more promise for mobilizing climate finance, and provides the unwavering transparency the food system needs to manage risk.
These are the bricks-and-mortar types of investments commonly captured in traditional feasibility studies, making it easier to assess future returns. It is hard to find a sweet spot however, for a new entrant in this space surrounded by dominant, longstanding, well-capitalized incumbents.
Data Transfer
Stories from the field around farm data capture and management sound a lot different than most agtech software company claims. Somewhat shockingly, otherwise highly advanced technology adopters still use paper records and spreadsheets to track field activities, farm budgets, inventories and sales.
At best, there are a few platforms that provide partial assistance for managing farm records. Interconnectivity is lacking and blocking the transfer of otherwise valuable data to markets seeking it.
In-person tours and product sales are great ways for small ecological farms to monetize both storytelling and data transfer - with no segregation required. Interestingly, the more agritourism options available in a region, the more sales the farms cumulatively obtain.
Safety & Nutrition
Ultimately, broad swaths of the current systems for managing food safety and nutrition will need to be overhauled and updated to satisfy society and future consumers. Laboratory testing is a major bottleneck today, in two distinct ways.
First, lab testing companies use different extraction and reporting processes to arrive at the figures presented in the analysis and recommendations, and conflicting paradigms underpin each lab’s set up. There is also a shortage of laboratory testing capacity for farm products and foods sold, worldwide.