Farm Startups Bent on Shaking Up Cargill, ADM Are Stumbling

(Bloomberg) -- Bold startups that once threatened to shake up the $1.5 trillion agriculture sector and disrupt the likes of crop trading giants such as Archer-Daniels-Midland Co. and Cargill Inc. are stumbling.

Indigo Ag Inc., once a marketplace for trading and shipping grain, has cut jobs and shrunk its business. Farmers Edge Inc. was taken private at a tiny fraction of its initial public offering. Gro Intelligence, named by Time magazine as one of the 100 Most Influential Companies, is shutting down, according to a person familiar with the matter.

The mistake for many of these newcomers: thinking they could easily apply the Silicon Valley playbook to the world of farming.

“How many farmers do you see?” Matt Carstens, chief executive officer of Landus, Iowa’s biggest farm cooperative, asked during a presentation at World Agri-Tech Innovation Summit in San Francisco in March. “We’re all talking to ourselves. That’s cool. But somebody’s got to execute it on a farm.”

The struggles show how difficult it is to change one of the world’s oldest industries, especially during a downturn in the farm economy. The task is even more challenging as the traditional powerhouse operators are also aggressively pushing high-tech services to farmers.

The startups initially raked in billions of dollars from investors, benefiting from ultra-low interest rates that helped feed speculative ventures. Their vision, inspired by the likes of eBay and Uber, was to take traditional crop trading and management onto digital platforms, offering data and technologies to change practices throughout the farm supply chain.

But once-plentiful funding has rapidly dried up. The global “agrifoodtech” sector raised $15.6 billion globally in 2023, down nearly 50% from a year earlier and the lowest level since 2017, according to an investment report from venture capital firm AgFunder. 

The industry giants have proved to be formidable adversaries. There was a “very, very strong industry resistance to FBN being in the market,” said Charles Baron, co-founder of Farmers Business Network. The company faced pushback from larger rivals in the inputs sector on its efforts to use collective data from growers to provide price transparency, resulting in antitrust litigation several years ago involving allegations against Bayer AG and others. 

But the main issue for many of the startups is the difficulty in connecting with farmers. 

Lance Lillibridge, who raises corn and soybeans in Iowa, said the startups don’t understand the farmer, while growers themselves are wary about sharing sensitive production data in exchange for payments linked to carbon credits.

“They take our data and use it for stuff we didn’t intend for them to use the data for,” he said. “They’ve broken the trust of the farmer.”

‘One Chance’

The venture-capital community is learning that the return on agriculture technology is different from other areas, according to Marc Kermisch, chief digital and information officer at tractor maker CNH Industrial NV, which has its own strategy to connect farmers to hi-tech equipment.

“Farmers are small business people at the end of the day, and they usually get one chance to plant their crop every single season,” he said. “So their bar for adding technology is really high because if they mess up their crop,” they’re impacting their profits.

Dean Banks, chief executive officer of Indigo Ag, says it’s easier to talk about disrupting than it is to actually disrupt. The company ditched businesses including one that sought to use idled trucks for shipping crops, and now is primarily focused on seed coatings and helping farmers sequester carbon.

Indigo Ag’s valuation dropped from almost $4 billion in July 2022 to about $200 million a year later, according to estimates from PitchBook, which provides data for private and public markets. A more recent valuation isn’t available due to lack of data, and the company declined to comment on the matter.

Both investors and startup firms have been reluctant lately to disclose company valuations, said Alex Frederick, senior analyst of emerging technology in the agriculture and food sectors at PitchBook. “Investors are quicker to invest when valuations are certain, but valuations have been in free fall to a degree,” he said.

Banks said Indigo has made “substantial progress,” and is seeking to reach break even by the end of the year, based on earnings before interest, taxes, depreciation and amortization. “We’ve sold off or gotten out of the businesses where there were other people who were just as good or better doing it,” he said.

Canadian-based Farmers Edge, which seeks to provide technology solutions across the supply chain, reached a market value of about C$835 million ($607 million) after its initial public offering three years ago. It was bought out earlier this year by Fairfax Financial Holdings Ltd. at a price 98% below that of its IPO. 

Evaporated Valuations

“The majority of the tech world experienced inflated valuations, particularly startups, and then as things started normalizing after Covid those valuations kind of evaporated,” said Vibhore Arora, CEO of Farmers Edge. 

Arora said his mandate has been to reset the company’s direction, double down on execution and stop trying to do everything in the crowded agtech market.

Gro Intelligence, which used satellite data and artificial intelligence to make crop predictions, earlier this month let go of most of its remaining staff as it faced a worsening funding crunch, and is shutting down after failing to find a buyer, according to the person familiar with the matter. 

The company in February parted with founder Sara Menker. Just five years ago, Gro boasted of being an alternative to the US Department of Agriculture when the agency had to cancel reports due to a government shutdown.

Farmers Business Network, meanwhile, is trying to regain its footing after a recent spate of leadership departures and worker layoffs. 

“The down cycle in the ag industry over the past two years has affected many companies, and FBN has not been immune,” said CEO Diego Casanello. He said FBN is on the path for profitability this year on an Ebitda basis after making “many tough, prudent decisions” to focus on its most profitable and core services.

FBN said in an emailed statement that it continues to grow and is serving more farms than ever across its platform. It notes that it’s a major partner to ADM, and has become their exclusive partner on managing grower sustainability programs supporting thousands of growers. It said the stiff resistance from input companies underscores farmers’ need for a competitive market.

FBN had an estimated valuation of roughly $3.8 billion a few years ago, though a current figure wasn’t available. The company recently took out a short-term loan in the form of a convertible note that hasn’t yet been priced, according to a person familiar with the matter.

Landus’ Carstens said both FBN and Indigo have done good work, but they “met the force of our traditional ag” and couldn’t break in. For its part, Landus, with the backing of FBN co-founder and former CEO Amol Deshpande, is launching its own digital platform initially focused on fintech, leveraging the advantages of the cooperative model to provide services to its member farmers and beyond.

The agriculture technology startup space in general should be prepared for the tough financing climate to continue, said Rob Leclerc, a founding partner of AgFunder. Some companies are trying to rework their pitches to investors to emphasize the latest darling of the startup world, artificial intelligence, but it’s often a weak and transparent effort.

“Companies need a really compelling story about why they are fundamentally different.” he said. “We will see a tremendous amount of failure” in the sector.

(Updates with antitrust case in eighth paragraph, and FBN comment in 25th paragraph.)

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