Data Snapshot is a regular feature on AgFunderNews that analyzes investment data in the agri-food technology market provided by our parent company, AgFunder.
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Adaptation to climate change is underfunded globally, especially in emerging markets.
According to a recent report from AgFunder and ISF Advisors, developing countries alone will need approximately $212 billion per year by 2030 to adapt to increasingly harsh growing conditions in agriculture.
But investors say it can be a difficult area to invest in.
“Compared to clear revenue models like renewable energy, the pipeline of adaptation projects is lacking and the financial incentives are murky,” said Mark Kahn, managing partner at Omnivore. agfunder news“Overcoming this imbalance requires developing robust adaptation portfolios, quantifying the benefits, and making a strong case for funding resilience measures, which will respond to growing climate threats.” is critical to strengthening food systems.”
Omnivore, an Indian agri-foodtech venture capital firm, was named as the most active investor in climate adaptation technologies for smallholder farmers in the report, which focuses on tools and services for the world’s smallholder farm households (SHFs), who contribute one-third of the world’s food supply.
According to the report, climate adaptation agri-food tech tools and services targeting SHF have raised $5.7 billion since 2012 from technology investors, primarily venture capital, private equity and impact funds. , corporate capital and bank capital are also included. With the exception of 2023, when the entire VC market, including agri-food tech, was in a downturn, total funding and number of deals increased steadily during this period.
According to the Climate Policy Initiative, climate adaptation takes a backseat compared to mitigation tools and services, which account for 90% of climate financing. (See below for the differences.)
The report defines mitigation as “a measurable reduction in greenhouse gas emissions.” In the agri-food sector, mitigation is relevant to corporate initiatives towards ‘net zero’ and discussions around ‘decarbonising’ supply chains.
Adaptation, on the other hand, doesn’t have a clear definition, which is one of the reasons it’s a more challenging area to invest in. The report defines adaptation as “measures taken to minimize the adverse effects of actual or expected future climate change, or to minimize the impacts of climate change, or to take advantage of beneficial opportunities.”
At the same time, the analysis points out that “there is no one-size-fits-all definition of adaptation.”
“Mitigation projects offer more quantifiable short-term benefits, which is consistent with technology investors’ tendency to prioritize tangible innovation over longer-term adaptation efforts,” Khan says.
Who is investing in climate adaptation technologies for smallholder farmers?
Despite the economic downturn and the challenges around investing in adaptation, many are seizing opportunities.
“There are promising opportunities for investment in climate adaptation technologies, especially as the need for climate resilience increases,” said founding partner AgFunder, another major investor in adaptation technologies identified in the report. , points out Michael Dean. [Disclosure: AgFunder is AFN’s parent company]
“The immediate challenge is the lack of funding and financial infrastructure to ensure stability and enable the emergence of a vibrant and adaptive startup ecosystem.”
Most of the top investors are from the US, but Indian-founded technologies attract the most investment. This is likely because India has by far the most developed agtech ecosystem in emerging markets, making international investors feel comfortable investing in India.
Indian companies such as DeHaat, Ecozen and Cropin are developing agribusiness markets, solar irrigation and precision agriculture respectively to help farmers adapt to climate change and become more resilient. [Disclosure: DeHaat is an AgFunder portfolio company.
Dean also names drought-resistant crops, precision agriculture, and smart irrigation systems, all of which “are crucial for building resilience against climate impacts, especially in emerging markets. Effective tech transfer will be crucial in the decades ahead.”
Echoing that, Kahn notes that, “fortifying smallholder livelihoods against escalating climate risks is crucial.” He says Omnivore is especially focused on “agri-fintech, agri-climate finance, agrifood life sciences, and deeptech startups innovating for efficient smallholder production and post-harvest operations.”
However, it’s not just financial investors placing bets in agrifood adaptation tech deals; some 47 corporations have made adaptation investments, predominantly from their venturing arms, contributing to $1.1 billion in funding – nearly 20% of the total $5.7 billion in adaptation agrifoodtech funding – across 85 deals.
MDI Ventures, the venturing arm of Indonesia’s telecommunications giant Telekom, has been the most active corporate venture investor to date, making nine investments, followed by Telefonica’s Wayra, Indonesia’s Bank Rakyat Indonesia, Malaysian multinational Genting and Norwegian chemicals giant Yara.
Yet, venture capital is just one financing tool in the toolbox for SHF adaptation, as is technology just one type of solution, details the report. There are varied adaptation initiatives at play, many of which are low to no-tech and the capital sources backing them vary widely — from commercial banks and non-banking financial institutions to microfinance providers and private investors.
The infographic from the report below highlights the various investor groups backing smallholder adaptation in varying capacities with a few select examples.
Climate adaptation investor landscape:
By volume of capital deployed, venture capital and other tech investment is a much smaller channel compared to capital providers like local and international banks (see below graphic for an estimated comparison). Yet it is an essential source of capital for the creation of technologies that will surely be needed to help SHFs adapt to climate change and keep up with the rest of the world where tech advancements are accelerating rapidly. Furthermore, it often acts as a precursor to other forms of financing and therefore a proxy for future trends, argue the report’s authors
according to ISF Agri-SME report and AgFunder analysis
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