Agritech seeks the ‘flywheel effect’ to become an $8 billion industry

From Tauranga to Dunedin, Marlborough to Waikato, entrepreneurs, scientists and farmers are collaborating to exploit our primary sector strengths. At the Waikato Innovation Park, for example, dozens of agritech companies are co-located in the heart of North Island dairy country. 

Those collaboration efforts are increasingly attracting international investment. In April, smart cow collar maker Halter scored the year’s biggest fundraising round for a Kiwi startup when it secured $85 million in Series C funding, led by US-based VC firm Bessemer Venture Capital. Existing investors DCVC, Blackbird, Prometheus Ventures, Rocket Lab’s Peter Beck and Icehouse Ventures also chipped in. Halter had raised $40 million in two previous funding rounds.

“It’s night and day in terms of the difference from 10 years ago,” says Dean Tilyard, venture partner at Finistere Ventures. 

Tilyard is also the founder and a director of Palmerston North-based Sprout Agritech, the country’s leading agritech accelerator. Sprout was set up in 2014 to nurture early-stage firms, allow founders to network and benefit from mentorship, and to access funding from Finistere – a VC firm specialising in agritech with offices in San Diego and Silicon Valley and partners and investments scattered globally. 

Located on Dairy Farm Road on the Massey University campus, Sprout, which includes Fonterra as a shareholder, is just a stone’s throw from FoodHQ, one of the world's leading clusters of food science expertise and facilities.

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‍Follow the pathfinders

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Tilyard considers Halter, with its roots in the Waikato; Robotics Plus in Tauranga; and Biolumic from the Sprout/Finistere stable in Palmerston North, as “pathfinder” companies that other agritech companies can learn from.

“Clusters help that happen through these regional nodes where the activity of connector organisations like accelerators and incubators, and the other agencies active in this space, are really important.”

But agritech is not a neat vertical like biotech, or video games development, where clusters of companies employing overlapping technologies naturally form.

“You’ve got a number of different technologies that can be involved, from digital and artificial intelligence, to biology, chemistry and engineering,” Tilyard points out.

While we have a large domestic agriculture sector, many agritech companies set out to solve specific local problems that are too niche for the global market. 

“They are focusing on relatively small market problems instead of joining up with other small startups to have a shot at bigger target markets,” says Tilyard. “We’d like to see them merge together, or find more ways to partner.”

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Sprout graduate Biolumic is a prime example of the value of a cluster to bring talent, research expertise, facilities and capital together. Its founder and chief science officer, Dr Jason Wargent, was an associate professor at Massey University researching how increased exposure to the ultraviolet spectrum of light could affect plants.

Wargent found that exposing plants in a greenhouse to UV light at the right stage in their development could boost their growth potential when they were planted out in the field. Finistere was an early investor and in 2018 led a Series A round valued at $5 million. 

Another Finistere portfolio company, Scentian Bio, was spun out of Plant & Food Research, again highlighting the importance of research institutions to innovation clusters. The company is combining insect odorant receptors with electronics to create a synthetic ‘insect nose’, and in September raised $3.5 million from Finistere and Toyota Ventures.

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Keep doubling down

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In agritech hotspots in the US – like Boston, St Louis, Missouri, and the Salinas Valley in northern California – universities and private R&D operators sit at the heart of successful clusters. 

“The institutions are clear on what their role is, which is to generate intellectual property, generate talent, and make facilities easy to access, because a key impediment is getting the right equipment at the right cost, early on,” says Tilyard.

"We've had some success in areas of the agri-food area with the food pilot plants and so on, and we've got accelerators. We just have to keep doubling down.”

The agritech sector certainly has big ambitions; it aims to grow its contribution to the New Zealand economy to $8 billion by 2023. Last year, the 22 largest agritech firms had combined revenues of $1.6 billion, including exports of $814.9 million.

So we’ve a long way to go to scale up. The Agritech Industry Transformation Plan (ITP) was set up in 2020 with the aim of improving connectivity across the agritech sector to boost exports, and improve the productivity and sustainability of our food and fibre sectors. The Agritech ITP was kicked off with $16.4 million in funding. 

In the May Budget, around $30 million was allocated to establish the Horticulture Technology Catalyst – effectively, a virtual cluster that, according to Ministry of Business, Innovation and Employment officials, was designed to “build momentum for a ‘flywheel effect’ in

the sector, where activity and successful projects…create more activity and galvanise the sector’s growth”.

But all eight of the industry transformation plans became subject to a stop work order when the new coalition government came into power. While ITP initiatives with funding already committed appear to have the greenlight to continue, no new projects will be started until the government signals how it wants to proceed.

“At this time of the year things are winding down a wee bit so it's not a huge problem, but if this happened in June, it would be a very different story. We’re working hard to get meetings with the new ministers,” says Bridgit Hawkins, chair of industry body and key ITP partner AgriTechNZ, and chief sustainability officer at CropX, a developer of farm management software, which purchased Hawkins’ company Regen in 2021. 

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Agritech needs to be industry led

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“The pause in itself may not be a bad thing,” she adds.

“How do we ensure that the ITP is delivered in a way that is very much industry led, which perhaps wasn't the case so much in its earliest stages?” she asks.

Hawkins was working at government agency Trade NZ in the mid-1990s when plans were floated to mimic overseas efforts to develop agritech clusters. But a formal cluster strategy backed by taxpayer dollars never made it off the page.

“We are orders of magnitude different from what the European Union can do. We simply, as a country, don’t have the resources,” says Hawkins. 

“To substitute for not having a formal cluster managing things, we meet and talk and share ideas in a much more informal, unstructured way.”

AgritechNZ will hold a conference next August on the theme of collaboration. The industry body aims to explore how exactly agritech companies can best work together.

“Jointly developing products and marketing them to the world isn’t really suitable for agritech,” says Hawkins.

“But I see clusters as a way of enabling better quality businesses to grow. Our challenge is how do we get more of them? In another decade, how can we have 20 Gallaghers?”

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This is the third in a monthly series on New Zealand clusters and what they're delivering for startup founders.

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