The future of agritech in Mena

Across the Middle East, agriculture plays a pivotal role in transforming economies, alleviating poverty and fostering economic growth, but increasingly, the region is becoming more reliant on international markets for its staple food products. In the GCC, more than 90 per cent of its food is imported as arable land water become ever scarcer resources. The issue of food security is one that plagues many countries around the world and many are using technology as a solution to address this challenge. 

Agricultural technology (agritech) is beginning to attract investor interest in the Middle East. From 2014 until 2020, there have been 33 investment deals in agritech startups amounting to $250 million in disclosed investments. Agritech leverages technologies like the internet of things (IoT), artificial intelligence (AI) and data analytics to help farmers elevate the quality of the fresh produce and increase their crop yields. Yet despite the growing interest, agritech in the Middle East and North Africa (Mena) is still a very small sector with startups facing a vast trove of challenges.  

Against this backdrop, Wamda hosted a panel discussion on 4 November to discuss the current state of the agritech sector.

The panelists included Yasin Aboudaoud, CDO & MP of Brinc.io IoT accelerator, Salvatore Lavallo, acting head of FDI Abu Dhabi Investment Office, Miguel Angel Povedsano, CCO of Majid Al Futtaim Retail, Omar Al Jundi, CEO & founder of Badia Farms, and Sky Kurtz, CEO & founder of Pure Harvest.

Below is a summary of the main points tackled by the panelists.

Investment labyrinth

The agritech space has attracted more investments over the past four to five years, yet the investment sentiment overall remains hesitant.  

“Most of our LPs, and investors now transition 30 to 40 per cent of their portfolio and their investment into food as they see it as one of the biggest problems but right now that’s happening predominantly in Asia,” said Abodaoud.

For Abodaoud, the lack of investor appetite in the Middle East is due to their tendency to adopt a return (on investment) approach rather than solving a real-world problem approach, which makes agritech, a very capital intensive sector, an unattractive proposition for VCs. This has resulted in some venture capital (VC) firms looking to invest in more advanced foreign companies rather than their homegrown counterparts. 

One of the biggest success stories in the regional agritech space is Pure Harvest, a Dubai-based smart farm that has secured $250 million in investment, making it one of the top-funded startups in region. But its journey to getting funded was a difficult one, especially in the beginning. 

“Four years ago, it was not a hot sector at all and less proven than it is today. It's still a relatively new industry in a controlled environment. Being an asset-intensive company in the Middle East operating an onshore company in a traditionally unsexy sector, which was subsidised food was something completely brand new to the market and investors,” said Kurtz. “We had to secure a lead investor out of the United States first, because in the region, it was extremely difficult.”

Aligning with Kurtz, Al Jundi said that they had to raise investment first from his family members to get the ball rolling in the business. He attributes the lack of VC attention and investment to the advanced nature of agritech, while investors in the region feel more comfortable with B2C or B2B businesses.

According to Kurtz, the industry needs an investor and other game-changing players fundamentally change mindsets and bring about a tech shake-up. “As we have exits like Careem, and success stories like that of Souq, all of the businesses that have opened the market to where it is for us today. So we [agritech startups] need to go have similar stories like this and if we succeed, investors will follow.”

What’s lacking?

Besides the lack of proper access to funding, the industry itself can be shackled by the rigid regulatory systems and the lack of direct governmental support.

“Unfortunately, the food sector is a strategic one that is protected in some way or another in every country around the world, and will always have substantial government intervention. But in our region, we need government transitory involvement, which ultimately will cause negative externalities, crazy prices, on disciplined investments of technology and failures,” said Kurtz.

He further stressed the importance of enacting a policy change at a federal level to support investment and competitiveness of food production in the region, as well as protecting local agritech startups, especially at an early stage to develop this industry.

“We had to get two licences - one for the farm itself and another to import the seeds. It is challenging but it’s comforting to know our voices are heard. 

In the same way that startups in the region struggle with the basics of setting up, including unclear regulations Al Jundi said Badia Farms is treated like a steel factory when it comes to pricing for electricity and other overheads. “Until the government comes in and gives me a reduced power rate or rent, we’re paying 40 fils per kilowatt. We are fighting for survival,” he said. 

There is also a lack of an agritech ecosystem, something that ADIO is hoping to create by investing in international startups and encouraging them to set up a base in Abu Dhabi. 

“We’ve announced $130 in half a dozen firms and that is evenly split between local companies as well as international companies...what we’re looking at doing is to create a cohort and create Abu Dhabi as a hub specifically on desert and arid climate agriculture. The problems we face with food security, water scarcity with food wastage, those are problems that are global ones. We are looking to bring technologies from abroad and help technologies that are in Abu Dhabi to grow and make Abu Dhabi that hub, to be the place where technology goes to the rest of the world,” said Lavallo.

The importance of cost

Consumer response to these agritech-grown produce has been positive, but to really push the growth of the sector it will come down to the pricing of produce. 

“The consequences of the pandemic at an economical level, [means] the customer is looking for more value for money. The reality of the price is extremely important,” said Povedsano, who argued that it was up to the startups to ensure they offered a competitive price. “Today if you do sea freight or air freight, it makes up 30-35 per cent of the landing cost. The technology we have is 25 per cent more expensive than the traditional vegetables we bring from other countries. It is very necessary to protect agriculture and work at the same time on the deduction of the tech solution so it will be much more affordable.”

In order for agritech startups to reduce the price of their produce however, it requires greater cooperation between everyone on the supply chain. As Kurtz explained, they need the commitment from the supermarkets in order to make the large investments required. Governments need to subsidise agritech costs and ease regulations to ease their working environment and investors need to take a longer term view of the return on investment in agritech. 

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