Elements of the agriculture and food industries that have been slow to adopt technology are feeling the most pain from the coronavirus pandemic.
A substantial slice of that sector has embraced new technology in recent years, in the form of innovations such as blockchain and digital transformation. Many farmers, for example, are automating the process of determining optimal crop rotation. Such efforts have helped the industry keep production going during the COVID-19 outbreak and subsequent economic downturn.
Those aspects of the agricultural supply chain that continue to rely heavily on manual labor are most vulnerable to the effects of the crisis, according to Arama Kukutai, co-founder and partner with Finistere Ventures, LLC, a venture capital firm specializing in technology for the agriculture sector. They are struggling to hold onto adequate labor, a problem caused in large part by sheltering-in-place restrictions and the hazards of close contact between workers.
Innovations on the food tech side of the business — those stages responsible for getting product from farm to consumer — are also bringing about significant change in the industry. Farmer’s Fridge makes vending machines containing fresh food products prepared in a central commissary-type kitchen. Tovala manufactures countertop ovens that can cook complete fresh meals at home.
Producers are also exploring new ways of delivering direct to consumers. Finistere is an investor in Good Eggs, an online organic food delivery service based in the San Francisco Bay Area. Meanwhile, blockchain is playing a growing role in the tracking and tracing of product all the way from the farm, promising a means of establishing provenance in the event of a recall, while satisfying consumers who demand to know where their food is coming from.
“Once the coronavirus passes, there’s a very meaningful chance that consumers’ behavior will have permanently changed,” says Kukutai. He sees a strong trend toward increased on-demand fulfillment of high-quality produce and meal kits. Business for the latter — which includes such high-profile brands as Blue Apron and Hello Fresh — “is going through the roof.”
That said, meal-kit services face significant obstacles in sourcing, producing and shipping quality items, most of which are highly perishable. Even the leading purveyors are barely past start-up mode, having spent heavily at the outset on free meals to entice customers to sign on to their services. Then there’s the challenge of hanging on to those accounts, with customer-retention rates averaging a mere 15% across all providers.
Many consumers who discovered the convenience of online shopping and home delivery will continue to rely on that option when the pandemic subsides, Kukutai predicts. He points to changes in China after the SARS outbreak in 2002, when a new generation of consumers began shopping remotely. The switch was amplified (and possibly triggered) by the rise of internet giants Baidu and Alibaba. At the same time, some retail chains in China converted to a storeless model, focusing instead on pure e-commerce orders and direct fulfillment.
Automation is expected to advance the trend further, replacing the humans who currently pick orders for services such as Instacart with robots. Kukutai is especially impressed by Fabric, maker of a logistics platform with robotic pick-and-pack capability for on-demand retail fulfillment.
He views the pandemic as “a tailwind as opposed to a headwind,” spurring innovations that promise to transform the agriculture and food industries for years to come. First, though, producers must cope with the bruising effects of the recession, which could scuttle necessary investments as businesses struggle merely to survive.
Count Kukutai among the relative optimists on this score. The recession was triggered not by economic cycles but by “an extremely real event,” he notes. Previous pandemics, most notably the Spanish flu of 1918-19, were followed by “V-shaped” recoveries. “There’s some evidence that fast rebounds are the most likely response,” he says. “I’m not in the camp of people who predict a long recession.”
Either way, he believes, technology offers “immense promise” to the agriculture and food industries. Economic woes of the moment, bad as they are, won’t stop them from making necessary adjustments in line with long-term changes in consumer behavior.
“All [ag and food] companies will be in a period where they’re going to have to manage their cash more carefully,” Kukutai acknowledges. “It will be a challenge if you’re planning to raise money. Not to take away from short-term challenges, there will still be companies looking to grow post-COVID-19.”
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