What is Foodtech and Why Investors Love It

If you’ve ever munched on a lab-made meatless burger or snacked on a kale salad grown on a hydroponics farm, then you’ve already had a taste of foodtech. Right now, it might seem like a fringe trend for avid foodies. But over the coming years, this rapidly evolving industry will become mainstream and change the way we all eat.

So what’s driving foodtech’s development? Startups are seeking ways to make modern food more sustainable and efficient in response to the looming threat of food shortage, inefficiencies and negative environmental effects in the meat and agricultural industries, or even helping consumers make better, healthier food choices.

Global food production simply isn’t fit for purpose, as these facts clearly show:

  • According to the United Nations, the world needs to up its food production by 60% to feed an estimated population of over nine billion by 2050.
  • Factors like climate change, urbanization and water shortages are reducing the amount of arable land we can use to produce food.
  • Nearly 690 million people in the world suffer from hunger.
  • This figure is expected to grow to 840 million by 2030, aggravated by the pandemic.

Foodtech startups aim to fill some of the large gaps in the market, and these opportunities have caught the interest of investors.

Food and Technology’s Multiple Ingredients 

Beyond lab-grown meats or vertical urban farms, foodtech should be seen as a broad ecosystem of enterprises using technologies like artificial intelligence, Internet of Things (IoT) and big data to disrupt different parts of the food supply chain, from production to distribution. 

The industry can be divided into six sub-sectors or verticals (definitions adapted from the Digital Food Lab): 

AgTech: startups that work to increase output and quality of crops using drones, sensors and software in place of human labour. This vertical focuses on farm products, next-generation farms and urban farming.

Food Science: startups researching and developing new food products that address health and environmental concerns. Lab-grown meat, plant-based meat substitutes and alternative proteins fall under this category.

Food Service: startups improving the way food-related businesses (hotels, restaurants and cafes) are managed today. Innovations hailed as ‘restaurants of the future’ like cloud kitchens and robot chefs belong to this vertical.

Coaching: startups which educate consumers and raise public awareness about their food choices, the health benefits and helping them to reach personal goals like fitness or managing chronic conditions.

Delivery: startups that delve into the challenge of transportation in the food industry. Grocery and restaurant deliveries are covered here.

Retail: startups crafting tech-based solutions that optimise aspects of the food retail industry. This includes back-end improvements like digitalizing the supply chain or front-end programmes to deliver a better in-store shopper experience.

Some foodtech incubators have more granular categorisations, but these six verticals above provide a broad overview of the industry.

agritech, foodtech, urban farming
Urban farms are a way for cities to utilize unused buildings or spaces, and provides support for local food chains.

Why Investors Have a Taste for It

Foodtech startups, by their nature, require plenty of time for R&D and rigorous safety tests before they can take their product to market. For instance, it took close to a decade or more for Impossible Foods and Beyond Meat to become household names with billion-dollar valuations. And these companies are the best success stories in the nascent industry to date.

Investor interest in foodtech has been gaining ground recently, in part due to the United Nations and other international organisations highlighting food insecurity and establishing the Sustainable Development Goals (SDGs) to be accomplished by 2030.

The Financial Times reported a surge of interest in investments guided by Environmental, Social and Governance (ESG) principles. Investors funneled over US $70 billion into sustainable investment funds between April and June 2020, driven by rising public awareness of climate issues.

The COVID-19 pandemic also highlighted our reliance on international supply chains and inefficiencies in traditional food production models. Governments have started turning their attention to foodtech to ramp up domestic food production as well. For example, Singapore launched a SGD $30 million (US $21 million) fund to encourage local food production, on top of its existing initiatives to ensure the island state could supply 30% of its food needs by 2030.

Private investors are getting into the game as well. According to Food Navigator USA, investment in US foodtech hit a new high of US $8.4 billion in the first three quarters of 2020. This outpaced the record sum of US $7 billion that the industry received in the whole of 2019. 

Alternative proteins have proved a massive hit, with US alternative protein research and lobby group the Good Food Institute reporting a total of US $3.1 billion channeled into the field, up from a US $1 billion in 2019.

Advances in the industry are not limited to the most developed Western markets. In Southeast Asia, investment in the region’s agriculture and foodtech startups climbed to US $350 million in the first six months of 2020, easily on track to exceed 2019’s full year haul of US $423 million. 

Here, the pandemic and lockdowns have failed to restrict innovation, with a number of foodtech enterprises rising to the occasion and proving resilient. With international imports disrupted, many consumers turned to local supermarkets, agriculture and food delivery companies.

Given the outlook for global food production, sustainability concerns and constantly evolving dietary trends, interest in foodtech is unlikely to decrease any time soon. So maybe now’s the time to think about grabbing a seat at the table – tomorrow’s foodtech solutions are already getting prepared to be served up.

Liked this article? You might also like: Our take on China’s online grocery industry or community group buys for fresh produce.

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