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Syngenta Ventures on ChemChina, business model innovation and "agri-fintech"

Article
12.01.2021

 

This interview is part of a series on agrifoodtech corporate VC investment strategies and insights. The series is produced in collaboration with the OnRamp Agriculture Conference, which brings together the agriculture and food industries’ leading corporations, investors, and startups and highlights innovations disrupting agriculture and the future of food. Sign up now to receive the forthcoming report on corporate VC strategies later in Q1 2021.

Syngenta is at a strategic crossroads. Switzerland-based and Chinese-owned since ChemChina’s $44 billion purchase a few years ago, Syngenta is the world’s largest producer of crop protection products. It is also aware of the need to seek out new business models in a changing consumer and regulatory landscape marked by radically improving technology.

Syngenta Ventures launched in 2009 as one of the earliest corporate VC initiatives dedicated to agriculture. Today, the Basel-based group takes what it calls a ‘stage agnostic’ approach, investing in seed rounds and late-stage equity rounds alike. Syngenta Ventures typically invests alongside other financial and corporate investors, rather than going it alone. “We avoid asking for any rights or options for Syngenta,” its website specifies, though it also “often takes board or board observer roles, spending the time needed with the company and management to help them achieve their goals.”

AFN spoke with Syngenta Ventures’ managing director Shubang Shankar, an agtech and digital agriculture specialist investor, about the venture group’s views on opportunities in today’s fast-changing and innovating agrifoodtech space.

AFN: Syngenta has been an early and eager mover in agtech corporate VC. How would you define your investment approach?

Shubang Shankar: Management has long been aware that going forward, a lot of innovation will come from digital technologies or technologies that sit outside our core research and development innovation engine. So, the idea was to use venturing as a vehicle to understand what’s out there in the near and medium-term, and how can we incorporate that into our growth strategy. There’s always been a strategic element to Syngenta’s venturing activity.

Corporate venturing can play different roles for corporate parents, depending on how the corporate venture units are set up: one could be a purely financial corporate venturing unit; one could be an almost returns-agnostic unit, which only scouts for [innovations for] the parent company to buy.

Syngenta Ventures has a two-pronged role. One is accessing R&D and technologies that either give us access to products that we can commercialize or make our internal operations more efficient. The other—which we’ve started doing recently—is to make investments to support the creation of an ecosystem in key markets that can drive demand for our products.

For example, in emerging markets, we believe that if farmers have adequate market linkages, they get better prices [for their products], and better prices mean that they can invest in higher-quality inputs. I think one of our former CEOs said, “Poor farmers farm poorly.” That’s one of the reasons we make investments in more downstream sectors like e-commerce and fintech because we want to create an ecosystem that drives better farming practices by making it remunerative for farmers to invest in quality inputs.

AFN: What do you see as the investment mandate of Syngenta?

We see our mission as supporting promising startups that are creating the future agrifood system of the world. There are well-known challenges and well-known problems. Not all of them will be solved by the traditional R&D-driven product innovation approach. Our mandate is to invest in technologies, in business model innovation, in anything that makes farmers lives’ easier and makes farming more economically remunerative and sustainable for them.

Currently, we have an active portfolio of about 25 companies. We have [maybe] made about 30 investments during the last 10 years.

AFN: How has the culture and approach of Syngenta’s venturing arm been affected by ChemChina’s acquisition?

The ChemChina transaction has had a positive impact on Syngenta Ventures and it reinforces its importance. The Chinese market is a significant growing market with an intriguing and fast-developing startup ecosystem. Similarly, we now have better insight into the Chinese market, which is of interest for many startups as they look to expand into new geographies.

AFN: What are the promising tech trends in the agrifood sector that you’re most excited about?

I’d like to mention three specific ones, covering different markets and different elements of the innovation lifecycle.

Firstly, I’m very excited about the prospect of agri-fintech in emerging markets and for smallholder farmers. I remember reading recently that 70% of the world’s food is actually produced by smallholder farmers. Smallholder farmers face well-known challenges around access to credit, which hinders them from using high-quality inputs, [which means] they have low productivity and low incomes. This further hinders their access to credit. Smallholder farmers are thus caught in a vicious circle of under-investment and low returns.

Credit is one way of breaking that circle. With the rise of digital technologies and the analogous development of alternative lending models in other sectors, I think there is a lot of potential to use technology and business model innovation to solve a really, really big global problem. It is one of the reasons why we made our recent investment in Tarfin, which is an agri-fintech lending company with operations in Turkey. Our decision to invest was driven by the thesis that if you move lending for farmers away from the traditional model of “lend against collateral” to “lend against the ability to pay,” then it would drive significant value.

The second is anything to do with robotics in agriculture. Agriculture has a well-known and intensifying crisis of labor availability, especially in segments like harvesting. Nobody wants to work in the low-paying jobs of manual picking, so we are seeing increasing challenges around the mobility of labor, pre- and post-Covid. I expect those challenges to [continue]; there will be a strong demand for robotics and further automation in farming operations. Granted, there are challenges around feasibility and the investment required, but I think the trend will accelerate.

The third segment, which I am personally quite interested in, is the application of artificial intelligence (AI) and machine learning-driven techniques for the discovery and commercialization of materials. Look at Zymergen. There is this belief that you can automate a lot of the traditional trial-and-error processes that drove R&D using new AI techniques. We’ve seen those models being explored very strongly in pharma, and at some point, they will trickle down into agriculture as well.

AFN: Aside from Tarfin, what other Syngenta portfolio companies stand out to you in their bid to advance the agrifood sector?

A recent investment we announced is a company called Greeneye, which is developing a machine vision-enabled smart spraying kit. The aim is to enable precision spraying of crop protection chemicals. What Greeneye is doing is developing a kit that will allow sprayers to “recognize” and spray weeds in real-time.

We made this investment last year, ahead of the recent EU announcement of plans to reduce the use of chemicals on farms by up to 50% by 2030. This is the kind of technology required to achieve some of the goals like what the EU has set. I think everybody in the industry knows that we need to move away from a broadcast spraying approach and head towards more judicious use of chemicals. So Greeneye is a great example of the convergence of a political regulatory trend and a technology trend.

Through a business model innovation lens, Ninjacart has created supply-chain and market linkages for smallholder farmers in India. Farmers in India have structural constraints that stop them from getting direct access to markets and getting good prices [for their goods]. As I mentioned, this constrains their ability to reinvest in operations. What Ninjacart is doing is creating the supply chain infrastructure to connect farmers with markets and aiming to do that on a scale of 150 million smallholder farmers! That’s an immense challenge.

There are many examples of companies that are really taking on big problems in the agrifood sector, and I’m hopeful all of them will succeed.