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Adaptive Agriculture & Food Systems MERCY CORPS VENTURES RESILIENT FUTURE THESIS

Tech-powered solutions have the potential to reinvent agriculture to meet the needs of growing global demand.

However, the speed and efficiency of food system innovation must rapidly increase to ensure that adequate nutrition and food security is met by growing populations while overcoming the many challenges to production brought on by climate change.

Alongside this, agriculture must become a more stable and profitable livelihood for the hundreds of millions of smallholder farmers, rural producers, and agri-focused micro-, small-, and medium-sized enterprises (MSMEs). It must also transition to being more regenerative and sustainable, driving justice for those who live and work on the land.

Mercy Corps Ventures invests in founders building the technologies and models that will spur a new inclusive and sustainable green revolution.

The Challenge

Population growth, along with increased economic development and spending power, means global food supply will need to escalate production by 70% by 2050. This alone is a substantial increase, but we will also need to accomplish this in the face of climate change—where impacts such as drought, heat waves, and more extreme weather events are projected to decrease yields of staple crops. For instance, by 2030, production of maize is anticipated to decline by 24% and yields of wheat by 17%. ​​These challenges put global food security at risk in a substantial way: the FAO estimates that 670 million people will still be facing hunger in 2030 and that the gap to achieving Zero Hunger is widening.

“In some areas yields have stopped growing entirely. The breakdown of food systems is the biggest threat of climate change.”

Michael Oppenheimer, Climate Scientist at Princeton and contributing author to the IPCC report

At the same time, food prices must remain accessible. People in emerging markets spend up to 50% of their income on food. This is due to a combination of lower purchasing power and higher food production and distribution costs. Rural areas rely heavily on locally produced food for sustenance, as distribution to these areas is underdeveloped and unreliable, resulting in higher food prices. If a climate shock impacts local harvest, populations have little or no access to alternative food sources.

Food production and supply systems will need to become more efficient and sustainable. Today, more than one-third of food produced is wasted. This is due to losses on-farm during harvest, inefficiencies in the value chain, and at the point of sale. Additionally, our existing food systems are responsible for more than one-third of greenhouse gas emissions. Unsustainable farming techniques, deforestation, fertilizer and chemical use, along with large-scale distribution and transport systems must adapt to meet our world’s ambitious but vital climate targets.

Directly confronting these challenges are the more than 600 million smallholder farmers who produce one-third of the world’s food. We believe that smallholders will play a pivotal role in ensuring sustainable, equitable global food security.

However, they face significant barriers to contributing to global food security and improving their own financial stability and resilience:

  • A lack of high-quality inputs such as seeds, fertilizer, and irrigation equipment reduces the potential and consistency of higher yields.
  • A lack of access to fair, transparent prices and markets, often exposing them to intermediaries paying far below market rate for crops.
  • Exclusion from support that could increase the share of value farmers can capture, such as machinery for processing or storage facilities.
  • By nature of their categorization as smallholders, these farmers operate on small and/or fragmented plots of land, missing out on the cost-reduction benefits from economies of scale.

Farmers also take on the most risk in food value chains, and climate shocks compound and exacerbate this risk. Smallholders lack access to essential risk mitigating and transferring tools that would increase their economic stability, security, and livelihood.

Many essential risk mitigation tools are financial products and services—such as insurance against extreme weather, or credit products to invest in equipment that makes farmers less dependent on weather such as irrigation. Financial institutions struggle to serve smallholders because of their physical remoteness, limited financial history and collateral, and lack of appropriate financial products for the smallholder context. It’s estimated that the annual credit demand by smallholders in frontier markets is $238 billion, only one-third of which is currently met.

Some risk management tools are physical, such as irrigation, or informational, such as extension services with information on farming techniques or pest control and weather data. Many of these tools are not available in rural areas where smallholders live and operate, or are prohibitively expensive. As a result, it's estimated that in regions such as sub-Saharan Africa, the penetration of irrigation is as low as 6% of cultivated land—the remainder of which relies entirely on natural events such as rainfall or riverine flooding for crop production.

Farmers also lack a number of other risk mitigation strategies. They often have limited options to diversify their income to provide them with a safety net, and have limited alternative land use options. The vast majority of rural producers also lack access to secure land rights—proven to be a critical foundation for investment in adaptive equipment, increased income from land, and more sustainable farming practices.

We know that farmers who don’t have access to these measures experience a productivity gap of 50%, as compared with their potential output if they had access to existing technology and information services. Addressing these issues would not only lift smallholders economically, as farmers constitute approximately 70% of the world’s low-income individuals, but would strengthen the global food system.

Rural MSMEs are a critical link in the farming and food value chain, supplying necessary inputs, credit, and information services. They often informally provide farmers with credit for their input purchases. Rural MSMEs navigate challenges similar to farmers in terms of lack of access to fair and free markets to purchase supplies and products at fair prices, and lack access to a diverse array of goods or information services on how to use new products. MSME agricultural suppliers also face a large financing gap, as formal financial institutions struggle to serve them. For instance, an annual financing gap of $106 billion is estimated in sub-Saharan Africa and Southeast Asia.

Women across the agricultural value chain are faced with particular challenges. Although women are critical to the production and processing of food, their roles are not formalized, being less likely to own the land on which they work (women make up less than 20% of landowners worldwide), and unlikely to be involved in the marketing or selling of produce. Cultural gender norms can also result in an inability to access basic technology, such as a mobile device, and face barriers to financial or information services.

The Opportunity

A new generation of startups is reshaping our agriculture and food systems for future growth in response to many of these challenges. Advances in technology and infrastructure, along with innovative distribution methods and use cases for these technologies in rural areas, are creating a new paradigm for smallholder farmers and producers in emerging markets.

We envision a future where historically excluded farmers have access to the tools, technologies, products, and services to integrate into more inclusive and resilient food systems.

The following trends and technological developments are overcoming many of the existing challenges faced in our food systems and for smallholders.

RURAL SMARTPHONE PENETRATION AND INTERNET ACCESS

Smartphone penetration and internet access will continue to increase at a rapid pace in rural areas. This will power a new generation of digital platforms focused on agriculture and smallholders, data visibility and analytics, and digitally-enabled on-farm mechanization. Full-suite digital platforms accessed via smartphone are providing farmers with an array of products and services including inputs, market access, and advisory and extension services—previously unattainable because of their remote location. These platforms play a critical role in delivering farmers access to free and transparent markets of suppliers for inputs, buyers, and price information.

IoT, MACHINE LEARNING, AND AI

New internet of things (IoT) devices, alongside remote connectivity, plus tools such as machine learning and artificial intelligence (AI) are delivering powerful analytics across new sectors such as weather and pest prediction for smallholders or supply chain actors, and are enabling services like smart irrigation through pay-as-you-go technology.

Competition among major remote sensing initiatives (such as Google Earth Engine, Planet, Maxar, and ESRI) and continued development of the technology will drive down cost and dramatically increase the quality, volume, and velocity of data from these sources. Raw data and increasingly simple developer tools will enable startups of all sizes to easily incorporate remote sensing into their core products and services. This data can be critically important as input to harvesting algorithms, weather prediction, smart contracts, and land formalization and mapping.

Ongoing advances in AI and machine learning will allow companies to process, build algorithms, and develop finely tuned products and services on top of datasets created through geographic information systems (GIS) mapping, IoT devices, and digital financial service providers.

EMBEDDED FINTECH AND DIGITAL PAYMENTS

Embedded fintech is particularly powerful in the smallholder context, where there are high barriers for traditional financial institutions to serve rural farmers who don’t fit the profiles of their common customers. Embedded fintech solutions are more likely to employ requirements for collateral or credit history that are “right-sized” for smallholders. These solutions are delivering financial services to farmers via digital platforms through which they can also access inputs, markets, and other essential farming services.

With these digital services, smallholders also gain access to simple but powerful technology: digital payments. Receiving money digitally can dramatically reduce the time and cost for a farmer to be paid for their crops, provide them with additional safety and security (as opposed to cash use), and establish a transaction history for accessing formal financial services.

WEB3

Strong use cases for Web3 technologies are emerging in the future of food systems. Smart contracts can be used to drive down barriers on the supply side for accessing farmers in remote geographic locations—for example, automating insurance payouts via smart contracts and remote sensing, thus reducing time and cost for claims processing. Web3 technologies that tokenize and share assets, such as mechanization or post-harvest equipment, reduce cost barriers and are enabling groups of farmers to have both access and ownership of this machinery. Web3-based regenerative finance (ReFi) models are changing incentive structures around land use and natural resource management for smallholders and provide additional income streams.

CLIMATE SMART AGRICULTURE

Climate Smart Agriculture (CSA) will increasingly be integrated into farming practices due to the severity of climate change, and its potential to drive increased yields and resilience. CSA will be aided by precision agriculture technologies that make use of remote connectivity, innovations in GIS mapping, smart irrigation, and advanced data analytics to optimize usage and management of water and inputs, as well as protect and raise crop yields.

The cost, efficiency, and sophistication of renewable energy and sustainability technologies is making them more accessible and prevalent, and driving innovators to test their viability in new contexts like micro-solar irrigation systems, or renewable-powered cold chain solutions for food transport.

CARBON MARKETS

The massive increase in the use of voluntary carbon credits and marketplaces by individual consumers and businesses is changing production incentives and providing additional revenue streams for small producers.

The total value of traded carbon credits grew 164% in 2021. While voluntary markets are a small percentage of that to date, voluntary carbon purchases are expected to be an industry worth upwards of $50 billion by 2030. The supply of these credits is a major constraint in meeting anticipated demand, and we will increasingly see solutions linking farmers using regenerative practices (i.e. CSA) to economic incentives, financing, and other income opportunities.

LAND CONSOLIDATION

Land consolidation will accelerate across emerging markets. This will be crucial for achieving economies of scale in agriculture and broader ecosystem management, and small landowners will be at the center of land consolidation. Solutions leveraging many of the above-stated technology trends could allow this transition, and the role of smallholders within this, to take multiple forms: from the simple formal sale of the asset to leasing and farming-as-a-service.

The Impact

When smallholder farmers and MSMEs operating in food systems are able to access, use, and afford a bundle of critical services, they will have the supporting infrastructure for building their businesses and managing the increasing stresses and shocks of climate change. As land pressures increase and we enter a new green revolution, ensuring a just and inclusive transition is critical. Landowners and stewards must be able to access, compare, and have dignity of choice among an array of opportunities for generating stable income for perhaps their most critical asset—land—in order to thrive.

We invest in a constellation of tech-powered solutions equipping farmers to participate in the next generation of food systems. These solutions are making food production more profitable, resilient, climate-proof, and regenerative.

Groups Impacted

What We Invest In

Full suite farmer platforms

We invest in digital platforms providing an array of products and services for farmers and agri-MSMEs, including:

  • Markets for inputs, equipment, and sale of harvest
  • Financial products, such as credit and insurance
  • Advisory and extension services
  • Price and market information
  • Shared assets

We look for solutions that provide these services with a climate-resilient and sustainable approach. Examples include Verqor and Vasham.

Financial Services for Smallholders

We invest in modular or embedded digital financial services targeted at smallholder farmers, including:

  • Asset financing
  • Digital payments
  • Credit
  • Insurance
  • Securitization of contracts

Financial services for smallholders are most effective when bundled with a full suite of services, and designed and distributed with smallholder constraints in mind. Examples include Pula, Floodbase, and OKO Finance.

B2B Agri Marketplaces

We invest in digital marketplaces that engage stakeholders across multiple layers of the value chain, from smallholders, to transporters, to off-takers, who can exchange inputs, goods, and services with transparent value and terms. Examples include AgriAku.

Precision Agriculture

We invest in technologies that use data and advanced analytics to optimize usage and management of water and inputs for agriculture, as well as to raise crop yields, including:

  • IoT
  • Drones
  • Smart irrigation
  • Remote sensing
  • Field data solutions
  • Weather prediction
  • Advisory and advanced analytics

Examples include Meridia, Pula, and Ignitia.

Post-Harvest Management & Technology

We invest in post-harvest management technologies that:

  • Reduce post-harvest losses in areas such as storage, logistics, and cold chain management
  • Increase value-add processing at origin
  • Improve traceability
  • Increase access to these technologies, by means such as embedded credit or shared asset schemes

Examples include Topl, Meridia, and Vega Coffee.

Regenerative Finance & Land Aggregation

We invest in models that reward farmers for regenerative practices and protecting the value of their land, such as:

  • Credits for carbon reduction, enhancement of biodiversity, and conservation of water
  • Alternative models for leasing, consolidation, and ownership of land for smallholders
  • ReFi protocols and decentralized autonomous organizations allowing farmers to access subsidies, financing and/or income streams for demonstrating regenerative practices

Examples include Cinch, Meridia, and Open Forest Protocol.

Our Resilient Future Thesis

Mercy Corps Ventures Resilient Future Thesis focuses on identifying solutions that strengthen the resilience of people and communities in frontier markets. We see investable opportunities in multiple areas, where disruptions are creating the opportunity for impact and positive market conditions for necessary systemic changes.

Explore other thesis areas

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