Fintech in the agriculture industry
The North American agribusiness landscape is continuously evolving due to factors such as climate change, technological advancements, and shifting consumer preferences.
The North American agribusiness landscape is continuously evolving due to factors such as climate change, technological advancements, and shifting consumer preferences. One way to address some of these factors is through fintech solutions. An article by Forbes published in January of 2023 explores “The Next Fintech Revolution: Agricultural Finance.” One of the interesting things about this article is that it is written by someone that focuses on Fintech but has not in the past focused much on the agricultural industry.
The broader world of Fintech is now looking at the agriculture industry as a potential growth opportunity. The author states that the two best reasons to bring fintech to agriculture are: 1) the size of the market; and 2) the limitations of existing service providers. The U.S. agriculture and food market contributed over $1 trillion dollars in 2020, about 5% of the overall economy. Meanwhile, the number of agriculture-focused banks is declining. And, while the debt market for agriculture is still well serviced by the traditional banking industry, other fintech-focused elements are perhaps ripe for disruption.
What is Fintech in the Agriculture and Food Industry and why is it important?
Fintech in the agriculture and food industry is a rapidly growing field that is transforming the way the industry operates. At its core, fintech is about using technology to create innovative financial solutions that cater to the unique needs of farmers, agribusinesses, and other players in the industry. These solutions can include digital payments, mobile banking, online lending, crowdfunding, insurance, and many other financial services.
One important benefit of fintech in agriculture and food is its ability to enhance financial inclusion. In many parts of the world, farmers and agribusinesses lack access to financial services due to their location, size, or other factors. Fintech solutions can help bridge this gap by providing access to digital payments, mobile banking, and online lending, among other financial services. This increased access to financial services can help level the playing field and enable small-scale farmers and agribusinesses to compete on a more equal footing with larger players in the industry. Even though in the north American agricultural system access to money is not a major problem, digitizing this system can create more transparency, efficiency and even reduce transaction costs.
Another important aspect of fintech in agriculture and food is its ability to promote transparency. Fintech solutions can provide real-time data on prices, yields, and other critical metrics, helping to eliminate information asymmetries that can lead to inefficiencies and unfair practices. By promoting transparency, fintech can help create a more equitable and sustainable food system.
Additionally, an aspect that has drawn the attention of many players in the agricultural value chain is how financial management at the farm level is being done. Precision agriculture has changed the way farmers manage the agronomic aspects of their operations, like fertilizer rates, seeding rates, machinery, and personnel utilized, giving them a high granular management level. The same has not happened when it comes to managing the financial side of the operations. This creates a problem for decision-makers and advisors at the farm level, since the disparity in data used for decision-making can create a situation in which it may not be profitable to make an investment, even if it may drive a higher yield at the end of the season, due to its financial impacts in the overall business. Fintech solutions are an interesting path to develop the tools necessary to bridge this gap.
Finally, fintech can enhance efficiency in the agriculture and food industry by automating processes, reducing paperwork, and improving decision-making. By leveraging fintech solutions, farmers and agribusinesses can save time and resources, enabling them to focus on their core business activities. Fintech startups are at the forefront of developing these innovative solutions, which can improve the industry's productivity and competitiveness.
Why Do We Need Startups in the Fintech Space for Agriculture and Food?
The agriculture and food industry has historically been underserved by traditional financial institutions, which have been slow to adapt to the unique needs of farmers, agribusinesses, and supply chains. This has created a significant opportunity for fintech startups to step in and offer innovative solutions that address the specific needs of the industry.
Startups are essential in the fintech space for agriculture and food because they bring fresh perspectives and new ideas to the table. Unlike established players, startups are not constrained by legacy systems and processes, allowing them to experiment with new technologies and business models that established players may not have considered. This experimentation can lead to breakthroughs in areas such as digital payments, mobile banking, online lending, and insurance, among others.
Furthermore, startups can offer tailor-made solutions that fit the specific needs of individual farmers, agribusinesses, and supply chains. By leveraging fintech, startups can create customized financial products and services that meet the jobs to be done in the industry.
Challenges regarding Fintech in the Agriculture and Food industry: A Jobs to be done perspective:
Below we explore some opportunities for fintech in agriculture from a number of different angles. We use the lens of the Jobs-to-be-done framework conceived by Clayton Christensen and popularized by Alexander Osterwalder in his Value Proposition Canvas framework. The Jobs-to-be-Done (JTBD) framework can help identify the emerging challenges and guide fintech startups to develop innovative solutions to address the needs of the future.
One way to organize the overarching jobs in this space is to define the areas of complexity by distinct aspects of the financial life of a business. Using that lens, we can propose several “meta-jobs” under which we can find many specific jobs across various customers:
1. Job: Manage working capital
In agribusiness as in all sectors, every firm has current assets like cash and receivables, as well as current liabilities like short-term debts and payables. The net of those elements typically defines the firm’s capacity to do business in the near-term. When a firm can get paid faster for its products or push out its payables, it gains leverage and expands its capacity. Some growers wait up to a year to get paid for parts of its crop. Ag retailers often have to hold inventory that may dramatically change in value due to market swings.
Ask: What are the risks and constraints created by a firm’s working capital position? What is the impact of that pressure on business decisions?
2. Job: Grow long-term net asset value
Much of agri-food is capital intensive, relying heavily on long-lived assets like land, buildings, and heavy equipment. Operators borrow against those assets to create liquidity to operate and invest, creating long-term debts and other liabilities. In family farming, the single largest asset in the family is often the land itself. Growing the value of that land, balanced against its debt position, is critical to the long-term viability of the operation.
Ask: What is the operator’s specific goal of growing long-term asset value? What is holding it back or putting it at risk?
3. Job: Manage and grow revenue streams
Firms up and down the value chain, including producers, tend to manage multiple revenue streams. Even in smaller operations, complexity scales quickly. For example, a produce grower’s portfolio may have several crop types within it. Within each of those crop types, differing portions of the product may be contracted, with the rest sold on a spot market. Operators of all kinds are increasingly seeking new revenue streams outside of their core, like renewable energy and revenue-generating sustainability programs.
Ask: What is the role in a business that a particular revenue stream is being asked to play? How do choices about one revenue stream and its risks impact other streams and the overall portfolio? If a firm is seeking to grow into new areas, why? What constraints and barriers can be considered or removed?
4. Job: Optimize operating expenses
Increases in operating expenses have put pressure on the profitability of producers and all types of players in recent years, as market forces and macroeconomic events have increased input costs without a commensurate rise in product prices. Managing labor costs, raw materials, energy, and other expenses is a constant battle. Where an operator can get control of one or more of these, they stand a greater chance of surviving and growing their business.
Ask: If runaway costs need to be managed, which part of the cost structure needs to be addressed first? What are the drivers of those costs? Which link to specific unmet needs?
5. Job: Manage operating cash flows
The active flows of cash from operating activities are the lifeblood of every sustainable business. The seasonality and commodity market exposures of the agri-food sector make predictability and forecasting critical to every business in the value chain. Operators need visibility into not just revenue but actual cash inflows -- as well net changes in assets and liabilities like inventory outlays. Accounting software has come a long way to supporting this managerial visibility, but the choices that an operator can make are not always obvious.
Ask: Where is the time spent in managing cash flows? What are the operating financial decisions a manager or producer wrestles with or worries about most? How are the risks to those flows addressed?
6. Job: Make investment decisions
In a capital-intensive sector, many investments are large outlays that will be paid over a long period. The decision to invest in property, plant, or equipment has long-term ramifications. Some of these investments are hedges against risk. For example, a producer who owns their own applicator can reduce timing and operating expense risks associated with custom nutrition and protection application services. Other investments are bets on an expanding business. For example, the choice to purchase land vs. renting it creates new capacity, but the upside may be constrained by efficient gearing of equipment and labor.
Ask: Why does an operator make a certain kind of investment? Why now? How do they assess the tradeoffs? How are the risks weighed?
7. Job: Access capital and manage financing costs
Players up and down the agri-food value chain rely on debt to fund their operations and weather both seasonality and business cycles. Farmers benefit from favorable access to capital via the Farm Credit system, but that does not eliminate the pressures and risks of servicing debt in lean times. For new and beginning farmers, one of the biggest hurdles to beginning their career as a principal operator is access to the capital to get started. Some progressive producers try to precisely tie financing of an asset to the productivity of the same asset to create balance.
Ask: What do you borrow against to creating those financing inflows? How does that link to how you support the service of that debt? How do you assess the risks of taking on additional credit against the need to repay that debt over a period of years?
DIAL Ventures, the innovation arm of the Purdue Applied Research Institute, tackles big problems facing the U.S. and the world such as food safety, supply chain efficiency, sustainability, and environmental impact. DIAL Ventures creates new companies that drive innovation in the agri-food industry which, in turn, makes a positive impact on our lives and lifestyles for years to come.
If you are interested in becoming a DIAL Ventures Fellow or Corporate Partner, contact us at info@dialventures.com.
The North American agribusiness landscape is continuously evolving due to factors such as climate change, technological advancements, and shifting consumer preferences. One way to address some of these factors is through fintech solutions. An article by Forbes published in January of 2023 explores “The Next Fintech Revolution: Agricultural Finance.” One of the interesting things about this article is that it is written by someone that focuses on Fintech but has not in the past focused much on the agricultural industry.
The broader world of Fintech is now looking at the agriculture industry as a potential growth opportunity. The author states that the two best reasons to bring fintech to agriculture are: 1) the size of the market; and 2) the limitations of existing service providers. The U.S. agriculture and food market contributed over $1 trillion dollars in 2020, about 5% of the overall economy. Meanwhile, the number of agriculture-focused banks is declining. And, while the debt market for agriculture is still well serviced by the traditional banking industry, other fintech-focused elements are perhaps ripe for disruption.
What is Fintech in the Agriculture and Food Industry and why is it important?
Fintech in the agriculture and food industry is a rapidly growing field that is transforming the way the industry operates. At its core, fintech is about using technology to create innovative financial solutions that cater to the unique needs of farmers, agribusinesses, and other players in the industry. These solutions can include digital payments, mobile banking, online lending, crowdfunding, insurance, and many other financial services.
One important benefit of fintech in agriculture and food is its ability to enhance financial inclusion. In many parts of the world, farmers and agribusinesses lack access to financial services due to their location, size, or other factors. Fintech solutions can help bridge this gap by providing access to digital payments, mobile banking, and online lending, among other financial services. This increased access to financial services can help level the playing field and enable small-scale farmers and agribusinesses to compete on a more equal footing with larger players in the industry. Even though in the north American agricultural system access to money is not a major problem, digitizing this system can create more transparency, efficiency and even reduce transaction costs.
Another important aspect of fintech in agriculture and food is its ability to promote transparency. Fintech solutions can provide real-time data on prices, yields, and other critical metrics, helping to eliminate information asymmetries that can lead to inefficiencies and unfair practices. By promoting transparency, fintech can help create a more equitable and sustainable food system.
Additionally, an aspect that has drawn the attention of many players in the agricultural value chain is how financial management at the farm level is being done. Precision agriculture has changed the way farmers manage the agronomic aspects of their operations, like fertilizer rates, seeding rates, machinery, and personnel utilized, giving them a high granular management level. The same has not happened when it comes to managing the financial side of the operations. This creates a problem for decision-makers and advisors at the farm level, since the disparity in data used for decision-making can create a situation in which it may not be profitable to make an investment, even if it may drive a higher yield at the end of the season, due to its financial impacts in the overall business. Fintech solutions are an interesting path to develop the tools necessary to bridge this gap.
Finally, fintech can enhance efficiency in the agriculture and food industry by automating processes, reducing paperwork, and improving decision-making. By leveraging fintech solutions, farmers and agribusinesses can save time and resources, enabling them to focus on their core business activities. Fintech startups are at the forefront of developing these innovative solutions, which can improve the industry's productivity and competitiveness.
Why Do We Need Startups in the Fintech Space for Agriculture and Food?
The agriculture and food industry has historically been underserved by traditional financial institutions, which have been slow to adapt to the unique needs of farmers, agribusinesses, and supply chains. This has created a significant opportunity for fintech startups to step in and offer innovative solutions that address the specific needs of the industry.
Startups are essential in the fintech space for agriculture and food because they bring fresh perspectives and new ideas to the table. Unlike established players, startups are not constrained by legacy systems and processes, allowing them to experiment with new technologies and business models that established players may not have considered. This experimentation can lead to breakthroughs in areas such as digital payments, mobile banking, online lending, and insurance, among others.
Furthermore, startups can offer tailor-made solutions that fit the specific needs of individual farmers, agribusinesses, and supply chains. By leveraging fintech, startups can create customized financial products and services that meet the jobs to be done in the industry.
Challenges regarding Fintech in the Agriculture and Food industry: A Jobs to be done perspective:
Below we explore some opportunities for fintech in agriculture from a number of different angles. We use the lens of the Jobs-to-be-done framework conceived by Clayton Christensen and popularized by Alexander Osterwalder in his Value Proposition Canvas framework. The Jobs-to-be-Done (JTBD) framework can help identify the emerging challenges and guide fintech startups to develop innovative solutions to address the needs of the future.
One way to organize the overarching jobs in this space is to define the areas of complexity by distinct aspects of the financial life of a business. Using that lens, we can propose several “meta-jobs” under which we can find many specific jobs across various customers:
1. Job: Manage working capital
In agribusiness as in all sectors, every firm has current assets like cash and receivables, as well as current liabilities like short-term debts and payables. The net of those elements typically defines the firm’s capacity to do business in the near-term. When a firm can get paid faster for its products or push out its payables, it gains leverage and expands its capacity. Some growers wait up to a year to get paid for parts of its crop. Ag retailers often have to hold inventory that may dramatically change in value due to market swings.
Ask: What are the risks and constraints created by a firm’s working capital position? What is the impact of that pressure on business decisions?
2. Job: Grow long-term net asset value
Much of agri-food is capital intensive, relying heavily on long-lived assets like land, buildings, and heavy equipment. Operators borrow against those assets to create liquidity to operate and invest, creating long-term debts and other liabilities. In family farming, the single largest asset in the family is often the land itself. Growing the value of that land, balanced against its debt position, is critical to the long-term viability of the operation.
Ask: What is the operator’s specific goal of growing long-term asset value? What is holding it back or putting it at risk?
3. Job: Manage and grow revenue streams
Firms up and down the value chain, including producers, tend to manage multiple revenue streams. Even in smaller operations, complexity scales quickly. For example, a produce grower’s portfolio may have several crop types within it. Within each of those crop types, differing portions of the product may be contracted, with the rest sold on a spot market. Operators of all kinds are increasingly seeking new revenue streams outside of their core, like renewable energy and revenue-generating sustainability programs.
Ask: What is the role in a business that a particular revenue stream is being asked to play? How do choices about one revenue stream and its risks impact other streams and the overall portfolio? If a firm is seeking to grow into new areas, why? What constraints and barriers can be considered or removed?
4. Job: Optimize operating expenses
Increases in operating expenses have put pressure on the profitability of producers and all types of players in recent years, as market forces and macroeconomic events have increased input costs without a commensurate rise in product prices. Managing labor costs, raw materials, energy, and other expenses is a constant battle. Where an operator can get control of one or more of these, they stand a greater chance of surviving and growing their business.
Ask: If runaway costs need to be managed, which part of the cost structure needs to be addressed first? What are the drivers of those costs? Which link to specific unmet needs?
5. Job: Manage operating cash flows
The active flows of cash from operating activities are the lifeblood of every sustainable business. The seasonality and commodity market exposures of the agri-food sector make predictability and forecasting critical to every business in the value chain. Operators need visibility into not just revenue but actual cash inflows -- as well net changes in assets and liabilities like inventory outlays. Accounting software has come a long way to supporting this managerial visibility, but the choices that an operator can make are not always obvious.
Ask: Where is the time spent in managing cash flows? What are the operating financial decisions a manager or producer wrestles with or worries about most? How are the risks to those flows addressed?
6. Job: Make investment decisions
In a capital-intensive sector, many investments are large outlays that will be paid over a long period. The decision to invest in property, plant, or equipment has long-term ramifications. Some of these investments are hedges against risk. For example, a producer who owns their own applicator can reduce timing and operating expense risks associated with custom nutrition and protection application services. Other investments are bets on an expanding business. For example, the choice to purchase land vs. renting it creates new capacity, but the upside may be constrained by efficient gearing of equipment and labor.
Ask: Why does an operator make a certain kind of investment? Why now? How do they assess the tradeoffs? How are the risks weighed?
7. Job: Access capital and manage financing costs
Players up and down the agri-food value chain rely on debt to fund their operations and weather both seasonality and business cycles. Farmers benefit from favorable access to capital via the Farm Credit system, but that does not eliminate the pressures and risks of servicing debt in lean times. For new and beginning farmers, one of the biggest hurdles to beginning their career as a principal operator is access to the capital to get started. Some progressive producers try to precisely tie financing of an asset to the productivity of the same asset to create balance.
Ask: What do you borrow against to creating those financing inflows? How does that link to how you support the service of that debt? How do you assess the risks of taking on additional credit against the need to repay that debt over a period of years?
DIAL Ventures, the innovation arm of the Purdue Applied Research Institute, tackles big problems facing the U.S. and the world such as food safety, supply chain efficiency, sustainability, and environmental impact. DIAL Ventures creates new companies that drive innovation in the agri-food industry which, in turn, makes a positive impact on our lives and lifestyles for years to come.
If you are interested in becoming a DIAL Ventures Fellow or Corporate Partner, contact us at info@dialventures.com.