right time, right place…
I recently spent time back on the family farm in Ireland where technology, like robotics, has replaced much of the grunt work that once drove me towards a white-collar career 30 years ago.
Yet, many of the old challenges still persist, such as shifting regulations, poor climate conditions, small scale, limited land supply, and scarce labor making farming less appealing than ever to the next generation.
Meanwhile, Brazil's agriculture is thriving. Here, technology has moved further and faster to resolve the fundamental challenges of tropical farming, such as seed technology, credit access, logistics, scalability, governance, and financial margins.
Brazil already had a natural advantage in agricultural production, but technology is arriving at a time when it can bring a much larger scale of impact than for developed nations. As in Venture Capital, timing is everything - and Brazil’s time is now.
dodging bullets…
The recent Chapter 11 filing by AgroGalaxy, a major grains input distributor, has unsettled Brazil's agrifintech sector. While not a huge surprise for the agriculture sector, who have been aware of the company’s struggles for some time and are accustomed to the roller coaster nature of the commodities space, it still caught Faria Lima (Brazil’s financial sector) off guard.
For Faria Lima, the “sound” of the bullet was worse than the real impact. While some financial investors may have temporarily cooled off on the huge agricultural financing opportunity, it could be a welcome opportunity for consolidation for those agrifintechs with more solid risk models and a proven track record.
“The ag market on Faria Lima is mispriced. Brazil’s agricultural fundamentals are very strong if we look outside the grains space. The coffee market, for example, is at a record high. Currently, you can buy $100 notes for $80, so it means there are more opportunities for those able to measure the true risk.” according to Octaciano Neto, an experienced market player.
silver lining…
One of the positives to come out of the recent AgroGalaxy turmoil is that it may have helped speed up the announcement of new regulations surrounding the main financial vehicles for agriculture in Brazil, known as Fiagros.
Previously these Ag funds had to be dedicated exclusively to either farm credit (FIDCs), real estate (FIIs), or equity (FIPs). With the new rules, they can have a blend of all three asset classes, helping to diversify risk.
This should result in more liquidity and a new injection of cash for startups in the ag space from next year when the regulations are implemented.
hot deals…
Cayena, a Brazilian marketplace for buyers and sellers in the wholesale food space, raised a $55 million Series B round led by Bicycle Capital, an investment firm set up by former Softbank executives, including Marcelo Claure. The new capital will enable the company to expand from its current 100 locations to more than 500 cities in Brazil.
Smartbreeder, an AI-powered farm management platform for sugarcane producers, has raised $3 million, led by US investor EcoEnterprises, to help expand into the grains sector. With over 100 sugar mills and 3m hectares in its portfolio, the company hopes to replicate this success in the grains sector by focusing on data-driven solutions to optimize farm efficiencies.
TRAG, an early-stage Brazilian AgTech startup, raised $400k, in a seed round led by local VC Domo, to develop an AI-powered parametric insurance platform, aiming to address the untapped $28 billion agricultural insurance market.
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