#FoodSystems podcast-3.png

Investing in Scale: The opportunity at the nexus of food and energy

In this episode of the Power for All podcast, William Brent speaks with Seth Silverman and Morgan DeFoort of Factor[e] Ventures, a builder of companies working at the intersection of food and energy. This podcast is a series highlighting the critical link between food systems and decentralized renewable energy in support of this year’s UN Food Systems Summit. The goal is to shed light on game-changing ideas in Africa and Asia that can help ensure sustainable energy for all, improve farmers’ lives, and support economic growth. Factor[e] has been one of the earliest investors in this space, exploring the opportunity to scale the food value chain on the back of renewable energy. Here is a summary of the conversation:

Turning agri-food energy needs into investable opportunities

There is a massive need for using mini-grids and other distributed solar solutions to power the agri-food value chain in Africa and Asia, and as investors in the space, part of the fun is investing in early stage start-ups to turn this need into a real investable opportunity. In part, this is done by recognizing that the question of customer-readiness is really a matter of the suitability of the solution that the energy service will be delivered so that small farmers and the agri-businesses that serve small farmers can take advantage of the agricultural value chains -- focusing investments on sustainable intensification on the one hand, and post-harvest loss reduction and market linkages on the other. There are agriculture-energy overlaps and opportunities in each of these areas, so it’s a matter of delivering the energy services in the right way.

There are a range of examples from Factor[e]’s portfolio: a company like  Sistema.bio, which takes livestock waste on the farm and turns it into usable home and productive power for farmers; or companies on the back-end of the value chain, like Spirit Farms, which uses solar energy and thermal storage integrated with small agricultural traders or exporters to deliver produce from the first mile into high value chains in the service of farmers. So, there’s definitely opportunity, but a lot more needs to be done in order for this to scale up and whether the market will be developed by agriculture first businesses or by energy first businesses would depend on what need is being addressed. If we’re talking about irrigation, we have to start from the agricultural need; if we’re talking about demand stimulation, we have to look from the lens of the energy company or developers themselves. For the most part, we recommend looking for opportunities at the ag-energy nexus, starting at the agricultural demand and solving for that by figuring out how to deliver the energy service to the agricultural need.

Delivering services, not just electrons

For years, agriculture has developed around small diesel engines. The sector has used energy in a way that is different from the way we’d ideally like to deliver energy -- through solar power, which is the cheapest, smallest scale, accessible power that we now have access to on the renewable side. This means there is a lot of pressure on innovators to think about interesting business models to take something that is very high power, has been used for long periods of time, and is expensive, and replace that with something that is used everyday from 11 am to 3 pm? There’s a lot of interesting applications in agriculture where we need to change our thinking and go from a power idea to an energy idea; we need to think about kilowatt hours instead of kilowatts. That shift takes innovation around technologies as well as innovation around business models. The focus has to be on the service side as opposed to merely delivering electrons. 

For example, when it comes to irrigation, typically it’s done by flood irrigation which works really well with a diesel engine, a big pipe of water, and an hour of operation. And you can do that a couple of times a year. But what we’d really love to see is that delivered through drip irrigation, because then you can deliver a small amount of water everyday using a small PV panel to move water a little bit at a time. It’s a fundamentally different approach, so there’s technology changes that need to happen to make renewable energy more attractive. But there’s also a behavioural change that needs to happen among farmers and businesses. There’s lots of examples where there is opportunity, but it requires adapting to the new power source, which is the sun versus diesel fuel.

The ag-energy nexus requires comprehensive, aligned efforts 

Factor(e)’s recent report talks about the need for more agricultural businesses and farmer-aligned intermediaries for technical innovations, matchmaking between the two sectors, and risk absorption from funders and governments to help get some of these technologies and solutions off the ground. There are a lot of market gaps that need to be addressed. The first thing that donors and investors in the space need to have is flexibility without being too attached to programmatic demands and the need to work and find solutions in just one space. We need to be able to listen to what the market is telling us and what people on the ground are saying, and allow space and freedom to innovate. The best solutions are going to come from people who are on the ground armed with information that we don’t wawa shave when we look from a distance. We need to be innovative, be flexible and move quickly. Trying lots of things, and failing fast. And then when things start to work, be prepared to support it. And here’s where policymakers and governments can also play a role in sending clear signals that mini-grids and cold storage should be matched in a particular region by bringing the agricultural ministry and the rural energy agencies together to drive this experiment. Likewise with irrigation, food processing and value addition at the first mile. There are ways to take examples of success and use the scale and demand from the public and private sectors to fuel this growth.

What investors are interested in is in putting a dent in the universe by tackling these problems at scale, rather than solving them in a small corner, or only harvesting the low-hanging fruit.

Sometimes there is a need to bring the entire end-to-end solution to the table, but there are sometimes when specialization makes sense. Apollo Agriculture, for example, brings high quality inputs to farmers, decides if they’re credit worth, provides insurance, and uses satellite data to make those decisions. But we’re also starting to see specialization around the ability to pull and analyse satellite data and use this effectively and faster. We see that in some cases, companies take on all these challenges, and in some cases, it’s great for them to work with partners to get parts of their solution cheaper, better, faster. What’s most important is that they understand the value chain from top to bottom; they don’t necessarily have to do it all.

There is plenty of scope for the same large energy companies that have been working on solar home systems to now look at other ways to deliver productive energy. Cold storage is a great example of that, but it will be very market and value chain dependent for other applications. Food processing is a huge opportunity and a major component and it will be very important to see how this develops and what flows of capital go into this, particularly in Africa over the next five to 10 years. Right now there are a lot of examples of individual companies investing in their value chains at the project level scale, but not market level scale. Once we start to see market level scale -- and it’s hard to predict when that will be -- that is when this opportunity will really open up.

On the policy side, there are a few examples of good policy that’s out there, but there is not enough support that’s being delivered effectively from governments to smallholder farmers anywhere in the world -- not even in the US or Europe. That support really has to be fairly comprehensive to make agricultural businesses more viable.

Share This Page: