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agriculture industry

Is There an AgTech Bubble?

By
Jennifer Alsever
Jennifer Alsever
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By
Jennifer Alsever
Jennifer Alsever
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July 25, 2016, 10:00 AM ET
Courtesy of Farmobile
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Three years ago Iowa corn and soybean farmer Heath Gerlock received pitches from companies peddling a slew of sensors and software that track fuel usage, engine information, planting, pesticide spraying, fertilizing, and yield data. The data he would have been able to collect seemed useful, but the price tag was hefty: about $25,000 per machine, making for a tough return on investment. Worse, Gerlock wouldn’t have owned the information he gathered. The tech providers sell it to chemical, equipment, genetics, and fertilizer companies.

Instead of buying, Gerlock decided to launch his own startup. He teamed up with a former farmer and engineer to start Farmobile, which equips tractors with sensors at a fraction of the cost ($1,200) and gives farmers ownership and control of the data they produce. Says Gerlock: “Tech companies were out of touch with farmers.”

Farmobile is part of the latest tech explosion: one aimed at those who raise crops. Last year investors plowed a record $2.7 billion—five times the figure in 2012, according to AgFunder—into so-called agtech startups, which are cultivating a new generation of robots, drones, soil and crop tech, sensors, and more. Nearly a dozen specialized accelerator programs have launched since 2013, and conferences now draw the likes of Verizon Wireless (VZ), Samsung, and Silicon Valley venture capitalists.

But the supply appears to vastly exceed the demand. Small farmers seem flummoxed by many of the new products and services, which are often tied to complicated contracts; don’t work with existing equipment, software, or growing practices; and promise solutions to problems that growers don’t necessarily have.

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That disconnect may eventually prick what some already view as a farm-tech bubble. “It’s going to burst if it keeps going the direction it is,” says Aaron Magenheim, CEO of AgTech Insight, a Salinas, Calif., investment firm, consultancy, and technology integrator.

Silicon Valley VC firm Kleiner Perkins Caufield Byers put $100 million behind a handful of agtech startups—but only those that showed farmers were actually buying their offerings. That was a key test, says Kleiner Perkins partner Brook Porter, because outside of a few big operations, not many farms are paying for such new technology. “There has been an overexuberance about the opportunity,” he says, “and I think there will be a lot of failures.”

The Silicon Valley set may be enamored of drones and satellites, but farmers need more basic technology, says Magenheim of ­AgTech Insight. That includes better valves, irrigation techniques, and apps that track people and equipment, and ways to make digital all the paper notes taken in the field. They also need software to show histories of pest problems, spot irrigation leaks, and monitor water wells.

Farmers tend to proceed with caution on tech investments because a failure can kill an entire harvest and a year’s income. Some have been burned by startups that changed direction and left them with expensive, worthless equipment. Then there’s the question of ease of use (hardly unique to agriculture); the tech can be a headache to install and maintain, and farmworkers, some of whom speak little English, sometimes struggle with its complexity.

VEN.chart

“A lot of the technology is really promising,” says Tyler Scheid, whose family-owned California wine operation, Scheid Vineyards, has received pitches from a string of companies trying to sell cloud software, sensors, and drones. “But a lot of it is really impractical for the ag setting.”

Aerial images, Scheid says, may seem great, but it can take hours to derive useful information from them, and they often don’t tell a farmer anything he didn’t already know. Scheid says the flying time of drones, meanwhile, is limited by battery life, and paying for a drone doesn’t always make sense when airplanes can cover larger acreages.

Scheid says he wants predictive and actionable information rather than mere piles of data. So for now Scheid Vineyards relies on tried-and-true technologies, such as the neutron probe, a device used since the 1990s to measure moisture in the soil.

The good news for those developing the new devices and services: Three-quarters of farmers interviewed by the American Farm Bureau said they intend to invest in new technology in the next three years, and groups such as Silicon Valley AgTech now connect farmers, investors, and startups with conferences, incubators, and meet-ups. This spring the Western Growers innovation center, an accelerator in Salinas, began inviting farmers to offer ideas and feedback to startups housed there.

Tech entrepreneurs are starting to listen. Take Manu Pillai and Leif Chastaine, co-founders of WaterBit. Last year they repackaged soil-moisture sensors designed for backyard gardeners and tried to sell them to farmers. “I assumed we’d show up, and they’d be all over us, and then I’d retire in Fiji,” Pillai says.

But farmers were unimpressed, tired of Silicon Valley people touting sensors that don’t work after three weeks in the ground. (WaterBit’s sensor did in fact die after a test.) The two went back to the drawing board and spent more time meeting with farmers, testing the system with experts at the University of California, and building a more rugged sensor and integrated software that can be customized based on crop, location, operation size, and individual needs. The pair now have 10 farmers willing to do pilot tests this summer. Says Pillai: “We stopped trying to sell and started asking questions.”

A version of this article appears in the August 1, 2016 issue of Fortune with the headline “The E-Harvest.”

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By Jennifer Alsever
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