Home » Building Agritech Startups: What Challenges Do Early-Stage Companies Grapple With in Developing Countries?

Building Agritech Startups: What Challenges Do Early-Stage Companies Grapple With in Developing Countries?

by Agritech Digest
Agritech Startups challenges in developing countries - Agritech Digest

In the process of solving agricultural challenges, some of these startups rapidly expand while others move steadily at different rates. Sadly, a larger percentage die a natural death in perhaps the first 3 years of their existence.

By Oyewole Okewole

Agriculture (as I fondly remember a remarkable definition that has stuck with me over the decades) is the cultivation of crops, the feeding and management of plants and animals, the preparation of plants and animals for man’s use and the sales and marketing of these agricultural products. This definition explains the panoramic view of agriculture and everything in between. Agritech, as an enabler, ensures the dynamics of agriculture are effective, efficient, and sustainable, with a view to profitability, optimisation, and positive impacts on all factors that play. Agritech is the partial or whole application of technology to produce more with less; to make the food, feed, fibre and fuel production process more efficient throughout the supply and value chain.

In recent times (the last five years), different technological solutions have emerged as a means to solve the many unfolding challenges in agriculture – solutions put forward by agritech startups. While agritech generally incorporates the use of technologies in agriculture, recent agricultural technology solutions hinge on the fourth industrial revolution tools and methodologies. Suffice it to say, that the technology tools being used today build and expand on existing technologies through innovation. Startups use more refined and sophisticated tools to address even more challenging activities in the agricultural space. For example, autonomous tractors are built on the foundation and technology of a tractor. As such, startups solve unique challenges for specific scenarios. 

In the process of solving agricultural challenges, some of these startups rapidly expand while others move steadily at different rates. Sadly, a larger percentage die a natural death in perhaps the first 3 years of their existence.

Agritech startups face even more daunting situations due to the peculiarities of the agricultural eco-system and the pronounced VUCA (Volatility, Uncertainty, Complexity and Ambiguity) realities that often require rapid, fluid and deep-rooted decisions in almost every thought and action made.  In addition, there are peculiar challenges faced by agritech startups some of the challenges faced by early-stage startups. Prominent among the challenges are discussed in this article.  
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Lack of Expert Startup Advice

Agriculture is peculiar, and it is important to emphasise that technology in itself is not a solution but an enabler. Most startup founders are usually carried away by the solutions their technologies bring, while failing to understand the realities that agriculture portends. For example, founders erroneously assume that their digitalised solution supersedes the practice of agriculture. One such is to assume that digital solutions constitute more than the actual agricultural practices that the technology aids, which is quite the contrary.  According to the CEO of Agricorp International-Kenneth Obiajulu in an interview, digital solutions contribute 20%, while agricultural practices take up 80%. 

Building a sustained synergy between agriculture and their technology solution ultimately helps to refine the solution while carefully carrying the stakeholders along to build trust and understanding of the dynamics. It is important to filter their operational and strategic processes through the needed expert advice and sessions through either a mentorship or coaching structure. There is a lacuna to be filled in this regard. Many agritech startups have failed due to the inability to have access to some sort of training and advisory from competent and experienced personnel willing to walk through the turbulent early stages.

(Read also: How Vertical Farming and Hydroponics can Save Space and Water while Producing Fresh and Nutritious Food)

Decline in Funding for Early-Stage Startups

Access to capital and financial support remains an important part of the growth and sustainability of agritech startups. In Africa for example, there was an increase in venture capital for early-stage startups from year 2016 to 2021. Reports indicate that African agrifood tech startups raised 1.1 billion USD in five years, with 2021 as a record-breaking year of investment reaching 482 million USD, a 250% year-over-year increase. The situation has slightly changed this year, as investment capital has moved to growth-stage startups, especially in Africa. According to an article by Agfunder, investors have increasingly directed their resources to mature and more stable agritech startups. For example, growth-stage startups attracted 28.1% of the funding in year 2022 compared to 10.3% in 2018.

Early-stage startups currently face the challenge of attracting investment due to the perceived risks associated with the agricultural sector. Limited access to venture capital and high upfront costs for research and development, coupled with long gestation periods for significant returns can pose significant financial constraints for startups. Although early-stage agritech startups are still fundamental to the continent’s agricultural growth, potential investments are easier to secure 5-8 years ago than today.

Constrained Government Policies

The government, especially in developing nations, has failed over the years to assist agritech startups in growing into robust, profitable organisations. Their policy thrust and direction do not intently understudy the agritech subsector to reinforce the solutions and strategies agritech companies need to uphold. They often neglect the fundamental areas required for startups to thrive like infrastructure, data availability, business environment and others.

There should be startup-friendly policies that can help push the innovation to the right quarters, with increased accessibility, affordability and adoption. The government can create policies that drive some of the agritech innovations in alliance with local and national agricultural reforms. The government can also allow for economic policies that can assist startups to have access to affordable credits at single-digit interest rates. In the same vein, it is also important to create climate-finance products in the form of grants or other funding sources to address climate issues and solutions to minimise the negative effects of climate change. 

Developing nations are the most hit by the negative effects of climate change which in turn affect agritech startups in these nations. The government can also provide dedicated channels in the ministry of science, technology, innovation and agriculture to facilitate the required synergy between the government and startups. The government can also help build comprehensive policies around data collation, data distribution and sharing, data availability and its utilisation to service agritech startups. In addition, policies that will allow affordability in the use of these technological solutions by end-users who often cannot afford to buy the solution should be implemented. They can also help build incubation support through public-private partnerships to grow technological solutions and innovations in the agritech space.

Climate Change

The negative effects of climate change on agriculture in developing nations are quite profound. Increased temperature and drought, floods and many other devastating climate change effects have been transferred to all parts of the supply and value chain. This has primarily led to inflation of agricultural commodities, abrupt market price fluctuations, changing market dynamics, etc. Early startups require a proper understanding of the effect of climate change in their identified sphere of operation. Agritech startups need to build into their solution response to the negative effect of climate change to avoid business model disruptions and eventual collapse of the organisation.  

(Read also – The Future of Food: How Will Foods Be Grown in 2050?)

Limited Knowledge of the Application of Technology Tools

The limitations experienced by adopting technology solutions in developing nations are major restrictions agritech startups face. Producers and farmers are significant stakeholders that will adopt and utilise these technology solutions but in quite several cases lack the requisite technical know-how for the operation and applications of the tools. Sadly, many of them are smallholder farmers that constitute over 80% of the food-producing population and will need to be integrated for speedy scaling and adoption purposes. They also lack the needed skills to use or manage these solutions and so are quite frankly discouraged by the use and operations of these technologies, even though they can attest to their advantages over the traditional methods of practice.

There are quite several other challenges but these aforementioned lead the pack to potentially create devastating experiences for agritech startups in developing nations. On the other hand, identifying these challenges is one of the many steps to comprehensive solutions to some of the current experiences of food insecurity, low productivity, post-harvest losses, and others.

Oyewole Okewole. Agricultural Project Development Specialist

Cover Photo by Jared Brashier on Unsplash

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