From the lush rainforests of the Amazon to the majestic Andean peaks, Latin America’s varied topography and diverse climate allow for a thriving agrifood sector that presents many opportunities to agribusinesses and agritech ventures.
However, despite the favourable natural conditions, the industry still suffers from structural weaknesses and underdeveloped technologies. There is thus a gaping hole to be filled by knowledge-intensive agritech businesses that understand the workings of the agrifood sector in emerging economies.
Southeast Asia’s agritech boom may just hold the key to the development of Latin America’s agricultural economy. While the two regions may be separated by geography, culture, and language, they both share the realities of emerging economies and developing agricultural spaces. The rapidly rising innovations and solutions in Southeast Asia’s agritech space may thus hold much promise for Latin America’s agrifood sector.
Latin America’s thriving agrifood sector
The Latin America and Caribbean region (LAC) is widely known for its diverse climate and topography, which allow it to produce a wide range of agricultural commodities. The region covers more than two billion hectares, of which 38 per cent is used for agriculture. It accounts for almost a quarter of global agricultural production and 23 per cent of agricultural and fisheries commodities exports.
Moreover, it receives 30 per cent of the world’s precipitation and generates 33 per cent of the world’s water. This renders the region a great reserve for both arable land and water.
Agriculture is one of the most important sectors of the economy, accounting for an average of 4.7 per cent of the region’s GDP in 2015-2017 and employing an average of 14.1 per cent of the total labour force in 2018.
The region is a major exporter of grains, sugar, coffee, fruits and vegetables, poultry and pork. However, the region is still mostly untapped, and it faces challenges related to sustainability, productivity, financial inclusion and value creation in a context of low international prices.
According to the IADB, climate change will affect agriculture in various aspects related to atmospheric and soil temperature, decrease in topsoil moisture, sea-level rise, CO2 fertilisation, rainfall patterns, changes in pests and diseases.
These, in turn, will make some areas unsuitable for specific crops and will reduce crop yields, increasing production costs. To prevent and mitigate the effects of climate change, innovation is needed in production practices, irrigation systems, soil conservation, water management, genomics, biological and precision technologies.
Also Read: Why agritech startups will call for the next e-commerce revolution
Southeast Asia’s agritech boom
Agriculture plays a pivotal role in Southeast Asian economies, contributing to almost half of the rural income in the region. From the world’s largest exporters of agri-commodities such as Thailand and Indonesia to the innovation hubs of research and development in Singapore, the region presents itself as a thriving agricultural centre.
According to AGFunder, the agri foodtech startup ecosystem in Southeast Asia is one of the world’s fastest-growing markets. The region reported a total of US$423 million invested into agri foodtech startups in 2019 alone, across 99 deals. The biggest deal valued at US$100 million, and YoY investment and deal growth is estimated at 33 per cent and 41 per cent respectively.
A growing number of innovative startups have been paving the way for the advancement and digitalisation of the industry. There are an estimated 100 million smallholder farmers in Southeast Asia, and the booming agritech startup scene has seen the rise of mobile app technology with the potential to aid farmers in utilising and maximising their resources for greater yield.[9]
One such example is Proximity Designs, a social entrepreneurship in Myanmar designing tech tools at lower prices to help farmers improve farm yields.[10] Other promising startups include Indonesian agtech firm eFishery that won the international Get in the Ring pitch competition in 2014, and also bagged VC funding of US$15M in its series B round for the development of its smart shrimp and fish feeding system.
DiMuto, an agri-food trade technology solutions platform from Singapore, has also been on the path of expansion with its recent entry into the Latin American market.
Fertile ground for partnership
As two emerging economies where agriculture plays a key role, Southeast Asia and Latin America are prime for partnership in the agritech space. At first glance, the two regions seem to be unlikely partners separated by geography, language, and culture.
However, take a closer look and we will find more similarities than meets the eye. Both regions have similar population sizes of close to 650 million, shared economic realities, and rapidly growing internet penetration rates that are fueling the accelerated adoption of new technologies.
In the agricultural space, a vast majority of farmers in both Southeast Asia and Latin America are smallholder farmers. Obstacles such as limited access to irrigation, the effects of climate change, occupying marginal lands, limited access to machinery and technical inputs, and lack of financial and insurance support plague farmers in both regions.
Also Read: A comprehensive guide to Indonesia’s agritech ecosystem
However, while Southeast Asia moves full steam ahead with agritech innovations and the adopting of technologies to try and address some of these issues, Latin America continues to trail behind. While agtech in Southeast Asia has received much attention and funds of up to US$423 million, agritech in Latin America continues to represent barely a per cent of overall VC investment in the region and remains one of the most undercapitalised sectors[13].
As technologies continue to develop in Southeast Asia and more innovative startups enter the space, there is great potential for increased cooperation with Latin America. The shared similarities underscore the adaptability of digital solutions across both regions, and the rapid pace of arigtech developments in Southeast Asia holds much promise for the industry in Latin America.
Overall, there is much to be gained on both sides from increased cooperation. Southeast Asia possesses the resources and technological know-how that can advance Latin American society, while Latin America presents itself as a widely untapped market for expanding Southeast Asian businesses with a wealth of raw materials and human capital.
These conditions lay the fertile ground for a partnership between the two regions that may not seem so unlikely after all.
Soft-landing for agtech business expansion
Expanding to new markets presents a wide range of risk factors and obstacles such as cultural differences, language barriers, local business practices, unpredictable regulatory and political environments, valuation challenges and ever-changing tax regimes.
These should not be taken lightly, as the costs of not addressing them properly can outweigh the benefits to be earned. Few companies actually succeed at going global.
In a study done by the Harvard Business Review, the average ROA of companies selling abroad was minus 1 per cent and it took them 10 years to reach more than one per cent with only 40 per cent of the companies averaging more than 3 per cent.
To avoid ill-fated strategies, companies should consider deploying their business through soft-landing, which aims to minimise the risks of international expansion by supporting a controlled launch with limited resources and connecting the company to a network of local stakeholders.
Also Read: How COVID-19 will pave the way for deeper tech cooperation between Latin America, Southeast Asia
This process is best led by a local partner known as a soft-landing facilitator, who is experienced in helping companies scale in the new market.
Some of the benefits of soft-landing for agritech ventures include:
Cost reduction
When entering a new market, the cost of entry can be significant and many times it can exceed business budgets. According to the World Bank no Latin American economy ranks among the top 50 best places globally to do business, and this is in part due to high costs of entry that include paperwork, establishment fees, cultural barriers, and legal procedures among others. Therefore, having reliable information and the support of a local partner can help avoid cost overrun.
Cultural adaptation
The cultural and business practices in each market determine the way
of doing business. Informality is one aspect of the Agrifood sector in Latin America that needs to be overcome. Language, communication peculiarities and specific local knowledge within each country are keys for a successful landing into a new ecosystem.
Time to market
The time it takes for each company to position itself within a new market will
depend on the level of preparation it has and the knowledge of the entry barriers into the new market. The soft-landing facilitator has local resources that accelerate the operational, commercial and legal establishment, providing access to strategic information, decision- maker contact networks, and talent.
Deployment and reputation
Having a well-reputed local facilitator vouching for the new entrant in the Agrifood sector is crucial when it comes to accessing institutions, local businesses and potential customers. This is why having local professional teams becomes critical for business development and facilitates integration from the beginning.
Peer to peer exchange
Facilitating the direct discussion between companies in the agrifood industry either looking to expand to Latin America or already engaged is part of a fluent and collaborative ecosystem.
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