Apr 30, 2020
Image Credit: Pure Harvest
CONTENT SOURCED FROM AGFUNDER NEWS
Written By: Jessica Pothering
A tangible hint of food insecurity wafted through Kuwait several weeks back, when a cheap and common food item—onions—disappeared from grocery stores in the small Gulf country. With global supply chains disrupted by the coronavirus crisis, the Kuwaiti government sent trucks to buy and haul back 120,000 kilos of onions from nearby Yemen, a war-ravaged country that, even pre-Covid-19, has been grappling with an actual and “unprecedented” hunger crisis.
Nevertheless, in Kuwait, the temporary shortage of a staple food item exposed the vulnerability of a region that imports more than 80% of its food.
“The region here is rich in food industry, but not in food production. Traditionally, we’ve built our supply chains to other countries,” observes Ghazi Faisal Al-Hajeri, CEO of Wafra International Investment Company, which manages about $6 billion in Kuwaiti sovereign wealth funds.
Increasingly sophisticated agricultural technologies could soon change that.
Last week, $200 million of sovereign wealth capital in the region was earmarked for agri-foodtech investments, including $100 million from Wafra, and $100 million from Abu Dhabi’s sovereign wealth fund Abu Dhabi Investment Office (ADIO).
Wafra invested $10 million in Abu Dhabi-based vertical farming venture Pure Harvest Smart Farm’s $20.6 million Series A funding round, with plans to invest up to a total of $100 million to support the expansion of the company’s farms.
ADIO committed $100 million in grant funding to further the research and development of four agtech companies in the emirate: microgreens-focused vertical farming group Madar Farms, fertilizer group RNZ, Responsive Drip Irrigation (RDI) and New Jersey-based vertical farming group AeroFarms. The funding is being dispersed as part of ADIO’s د.إ1 billion ($272 million) AgTech Incentive Programme to advance the emirate’s agricultural technologies, capabilities and leadership. (Read up, with AFN’s deep-dive on the initiative.)
Both deals were in the works long before the Covid-19 outbreak. Yet the crisis signals both the need and opportunity for countries in the wealthy but arid, desert region to advance agricultural technologies that can help feed their populations.
Food security, with a financial return
Kuwait and the United Arab Emirates (of which Abu Dhabi is one) are similarly dependent on food imports. But Wafra and ADIO’s investment teams have very different perspectives on why the region should be investing in accelerating its food production capabilities. Those differing perspectives naturally manifest in different investment strategies.
Wafra is one of Kuwait’s first venture firms to foray into agri-foodtech investing. But while the firm is interested in advancing Kuwait’s food security, it isn’t hunting for high-risk, early-stage venture deals; it’s looking for opportunities that are already demonstrating commercial viability and scalability.
“We don’t look at the world from a tech point of view,” Al-Hajeri tells AFN. “It’s about where we can add value and advance [technologies] at a faster rate. But we want to see businesses making a healthy margin.”
Some of its risk-aversion to unproven technologies stems from the fact that it’s out to prove its unique position as an agtech investor in a market where most private capital is concentrated in healthcare and education, which the government opened to the private sector in the 1990s. Doing that means demonstrating early returns, and the best way to do that is with investments like Pure Harvest that have been largely “derisked” and are already generating revenues, says Al-Hajeri.
Pure Harvest is one of the few indoor farming ventures that “has something in the market, and on shelves,” Al-Hajeri explains. (Pure Harvest has to-date focused on tomatoes.) “We’ve met with other companies at advanced stages, but not many have gone to market. Pure Harvest has already gone to market and has revenues. It has secured land, hired the right team, and has enough cashflow.”
Two, it’s out to prove that agtech is a sector that deserves more public and private sector attention. “If private investors see returns, there will be more reason to look [into the sector],” notes Al-Hajeri.
That, in turn, could spur greater government carve-outs to incentivize local agriculture to scale and industrialize, he explains. “Saudi Arabia has a fund that can make 2% loans for agri-investments. Kuwait’s government is behind on that,” which has hindered the development of the sector beyond small, privately held farms. “With the advent of agtech, people can now grow in closed systems” that are scalable, he adds.
Three, the firm is conscious of the type of capital it is investing: retirement savings. This makes the firm naturally somewhat risk adverse.
All of these considerations are visible not only in Wafra’s decision to back Pure Harvest, but also in how it structured the deal. Only $10 million of the $100 million on the table is taking an equity stake in the company. The rest will be phased in through facilities financing; Wafra will finance Pure Harvest’s farms.
“We definitely want to see them get to industrial scale and produce at a level that’s meaningful, Al-Hajeri says.“But financing a farm is less risky than investing in the equity of a company.”
Wafra expects to make stable 8% to 10% returns on the farms as they begin producing, and plans to hold on to the investments indefinitely.
Overall, Al-Hajeri says he expects the bet on Pure Harvest to have “a huge social impact, make a return that meets our targets, and open up whole new investment line for us.”
The win for Pure Harvest is that it has upfront capital to invest in “growth, key hires, enhancing our technology portfolio,” while also having a secure line of capital to ramp up its operations, founder and CEO Sky Kurtz said in a statement. “This visionary multi-phase investment commitment from Wafra has given us the resources needed to secure our foothold as a pioneer in controlled-environment agriculture in the Middle East.”
The cutting edge of agri-foodtech
Wafra has its eye on other agri-foodtech investment opportunities, including new food safety and delivery innovations that will arise out of the Covid-19 pandemic. But on the food production front, the Kuwaiti firm is prioritizing opportunities for growth and scale, while ADIO is eyeing breakthrough technologies that will propel the emirate into an agricultural tech hub.
“Abu Dhabi has very big ambitions around technology,” both within the emirate and globally, Tariq Bin Hendi, ADIO’s director-general, told AFN. “The partners we’re working with [see opportunity] for real traction here.”
Of the four companies ADIO is backing, their footprint of goods in the market is still small. UAE-based Madar Farms aims to use ADIO’s funding to expand from its R&D facility in Masdar City to a new commercial-scale facility in Abu Dhabi. RDI, which is developing a new self-regulating irrigation technology, plans to build out a research and production facility. RNZ, a sustainable crop and input developer, is also eyeing construction of an R&D center, so that it can “develop a full range of efficient organic and inorganic agri-input solutions for vertical farms, hydroponics, and conventional farms.” And US-based AeroFarms, which operates a 70,000-square-foot indoor farming facility in New Jersey, plans to build a 90,000-square-foot facility in Abu Dhabi that will function as a research and testing hub.
Bin Hendi explains that the AgTech Incentive Programme looks for startups that it can support early, by working with them “from the business model inception” and helping them navigate how to build a “robust and resilient” business in the region. While it is certainly riskier to invest at such an early stage, that’s also the exciting part for ADIO, which wants to help put Abu Dhabi on the map as an agri-foodtech innovation hub that will draw other entrepreneurs and inventors to the region.
ADIO’s investees seem on board with the market signal Abu Dhabi is sending and the support for their businesses as well. AeroFarm’s co-founder and CEO David Rosenberg told AFN that its planned Abu Dhabi “innovation hub” is promising for a commercial production pathway and also represents a “big statement” of the company’s international ambitions. Like the emirate, Rosenberg says, “For AeroFarms, we have big ambitions, and they’re global.”
Further Reading
HERE'S HOW AGTECH WILL MAKE THE UAE MORE FOOD-SECURE BY 2021