Sowing the Seeds of Innovation
The market for agricultural technology and innovation in Germany is growing, driven by digital transformation and global factors such as climate change and population increases. Smart farming can have a big impact on productivity and efficiency – especially for smaller farms.
Germany has a global reputation as an industrial powerhouse. But it also possesses a large and highly innovative agricultural industry that is developing rapidly thanks to digitalization. Farmers are tackling challenges like climate change by improving productivity and efficiency with digital tools and modern technology. The seeds have been sown for modernizing agriculture in Germany, and international investors are already reaping the benefits.
Until very recently, operators of combine harvesters had to judge things like the best threshing drum speed and gap for themselves. With the autonomous threshing unit from CLAAS, these sorts of decisions are now automated. © CLAAS
Germany has the world’s largest agricultural equipment industry, with a global market share of 19.1 percent in 2017. The amount of venture capital flowing into German “agtech” start-ups is growing and growing. In 2017 it was just EUR 11 million, but by 2019 it had skyrocketed to EUR 96 million, according to the latest Start-up-Barometer from EY.
In some cases, the solutions to climate change issues are hiding in plain sight. Big data on crops and livestock exists, but it takes innovators to activate the numbers. “Sometimes crucial information is available, but it’s siloed, often not available to the farmer,” explains Christian Janze, EY’s expert on agtech start-ups. “These smart solutions can give a farmer specific advice based on weather conditions. It’s a completely new situation for agriculture.”
»You need strong partners with good connections.«
start-up manager, Seedhouse
New agricultural models
“We’re seeing traditional agricultural machinery companies reinventing themselves with software-based business models or highly automated machinery and machine parts,” says Claudia Grüne, GTAI smart farming and agtech expert. That helps farmers work smarter, implementing new technology to improve sustainability, increase yields, reduce costs and reach new markets. “Germany is a very attractive location for international investors interested in agtech,” Grüne says.
German agtech start-ups are making waves both domestically and internationally, while established firms are increasingly going digital, creating divisions to focus on innovation. Engineering giant Bosch now employs 32,300 people in its Rexroth subsidiary, which develops next-generation agricultural equipment. Tractor maker Fendt, now in its 90th year, connects the fields with the business office with a software suite. And Siemens has created 3D modeling software to help manufacturers work more efficiently.
Share of German land used for agriculture 1)
Number of farms and agricultural businesses in Germany in 2018 1)
Production value of Germany’s agricultural machinery market in 2017 2)
Germany’s share of the world’s agricultural machinery industry 3)
1) Destatis; 2) Germany Trade & Invest; 3) VDMA
Agribusiness gets smart
Some equipment companies are getting into farm equipment-as-a-service – leasing expensive machinery instead of selling it. Tractor manufacturer CLAAS, founded a century ago in Harsewinkel, North Rhine-Westphalia, now operates a farm management platform. 365FarmNet connects up machine manufacturers, herbicide and fertilizer producers, breeding companies, feed suppliers and livestock technologies. The software is available in five languages and is used by more than 50,000 farmers in more than 25 countries.
Agriculture accounts for more than 50 percent of all land in Germany. But the size of the average farm is quite small – 68.5 percent of all farms in Germany are under 50 hectares – so the market remains very fragmented.
Lower Saxony has become a hub for agtech and agribusiness, earning it the nickname Agrotech Valley. The federal government has funded a number of “digital experimental fields for agriculture” in the region, and DFKI recently opened an artificial intelligence research hub in Osnabrück.
Tim Siebert manages the start-up accelerator Seedhouse in Osnabrück. It is one of a number of public-private partnership start-up centers to receive funding from the state of Lower Saxony but the only one which focuses on agtech and foodtech. Seedhouse welcomes three to five start-ups in two classes per year and chooses to invest in select start-up graduates from a pot of EUR 1 million in funding that comes from partner companies. “You need strong partners with good connections,” says Siebert.
Digitalization of agriculture is a nationwide trend. Germany aims to become a world leader in smart farming – the current government has pledged EUR 60 million to the cause up to 2022.
The e-commerce marketplace ag.supply, based in Münster, has been called the “Amazon of agtech” and has caught the eye of international investors. “The more we looked, the more excited we became by what it was and what it could be,” says Aidan Connolly of AgriTech Capital, an investment firm based in North Carolina that made a multimillion-dollar investment in ag.supply in 2019. “Farmers’ ability to find parts, seeds and the things they need to run their farm is a very critical problem.” Connolly believes that ag.supply will successfully translate to other markets.
Source: EY Start-up-Barometer
Tipping point for agtech
He thinks 2020 will be a breakout year for agtech in Germany and globally. “We’re definitely at an inflection point,” Connolly says. “We are facing existential threats to agriculture that we’ve never had before. The need for tech has never been greater to make the business more sustainable and respond to consumers.”
In addition to the money given to agtech start-ups, narrowly defined, London’s Atomico and other investors have put USD 100 million (EUR 91.6 million) into infarm, a Berlin-based company that creates modular farms for urban areas. infarm’s vertical farms are already growing microgreens and herbs in grocery stores across Europe.
“In recent years, investors from around the globe have been drawn to innovation that addresses the need for sustainable solutions to the challenges that affect our planet,” says Osnat Michaeli, CMO of infarm. “There is a potential to combine the advances of the last 10 years – including the Internet of Things, machine learning, image recognition, renewable energies and similar technologies – with advances in plant and agricultural sciences to create innovative, sustainable solutions in food distribution that will serve our planet for the next 100 years.”
“We’re seeing both domestic and international investors”
Investment in German agtech and agribusiness has skyrocketed in the past two years. Markets Germany spoke with Christian Janze, EY’s expert on agtech start-ups, to get the inside scoop.
What makes the German agtech market unique?
We have a lot of very interesting start-ups in Germany in the agribusiness sector. As established agriculture and food companies try to strengthen their positions on sustainability, they’re investing in these start-ups. Many ‘hidden champions’ in manufacturing have a lot of interest in new technology and are looking to start-ups for innovation.
Why has investment in agtech grown so much?
Three or four years ago there was a phase of new start-ups sprouting, and ever since there has been extreme growth in agtech. We’re seeing both domestic and international investors. Increased discussion in society about climate change and alternative meat options are also spurring interest in start-ups that focus on decreasing farmers’ carbon footprints or reducing water consumption.
Why should international investors be interested in Germany’s agtech market in 2020 and beyond?
In the coming years, agtech will be a booming sector with a lot of potential profit. The trend toward urban living will change how we do farming. Supplying a big city with fresh food is a challenge already, and supply chains and logistics will have to adapt. But German business is innovative, and solutions from Germany will be implemented globally.