Did the U.S. ag tech bubble burst? If so, how does one explain the growing excitement from specialty crop farmers?

In 2021 venture capitalists invested $53 billion into agrifood tech over speculation that it was the next big thing. This year the sector may not see $10 billion in annual investments. What happened?

“$53 billion was our high watermark for agrifood tech in 2021,” said Walt Duflock, vice president of innovation for Western Growers. “This was up from $2 billion just 10 years prior, so that thing just took off like a rocket ship.

“You’re looking at a capital environment for startups where we funded a lot of early stage startups,” he continued. “And what do early stage startups need two years later: more capital.”

As quickly as funding took off, it returned to earth. Duflock wasn’t too surprised, though he admits being laughed at for suggesting the meteoric rise in investments was unsustainable. Now he’s saying the “correction” could take time before investments in the space turn around. So, what happened?

In short, investors became impatient with the speed and size of their returns.

Startup companies were put in the difficult position of remaining private while maintaining liquidity to cash out their investors and board members, Duflock said.

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“At a micro level, we do not produce enough exits for these venture capitalists to pay back their limited partners,” he continued.

There are two sets of checks that the venture capitalists deal with, he said. One is the money coming in from limited partners. The other checks are those going out to the startups. The problem, according to Duflock, is when the venture capitalists don’t see income from IPOs or mergers and acquisitions, they can’t return capital to the limited partners. Over time, the limited partners tighten their purse strings, and that is apparently what has happened.

Western Growers established its Center for Innovation and Technology in 2015 to help accelerate ag technology development by connecting relevant technology with farmers. The goal is to address the needs of the labor-intensive produce industry with technology. Since then, companies have risen to the challenge by designing and building mechanical weed control systems that can spot spray weeds using artificial intelligence, zap and kill them with lasers, or rogue them mechanically.

Automated harvest

While the mechanical weeding sector has transitioned well, the next big hurdle is automated harvest technology of crops that are currently harvested by hand. Lettuce, broccoli, table and wine grapes, fruit, and strawberries, still require much hand labor. That technology is slowly starting to come about, though not quick enough to address looming labor costs. Duflock says the cost for H2A workers in California will surpass $30 per hour in 2025.

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Meanwhile, countries like Peru are working to entice U.S. farming operations to move to the Southern Hemisphere, where labor costs are a fraction of those in the U.S. Duflock and other U.S. industry leaders saw this first-hand in early 2024.

“They’re paying $32 a day and their workers are totally happy,” he said.

At two ag tech events in Arizona and California’s winter vegetable growing region in mid-November, Duflock and others talked up the need for clearing the automated harvesting hurdle as California is set to boost its minimum wage again on January 1.

The challenge of creating a machine to mechanically harvest lettuce, for instance, won’t just be one of pure technology, according to industry leaders. Food safety will be critical for these machines as they will need to be efficiently cleaned to maintain food safety protocols.

Bayer is breeding broccoli that can be mechanically harvested, according to Sufei Wang, the brassica commercial breeder with Bayer. She spoke to the successes and challenges of the project during a panel discussion at the recent Desert Difference showcase on ag tech in Yuma, Arizona.

Ben Palone, senior director of automation and commercialization for Western Growers, said during that same panel discussion that field trials are under way with two companies to address mechanical harvest. A lettuce harvesting platform that uses a large reciprocating saw to cut lettuce plants at the surface was demonstrated in Yuma recently.

While some are looking to venture capital and existing companies to come up with automated solutions for harvest, Palone said a large produce growing operation in Salinas is internally investing in a robotic solution to harvesting produce crops.