Urban Produce is not your typical farm. Located deep in Irvine, Calif., in an area that can best be described as a warehouse strip mall, Urban Produce doesn’t possess the sprawling, machine-tilled acres that categorize most farms in the United States. In fact, its Irvine facilities use only 5,800 square feet to grow produce.
Despite its compact size, Ed Horton, founder and CEO of Urban Produce, says that they can grow up to 16 acres of product in a single growing unit. How? Because Urban Produce specializes in vertical farming, which is a practice that utilizes space for growing crops in the same way that skyscrapers do for housing: by going up instead of out. The units are automated, produce their own water via a dehumidifying water generation system, and require minimal human contact—eliminating most food-safety issues. In countries that don’t have the means of producing enough food for their populations, this sort of agricultural technology, or agtech, could be game-changers.
Seeing this potential, Horton plans to license his technology out to help build these vertical farming units in regions that need it. In fact, investors from various countries have already expressed their interest in Urban Produce. “We’re working with folks from Saudi Arabia, Mexico, Qatar,” he lists off. “And we have three different groups from China that are interested in us.”
While it might be a few years before Urban Produce’s vertical farming units start cropping up in China, the country’s interest in agriculture and agtech is very real. Two of the biggest problems China is facing are food quantity and food quality. With a population of almost 1.4 billion and enough food safety incidents to warrant its own Wikipedia page, China is working diligently to solve these issues: the government plans to invest at least $450 billion in modernizing China’s agricultural industry. In a bid to solidify its food security, China National Chemical, known as ChemChina, a state-owned agrochemicals company, recently acquired Swiss agribusiness Syngenta, the world’s third largest producer of seeds, in a $43 billion takeover deal—the largest of its kind, to date.
"You’re coming to a sort of inverted scale there, where you have growing demand, increasing population, and an aging workforce, with very little technology to improve it."
During the “Food Quality and Distribution in China” panel at Silicon Valley Forum’s The Seeds of Our Future conference, Del Christensen, moderator and chief of global business development at the Bay Area Council, notes China’s changing demographics are what’s pushing the government to drastically increase investments in agtech. A growing population, aging agricultural workforce, and inefficient farming systems all contribute to China’s needs.
“The average size [of Chinese farms] is about 1.6 acres, compared to the United States where the average farm is about 450 acres of land,” says Christensen during the panel. “Also, the land [in China] is worked by hand—there’s very little industry working on these parcels of land. The average age of the farmers is 50. You can imagine, you’re coming to a sort of inverted scale there, where you have growing demand, increasing population, and an aging workforce, with very little technology to improve it.”
There are a multitude of ways to tackle China’s agricultural problems—and just as many business opportunities, both in the present and the future. K.Y. Cheng, the executive vice president and director of strategic markets at East West Bank, says that the more established technologies, such as utilizing solar power for greenhouses and crop irrigation, or storage and fruit-ripening technology for cross-border transportation, are easier to integrate quickly and can be done on a larger scale.
For example, Cheng says that Mission Produce, one of the world’s largest avocado producers and distributors, is already taking advantage of such opportunities. Along with producing avocados, Mission developed its own cold storage and ripening technology to use in its shipping containers. “Mission has signed a joint venture with Lantao [a Chinese importer and distributer] and Pagoda [a Chinese fresh fruit retailer] to sell avocados in China,” explains Cheng. Part of the deal includes potentially developing a ripening facility in Shanghai. “Mission is not only selling avocados,” emphasizes Cheng, “they’re selling technology, which can be applied to other types of produce.”
However, Cheng also notes that emerging technologies—the category startups would fall under—are the ones that attract the younger generation, which China needs, considering its aging farmers. Emerging agtech can range from Urban Produce’s vertical farming, to drones used for fertilizing crop fields. Currently, Cheng says China is placing a big emphasis on food traceability. “China is becoming very focused,” says Cheng. “They want to see where their food is grown, when it’s harvested, when it’s packed, and how it’s shipped.” He notes that several companies, such as East West Bank client Ippolito International, are already making their processes more transparent by including on their packaging labels the step-by-step process of how the produce reached the supermarket. Cheng believes that increasing traceability is also good for other companies and industries, since it could lead to further tech opportunities in other areas like water treatment and soil decontamination.
"China is becoming very focused. They want to see where their food is grown, when it’s harvested, when it’s packed, and how it’s shipped."
America, particularly California, is seen by many as the tech hub of the world—unsurprising, considering some of the world’s biggest tech companies (Google, Apple, Facebook) are headquartered there. Naturally, that reputation holds a certain cache for Chinese investors and consumers. “I’ve been to China about 30 times since 2010,” shares Christensen. “There’s a draw, at least from my perspective, for American technology.”
Horton feels the same. Because of China’s food safety incidents, there is increasing demand amongst Chinese consumers for imported organic food; Horton thinks that Urban Produce’s patented technology and “USDA Organic” certification would appeal to the Chinese market and assuage some of those concerns. “It’s an American product—they know that it’s coming from a good company, and they’re going to get quality,” says Horton. “Bringing a U.S. product, with the auspice that it’s going to be organic, is very interesting to the people that we’re working with.”
Certainly, the United States seems to be encouraging American agricultural companies to engage in overseas trade. The United States Department of Agriculture (USDA) introduced the Facility Guarantee Program last year to help expand U.S. agricultural exports. “The USDA is working very hard with us—they really want us to crack the China market,” shares Cheng. He explains that the USDA will guarantee a loan to establish agricultural facilities overseas because doing so will encourage the export of U.S. products and bring the country one step closer to closing the trade deficit.
"Bringing a U.S. product, with the auspice that it’s going to be organic, is very interesting to the people that we’re working with."
Although China’s desire for efficient, environmentally friendly agtech is undoubtable, there is still the issue of getting that tech across the Pacific. Cheng highlights two main problems startups face: scalability and venture capital (VC) funding.
Given its sheer size, China is not an easy beast to tame. “For startup technology companies trying to penetrate a very diverse country…that is a challenge,” says Cheng. Additionally, the small, piecemeal nature of China’s farms makes it difficult for agtech startups to scale and expand, and that roadblock also makes it harder for such startups to attract VC funding. Cheng advises entrepreneurs to ask themselves beforehand, “When you develop a business model, how can you be sure that the business model applies to your target market?”
However, a good way to tackle these problems is to look at where other tech companies and VC funds are headquartered, and situate your business there. “Those of you who are interested in penetrating the Chinese market, you may want to take a quick look at the geography,” says Cheng. “Where are the technology companies located in China that are at the cutting edge, or the private equity funding that you may need or look for?” The proximity to these resources makes it easier to attract funding, which in turn would make it easier to properly scale operations.
For Horton, his main concern is protecting his intellectual property, hence why he wants to establish a worldwide licensing program. He believes that by licensing Urban Produce technology to just one person per country (the master licensee), that person would have a vested interest in protecting his or her assets. However, Horton stresses that the master licensee needs to have a strong relationship with the Chinese government in order to safeguard the Urban Produce brand and technology, as well as streamline any logistical processes. “I don’t have the authority to go in and shut them down if they [the licensees] are not in compliance,” he says. “That’s why I believe the investment partner has to have a relationship with the government, because the government has a stronger stick than I do to make them adhere to these organic standards.”
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