This is part one in a three part series on resilient supply chains. It is part of our larger series on Healing America, a proposal we published earlier this year that charts a path that policymakers can follow to avoid issues that arise when policy lags behind food and agtech investment and innovation in three key areas. Check out our other article on rural renaissance and look for additional articles on resilient supply chains and nutrition as national security coming out soon.
Despite the incredible complexity and countless number of actors involved, our food supply chains are intended to operate behind closed doors, out of sight of the average consumer. But when food supply chains break down, as we witnessed over the course of the pandemic with now oft cited images of empty grocery store shelves, farmers dumping gallons of milk and ploughing over their harvests, long lines at food banks and unprecedented delays in global shipping, they become an issue of great public concern. The disruptions that took place over the past year and a half and that continue to occur are not due to food shortages but distribution problems -- rigid supply chains that were unable to adapt quickly as shipping constraints increased, borders tightened, restaurants shuttered and processing facilities shut down.
Our current food system is global and efficient but not agile. The pandemic revealed the vulnerabilities baked into cost-optimized, lean supply chains while highlighting the need for supply chain resilience. Most food companies are far from where they could be to effectively deal with large scale supply chain disruptions. Technologies and strategies focused on digitization, decentralization, and climate proofing food supply chains will make them better suited to weather future disruptions and sustainably feed a growing population.
We are excited to be working with so many companies that recognize this pressing need and are finding creative and cutting edge solutions for addressing resilience across food supply chains. Policies that support these critical areas of innovation will hugely accelerate these efforts. The government can implement policies that enable private sector supply chain development and adoption of new technologies and practices that lead to greater resiliency by collaborating with businesses, drawing upon private sector expertise and sharing information and data that can be used to strengthen supply chains.
The Data Revolution
Over the last half century or so, food systems have become lengthy and complex with numerous actors involved from production to consumption. But the food and ag sector still represents the lowest penetration of digitization relative to every other sector of the economy. Many CPGs have almost no visibility between warehouse and point of sale and even further upstream, most producers have very little insight into when, where, and by whom their raw materials are purchased and how they are marketed and sold. Digitization can improve food production, logistics planning, supply chain transparency, and the consumer experience and will enable the US to address critical issues such as sustainability, food security, and food safety. Digital platforms that synthesize data streams and deliver actionable insights to food system players will make the entire supply chain less vulnerable to future disruptions. With the intensifying pressures of population growth and climate change on today’s food systems, data may well become the most critical agricultural input.
Farmers are the backbones of our food supply chains. But over the next few decades the agricultural industry will have to contend with a number of daunting challenges from global population growth to dwindling natural resources and climate change. This has shifted the emphasis from an almost sole focus on increasing production to a precision agriculture approach which seeks to minimize inputs while maximizing yields to optimize for profitability and sustainability.
Technologies that enable better farm data collection and analysis will be essential for increasing output to sustain our growing and evolving supply chains while minimizing environmental impacts. Sensors on fields and crops can provide granular data points on soil conditions as well as detailed information on wind, fertilizer requirements, water availability and pest infestations. GPS units on farming equipment can determine optimal use, and drones can patrol fields and alert farmers to crop stage and pest issues. Synthesizing this data to produce holistic actionable insights will be the key to ensuring a sustainable and sufficient food supply. The precision farming market was estimated at $5.56 billion in 2019 and is expected to reach $12.84 billion by 2026, growing at a CAGR of 12.7%. Researchers believe that widespread adoption of these technologies could lead to an increase in farm productivity unseen since mechanization.
S2G portfolio company Sentera, is developing and de-risking the best methods for integrating in-field data insights with digital agriculture platforms already in use by more than 80% of the growers in North America. Sentera’s FieldAgent software platform integrates data from satellites, agricultural equipment, weather, soil, drone sensors and field observations and uses AI and machine learning to generate comprehensive field performance data that informs decisions and streamlines the identification of issues and optimization opportunities for greater efficiency across the agricultural supply chain. Today Sentera’s products are used in more than 70 countries on millions of acres and at nearly 100 research universities worldwide.
Covid highlighted the need for an agile supply chain underpinned by tech-driven logistics. Digital supply networks which connect the physical and digital worlds can enable better access to information and flexibility. By breaking down silos through digitization, companies will be better connected to their complete supply network for enhanced end-to-end visibility, collaboration, and agility. With predictive analytics tools and AI, actors across the entire supply chain will be able to leverage real time data to drive rapid planning and optimize inventory, identify supply chain issues, reduce waste, and improve resource utilization and customer experiences.
Our portfolio company, SWARM, is an AI powered platform designed for optimizing global agriculture supply chain logistics. SWARM is simplifying the use of AI and Machine Learning in the food supply chain so companies can benefit from the increase in data availability and processing capabilities at affordable price points to drive massive efficiency gains. Food companies simply define their problem and the company matches their definition with a curated library of algorithms to rapidly deliver a ‘no-code’ solution. This enables SWARM to solve complex issues for companies along the food supply chain such as load planning logistics, product blending, pricing, inventory demand planning or network design decisions.
Another key application of digitization is to improve transparency along the food supply chain. Globalization has lengthened supply chains, increasing the vulnerability of products to adulteration and fraud. Traceability enables companies to track environmental, health, economic and social externalities of agricultural and supply chain practices. Growing consumer interest in the origin of food products as well as production practices is making traceability a necessity for food companies with sixty percent of global consumers citing sustainability and social responsibility as essential considerations when purchasing food. In order to combat food fraud and provide reliable sourcing information, the food industry must invest in validated and reproducible tracking methods across the supply chain.
S2G portfolio company, FoodID, works with forward-looking food companies to provide transparency and accountability for brand claims in the meat industry. The bulk of food safety claims such as “antibiotic-free” and “hormone free” are based on producer assertions and are not validated by testing because technologies have been unable to work at the speed and scale of the modern livestock system. The FoodID platform tests for the presence of seven drug families comprising 95 percent of the most common antibiotics administered to animals. The platform’s affordability and ability to detect low levels of substances and work in near-real time at processing plants makes it a game changer for the meat supply chain by providing assurance to back up label claims. According to FoodID CEO Kevin Lo, "Consumers want to know what's in their food and they want to see the data behind the brand claims. The future of meat and produce is about cleaner food and more transparent food labels."
Over the last few decades, e-commerce has transformed customer shopping behavior and moved the US retail landscape from brick and mortar to omnichannel. But grocers have remained mostly immune to the digital shift--until now. While the push for expanding e-commerce has been building in grocery, the coronavirus pandemic transformed grocery e-commerce almost overnight. Between March 12th and 15th 2020, the number of online orders received by grocery merchants grew by 151.1 percent while the dollar value of orders increased by 210.1 percent. While online sales accounted for between 3 and 4 percent of the US grocery market in 2019, the share could be greater than 10 percent by 2025 as major retailers and well funded startups invest in automation and new operating models to improve fulfillment and last mile delivery. Grocers are being forced to reevaluate their near and long term strategies if they want to keep pace with the industry and there is an enormous market opportunity for companies who have the agility to respond to rapidly shifting consumer demands and deliver convenience, quality and sustainability values through effective digitization of their operations.
S2G portfolio company Good Eggs, is pioneering a highly digitized direct to consumer shopping model that disintermediates the food supply chain and prioritizes sustainability and convenience. Seventy percent of the company’s offerings are locally sourced and delivered to customers within 48 hours of harvesting. To put that in context, less than 1% of the food available at the average grocer in the US is direct and local. Good Eggs is leveraging cutting edge technology to optimize for warehouse management and last mile, customer facing products, backend management, and data and analytics. This has enabled the company to reinforce their primary source of differentiation, namely local direct sourcing, to create an efficient and transparent customer experience with insightful personalization and customer flexibility.
“Each time we bring local producers and consumers closer together we transform what a great food experience can taste and feel like,” says Good Eggs CEO Bentley Hall. “Each time we cultivate a new connection to this growing community, we both lift all the stakeholders within it, and increase the resilience of our planet.” While other grocers couldn’t stock shelves at the outset of the pandemic, Good Eggs had reliable and expanded inventory. In the past year the company has grown its revenue in the nine figures, hired more than 400 employees, and nearly doubled its customer base.
Policy to Drive Digitization
While the amount of data available is growing rapidly, widespread utilization will not be possible without a solid connectivity infrastructure. Many of today’s data systems are siloed, diminishing their utilization potential. To reap the benefits of this spike in data generation, it must be readily available and more open, accessible, and portable. Policies that facilitate data access and support digital infrastructure will enable players to reap the benefits of system wide digitization while still protecting proprietary supply chains. Making existing USDA data more usable and transportable should be the first step to widespread supply chain digitization.
The USDA can also spearhead efforts to increase the quality and quantity of data collection by providing incentives for growers such as access to capital and conducting validation pilots and trials, the results of which can be used to help the industry understand the efficacy of data use at various points in the supply chain. Forming connections between local and federal governments and industry players and entrepreneurs across the ecosystem can help identify key opportunities to align incentives between stakeholders and anticipate friction points. Regulatory policies will also be essential for mitigating security concerns and supporting safeguards for privacy and data security infrastructure.
We are working with companies on the frontlines of data generation and analysis to improve production, logistics, transparency, and the consumer experience in food supply chains. But in the absence of public policy that incentivizes more open sharing of data, we will end up with private closed loop digital supply chains that limit interoperability and the opportunity to drive value through data. Widespread and democratized digitization might be our greatest chance to fortify our supply chains in the face of future crises--the opportunity to develop data sharing incentives and infrastructure should be embraced.