AgFunder heralds the “Golden Era” of China’s agri-food-tech ecosystem

14 Apr 2021 --- China’s agri-food ecosystem is being driven forward by an influx of new start-ups and cross-sector collaborations. AgFunder has observed steady momentum in the scaling up of farm robotics, alternative protein and influencer-driven online retail networks. 

General private equity and venture capital investment levels in China sank 50 percent last year compared to 2019, according to the venture capital firm’s latest report. Meanwhile, local agri-food start-up investment increased 66.1 percent, in contrast to a 34.5 percent rise globally.

“China has really been charting its own course, led as much by its own early movers like Alibaba, JD and later Pinduoduo as it is by Amazon and other foreign e-commerce pioneers,” Jack Ellis, Asia-Pacific research lead at AgFunder, tells FoodIngredientsFirst.

“This is because of the idiosyncrasies of the Chinese market – rapidly expanding middle-class with growing disposable income, preferences for fresh produce and protein, and always on the lookout for a great deal or bargain, among other things,” he details.

E-commerce boom
With US$3.6 billion raised, the e-grocery category almost doubled its 2019 funding levels, with the majority of that raised in H1 2020 due to the immediate demand created by COVID-19, AgFunder highlights.

Click to EnlargeWith US$3.6 billion raised, China’s e-grocery category almost doubled its 2019 funding levels, primarily influenced by COVID-19 shopping.Despite the funding increase, the number of e-grocery deals halved. This evidences investors’ preference to double down on more mature players rather than betting on early-stage ventures in the category.

“Chinese e-grocers have had to innovate in ways we haven’t necessarily seen anywhere else,” remarks Ellis. “Take, for example, community group buying, or ‘team buying’ as it is more often called in China.”

“As AgFunder’s data indicates, several of the biggest funding deals in e-grocery went to companies using this model – where customers can team up to buy in bulk, often directly from farms and food companies, in order to take advantage of lower prices.”

An influencer-driven sector
The internet trend of live streaming – in which influencers are paid to sell food products via live online broadcasts – is having a particular impact on e-commerce. “Pinduoduo, for one, has been helping farmers to do social selling via livestream,” notes Ellis.

As Innova Market Insights’ Top Trend of “New Omnichannel Eating” took off this year, Missfresh, the company that pioneered distributed small-scale warehousing to reduce delivery times and cold chain costs, closed its Series F round in China at a valuation of over US$3 billion.

“As China’s e-grocery segment matures, the leading players are looking to expand their reach as much as possible,” says Ellis. “In a geographical sense, this means acquisitions, investments or partnerships with smaller regional players.”

“E-grocery companies are also investing in tech and models that will enable them to enhance service levels – particularly in terms of delivery timeframes and product selection,” he adds. 

“Cold chain logistics, micro-fulfillment, and neighborhood ‘dark stores’ are some of the areas we see investment into.

China’s alt-protein revolution
China’s alternative protein sector has come a long way since Bits x Bites launched as the nation’s first agri-food-tech venture capital five years ago. “The golden era is just ahead – and we’re closing in,” AgFunder underscores.

International players like Beyond Meat and Impossible Foods are making a strong push into China and the wider Asia-Pacific region. Last week, Beyond Meat announced the opening of its first factory outside the US, in Jiaxing near Shanghai. 

Click to EnlargeInternational players like Beyond Meat are making a strong push into China and the wider Asia-Pacific region. (Credit: Beyond Meat)The plant-based category giant has also partnered with the likes of Starbucks, KFC, Pizza Hut, and Taco Bell in China to sell its products. Beyond Pork, designed to imitate the umami flavor, juicy texture and culinary versatility of traditional minced pork, has been heavily promoted in this market. 

“But, as our research reveals, there are a growing number of emerging, venture capital-backed domestic players who are seeking to use their on-the-ground knowledge to compete with these bigger companies,” notes Ellis.

“The highest funded alt-protein start-up in China last year was Hong Kong-based Green Monday, which produces OmniPork – a plant-based pork analog targeting Chinese consumers' favorite non-marine animal protein.”

Cellular agriculture in the spotlight
Cellular agriculture is gaining the attention of broad coverage investors like Matrix Partners China, which backed three alt-protein start-ups last year, AgFunder highlights.

“China and Hong Kong don’t actually have much in the way of regulation in place for cell-cultured meat at the moment,” says Ellis. “In general, this means that start-ups in the space can continue with their R&D efforts relatively unfettered.”

“The real test will come further down the line when they actually have products ready for market, at which point the government will presumably have a regulatory framework in place,” he continues.

The Chinese government has proposed to adopt a legislative framework similar to the EU, which would categorize cell-cultured meat as a “novel food.” As such it would be regulated under existing legislation in this area. But this is only at the proposal stage, notes Ellis.

“In short, Chinese and Hong Kong/Macau regulators are likely to impose stricter rules closer to the time that products are actually ready for market,” he remarks.

China’s largest agri-tech deal
AgFunder highlights that Drone company XAG’s US$174 million Series C extension round, aimed at addressing rural labor shortages and farming input inefficiency, shattered China’s record for the largest agri-tech deal to date. 

Click to EnlargeFor years, the Chinese central government has been driving consolidation of the country’s smallholder farms into industrialized operations.The momentum in farm robotics is by no means an accident, notes AgFunder. For years, the central government has been driving consolidation of the country’s smallholder farms into industrialized operations.

Between 2019 and 2020, the venture capital firm details that state-owned enterprises and other corporations increased their investment in large agricultural projects by 43.6 percent to reach US$79 billion.

It also reports that the growing scale and economic resources available to China’s farming operations have created fertile ground for technology upgrades.

Meanwhile, the government’s declaration of biotech as essential for national security this year also accelerated the growing trend for innovation and investment in agricultural biotech.

A breakout year
2020 was pegged a “breakout year” for AgFunder. Company highlights included a final close on Fund III, a first close on its US$20 million alt-meat-focused New Carnivore Fund, and the launch of an Impact Fund to help scale up developing technologies.

Last February, FoodIngredientsFirst showcased AgFunder’s analysis on the global agricultural investment ecosystem as a whole, which is anticipated to balloon to more than US$30 billion as new deals come to light. 

By Benjamin Ferrer

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