Israel’s food technology sector battles wartime upheaval as Hamas conflict rages on

13 Nov 2023 --- Israel’s renowned agri-tech sector is encountering business disruptions, labor shortages and investment uncertainty amid the escalating Israel-Hamas war. As the Israeli Defense Forces move deeper into Gaza in an attempt to eliminate Hamas following last month’s terrorist attacks in Israel, we speak to Israeli food innovation firms about the impacts of the conflict on their operations.

In the immediate aftermath of the October 7 civilian massacre, food tech start-ups, including Redefine Meat, Green Butcher, More Foods, YoEgg! Foods and Creative Pea, donated plant-based ingredients to a restaurant kitchen in Tel Aviv. The kitchen used the ingredients to produce hundreds of vegan meals to help feed the 400,000 soldiers and reservists mobilized to the front lines and half-million Israeli families forced to evacuate their homes.

Some firms, like fertilizer producer ICL Group, were left grieving the death of colleagues. Many more faced sudden staff shortages as reservists were called up to the army.

“Our CEO was in the reserves for the first few weeks, but our management covered for him,” says Noga Bronsky, director of business and product at plant-based salmon innovator Oshi. “We were supposed to launch our product in Israel the week after Hamas’ attack, but since most of the restaurants were closed (and still are), we had to postpone it. Instead, we advanced our launch in New York City, US.”

Meanwhile, Itay Dana, an agri-tech consultant for Ofakim — a southern town close to the Gaza border known for its agricultural innovation, which reportedly lost more than 40 citizens in the massacre — tells us that his biotechnology research business, Novella, has been impacted by travel restrictions.

“Flight cancellations disrupted our participation in critical events like Supply Side West (US), leading to the cancellation of our booth at the event. This issue affected our ability to showcase our products and establish essential partnerships.”Israel’s agri-tech sector is famed for its innovation but global investment has become less certain.

Farmers for the fields
For agricultural businesses like Carobway — a start-up farming the nutritious and climate-resilient carob “superfruit” — labor shortages on farms resulting from the conflict have caused immediate and longer-term challenges.

“As the agriculture in Israel is mainly based on Thai workers, and some of them have left the country already, civilian groups have had to step up. We have dozens of volunteers working hand in hand with us on our more than 20 farms,” Udi Alroy, CEO and co-founder of Carobway, tells Food Ingredients First.

Some Carobway employees have been drafted into the army, while others must remain with their families. The longer the war continues, the more challenging the worker shortages become for farms. But Carobway has embraced agricultural technology to alleviate labor concerns.

“We will continue working in the fields and on our R&D since we use advanced agri-tech that minimizes labor dependency. For example, we use minimal water, and our crops grow with almost no intervention from our employees,” says Alroy.

Carobway has established complete control of its supply chain — from farm to fork. Its business model is founded on long-term relationships with growers and food companies and fair trade practices. “This model will help us through this challenging time,” adds Alroy.Several plant-based ingredients companies teamed up to feed Israel’s armed forces.

Investment uncertainty and continuity plans
Meala — an SME located in Northern Israel that uses biocatalysts to improve the texture of plant-based proteins — was not directly affected by the attacks but remains concerned about the potential curtailing of foreign investments.

“We are 100% back to business, with teams traveling to customers, exhibitions and competitions in Europe,” Hadar Ekhoiz, co-founder and CEO at Meala, tells us. “We have implemented tools to mitigate the impact of the conflict, such as diversifying our supply methods, creating new hybrid product demonstration kits and recruiting new team members abroad.”

“The main concern for Israeli start-ups is that foreign venture capitalists will stop investing in Israel due to the war.”

While the Israel Innovation Authority has allocated US$25 million in assistance grants to start-ups to help them cope with challenges posed by the war, Ekhoiz points out that Israel’s high-tech agri-tech sector has consistently delivered returns on investments.

“Many investors who have placed their trust and capital in Israeli enterprises have reaped substantial financial rewards thanks to the continuous stream of groundbreaking innovations emanating from the country,” she says.

The Bank of Israel has trimmed its economic growth estimate for 2023 from 3% to 2.3%, and around 10-15% of the population has been called to military service.Carobway CEO Udi Alroy (second from right) with volunteer farmers in Southern Israel.

But for Hadar Sutovsky, VP for external innovation at ICL Group, the Israeli economy remains “strong, stable and based on solid foundations.” The company’s agri-tech investment platform, ICL Planet, created as an innovation catalyst for early-stage and market-ready start-ups, will continue to support its portfolio companies.

“In Israel, we are used to working under crisis and uncertainty. But, the Israeli ecosystem is designed by default for worst-case scenarios. We are ready to maintain normal operations, even if the war continues for some time — we are an organization with a global responsibility to food security and nutrition,” Sutovsky tells Food Ingredients First.

“It’s crucial that our portfolio companies are figuring out different business continuity plans. Our unique investment thesis plays a role in overcoming start-ups’ upcoming problems — having funds plus innovation collaboration answers significant capital and traction challenges. It also lowers the risk and gives other investors a positive signal.”

Shortening supply chains
Despite Ofakim suffering civilian deaths in the Hamas attacks, the municipality has managed to maintain business operations and lab and pilot activity, according to agri-tech consultant Dana at Novella.Oshi was forced to delay the launch of its plant-based salmon in Israel following the terrorist attacks.

“Conflicts can introduce uncertainty and affect various aspects of business, including supply chain stability for our ingredient providers, market access and long-term planning. It becomes increasingly evident that countries and industries need to prioritize investments in programs and solutions to shorten the supply chain and promote the local production of goods,” he says.

Novella addresses this need by developing products that can be locally manufactured at any site worldwide, enhancing the resilience of countries and industries during times of disruption while contributing to the global shift toward more sustainable supply chains.

Meanwhile, Liat Simha, founder of NutriPR — an agency representing numerous agri-tech SMEs in Israel — remains confident that most start-ups will successfully navigate the wartime disruption.

“Their agility and ability to swiftly adapt to changes, along with their knack for developing innovative solutions, position them well for continued growth. Many of these companies are engaging in fruitful collaborations with prominent food companies both in Israel and abroad and currently receiving support in the form of safe funds from venture capitalists to help them through the early stages of the war,” she says.

Israel’s packaging economy is also under pressure following the Hamas terrorist attacks. The country’s market, which includes numerous packaging and material tech start-ups, faces a volatile wartime economy, military drafts and the continued threat of attacks from militants in Palestine, Lebanon and Yemen, reports Packaging Insights.

By Joshua Poole