A farm worker labors in a field near the town of Arvin, California. California's Central Valley is ... [+]..Getty Images
The last few years of tech news headlines were dominated by the word “fintech.” From massive fundraises to customer growth to product launches to scandals – new disruptors were everywhere in consumer banking, credit, payments, investment, and crypto. You’d have good reason to think we’ve hit peak fintech.
But the industries where most fintech is focused today represent only a fraction of the $23 trillion global financial services market. Products like Cash App, Robinhood, and Chime all tackle markets that are intuitive to everyday consumers, but consumers only see the tip of the iceberg.
Fintech’s next wave will focus on improving the less well-known, less ‘sexy’ markets fundamental to the global economy – and one of the largest markets primed for disruption is agriculture finance. 2022 saw a quiet but steady rise in fintech products being built for the massive agriculture industry, and they’re only getting started.
So – why disrupt agriculture finance to begin with? For the two best reasons in tech: the size of the market and the limitations of existing service providers.
Looking at the US alone, while farms contributed $134.7 billion to 2020 GDP, the industries dependent on farming – food manufacturing, food services, textiles – contributed over $1 trillion to the economy, accounting for over 5% of annual GDP. For many emerging markets, agriculture’s share of the overall economy is significantly higher – as much as 25% in some countries.
And yet, financial services are not as competitive as you’d expect in an industry the size of agriculture. Looking again at the US market – one of the most well-serviced in terms of agriculture finance – farm debt has continued to climb over the last year, farm loan interest rates are rising sharply, and farm lending continues to increase while the number of farm-focused banks continues to drop.
In a world where demand for food is expected to increase 70% by 2050, requiring $80 billion of annual investments, sluggish legacy players create a large and growing opportunity for new entrants.
While ‘agriculture finance’ refers to a large and heterogeneous set of activities – equipment lending, supply chain finance, commodities trading, farm banking – emerging fintechs have been focused on a few subsectors:
Agriculture Lending: Oxbury Bank in the UK raised funding twice last year to originate £650 million in agriculture loans to UK farmers. Tarfin in Turkey and Agro.Club in Eastern Europe provide supply chain financing to underserved medium-sized farmers who generally have to turn to their ag input suppliers for loans at exorbitant rates.
Companies like Crowde in Indonesia and Campo Capital in Brazil set up a peer-to-peer farm lending network. Players like Traive, AgroLend, Terra LUNA3 +1.9% Magna, and Agree all tackle farm lending across Latin America. ProducePay allows Mexican farmers to take out loans secured by their US purchasers.
Farm Payments: Agriculture tends to be a lagging industry in the use of new payment methods, with transaction products like checks still estimated at 90% of the industry. Bushel recently launched a payment facilitator, digital wallet, and embedded payments feature that connects purchasers to 40% of grain providers in the US.
Pricing Data & Commodities Trading: The deep markets for grain, livestock, and other commodities are paramount to well-functioning agriculture supply chains, and accurate pricing data is the lifeblood of the industry. These markets let purchasers hedge against rising food prices, and large agriculture operations insure themselves against supply chain price fluctuations. FarmLead is one company focused on digitally connecting cash grain trading networks and integrating trade data into other farmer & grain buyer digital tools.
Insurance: Agriculture is the most delicately poised industrial sector when it comes to climate change risks, due to incidences of drought, flooding, and natural disasters. Insurance is incredibly vital to avoid the collapse of precarious farm systems, but traditional insurers have a hard time underwriting farms. That’s where platforms like World Cover, which provides satellite-enabled climate insurance to small farmers in countries like Ghana, Uganda, and Kenya, or GramCover, focused on providing insurance access to farmers in India, come into play.
Marketplaces: While e-commerce platforms like Shopify have opened up global retail markets to independent merchants, most farm marketplaces still operate as centralized offline exchanges. In Kenya, startups like Twiga Foods, FarmShine, ShambaPride, and M-Farm have built platforms to connect farmers directly with buyers, and list easily accessible price information.
Banking: The largest prize for fintechs is to win over new customers in one vertical, such as lending or insurance, and cross-sell them banking products built specifically for their needs. DeHaat in India provides financial services to farmers across credit, materials sourcing, advisory, and sales. New Zealand’s Figured provides financial planning tools for farmers. FarmDrive creates a credit score for Kenyan farmers. Seso provides hiring, workforce management, and asset management tools to simplify farm payrolls in the US.
Over the next decade, we will see a parallel market of products across all fintech categories – banking, lending, savings, payments, investment, HR, payroll, and trading – develop focused specifically on agriculture.
While agriculture may not be the most obvious market for fintech to pursue, it’s definitely one of the largest and most consequential, and I expect to see many of these companies grow quickly and dominate the next wave of fintech.
I write about financial technology, specifically its impact on financial inclusion and opportunities for future innovation.