Editorial: Big food investments growing in agriculture

Ten years ago, the news that a food company such as McCain Foods Ltd. purchased predictive crop technology company Resson would have raised a few eyebrows. 

Many may have wondered what a company known for its frozen French fries would want with a company that develops digital technology for farmers. But in recent years, such a purchase is part of a growing trend that’s been quickly taking root in the food industry. 

There’s been a paradigm shift in how food and beverage companies are securing their financial future, and it is shaping innovation in the agri-food space. 

For decades big food companies purchased raw ingredients, and produced their products in manufacturing facilities for mass distribution to consumers via grocery stores. They hired food scientists to develop new products and tweak existing product offerings. Not too much attention was paid to how the raw ingredients were produced, just how much they cost. What was important for the bottom line was increasing shelf space and beating the competition in the race to market products with the latest flavour or trendy ingredient, with the lowest cost of production possible. 

This is obviously a rather oversimplified view of the food and beverage industry, but the basic business model for any company that sells a product is to acquire greater market share year over year to increase profits. If a smaller company with an innovative product is disrupting market share – or is perceived to be a potential threat – it is often purchased by a bigger company. That’s why we have huge conglomerates like Nestle, Kellogg, Danone, McCain and Molson Coors, just to name a few. 

The food and beverage space is highly competitive, and developing and launching a new product often requires an investment of millions and millions of dollars. Smaller companies often sell out to the big guys to recoup their investment in R&D or they don’t grow quickly enough to earn the money required for aggressive marketing. 

But this is where the paradigm shift is taking place. 

Within the last five to six years, many large food and beverage corporations have formed their own venture capital units. In addition to purchasing other companies, they are starting to provide venture capital funds to small companies and startups. 

That’s what happened with Resson and McCain Foods Ltd. McCain originally invested in Resson nine years ago, long before the food company announced its sustainability vision which includes regenerative farming and its Farms of the Future locations. Resson’s predictive crop technology fits McCain’s “innovation agenda and our ambition to use digital technology to transform agriculture,” Jillian Moffatt, chief technology officer for McCain said in a release announcing the acquisition.

The benefit for McCain is that it did not have to develop a new business unit from scratch, which would have added years and dollars to the process of creating the technology. 

According to a recent article on in-house venture capital funds by large food and beverage companies in Just Food, many companies claim the reason for backing “innovative young companies” with “bags of potential” is to help them grow. 

The author writes, “This is not altruism of course but such investments should, in theory, benefit both parties, enabling so-called Big Food to tap into evolving consumer trends and learn more about how to innovate and do business in a more agile manner.”

I’m sure this is true for some Big Food/startup relationships, but the cynic in me thinks it’s a cost-effective way for Big Food to fund innovation and essentially buy it back more cheaply than it would have been able to if it didn’t already have stakes in the game. 

Is it a good thing for farmers? This is what I think we need to keep an eye on. 

One positive example I can think of is the acceleration of innovation in the plant-based food space, which will benefit growers of crops such as oats, lentils and peas, which will increase demand. This is likely true for many other commodity crops and livestock products. 

But ‘Big Food’ could have too much control over growers in the future if it takes over, instead of helping to grow, the little guys.