The next steps for agfintechs in the credit revolution for small and medium-sized farmers

Something big is changing in Brazilian agriculture and it benefits small and medium producers. Traditionally placed on the sidelines of the process of accessing credit in agribusiness, and dependent above all on the subsidized offer of state-owned banks, they now have new options to finance their activities.

The combination of lower interest rates ( which sharpened the appetite of the capital markets for alternative investments) and the increase in the volume of data and technology available on the farms (which gave more backing for risk management), drive the revolution of credit in the country.

At exponential speed, agfintechs seized the opportunity to navigate the gigantic blue ocean of Brazilian agricultural production, which demands around US$ 100 billion in credit per year.

The advent of covid-19 also accelerated the transformation, by restricting the possibility for the producer to physically go to the bank branch in his city and, in an almost forced way, look for alternatives online. Given this experience, what they found was something much better, faster, and cheaper than traditional financing. Direct money into the account, in a few hours — rather than months — and requiring very little paperwork.

With the revolution underway, will come the march of the unicorns

Brazil and Latin America have produced many unicorns in recent years, and many of them came from the financial sector. So-called fintechs — which provide digital banking, or microcredit, solutions to customers, competing with traditional banks on price, agility and risk management — have earned their place in the sun.

Given that Brazil and Latin America are an agricultural powerhouse, it makes a lot of sense that fintechs are also focusing on this huge market, which still has a lot of room to grow.

Given that, I wouldn’t be surprised if the first agtechs to become unicorns in Brazil were precisely the agfintechs. They no longer go unnoticed and have begun to arouse the interest even of large global Venture Capital investors, such as Softbank and Tiger Global, as well as some Private Equity companies. The Yield Lab itself, of which I am a part, has already invested in three of them: TerraMagna, Seedz and Agroforte (read more below) .

I would venture to say, therefore, that Brazilian agribusiness just doesn’t have a unicorn yet because the first startups that emerged were solving problems that were not as critical as producer credit. For this very reason, their solutions took longer to mature and bring them to the level of traction and scale gain typical of a unicorn.

And in the countryside, what’s to come?

With the arrival of agfintechs to the countryside, a digital and accelerated connection is being established with small and medium-sized farmers. After all, it has become increasingly clear that to access cheap and fast credit you don’t have to leave your home. Even the producers already show that they are more comfortable even with the contract through the cell phone screen.

As a consequence, the penetration capacity of agfintechs on the market has increased. And this new digital channel has also opened up space to be used for other purposes, such as selling inputs or buying production online. It opens farmers to a whole new digital world.

As farmers gain financial security, another gain is that they also tend to invest more in technology and want to increase their efficiency, incorporating “good-to-have” solutions into their portfolio.

And facilitated credit brings yet another advantage: access to data and transparency on how farmers produce. This is the key to encouraging the adoption of best practices, which today also allow for better credit rates, especially “green credit”, to promote responsible agriculture.

As the saying goes in Brazil: “farmers in red, don’t think about green”. That is, if farmers are not on top of their finances, they are much less likely to have broader concerns for the well-being of the planet. And the new wave of agfintechs also wants to enter this sea.

Agfintechs that are making a difference

TerraMagna

TerraMagna , headquartered in São José dos Campos (SP), has redefined agricultural credit risk management for input distributors (resellers, cooperatives, industries) through its artificial intelligence and satellite-powered mobile and cloud platform.

The solution provides real-time alerts and information to lenders throughout the growing season, warning of potential yield losses or harvest delays. The aim is to offer creditors a smooth collection process.

For distributors, the commercial loan solution provides more flexible terms and more competitive interest rates than traditional lenders.

In January 2022, TerraMagna announced a $40 million investment round led by SoftBank Latin America Fund with participation from Shift Capital and Milenio Capital, in addition to previous investors. So far, the company has raised $2.2 million from ONEVC, MAYA Capital, Accion Venture Lab, Canary and The Yield Lab.

Seedz

Seedz , from Belo Horizonte (MG), in turn, provides business intelligence and insights to large agribusiness companies through its loyalty and sales incentive platform.

By using loyalty and cashback programs, client companies can build deeper engagement with farmers outside the normal sales cycle and gain greater traction and inputs , while providing farmers with concrete benefits and recognition.

Seedz works in partnership with large agribusiness companies such as John Deere, UPL, Yara and AgroGalaxy, across the entire agricultural supply chain, including seeds, crop protection, fertilizers, machinery and equipment, energy, animal nutrition and health, storage and infrastructure.

In October 2021, Seedz had its most recent investment round led by Volpe Capital and 10b, a member of Sk Tarpon holding. The contribution was followed by The Yield Lab and Tridon Participações (an independent fund belonging to the Nishimura family, founders of Grupo Jacto). The value of investment was not disclosed. In December, Seedz announced the purchase of Atomic Agro (a crop planning and rural producer engagement application).

AgroForte

Operating in the protein market, AgroForte , headquartered in São Paulo (SP), has a mission: to become the first digital bank for small and medium-sized poultry, pork and dairy producers. The company is focused on the integrated livestock model, common in these sectors.

Working with large meatpackers and cooperatives, Agroforte is able to access historical production data and manage credit risk. Breeders have access to loans to buy animals, pay for production and anticipate receivables, in addition to investing in infrastructure. By investing in the farm, they strengthen the supply chain and improve animal health and welfare. By working with selected technology and infrastructure providers, Agroforte also guarantees the best service at the lowest cost for breeders.

This February, Agroforte raised BRL 6 million in a round led by Futurum Capital and accompanied by The Yield Lab, Kalei Ventures, Catálise Investimentos and individual investors, such as Felipe Moraes, Arthur O’Keefe and Guillermo Arauz.