“We’re doubling” says Vandenhurk, speaking with Corporate Knights. “We’ll double over last year, and then we’re on a path where we can see ourselves doubling again next year.”

Three Farmers has been scaling up business and production since settling into a new facility last year, and in January, the company successfully closed a new round of equity financing. Vandenhurk, who runs Three Farmers with her sister, Elysia, says she’s “raised probably five rounds of capital” since the company launched 16 years ago. Every round has looked different, she says. Yet one thing hasn’t changed: “Raising money is always really hard.”

With continued success, the Three Farmers brand could become a flag-bearer for this country’s pulse-based protein sector. And it’s part of bigger trend: a surge in innovators and entrepreneurs seeking opportunities in Canada’s food-industry value chain, from small-scale farmers to globally minded biotech ingredient makers. And like Vandenhurk, they are also chasing investment capital or project financing, though not always with as much success.

We’re waving the flag about the incredible opportunity in agriculture and food to attract other investors.

– Graeme Millen, vice president of strategic finance and business development at Farm Credit Canada

“Raising capital in the food- and agri-tech sector remains challenging. We hear from many peers that they are facing pushback on valuations and investor hesitancy due to economic uncertainty,” says Quinn Cavanagh, the Halifax-based president and founder of RFINE Biomass Solutions.

RFINE is pilot testing a technology to sustainably upcycle used coffee grounds into flavouring and other food-grade ingredients. “Capital access has not been a hurdle for us,” Cavanagh says, crediting his company’s “diversified” business model and relationship building with stakeholders. “[But] from what we learn in industry discussions, our experience is not typical.”

Converging trends boost domestic food production

The headwinds haven’t slowed the rush of new companies looking for funding. Federal crown corporation Farm Credit Canada has long been one of the country’s largest for-profit lenders to the agriculture and agribusiness sectors. Graeme Millen, FCC’s vice president of strategic finance and business development, says FCC’s tracking of new market entrants in food and agribusiness has shown a 10% to 15% increase in recent years compared to pre-COVID.

“Food supply, access to food, production of food, connection between food as medicine, health, food security: all of these themes are core to the public narrative,” Millen says. “And I think that’s embodying itself in entrepreneurs being increasingly interested in the sector.”

RELATED

Has the food co-op’s moment finally arrived?

How McCain Foods embraced regenerative farming

As egg prices soar, African women lead solutions

But over this same span, FCC also recognized that they face a growing struggle to raise funds. “There haven’t been established pools of capital to support entrepreneurs [in this space],” Millen says. Last year, it officially stepped into the breach, launching FCC Capital to provide companies with high-risk debt, equity and strategic value investments while also investing in larger ag-oriented funds. In its first year, it closed nine direct investment deals totalling $170 million, including joining Three Farmers’ latest financing as a strategic partner.

In May, FCC Capital staked out its grand ambitions, announcing a commitment to invest $2 billion by 2030. “We’re making it easier and more compelling for entrepreneurs to participate in this market,” Millen says. “And, really importantly, we’re waving the flag about the incredible opportunity in agriculture and food to attract other investors.”

A real lack of scaling capital

To put $2 billion in new, dedicated funding over five years in perspective, it’s roughly double the amount ($972 million) the entire venture capital industry invested in Canada’s agribusiness sector from 2020 through 2024.

Canada has many obvious strengths competing against other countries in agribusiness and food- and agritech, including geography, research and development, sector expertise and established markets. But the comparative strength of our venture-capital support structure isn’t one of them.

According to a first-ever report on Canada’s food-tech ecosystem, published in February by the Canadian Food Innovation Network (CFIN), based in Guelph, Ontario, venture capital has backed only 40% of food-tech rounds in Canada in the last four years, compared to 60% in the United States and the United Kingdom.

From a financing request standpoint, this is probably the most demand that we’ve seen in the history of the fund.

– Jusin Abbiss, executive director of Fair Finance Fund

Dana McCauley, CEO of CFIN, says a further breakdown of the data reveals a critical weak spot. “The research that we did shows that at the seed and Series A level [financings], we’re pretty competitive and pretty much on par with the U.S. and U.K. But once . . . you need to grow these companies, ag tech and food tech are just like, whoosh, way down against those other countries. So we have a real lack of scaling capital.”

CFIN’s mission is to showcase Canada’s potential as a creator of food-tech solutions and to improve our overall food sector through food-tech adoption. A national industry association, established in 2021, it funds collaborative projects, not companies. Supporting RFINE’s pilot with coffee retailers is one such example. “We fund a project between a technology adopter – a needful party – and the food-tech innovator,” McCauley says. “Those two, they get the first benefit. But the idea is that it will be transferable to other companies.”

Big demand for small-scale producers

Demand for capital isn’t restricted to those aspiring to build national or global competitors, however. Small-scale growers and food producers, many linked to growing interest in locally grown food and food security, are also fuelling the trend. And a mounting number are knocking on Justin Abbiss’s door.

Abbiss is executive director of Fair Finance Fund, an Ontario-based, non-profit social finance lender that supports small-scale producers who also have environmental and social initiatives built into their business plans. Much of its capital is raised through the sale of community bonds. “Big banks will support medium- to large-size operations,” he says. “But it’s really hard for newcomer populations to get financing, and then even harder when it comes to small-scale food producers.”

Since the fund launched in 2019, it has helped more than 70 clients. Approximately half of its portfolio is small-scale farms, including some on urban allotments; the rest is a combination of food producers, wineries, breweries, cafés and coffee roasters. “We have a really strong demand right now,” Abbiss says. “From a financing request standpoint, this is probably the most demand that we’ve seen in the history of the fund.”

According to Abbiss, all levels of government must offer more grant funding and other concessionary capital to meet the growing demand, particularly in light of tensions in Canada’s trade relationship with the United States. “Food entrepreneurs are seeking support for made-in-Canada solutions, to either expand their business to meet customer demands or launch new product lines.”

While shortfalls persist, he says the current trends are encouraging. “I’m optimistic. I’m seeing growing demand for supporting Canadian-grown or -produced food.”

Identifying demand is the easy part. The true test will be matching it with enough capital.

Brian Banks is a writer and editor whose work focuses mainly on science and nature, conservation, climate and sustainability.

The post Canadian food start-ups are surging and funders are racing to keep up appeared first on Corporate Knights.

But in March, Ontario’s farmers’ markets were closed to slow the spread of COVID-19. With traditional outlets shut down, farmers had to adapt, and quickly. Instead of passing bags across crowded stalls and trading stories with customers, they went online, boxing orders and delivering them by truck to homes at an accelerated pace, conducting what’s typically a hands-on business with the addition of gloves, masks and six feet of distance.

This shift to e-commerce has created new pressure, and a renewed focus, on regional food systems. In April, markets in many provinces began to reopen but with new safety protocols in place that limit how and when people shop. On April 24, in a move that underscored the importance of direct sales channels, the Ontario government said it would invest $2.5 million to help food producers and farmers’ markets make the transition to e-commerce.

For some farmers, it’s meant rushing to get inventory online and sales started overnight, highlighting the precariousness created by the closure of markets and restaurants. A third of the 500 vendors in the Greenbelt Markets network, which supports Ontario farmers, also supply to restaurants and wholesale businesses. Quebec’s farmers’ union says the sector has seen more than 30% of its market disappear with the closure of hotels, restaurants and institutions. Online sales can mean the difference between survival and unemployment.

The pandemic is also turning what was a burgeoning trend for the farm-to-table movement, home delivery, into an essential part of food sales. Services that were requested infrequently before March are now commonplace. Sarah Bakker of Field Sparrow Farms in Bobcaygeon, Ontario, used to receive a few orders a month for home delivery. Right now, it’s 40 a week.

“We were already thinking of 2020 as the year of home delivery,” said Simon Huntley, who runs Harvie, a Pittsburgh-based technology platform that helps farmers sell directly to customers. But he didn’t anticipate how quickly the pandemic would alter demand. One hundred and eighty farms in the U.S. and Canada are currently using Harvie, and most have seen their sales increase by 200%. “It’s accelerated in two weeks what was going to happen in 10 years,” Huntley said.

Farmers have had to turn to neighbours and local partners when the inventory they planned for a regular week sells out. “You can’t just magically make more stuff appear,” said Cooper. She increased orders from other sources to fulfill her sales, which doubled this season. But, she said, “It’s not easy being a small farm and then having to rely on other small farms.”

“[The pandemic] accelerated in two weeks what was going to happen [on farms] in 10 years.”
—Simon Huntley, Harvie

Platforms like Harvie, Local Line and Open Food Network offer product features specific to farmers’ needs, like virtual markets for multiple farms and customizable orders. These will be essential as the demand for local food increases.

Stress on supply chains caused by the pandemic created long waits for home delivery by large retailers. Going to grocery stores has become more fraught. And while new containment measures for food delivery, such as low-contact and drive-through pick-up, require physical distancing, people still want proximity to the source of their food: to know where it comes from, that it’s reliable, and to support local businesses.

And with restaurants closed, buying farm-direct produce is also a way to eat well at home. Farmers are reaching new customers as a result. “I knew this was big when my ex-mother-in-law texted me to ask where to get home-delivered food,” said Huntley.

Orit Sarfaty, the chief program officer at Evergreen, a national organization focused on the health of urban environments, agreed. In March, her team signed up 10 farmers in 24 hours to fill 150 boxes with fresh produce for Evergreen’s Farm in a Box program. Now, she said, “I’m getting messages from people who’d never been to our farmers’ market. This was the first time they’d experienced fresh produce from a farm.” Evergreen’s boxes were sold out through May.

The loss of markets comes at a critical time for the agricultural sector. About 55,000 temporary foreign workers travel to Canada each year to work on large farms during the peak growing season. Most of them work in Quebec and Ontario.

Because of the pandemic, fewer workers are expected to arrive. When they do, they have to undergo a two-week quarantine period. In April, the federal government said it would provide $1,500 per person to offset the cost of housing and feeding workers during isolation, but that hasn’t prevented a number of deadly COVID-19 outbreaks on southwestern Ontario farms. About 350 workers in the Windsor-Essex region have tested positive and two have died.

As people continue to shelter in place, it’s not clear what business will look like in the long-term. Many farmers hope the current demand is a sign that the confluence of agriculture and technology will turn local food into a mainstream habit.

Will that habit last? “That’s the million-dollar question. It’s the conversation I’m having with every single one of my farming friends,” said Bakker. But, she added, “We’re going to keep delivering as long as the demand is there.”

Jordan MacInnis is a writer based in Toronto.

The post Pandemic sprouts “buy local” movement online appeared first on Corporate Knights.