The R&D Tax Credit Aspects of Advanced Farming
Advanced-Farming
Several trends are converging to change the
way our food is grown, transported, and sold. Climate change
demands that the resources we use to grow, transport, and
process food need to be carefully managed. Concerns over the
healthiness and cleanliness of our food demand that it is
grown, transported, and processed in a sanitary way that
preserves its nutritious value. Venture capitalists are
increasing their investments into agribusinesses, signaling
that innovation may be a high priority for these businesses.
Farming innovation activities may qualify for R&D tax
credits.
The Research &
Development Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
criteria:
- New or improved products,
processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
Eligible costs include employee wages, cost of supplies, cost
of testing, contract research expenses, and costs
associated with developing a patent. On December 19, 2014,
President Obama signed the bill extending the R&D Tax
Credit for the 2014 tax year.
Advanced Farming
Technology
In order to meet the many challenges of
managing resources used in producing food, farms - principally
large corporate farms - need to innovate and deploy new
technologies quickly. Water must be carefully managed and
machinery must be purchased or configured to operate in
managed conditions.
The Internet of Things is sure to disrupt and revolutionize
farming - crops and greenhouses will likely have large
deployment of sensors in order to monitor environmental
conditions and manage quality and resource usage.
Drone and robotics technologies are also sure to integrate
with most farms - automating the labor of planting,
harvesting, and cleaning while dramatically reducing the labor
needed to survey and monitor field conditions. Fruit and
vegetable farming are the most labor-intensive - with much
larger labor costs compared to wheat, soybeans, or corn.
Advanced robotics may find a way to decrease these large
costs. As wireless networks are created on both corporate and
small farms, automation and computerization will create
conditions to more finely manage and reduce the use of
resources and labor.
Outside the traditional farm, the urban farming sector is
growing rapidly; converting spaces in urban and suburban
landscapes into personal and local crop spaces. An entire
industry is forming around enabling and providing the
technology and tools necessary for people and communities to
grow their own food in unsuitable and unlikely places.
Investments in
Agriculture Tech
The research site, Arthaplatform, has the
following 2015 outlook of the farming and agricultural sector
- the asset class F&A has over 240 investment funds that
manage close to $45 billion in assets. Artha sees the spaces
in venture capital gravitating towards a mixture of energy,
high technology, and biotechnology - all converging into
ag-tech - an agriculture technology space.
VentureSource, a venture capital news site, reports that
venture capital investment in agriculture and food soared 54%
to $486 million last year, according to Dow Jones
VentureSource.
USDA Rural Investment Business
Companies
The USDA, through the Farm Credit System -
a partnership of the USDA, banks, and lenders that provide
credit to the agriculture industry - will direct funds towards
private equity
efforts
in its Rural Investment
Business Companies fund. It provides special funds for a
specific business type called a Rural Investment Business
Company. These funds receive matching dollars for private
investment in rural agriculture companies. They are similar to
private equity and hedge funds and usually take a 2 percent
management fee, and up to 20 percent per year on
returns. Some examples include Meritus
Ventures, LLP, The Innova Ag Innovation Fund, and Advantage
Capital Partners.
Meritus Ventures, LP. -
London, KY
Meritus Ventures is focused on the Appalachian region. It
makes equity investments in expansion-stage companies in rural
central and south Appalachia. It's raised $100 million as a
RIBC and provides operational assistance, active board
participation, and mentoring as part of the USDA-backed RIBC
program.
Innova Ag Innovation Fund -
Memphis, TN
Innova is a fund and development group focused on
commercializing early stage agricultural innovations., raising
$25 million investments in life sciences. They work in three
stages similar to a business accelerator; discovering,
screening, and protecting novel technologies, licensing early
stage agricultural technologies, and taking active roles in
managing and providing support for funding, growth, and
commercialization.
Advantage Capital Partners - New
Orleans, LA
Advantage Capital Partners aims to invest in entrepreneurial
small businesses in communities that are underserved by
traditional capital sources. It provides bothequity and debt
capital as well as operational counsel. Advantage Capital
Partners has raised $154.5 million in agricultural technology
companies as a RIBC.
Paine & Partners LLC. - New
York, NY
Paine & Partners is a New York based private equity firm
that specializes in food and agribusiness companies and has a
portfolio of nine food and agriculture companies. It has
raised $893 million in January 2015 for the purpose of
boosting productivity in areas such as protein production and
food safety.
University of California at
Davis - AgTech Innovation Fund - Davis, CA
University of California at Davis' AgTech Innovation Fund is a
$50 million limited partnership venture capital fund designed
to invest in early stage agriculture and life science
technology companies. It was formed in 2014 and is now funding
startups in Northern California and the central valley of
California.
Cultivian Sandbox , LP. -
Chicago, IL
Cultivian Sandbox is a venture capital firm that is focused on
next generation agriculture and food technology companies.
Cultivian wants to be more than just venture capital to an
invested company, it wants to actively collaborate and
cultivate its portfolio. Cultavian's portfolio consists of 18
companies across two funds.
Innovative Companies
Freight Farms Inc. - Boston, MA
Freight Farms is an ag-tech company that creates mobile farms
housed inside of standard shipping containers called
Leafy Green Machines. These farms, provided they
have water and electricity, act as self-contained greenhouses to nurture small
plants contained on mounted racks. They feature customizable
remote lighting and environmental controls. These containers
are meant to be deployed in urban and suburban areas where
farms may not be able to be built or maintained. The shipping
container housing also makes the mobile farm easy to transport
and deploy. Freight farms had a $3.7 million investment from
Spark Capital.
Agrobot , Inc. - Oxnard, CA
Agrobot has developed a fruit picking system that uses color
sensing to detect and carefully pick ripe strawberries and
fruits and leave unripened fruits on the plant. Fruits and
berries require a lot of careful labor to bring from field to
market, and the costs of leaving fruits in the field are too
great to bear. Agrobot's machines could revitalize the
threatened fruit and vegetable farms and alleviate the need to
import cheap fruit.
Modern Meadow, Inc. - Brooklyn,
NY
Modern Meadow Inc. is a bioengineering company that is working
on synthesizing animal proteins and tissues in a lab from
animal cells through biofabrication processes. Modern
Meadows hopes to meet demands for animal meat and leather
without having to raise or harm animals and avoiding the
environmental impacts that animal farming may have. Modern
Meadow has received $10 million in Series A funding in June
2014.
Harvest Automation Inc. -
North Billerica, MA
Harvest Automation Inc. creates both robots to work alongside
farmhands and robots that automate farmhand tasks in order to
increase productivity. One of the key targets for Harvest
Automation's robots is fruit, berry and vegetable crops. They
also create Crop Scout robots to monitor field conditions.
Harvest Automation's technologies leverage adaptive robotics
methods to provide robots that are small, practical, smart,
and sustainable. Harvest Automation is part of Cultivian
Sandbox's portfolio and has received $33.5 million of funding
in seven rounds from six total investors.
Conclusion
Private equity and venture capital firms
are increasing the amount of capital they invest in
agricultural technology startups to drive the transformational
change needed to address the many challenges that rural
America faces. In order to overcome these challenges on
a practical level, technological innovation will be required.
Research and development efforts in agricultural technologies
qualify for substantial federal and state R&D tax credits.