New Zealand should be leading the world when it comes to funding innovation around agricultural emissions reduction technologies. It isn't.
Steve Meller loves seaweed. His business, CH4 Global, is all about seaweed and climate change. New Zealand Asparagopsis seaweed, to be precise, and the fact that fed to cattle in the form of a bioactive compound called bromoform, this distinctive red seaweed may reduce, possibly dramatically, the amount of methane (CH4) produced by a cow’s gut during digestion and therefore burped out by those same cows into the atmosphere.
Given methane is New Zealand’s biggest greenhouse gas headache, this is a potential gamechanger.
CH4 Global’s newly-opened-by-James-Shaw seaweed plant in Ruakākā in Northland aims to produce Asparagopsis at scale. Setting up the plant is being funded courtesy of almost $US15 million ($26 million) of series A (early stage) venture capital funding, finalised last year. The next round has already started. It's for a significantly larger amount, Meller tells Newsroom following his appearance at the 2035 Oceania Agri-Food-Tech conference in Auckland this week. The money will fund expansion in New Zealand and manufacturing in Australia and potentially the US.
Meller, founder and CEO of CH4, is half joking when he says he doesn’t talk about “seaweed” when he’s pitching to investors.
“That doesn't get us anywhere,” he says. “We say ‘novel agricultural systems to achieve climate change goals’.” CH4 is a climate technology company, he says.
But he’s serious when he talks about moving the company’s global headquarters and top executives from New Zealand to the US. And a critical reason for that decision is because that’s where the money is.
Peter Beck did the same thing with Rocket Lab.
That probably makes sense with aerospace. New Zealand is not the go-to place for rocket expertise. But agriculture is different. Speaking at the same conference Meller was at, Climate Change Minister James Shaw said people were looking to this country for answers on farming and greenhouse gas emissions.
“Every time I go to United Nations climate talks or interact with my opposite numbers, they ask what we are doing, how to put emissions pricing in place while still continuing to grow food. People expect us to come up with an answer that we can then export to them, so OECD countries can learn from our experience.”
Seems that’s not happening, either in terms of the Government leading the world on agricultural emissions reductions policy, or companies and investors leading on funding innovation in this space. At least that was the message from other speakers at the conference.
“In order to attract venture capital for innovation, New Zealand needs to create a market for food and farm innovation,” keynote speaker and US-based international climate solutions expert Aimée Christensen told Newsroom.
“It’s vital regulators create a policy environment friendly to this sort of innovation,” she says.
“New Zealand could put a stake in the ground and want to be the future of food and investment innovation dollars, or green finance dollars to invest in the milk of the future, the meat of the future.
Christensen is talking about not only investing in cleaning up traditional agriculture, but developing new solutions. It might be methane-reducing farming technology, but it might also be plant-based or lab-grown meat or milk, or moving food production to renewable energy.
It all needs lots of investment.
“This is all very capital intensive - hardware, solar fields, processing facilities, infrastructure. This is not just deploying software to the world,” Christensen says.
"I don't need money from New Zealand. There are trillions of dollars of available capital around the world." Steve Meller, CH4 Global
Venture capitalists favour software investment because it’s relatively cheap and there’s a good chance it’ll produce high returns within a relatively short timeframe - say three to five years. But you mostly don't get those sort of returns - certainly not as fast - with many of the investments we need to hold global warming to 1.5 degrees above pre-industrial levels.
"VC has historically been looking for 10 times ROI [return on investment] - they are taking a risk and expect high rates of return. There is more money looking for those investments, so can we change the mindset of venture capital to take a 5 times, not 10 times or 50 times because it will provide planetary benefit?" Christensen says.
Steve Meller says the idea of New Zealand companies having to rely on capital from their home market is old school. The funds here aren't big enough and there aren't enough investors to support those funds.
"I don't need money from New Zealand. There are trillions of dollars of available capital around the world."
Still, Nigel Bradly, chief executive of EnviroStrat, a sustainability consultancy company with a focus on the seaweed sector, would like to see more courage coming from the New Zealand investment community around agri-food-technology. This would provide a huge boost to New Zealand companies trying to develop climate-friendly products, he says.
"The New Zealand investment community is highly conservative by comparison with people overseas," Bradly says. "There's no shortage of investment capital looking for climate innovation, but New Zealand investors don't walk the talk in the same way they do elsewhere. There is not the same willingness to take risks.
"Here we are still having the same back-to-basic conversations with investors."
Getting burnt on green tech
Actually, it's not all roses, even overseas, Christensen says. Some big global venture capital firms got seriously burnt with early sustainable technology investments. Used to the software sector, they didn't realise how expensive, slow, and potentially risky the clean tech sector could be. There's still caution in the market.
"Kleiner Perkins out of Silicon Valley were very successful tech investors - and they did some of the first green investment funding in the mid to late 2000s, expecting similar returns. But the market for clean energy didn’t happen, partly because everyone expected more regulation and more pricing on carbon, partly because legacy players were not incentivised to decarbonise. So some of those were failures, and those early failures keep some people out of an area that is new to them."
No oil for the wheels
Take The Olive Press, New Zealand’s largest independent olive oil processor. For the last five years the company has been developing technology to take nutrient-rich waste products from the olive pressing process and turn them into high-value extracts for food or nutraceuticals.
The company has received help from funders including Callaghan Innovation and Massey University to develop and test the science. Now it needs to commercialise its ideas. “We have proved it’s cost-effective and scaleable, says managing director Katrina Bach. "Now we need someone to back us into the next stage. We need not just money, but business partners to help us carry this through to fruition.”
Finding these partners has proven to be difficult over the past couple of years, Bach says. Covid hasn't helped, but New Zealand’s venture capital market is thin, and setting up the processing facilities, plus the buildings and other infrastructure needed to get into full-scale production, isn’t cheap.
But the technology ticks so many sustainability boxes, Bach says. Circular economy, waste reduction, adding value to a New Zealand commodity product. Olive trees are good for carbon sequestration in the soil, she says, because of their root system.
“The rate of innovation coming out of the R&D pipeline is shocking. We need to get R&D out into the market at the pace we need.” Victoria Hatton, PwC
Making the value-add olive oil extract for food and nutraceutical products could end up being as profitable - or even more so - than the basic commodity product, Bach says, which is potentially a great deal for an investor.
“But we have to invest a lot more to get to that end, and it’s difficult to find capital. You can’t absolutely guarantee [the outcome of the investment] and the returns don’t come straight away. We probably need five years.”
Victoria Hatton is director of sustainability and climate at PwC New Zealand and a former senior project coordinator on agricultural greenhouse gas emissions at the UN Food and Agriculture Organisation in Rome.
“We need to change the innovation pipeline,” Hatton says. “The rate of innovation coming out of the R&D pipeline is shocking. We need to get R&D out into the market at the pace we need.”
Part of the problem lies with scale and a system which encourages competition rather than collaboration to bring climate change technology solutions to market, she told Newsroom.
It’s not about a lack of available funding, Hatton says. “There’s no shortage of money, but companies are hindered by an innovation investment system that’s siloed. You have to understand where to go for money, and then it’s really difficult in terms of all the forms you have to fill in. It’s prohibitive to most startups, which is where most innovation sits.
“For a country which prides itself on being a petri dish for innovation, something has been lost in translation.”
In the end, it's not just the companies looking for finance missing out, Aimée Christensen says, it's the potential funders too.
"When you are looking at where the investment opportunities are, it's in solutions for the climate. Where’s the big growth happening? It’s in solutions for the planet."
