Some of Japan’s innovations are going to have a much bigger impact outside of Japan.

Like most startups, most AgTech startups sensibly tend to focus on their own markets. While this makes things easier at first, it tends to overlook the huge challenges — and potentially huge profits — that exist in the developing world.

Today we talk with Shunsuke Tsuboi of Sagri, and he explains how Sagri started life as a satellite -imaging startup focused on incremental innovation in Japan, but then quickly transformed itself into a disruptive FinTech startup serving India and Southeast Asia.

It’s a great conversation, and I think you’ll enjoy it.

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Show Notes

  • The truth about university startup support in Japan
  • Why India is a better target for this Japanese startup
  • Why selling to family farms is harder than selling to industrial farms
  • Why sustainable business models are hard for agriculture startups
  • The challenges for market entry in any agriculture startup
  • Three reasons there are so few agriculture startups in Japan
  • Why most Japanese VCs don’t invest in AgTech
  • What Japanese universities can do to improve creativity

Links from the Founder

Transcript

Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Today, we’re going to about agricultural startups in Japan. 

You know, it’s interesting, with Japan’s high food prices, the financial support for farmers, and the strong system of university agricultural research, I’ve always been a bit surprised that we don’t see more AgTech startups in Japan. 

Well, today’s conversation goes a long way to explaining exactly why that is, it’s both fascinating and a little frustrating. 

Today we sit down with Shunsuke Tsuboi of Sagri, who is using satellite imaging and AI to help small-scale farmers, some in Japan but mostly in the developing world. Shunsuke explains the challenges of launching a startup from universities without specific startup support, why going global often has nothing to do with the US or Europe, and why the world is a better place when there are tens of millions of small family farms in it and why those are worth preserving. 

But you know, Shunsuke tells that story much better than I can, so let’s get right to the interview.

Interview

Tim: I’m sitting here with Shun Tsuboi of Sagri, who is using satellites and artificial intelligence to solve agricultural problems. Thanks for joining us today.

Shun: Yeah, thank you very much. Thank you for this time.

Tim: It’s great to have you, and I mean, agriculture tech, AgTech is something that’s it’s interesting in Japan, and people don’t talk about it enough, so I’m really glad you’re on the show. So can you explain a little bit more about what Sagri does, what is the service you’re offering?

Shun: Sagri company is based in Japan and India. So we are using satellite data to checking the each of the farmland and also the food of farmers we get using satellite data for smartphone, such as when is the best harvesting time and also which is a good soil situation, we can check it.

Tim: The soil analysis, is that done by satellite or do you have people on the ground checking?

Shun: They’re using satellite, yes.

Tim: Really?

Shun: Yeah, along the 1,000 farmland, checking just 10 farmland detail, we can spreading the satellite information.

Tim: So from satellite imaging, you can tell soil composition, you can tell farmers when the ideal time to apply pesticides, when to harvest. How do your customers interact with this? Is there a smartphone app? How does it work?

Shun: So using satellite data checking through the application, they can connect it that mechanical, so this machine is automatically do that.

Tim: So the machines would automatically apply fertilizer? 

Shun: Yes, this is more needed all over the farmland can check through the satellite.

Tim: Tell me about your customers, who’s using this? Is this small family farms? Is this large industrial farms? Who are your customers?

Shun: So now is mainly is up to 10 hectare is a target.

Tim: Okay, so still very small. 

Shun: Oh, yeah. So in Japan, most of the farmers are very small, so they can get easily through satellite data. So in United States and the European is a more big farm, so this is not our target.

Tim: Interesting. I want to really dig into all of the different use cases and the things you’re exploring in a minute, but before we get there, I want to back up a bit and talk a bit about you. So you’re currently still a grad student at Yokohama National University and you started Sagri a few years ago. So is this something you’re doing with the university or something on the side?

Shun: That app is three years ago we started. So I’m a space technology, I belong to in my laboratory, this one is collected our business. My laboratory doing the soil situation or mechanical situation using satellite data. So making the company, some cases we are using this technology, but otherwise we are running own self, mix it, do that. Our CTO is a other university professor, so like a collaboration as a technology and combined making the business.

Tim: It’s funny, when we talk about university startups in Japan, Todai and Keio seem to get all the attention.

Shun: Yeah, yeah, yeah, yeah.

Tim: So what kind of support did you get from Yokohama National University?

Shun: Two things – I’m a mechanical engineering, and during the university, I get the chance to join the laboratory more faster. And the second thing is business issue to go to the Silicon Valley and the Boston can get the chance to be, so this two thing, Yokohama National University supported to me.

Tim: But not much in terms of fundraising support or–

Shun: It is so weak compared to Tokyo University or yes, Keio University?

Tim: Yeah, those two universities, they have their own venture funds so it’s hard to compare.

Shun: Yeah, yeah, yeah, our university don’t have it. 

Tim: Well, I don’t know, I mean, I guess that’s good for a founder, it forces you to be more resourceful. But I noticed as you’ve launched, you guys have done a lot of pitch contests, and has that been really useful for business development?

Shun: So the first year, the second year, at first we don’t have the chance, that’s the reason we pitch things on many contests, such as the Singularity University and Silicon Valley 500 acceleration program. Through this, we get a chance so nowadays, government and some big company understand our technology so using.

Tim: Pitch contests are really interesting. There’s so many of them now. 

Shun: Yeah, yeah, yeah, yeah. 

Tim: And so it’s hard to know, sometimes they seem like really valuable, sometimes they seem like a real waste of time. But you guys have generated real business from these pitch contests.

Shun: Yeah. At firstly, like VC, the company people can’t imagine the world like few years later, but we can. So pitch contest’s value is like pitching being the contest so they can understand this technology will happen to the future. So they think they want to hear from us. So like, so business chances often happen, but a few times I win, now I can do that, because of many years business chances are coming.

Tim: Okay, so that’s good. You sort of graduated.

Shun: Yeah, yeah, yeah, yeah. So but the first year, second years are needed, now in our third year, so I’m choosing about pitch contest, this one is I needed to apply but this one is okay.

Tim: What’s your advice for other founders in terms of pitch contests? Is it something you should do early on and then just graduate, go into a new phase?

Shun: Now is a graduate phase, this year we are already finishing the venture capital funding, so we want to spread the business more. 

Tim: That makes sense.

Shun: Yeah. 

Tim: And actually, let’s talk about some of the different business models you’re exploring and the different kind of customers you have. One of the things on your website that you’re talking about is your work with Japanese government to identify abandoned agricultural land?

Shun: Yeah, yeah, yeah, yeah, yeah.

Tim: Why is that important? Why do they want to do that?

Shun: Yeah, because most of ,cities in Japan every year by manual checking, all of the farmland, around the 30 million farmland is existed, so we can use in satellite data.

Tim: So currently, they have dedicated staff looking at satellite photos, or they have dedicated staff driving around to different–

Shun: They are driving and checking by manual each of the farmland. 

Tim: Oh, okay.

Shun: But we can getting the satellite data and the AI distributing, so this farmland is abandoned, this one  is not abandoned.

Tim: And why is that important? Is it taxed differently?

Shun: Yes, about tax, abandoned farmland, not abandoned is a different tax. And also, most of the farmlands is abandoned recently, because most of the farmers is getting older and older, that is a reason. About 5% percentage is more higher, so every year must checking.

Tim: That’s why it seems like an interesting use of the technology, but it doesn’t seem like a scalable business. I mean, how much demand is there for that kind of analysis?

Shun: Yeah, so now this thing is around 1,700 cities is doing every year. Maximums is around 1.5 billion yen, so it is so small market but the next department checking what kind of foods like rice or wheat, they are checking by money also. This situation also we can change.

Tim: That makes sense. So there is some room to grow by expanding the functionality within the different cities and prefectures.

Shun: This technology, not only Japan, can spread the global. So we are making this technology in Japan, but spread this technology to East Asia and India.

Tim: Yes, actually, what you’re doing in India, I think is particularly interesting.

Shun: So, three years ago, so we are making the company in India Bengaluru. India mainly business is microfinance, so most of the Indian farmer is needed the lending money, but they don’t have the chance. Because so many farmers existed, so bank cannot spreading their business. So they want to show their trust information immediately but the bank cannot get now. So we can using satellite data are checking all of the farmer’s farmland.

Tim: Are you showing the banks that they really are farming it? Are you using the analysis to say that, “No, this is very high-quality farmland and we’re expecting this kind of a yield from it”? What’s the information you’re sharing with the banks?

Shun: So at firstly, we are checking the farmland situation, what kind of the foods is planting, and now which area is a habit. So we calculated this one is a trustful information for banker. So banker using this information and lending them the money, and that they can get the money, they can buy the fertilizer, the pesticide. So we are using the data from satellite, they getting the more yield

Tim: That’s really interesting because I think Indian farmers are as well, like Japan, there’s lots of small farmers. And you’re providing this third-party trusted scalable source of information saying, “Yeah, you can reasonably expect this much wheat to be coming out of this field and probably around this much rice to be coming out of this other one.”

Shun: Yeah, that’s right, that’s right. At first, most of the Indian farmers not invest at first. If they lending the money, they can’t do that.

Tim: So is it also used for like farmers who might want to change crops, say, instead of growing rice, they’re growing soy or they’re — is it something you could say, “Hey, well, if you want to try this crop, this would be effective for you”–

Shun: Yeah, finally, yes, this one can do that. So this situation, so we can suggest it. So this a final goal like export and import. So using this, all of the information, rice so many farmers do that but the wheat is small, so this is maybe more high value in this year so we can suggest.

Tim: You know, I think it’s really interesting that when we look at things like old Agrotech or say,  FinTech, if we look at what’s happening in Japan or the US or Europe, I mean, there are some innovative solutions, like what you’re doing satellites is definitely helpful and innovative, but it’s already pretty good here, right? In developed markets, there’s a chance to make small incremental improvements, things are a little better. But in in developing markets like the Indian market you’re saying, there are like these big, big problems that you can provide huge opportunities, you know, huge advancements. And so are you looking to expand into more of the developing markets into like, Southeast Asia and Sub Saharan Africa?

Shun: Yes. So Africa is next market, I think, but that now is so small market. So like around Kenya, around Gunma prefecture, this is a scale. It is so small.

Tim: But it would seem that the technology itself would scale incredibly well. It’s satellite imaging and AI technology, so you might have Kenya itself might be a small market, but this is something all through Sub Saharan Africa you could deploy.

Shun: This business is started in Rwanda, so we can see the one for most. So this is a starting point in 2016. So at last we have to expand to Africa area. So using now is satellite data is a free satellite, this is a government issue. This is the resolution is 10 meter, which we can use in the Africa farmland. It is some kind of a big chance.

Tim: So yeah, I guess in a lot of those farms just like the Indian and the Japanese farms very small patches of land, but 10 meter resolution, like commercially available satellites, we’re getting much higher resolution than that now and much more frequent updates. So how does that change things?

Shun: So now, most of the things, we are using the Planet Dub, so this one is around the resolution is a three meters, cost is low, and expands all the farmland. That is the reason we are using. But more high resolution is around worldwide view, around 30 centimeter, but it is expensive. So each of the target we are thinking about this target using about this resolution satellite.

Tim: How often do these images need to be updated? If you’re projecting yields, I’d imagine at least like once a week?

Shun: Planet Dub is every day, every day can pass Japan and East Asia, India.

Tim: And does your analysis and predictions change daily?

Shun: Yes, analysis is daily, so we can getting this information and calculate it and connect it to the map, like a Google map,

Tim: How much change is there in their predictions from day to day?

Shun: Growing crops can changing every day, but most recent thing, they need it, when is the best fertilization time.

Tim: I also heard you’re doing some work with palm oil plantation in Indonesia, right? Because that’s obviously a very different type of business model, when you’re dealing with industrial production. Are you planning on kind of pursuing both angles or are you more focused on the small micro finance business model?

Shun: In the Indonesia is both of that in micro finance also. So one sector is soil situation and the second one is about the disease. So if some tree is a disease happen, as a tree also spreading, so this palm oil three needed cutting. 

Tim: Okay. One of the things that it’s just fascinating because the technology is really cool. It is this it’s amazing tool that can be applied in a lot of different situations. But in terms of like the business model, are you deciding that we’re going to focus this on developing a micro finance, verification and risk management infrastructure, or we’re going to focus on developing relationships into industrial scale agriculture? Have you decided which direction you’re going to go, or are you going to go in one direction?

Shun: East Asia is from the government technologies are spreading, in Japan also, but in India, the government, the moving speed is slowly, that is a reason we are connected to the company and FPO. So through this sector, we can spread our technology for farmers.

Tim: So if you look forward, 5 years in the future, 10 years in the future, what line of business, what area do you think is going to be the biggest part of your business and also making like the biggest impact?

Shun: Five years later, we are maybe already go to the African market already, so maybe East Asia in Japan through the government. So, this transformation is already happening, so now in Japan is changing in three years. This government platform, we can connect it our technology.

Tim: Is your go-to market mostly working with governments in different countries? So for example, in India, is there project with the governments or more with banking and lending institutions?

Shun: Japan and East Asia now is contract with the government and doing the project. So this area can spread from the government situation, but India case is differently. India is like a JA, so FPO, this sector is farmers is connected making the group, so through this group spreading the technology. So this FPO is around 4,000 is existed in India.

Tim: So getting back to the global expansion plan, so it seems like when we look at like all the potential in different countries, Africa, Southeast Asia, India, the needs of the farmers and the needs of the banking system seem quite similar. You’re addressing the same need but your partnership strategy and your way into the market seems to be really different for each country.

Shun: Yeah, yeah, yeah. That’s right, that’s right.

Tim: Does that make things difficult or is that just sort of the way it is and it’s fine?

Shun: Yeah, so difficult. So like, each country have the Embassy of Japan, like METI, people is staying each countries, so we can get things are both situation hearing from them. And also local company, they can connect it to us. Like in Japan, no need for the microfinance because JA is like a big bank, so farmers can get easily. So we must to make the business each countries, but the same technology can spread,

Tim: I guess that does make sense. Because I mean, agriculture is kind of a special market. It’s not like normal goods. Every country, it is heavily regulated. There’s huge government involvement. So yeah, I guess you sort of have to go in with some kind of a government partnership.

Shun: Yeah, yeah, yeah, yeah.

Tim: Let’s talk a bit about Japan. There’s not a lot of agriculture tech startups in Japan and it seems like there should be, there’s lots of potential there’s money to invest. There’s lots of small farmers. There’s a lot of creative people at universities working on this. Why don’t we see more AgTech startups?

Shun: Because Japan is a venture capital, only sees Japan farmland it is so minimal compared to the other countries. Now is scaling like smart farming but the speed is low. Most of this industry, government pay for that. So farm want to get like a draw and smart forming machine, but the half of cost government pay for that.

Tim: That makes sense. So the government or the VCs see this as low growth.

Shun: VC cannot see growth in market, especially the East Asia and India. Some VC like a beyond the next venture go to the Indian market, but it is so small, African market, also the same thing. Most of the VCs can see the Silicon Valley or the European, but a lot of startup, of agritech is existed.

Tim: Yeah. And it gets back to what we were saying before, it’s like there are real problems to solve in some of these other markets and the more developing markets. There are much bigger problems, which means much bigger opportunities. And so the VCs you’ve talked to now that that you can say, “Hey, no, no, this is not a Japan startup. We’re solving global problems” were they more interested after that? Are they still not so interested in agritech?

Shun: So this is so different situation most of the VC cannot understand. So United States and the European is so big farmland, but in Japan, so it is so small farmland. East Asia and India also the same situation.

Tim: Yeah, but this is — it’s just so frustrating, because that is like, that is the exact reason why Japanese startups have a chance to lead in this area.

Shun: Yes, yes, that’s right.

Tim: All the Silicon Valley startups are focused on this industrial scale, automated, large scale farming, where most of the world doesn’t work like that.

Shun: So from the Japan technology, spreading the East Asia and India, this target for the small farmland. This is a big market, I think. 

Tim: I think so. And I think, you know, I think it’d be better for like, everyone if there’s a way for small farmers to compete and survive and still exist as small scale farmers. I don’t think it’d be a good thing if the whole world turns into industrial farms. 

Shun: Yeah, yeah, yeah, that’s right, that’s right.

Tim: Well, listen, Shun, before we wrap up, I want to ask you what I call my “magic wand” question, and that is if I gave you a magic wand and I told you you could change one thing have Japan, anything at all – the education system, the way people think about risk, the way people think about domestic and export markets, anything at all to make things better for startups and innovation in Japan–

Shun: Absolutely in education. 

Tim: Really?

Shun: Yes. Through the education, we are so weak like me, so most of the people cannot speak English. And also most of this negative mind, so so shy but compared to the United States, everyone’s raise a hand like some question.

Tim: What you just said covers a lot of ground. So when you’re talking about education, what should change? Is it just more English or more self-confidence–

Shun: English, also the good way and also ICT and entrepreneurship mind is needed in Japan, compared to the other countries making the startup positive is so few.

Tim: But how do we do that, teaching entrepreneurs, how do you teach that kind of startup mind?

Shun: This is a collaborative, these are like entrepreneur inside the junior high and elementary, because the elementary and junior high, the teacher is like, can see the social situation. Inside the university, some guys is doing the internship can’t see about the social situation like that.

Tim: So it’s just the high schools, university, they’re like their own little world, they don’t look out into real society?

Shun: Yes, right, so they cannot see that their situation in the social. So inside the school, they understand some kind of the–

Tim: You know, that that’s interesting but that’s hard to change, because I’ve noticed even in universities, and actually though, in universities, this has changed a lot in the last 10, 20 years, like, a lot of computer science professors have never written a program for a customer. There’s a lot of professors who have never done the thing they’re teaching. They’re experts in the history of the subject and the teaching of it, but not in the doing of it.

Shun: Yeah, so this is a problem. In elementary school, if something is trouble, they can solving own self. But adult is like this stage is maximum for the elementary school students.

Tim: That’s an interesting thing. Just in like a general trend, like getting people to think more of direct action instead of kind of an abstract situation, more like hands on. And that’s something like elementary school kids understand. Actually, that’s something elementary school kids are really good at. That’s like the only thing they understand. 

Shun: Yeah, yeah, yeah. 

Tim: What about your experience in working with the agriculture sciences sections? Were your professors, did they have experience in actual agriculture, or was their background mostly the science and research end?

Shun: Most of the professor is like writing like a paper. That is a reason they can getting more money from the government. So but using this technology of the field, they can do that. That is the reason these technologies after 20 years later so appealing. So he thinks this one is not good so that is the reason he’s staying in university also joining the startup. How to use this technology on the field, like a connected our company so we can spread this technology.

Tim: Well, yeah, it gets back to being like hands on, right?

Shun: Yeah, yeah, yeah.

Tim: Doing it himself. 

Shun: Yes.

Tim: So I guess it is changing a little bit anyway.

Shun: yes, that’s right, I think so. But these the professor is so few, most of the professor is focused on their research and making the paper.

Tim: But you know, somebody’s got to start, right? It’s like the first penguin.

Shun: Yeah, yeah, yeah, yeah. So like Tokyo University and Keio and Waseta, it’s like this situation, changing. But a professor in Gifu University, this is a local university the same as Yokohama National University, so not moving most of the professor. 

Tim: So we still have a little way to go before that change trickles out to the rest of Japan. Well, listen, Shun, thank you so much for sitting down with me. I really appreciate it.

Shun: Yeah, thank you very much. I’m so happy to talk with you.

Outtro

And we’re back.

Sagri is a great example of a Japanese startup that can make a much bigger impact and a much bigger profit outside of Japan.

As Shunsuke discovered, there’s certainly room for incremental innovation in Japan, governments and farmers are both open to using new technology that lets them do the same job a little bit faster. But in India, Southeast Asia, and Sub-Saharan Africa, well, things are different. In those places, there are big problems to solve and people who are willing to try radical new approaches to solving them, and Sagri’s technology could easily scale to help tens of millions of family farmers around the world.

But the reluctance of Japanese VCs to invest in companies like this is a little frustrating. Well, okay, it’s a little frustrating for me as an observer, but I’m sure it’s very frustrating for Shunsuke as a founder. It’s a little frustrating to watch Japanese VCs pass on an AgTech business model like Sagri’s because it’s so different from the successful AgTech models in the US. 

But it is precisely because Japan’s farming industry is not large scale industrial, but small scale family run ad thus, in some ways, similar to those in developing nations. This difference is the very reason there is an opportunity for massive global growth in the first place. This is a genuine structural advantage for Japanese startups, and those are, quite frankly, pretty rare. 

Of course, it’s not a simple path. As Shunsuke explained, agriculture is highly regulated everywhere. Market entry requires the cooperation of both Japanese and target governments. So Sagri’s growth curve is going to be a lot slower than what we would expect from a B2B, SaaS or a gaming startup. But eventually, step-by-step, the value they’re adding is going to be clear to everyone.

Sagri can help millions of small family farms thrive as small family farms, and they can make a fortune for themselves and their investors in the process. 

If you want to talk more about AgTech or farming in Japan, Shunsuke and I would love to hear from you, so come by disruptingjapan.com/show180 and let’s talk about it. If you leave a comment, I guarantee Shunsuke or I or maybe both will respond. And hey, if you get the chance, please leave a review on iTunes or your podcast platform of choice. Or even better, you know, if you like the show, tell a few friends about it.

But most of all, thanks for listening, and thank you for letting people interested in Japanese startups know about the show.

I’m Tim Romero, and thanks for listening to Disrupting Japan.