Israeli City Takes Step Toward Becoming Global Food-tech Center

Consortium led by Tnuva wins government tender to develop industry incubator

File photo: Buildings in Kiryat Shmona.
Dror Artzi

It has a population of less than 25,000 and it’s far from greater Tel Aviv, the epicenter of Israeli high-tech, but if the government and a group of Israeli and foreign investors have their way, Kiryat Shmona is on its way to becoming a global hotspot for innovative new ways to grow and produce food.

The center of that ambitious effort is a consortium called Sparks led by Tnuva, Israel’s biggest food maker, which won a government contract on Tuesday to develop a high-tech incubator for food-tech startups at a cost of up to 1 billion shekels ($280 million).

“We want to create companies like Mobileye or Check Point that brought about change on a global level,” said a source close to the tender who asked not to be identified.

Jerusalem-based Mobileye, a pioneer in self-driving cars, was sold to Intel in 2017 for more than $15 billion while Check Point Software Technologies was among the earliest players in cyber security and is traded on Wall Street at a market cap of $17 billion.

“Three companies like these are enough to change the concepts of innovation and technology in the global food industry – the entire supply chain from the farm to the fork,” the source said.

The other partners in the consortium are Tempo Beverages, which bottles PepsiCo products as well as Heineken beer; the Jerusalem-based equity crowdfunding company OurCrowd; and the U.S. venture capital fund Finistere.

The losing bid came from Jerusalem Venture Partners, an Israeli fund led by Erel Margalit. It was Margalit who first envisioned turning Kiryat Shmona into a food-tech center, an idea that was eventually adopted by the Israeli government. JVP had no comment on the result by press time.

The source said JVP lost the tender because it did not have any international companies as partners nor had it yet raised the capital required.

“It wasn’t as if there were two excellent and nearly identical offers. Of the 20 parameters examined under the terms of the tender, the winning bid was very good and the other – just average,” the source said.

Anya Eldan, vice president of the Israel Innovation Authority and head of its incubator unit, said she expected Margalit would remain active on food-tech.

“Margalit worked hard to bring food-tech to Kiryat Shmona and he deserves credit. But in the end the tender was fair. Margalit will continue to develop that area – the incubator is just one component.”

The food-tech sector in Israel has a lot of companies, but it hasn’t attracted much investment or global attention compared to sectors like cybersecurity and auto-tech.

According to Israel Venture Capital, which monitors the Israeli tech industry, the country counts 311 food-tech startups. Among the big Israeli food industry successes, PepsiCo bought SodaStream for $3.2 billion and International Flavors & Fragrances bought Frutarom for $7 billion, both in 2018.

Investment has been growing sharply – increasing fourfold in the last five years – but from a low base: In 2018 the sector attracted just $207 million of investment in 18 funding rounds.

Meanwhile, the IIA sponsors 19 tech incubators in a variety of fields, one of which is focuses on food-tech. Called The Kitchen, it is managed by Israeli food company Strauss Group and is home to 12 startups, including the meatless meat startup Aleph Farms.

In the case of the Sparks incubator, Ami Appelbaum, the IIA chairman, said the definition of a food-tech startup would be wide.

“We were of two minds about whether 3D printing of a steak could be part of the incubator and the answer is yes, if it serves the food industry,” he said.

“If someone is developing algorithms to speed up the development of proteins, we’ll consider it in the category of food. Digitization that’s not connected to food won’t be allowed in. Any proposal in the gray area between food and digitization will be considered by the IIA,” Appelbaum said.

Startups with technology to increase farm yields will be considered but companies specializing in irrigation technology won’t, he added.

Under the terms of the incubator contract, Sparks gets to develop and run the facility for eight years. During that time it has to recruit at least four startups annually or risk losing its license. The government will cover up to 85% of the capital invested in the company – up to 100 million shekels – with the incubator partners accounting for the rest.

In line with the government’s policy of ensuring that innovative technology developed in Israel benefits the Israeli economy as much as possible, the indicator’s startups must register their the intellectual property in Israel and commit to local production if a commercially viable product results. The incubator partners can each hold no more than 7.5% of any startup to ensure that none of them controls the intellectual property.

The issue of Chinese access to Israeli technology, especially tech related to defense, has become a source of tensions between Israel and the United States amid the U.S.-China trade war. But Eldan dismissed concerns raised by critics that China would get control of intellectual property developed in the incubator via Tnuva, which is controlled by the Chinese company Bright Food.

“There are already Chinese investors in a lot of Israeli companies and VC funds, among them JVP,” she said. “Tnuva is an Israeli company and the incubator is an Israeli company. The IP will be owned by the startups. Neither the incubator nor Tnuva will have rights to use it.”