How Sustainable Agriculture Emerged as a Huge Investment Opportunity

As the coronavirus pandemic reveals deep vulnerabilities in the global food system, agriculture is increasingly seen as an area ripe for disruption and for transformative investment. Sustainable agriculture could both feed a world of 10 billion by 2050 and provide the next big investment opportunity.

Why sustainable agriculture pays off financially and environmentally

That’s the view of Levi Stewart Zurbrugg, senior investment analyst with Saturna Capital, who analyzed those developments in his report, Feeding 10 Billion People in a Climate-Changing World. Saturna Capital is a Bellingham, Washington-based investment management firm with about $4 billion in assets and 30-year history, managing a number of sustainability-focused funds that screen for environmental, social and governance (ESG) factors.

The report highlights the challenges in securing food supply for the world's growing population while mitigating climate change posed by existing agricultural practices. As Zurbrugg told TriplePundit, “We cannot formulate climate change solutions or expect to reach greenhouse gas emissions targets without a comprehensive overhaul of our current agricultural system.”

Agriculture represents a quarter of global greenhouse gases, while using 50 percent of the world’s vegetated land and 70 percent of its fresh water, so it clearly has to be part of the climate solution, as Zurbrugg sees it. At the same time, agriculture is one of the sectors most vulnerable to the impacts of climate change, from extreme weather to effects on crop yields and exposing livestock to heat stress, water shortages and pests.

“I think investors and companies are waking up to these issues. There are clear risks that are becoming ever more apparent within the agricultural supply chain," Zurbrugg told 3p. "Farmers have always known that they are at the mercy of the weather, but with increasingly extreme weather events happening, there is more pressure to adapt to these changes and mitigate further increases."

Farmers can have a leading role in building resilience

Recognizing what is at stake, the Foundation for Food and Agriculture Research and U.S. Farmers and Ranchers in Action (USFRA) announced in February an agriculture-climate partnership to unlock the climate-solving potential in farmlands through sustainable agriculture practices, with the goal for agriculture to be net negative for greenhouse gas emissions by 2030.

“We need to invest in [resilience],” says Erin Fitzgerald, CEO of USFRA. “We need new forms of capital entering the food supply chain focused on the long term, and by that I mean, long-term contracts, risk mitigation tools [and] different types of insurance. And the agriculture sector also needs to take advantage of ESG investing, institutional investing and bonds, an investment in the future that could help our farmers have more resilient and adaptive farms. We need transformative investment for a net-zero economy and rural revitalization.” 

Four key areas for action

According to the report from Saturna, the solution lies in four main areas in Zurbrugg’s estimation: decreasing food loss and waste, changing animal protein consumption patterns, reducing methane from livestock, and increasing crop yields.

Globally, food loss and waste amounts to approximately $1 trillion in economic losses. In the U.S., some 40 percent of food is lost or wasted — and 30 percent globally. “I think this is an area where we could see more of those start-up companies that really disrupt in the same way that Uber and Lyft have disrupted taxi services,” Zurbrugg says. “But it is also one of those areas where there needs to be greater public-private partnerships to create the infrastructure to both tackle the waste and inform consumers.”

Approximately 15 percent of all human activity-related GHG emissions are associated with animal agriculture. Added Zurbrugg, “Such growth is not sustainable; we must develop alternatives.”

That’s a message that’s been heard loud and clear by alternative meat startups like Impossible Foods and Beyond Meat, along with the investors who back them, as 3p has reported. The global alternative meat industry could be worth $140 billion in 10 years, or roughly 10 percent of the global meat industry, according to analysts at Barclays.

As Zurbrugg notes in his report: “The coronavirus pandemic has exposed meat supply chains as among the most vulnerable to food system shocks. Going forward, supply is likely to be an added driver to the growth of alternative proteins.”

Recognizing supply-related shocks as risks to the food system, the Chinese government has established an initiative to reduce meat consumption by half across the country. Considering the country accounts for close to 30 percent of global meat consumption, Zurbrugg points to this as a significant opportunity for animal protein alternatives.

Another way to tackle the challenge is to reduce methane from livestock. As the Saturna report notes, feed additives can reduce emissions associated with enteric fermentation. One study found that adding a particular type of seaweed can reduce methane emissions by up to 80 percent.

When it comes to increasing crop yields, Zurbrugg notes: “If we held current production efficiencies constant through 2050, most of the world’s remaining forests would need to be converted into agricultural land. Converting forests into cropland alone would likely lead to climate disaster.”

Instead, he points to advancements in sustainable agriculture like improved soil and water management, adaptive crop genetics, and intensified production on existing cropland.

New technologies can boost sustainable agriculture

Fortunately, he adds, there’s been enormous progress in new technologies and techniques to make sustainable agriculture more efficient. This includes advanced chemical and biological agriculture technologies such as pesticides with reduced toxicity, seed treatments that allow for reductions in pesticide and fertilizer use, and enzymes that allow livestock to more efficiently absorb nutrients.

Adaptive genetics present another avenue in meeting global food demands amidst a rapidly changing climate. The agricultural biotech market (largely comprised of genetically modified crops) in 2017 represented $20 billion in sales. By 2026, it could grow to $52 billion, an 11 percent compound annual growth rate.

Finally, precision agriculture technologies are ripe for investment. There’s a $20 billion revenue opportunity in agricultural data and analytics, the most active mergers and acquisitions area in the agricultural industry. The technology includes both agricultural management software and efficiency-enhancing hardware, such as drip irrigation, variable rate nutrient applicators and soil sensors.

These technologies help to optimize fertilizer application, improve irrigation efficiency, and identify and treat weather stressed crops, the Saturna report notes. “Such applications not only help farmers maintain and improve crop yields in a climate changed world, but also help reduce agriculture’s contribution to climate change,” Zurbrugg says.

With so much innovation available to tackle the problem and a rapidly warming climate, Zurbrugg thinks there is no excuse to delay action in boosting sustainable agriculture worldwide. “The coronavirus has shown us how these shocks can really impact our food supply chain. Over the coming decades, climate change is going to be yet another, bigger shock to our food supply systems. So, it’s really important to assess how we can build a better and more resilient food supply chain in the face of these challenges.”

Image credit: Larisa Koshkina/Pixabay