As the world’s population heads towards nine billion people, it is crucial that the global agriculture sector is able to meet the increased demand for food. But the world’s food production industry is on an unsustainable path – one that mirrors the unsustainable short-termism of the financial sector in recent years – and needs to change radically if it is to feed the world of the future as well as the world of today.
While demand for meat is growing as prosperity in emerging markets creates a burgeoning middle class hungry for the good things in life, a group of scientists called, in a recent article in the journal Nature Climate Change, for a tax on meat to encourage people to eat less of it because of its damaging effects on the environment.
Such demands are only likely to grow. Emissions from cattle, sheep and goats are the single biggest source of human-related methane – a gas that persists in the atmosphere for a shorter period than carbon dioxide, but which is 23 times as powerful in its global warming effects.
Meat production also consumes a huge amount of water – it takes 15,415 litres to produce 1kg of beef, according to the UK’s Institute of Mechanical Engineers, which is just one reason that the UN Food and Agriculture Organisation says: “The livestock sector emerges as one of the top two or three most significant contributors to the most serious environmental problems, at every scale from local to global.”
Farming is one of the main causes of land clearance and deforestation, a huge contributor to climate change, while overuse of fertiliser causes eutrophication – too many nutrients in water that reduce the amount of oxygen available for marine life and reduce water quality – as well as dead zones in coastal areas and degradation of coral reefs.
It is no surprise, then, that a new report from Rabobank’s Food and Agricultural Research unit says that: “The global agriculture industry’s capacity to meet the world’s food demand is being stretched at the expense of the environment.”
The report’s author, Dirk Jan Kennes, says that to keep up with increasing food demand without taxing valuable natural resources, farmers need to move away from a focus on maximising yields and producing as much food as possible to a more holistic approach based on getting the most out of the inputs they put into their land or livestock. In particular, “the over-application of fertilisers and inefficient water usage are two critical areas to be addressed,” he says, and technology will be key to this new approach.
Farmers have been increasing their fertiliser use in recent years because it is the easiest and cheapest way to increase production. Global demand rose from 163m tonnes in 2006 to 176m tonnes in 2012. While this has undoubtedly helped to boost yields in the short term, it is in many ways the farming equivalent of the short-termism that has gripped the financial markets in recent years. It is unsustainable and can’t go on.
More than half of all nutrients remain in the environment after harvest, meaning that over-application “is not only costly for the farmer, it also contributes to groundwater contamination and global warming”.
In developed markets, farmers have been able to reduce their dependence on fertiliser by instead embracing technologies from drip irrigation to GPS satellite systems, but in other markets there is still some way to go. Corn farmers in China, for example, use twice as much fertiliser to produce a tonne of corn as their US counterparts.
Meanwhile, with agriculture responsible for 70% of global water demand and predictions that there will be a water supply deficit of 40% by 2030, it is vital that farmers use water more efficiently.
However, higher commodity prices have created an opportunity to reduce resource use by investing in technology that allows them to apply fertiliser and water at the right time, the right rate and in the right place. And because farmers can pay more for inputs – not just fertiliser but also seeds, agrochemicals, technology and farm equipment – that allows the input companies to spend more money on R&D. Rabo says that 13 representative farm input companies have lifted their spending from $5.7 billion in 2007 to $9.2 billion in 2012.
Meanwhile, food scarcity, which was the trigger for the rise in prices, has put agriculture at the top of government agendas, leading to more public money becoming available for R&D. Government incentives are set to drive strong growth in areas such as micro-irrigation, a market that Rabo predicts market will grow by 18% a year to almost $5 billion in 2018.
Farming is becoming an increasingly high-tech business and there will be investment opportunities in sectors as far removed from agriculture as advanced coating technology and big data as well as molecular technology, microbiology and bio-based chemistry, the Dutch bank says.
As well as these farm-level improvements, there are also major opportunities at a sectoral level, where huge structural resource imbalances remain, along with inefficiencies in the supply chain and a huge amount of wastage. More than 1 billion tonnes of produce is wasted along food and agriculture supply chains, for example. A 10% reduction in waste is the equivalent to increasing yields by the same amount.
But improvements in one part of the supply chain must be matched elsewhere, otherwise they will be wasted. Bringing big data, sensors and information technology to bear is one way to give farmers more control over their farms and to use resources more efficiently. While big farms and companies in the West can afford to make such investments themselves, elsewhere improved farming practices need to come alongside upgrades to the entire agricultural infrastructure. While in the West it is consumers that waste food – about a third of everything they buy, according to the United Nations Environment Programme – in emerging markets with less developed agricultural sectors, a lot of food never makes it to market because of poor storage facilities, transport links and packaging.
Until recently, agriculture has not been high on the agendas of many investors or policymakers. This will change in years to come and it will create some interesting opportunities for investors, particularly in the technology of farming, rather than the more basic inputs that have dominated in the past.