Source: Hermes Investment Management, World Bank, Jain Irrigation Systems, International Finance Corporation, Project Drawdown as at August 2018.
Just so: the promise of precision agriculture
Precision agriculture generally refers to farming practices that focus on managing individual plants rather than fields of crops.
But switching from a birds-eye view to the worm’s perspective requires farmers to adopt a tech-heavy approach that relies on a vast array of sensors and data management systems.
The investment in technology, though, could see farmers reaping huge increases in yields, lowering costs and improving sustainability.
According to a Goldman Sachs report, precision fertiliser application alone could increase crop yields by 18%. Better-targeted planting and spraying have the potential to bump up yields by 13% and 4%, respectively, the study says, while using a fleet of smaller tractors could also raise output by 13%.
Using more, smaller tractors rather than fewer mega-machines might seem a counter-intuitive efficiency method for farmers. But larger tractors produce enormous ground compaction, which in turn leads to loss of soil life and erosion – both critical factors in long-term yields and resilience of agricultural systems.
Farmers can also now plug into geospatial guidance systems to plot optimal routes for their light, possibly-automated, tractor fleets as they traverse the fields, resulting in lower fuel consumption and more effective use of resources.
For example, the Nasdaq-listed agri-tech firm, Trimble, estimates that its geospatial systems can lift yields by 30% while cutting both input costs and water use by 20%. Japanese companies Kubota, Iseka and Yanmar are racing to launch the first commercial driverless tractor in a move that could help farmers overcome labour shortages in some regions in addition to other efficiency gains.
Precision agriculture technology also produces a large amount of data that farmers can harvest to improve practices and output. OnFarm, a California-based connected farm platform, found that using ‘internet of things’ (IoT) technologies saw yields rise 2% along with a 35% reduction in energy costs and an 8% fall in irrigation water use.
Some companies are also trialling the use of drones in agriculture – chiefly as data-collection devices to help understand what’s happening in the fields. But, once battery life improves beyond the current typical half-hour limit per charge, drones might have another use as fertiliser application vehicles.
For all the excitement at the rapid pace of technological development, though, precision agriculture has a few fences to jump before it is more widely-accepted.
Firstly, the technology-reliant farming techniques depend on access to reliable mobile networks, which don’t always exist in rural areas. For instance, 30% of all US farms (and 18% of large holdings) still have no internet access compared to 14% in the UK.
And the precision agriculture technology also must overcome some of the understandable on-farm resistance to innovation. Farmers tend to be risk-averse due to the highly cyclical nature of the business: they usually earn most of their income in a single, annual post-harvest hit. If a new system fails, farmers risk bankruptcy, which is precisely why tried-and-tested methods have the psychological edge over experimental techniques.
Agroecology: holistic and organic goes titanic
The Food and Agriculture Organisation (FAO) – the UN body looking at agriculture and development issues – defines agroecology as a system “based on applying ecological concepts and principles to optimize interactions between plants, animals, humans and the environment while taking into consideration the social aspects that need to be addressed for a sustainable and fair food system”.
In recognition of the topic’s growing importance, the FAO held a conference in April 2018 entitled Scaling up agroecology to achieve the SDGs (the UN’s sustainable development goals). The dividends for implementing agroecological practices could be significant with research indicating farming incomes could rise up to 30%, according to the FAO.
Agroecology could also help battle climate change on various fronts, including:
- improving yields through better soil health;
- producing healthier soil, which acts as a natural carbon sequestration system; and,
- directly reducing supply chain carbon emissions by cutting the use of fossil fuel based fertilisers and pesticides.
As the FAO puts it, “agroecology represents a shift from ‘ready-to-use’ to ‘custom-made’ production systems. Farmers achieve a greater quality and quantity of production by transitioning from a reliance on chemical inputs to a holistic, integrated approach based on ecosystem management. This is done by re-introducing biological complexity, particularly by increasing plant diversity, perennial cover and the presence of trees.”
Organic food production, which sits under the agroecology label, is one of the fastest-growing segments in the industry. Organic food sales grew at 5.4% in Western Europe during 2016. In France, entire organic supermarkets are opening in retail parks all over the country – over 2016 alone the sector grew by 20%. In total, the French organic retail and restaurant sectors grew at a compound annual growth rate (CAGR) of 36% since 2011.
Figure 4: European organic retail sales have doubled since 2005
Source: IFOAM EU Group as at March 2016.
Corporate food producers are taking note of the trend, though most of the larger firms are somewhat struggling to adapt their large, cumbersome portfolios for the organic market.
From 2013-2017 US supermarkets sourced almost 90% of new products from small- to medium-sized companies: European stores are following the same trend.
Many of the more agile smaller producers are focusing on sustainable foods such as UK-based Snact, which puts the idea of a circular economy into practice. Snact produces a range of snack bars (wrapped, of course, in compostable packaging) made out of dump-destined fruit rejected by retail outlets merely for being mis-shapen or shelf-size inappropriate.
Elsewhere, a number of small companies are ramping up plans to convert their offering one way or another towards organic. Wessanen, a Dutch food company, recently announced it would go 90% organic by 2025. And businesses from other sectors are also latching onto the organic food trend, including the US outdoor adventure clothing firm, Patagonia. Patagonia Provisions has a strong focus on sustainability with items like canned mussels, which it believes is one of the most sustainable animal protein sources.
But if it is the small-scale boutiques driving organic innovation, larger firms are beginning to hitch a ride. Typically, bigger companies tend to buy smaller organic food firms rather than develop products in-house. Amazon, for example, recently bought organic food retailer Whole Foods, while French giant Danone took over ‘dairy alternatives’ producer Whitewave.
The carnivore is over: plant-based foods grow up
According to US writer, Michael Pollan, a healthy diet boils down to three simple rules: “Eat foods. Not too much. Mostly plants.”
Pollan’s advice, it turns out, could even help combat the rise of greenhouse gas emissions. Sticking to a simple, plant-based diet could be one of the most powerful ways for individuals to shrink their personal carbon footprints: considering that farming meat produces 15% of global carbon emissions.
Pound-for-pound, carnivores have double the carbon footprint of a vegan, according to some estimates. Other figures suggest that producing just one kilo of beef consumes about 15,000 litres of water, which, in a resource-constrained environment, may not be the best use of the world’s most precious liquid asset.
Figure 5: Animal-based foods are more environmentally impactful to produce than plant-based foods
Source: World Resources Institute as at April 2016.
A meat-centric diet could also trigger unwelcome health problems such as obesity while increasing the risk associated with non-communicable diseases.
And it seems like the anti-meat message is getting through, in some quarters at least. Meat consumption has already been reducing, especially among younger generations in developed nations. New products and businesses are springing up to service this vegetable-inspired trend. UK sandwich shop chain, Pret A Manger, for instance, has opened vegetarian-only outlets in London; Quorn, another British food group selling meat-free alternatives, saw a 16% rise in sales in 2017, with its US business growing 35%.
The no-meat movement has also been a boon for vegetable producers such as French firm, Bonduelle, which is a global leader in the high-quality frozen and canned vegetable market.
Possibly, the current shift away from meat is merely a cyclical economic effect as consumers – stuck in a low-earnings growth market for a decade – trade-down to cheaper, plant-based foods. On the other hand – in good news for cows – the slowing meat consumption could signal a secular long-term generational shift in dietary habits.
A positive climate for farm reform
Agriculture has a significant role to play in mitigating climate change as the examples discussed above illustrate. The list is not exhaustive; many other climate change-focused agricultural innovations are under way – some are commercial, some still to be proven.
Currently, about one third of food goes to landfill.
Reducing such massive waste might seem to offer a simple solution to improving agricultural efficiency, and hence emissions, but the problem remains complex and perplexing. Other creative agricultural enterprises, such as aquaponics and vertical farms, could ease the soil degradation issues caused by traditional farming – although the economics of both these approaches is still challenging for now.
Changing agriculture and global food production systems will not be easy. The new agricultural ethos involves more than just ploughing money into new equipment; it means cultivating new mindsets around farming practices and training consumer preferences towards healthier, cleaner foods.
However, the powerful force reshaping supply chains from field to fork is already in motion. Investors may need to do some spadework to uncover some of the new agricultural potential lying below the surface but the opportunities are considerable and germinating now: Hamburg-headquartered investment bank, Berenberg, for example, estimates that the precision agriculture sector could grow at 8% each year until 2021.
On the flipside, investors will also have to weed their portfolios of those firms on the losing side of the agricultural re-dig. According to a 2016 Goldman Sachs report, precision agriculture case studies found traditional farming techniques lead to significant amounts of fertiliser run-off and over-application in saturated fields.
If precision agricultural techniques are widely-adopted, Goldman Sachs estimates that global fertiliser demand could decline by up to 4%.
These findings mark an important point of difference with the last agricultural revolution, which was largely fuelled by mass application of the-then new fertilisers; almost 60 years later agriculture may have to rely on a little less chemical manure as it moves to newer, greener pastures.