Neil Dwane: Frankenfoods and the Reality of Resource Scarcity


Neil Dwane is the former equity CIO and global strategist of Allianz Global Investors. He writes exclusively for Citywire and draws on his years of experience to analyze the rise of thematic investments and the underlying fundamental trends. For his other columns please click Here.

Eighteenth-century economist Thomas Robert Malthus worried that population growth could create a trap in which humankind could not produce enough food. However, over the past century the US agricultural population has declined from more than 50% to 4%, with productivity increasing dramatically.

Better equipment and seeds as well as high performing fertilizers have contributed. Recently, however, concerns have arisen about the use of fertilizers entering aquifers and rivers, crop protection that is destroying local habitats, and genetically modified (GM) foods.

This important industry is now facing some major challenges as it seeks to maintain the required levels of production while improving its environmental footprint and reducing carbon emissions.

Agriculture has caused a lot of soil erosion as reckless planting and harvesting has weakened the soil. The ancient natural system of crop rotation was pruned with pesticides and fertilizers, but without restoring the richness of the soil.

Research by the World Resources Institute suggests that soil erosion is accelerating as land management practices remain poor, particularly near key river basins where the soil is being washed away. In the US and Europe, it will take over 100 years to replace the lost soil, if it can be replaced at all.

This is very frustrating as even with better management the soil could absorb around 5% of all of our greenhouse gases. As I wrote a previous article In the case of environmental challenges, the effects of migration can put further strain on an agricultural system, with more mouths to feed or forcing more emigration from starved areas.

Agriculture, however, does not stand apart from many of the environmental challenges we face today as weather patterns change and rainfall becomes more irregular. For example, as climate change reduces the size and extent of mountain glaciers, the flow through many important river systems, such as those from the Himalayas, decreases.

Other important agricultural regions such as the USA, one of the granaries of the world, depend on underground supplies for their production. The crucial Olgallala aquifer is one of the most important water resources.

Located under eight US states and around 450,000 square kilometers in size, the aquifer has been tapped for its water since the 1950s and supplies 23 cubic kilometers of water per year.

Although the aquifer is huge, its resources are not unlimited and, due to its nature, will be very slow to refill over the next 6,000 years. Therefore, American agriculture will soon have to be managed urgently with less water and more conservation.

Rethink resources

Following the recent mergers of agribusiness providers – such as Bayer, Monsanto, Syngenta and BASF – significant resources are now being invested in researching new seeds and plants that require less water and less pesticide protection.

Over time, this research should be able to find new solutions to the changing soil and weather patterns. This could offer investors opportunities to benefit from it.

Different attitudes towards genetically modified food will also have to change if we are to continue feeding our population, and perhaps admiration for the new mRNA Covid-19 vaccines will accelerate this process. GM crops are created to better serve the environments in which they are grown.

While many in Europe still see GM as “Frankenfoods”, it is very likely that emerging market farmers will embrace any new innovations that improve their volumes and yields. Robot and drone manufacturers are now also delivering solutions that allow farmers to remotely inspect their fields and harvest their crops more mechanically.

While drones are now becoming an important part of the defense industry, companies like Aerovironment offer both defense and agricultural drones. The U.S. agricultural market for drones is projected to exceed $ 30 billion by 2030.

As politicians become more involved in climate issues, we should expect more regulation to be put in place to enforce industry change that encourages disruption.

The growing purchasing power of millennials will ensure that many of these trends continue to unfold. The changing consumer habits will also force existing food manufacturers to adapt and change their products with fewer E numbers and preservatives and more fresh local ingredients.

Food costs have been falling for generations as farm efficiency and globalization opened up new markets and suppliers.

However, it is possible that food prices will structurally rise again and are already quite high according to the FAO index, as consumers in emerging markets start to consume more, which further boosts inflation and benefits food retailers such as UK group Tesco.

Find new food

Climate change concerns have also begun to create new industries as innovators try to turn plants into meat substitutes. These and other new food sources have so far enjoyed great popularity with investors and consumers, and huge investments will be required to grow them.

In the face of increasing nutritional awareness, many Western consumers are changing their consumption of meat, fish and plants, with all associated supply chains facing disruptions. Fish farms suffer from a bad rap for sea lice and living conditions. Many livestock farms have suffered from foot-and-mouth disease, swine flu and avian flu outbreaks around the world.

The solution and improvement of these areas of production offers many investment opportunities as the demand will continue to rise in line with the standard of living. Investors also need to be aware that many large countries like China are not self-sufficient with all agricultural products, which can benefit exporters from Brazil and the US.

One final new area of ​​agricultural innovation that could offer exciting investment potential is the emergence of urban vertical agriculture, where buildings are refurbished to use their own rainwater to provide a variety of food in enclosed conditions close to their consumers to grow.

Getting access to the right real estate and bringing together all the necessary farming and control skills may take a little longer, but it can provide alternatives to the office space abandoned after the pandemic.

Agriculture, like access to water, remains far more important than electricity and WiFi, despite what my children tell me. Society riot or migrate when hunger persists. Agriculture thus offers diverse opportunities all over the world and on the various product markets. Increasing resilience in the face of ecological change and ensuring food supplies remain essential to our survival and enjoyment of this world.

Neil Dwane: Frankenfoods and the Reality of Resource Scarcity



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