equities
Building new food systems with GM crop
Modern agricultural biotechnology is harnessing ecological and biological science to improve food security in the face of population pressures and climate change. Genetically modified (GM) crops are a key innovation poised to drive the next green revolution in food production, in our view.
Since they were first commercialised in 1996, GM crops have been adopted in many countries, becoming the fastest adopted crop technology in the world. GM crop cultivation has increased from 1.7 million hectares in 1996 to 185.1 mn hectares in 2016, representing about 12% of the global cropland, 54% of which is found in developing countries.
The decline in the number of available seed varieties during the 20th century has been attributed to farmers preferring high yielding seeds. There is a risk that GM crops further incentivise use of monocultures by establishing high yielder varieties of crops. However diversification has been demonstrated with the use of GM crops by integrating regenerative practices and encouraging use of local seed varieties.
Years of field trials are conducted to test the efficacy and safety of GM seeds The development process to bring a GM crop to the commercial market takes 13 years on average. The safety of GM crops has been validated by numerous studies and agricultural systems have now coexisted (GM non GM) successfully for many decades.
In the second instalment of our three-part series on sustainable agricultural practices, we examine the role of GM crops in developing and sustaining new food systems. GM crops are aligned with our investment theme of sustainable food production.
FIG 1. Three investment themes drive our LOIM New Food Systems strategy
 |
| Sustainable food production |
| Companies which produce biological and synthetic inputs, and food products |
|
 |
| Enabling solutions |
| Companies which provide specialised enabling products and services along the value chain |
|
 |
| Sustainable food consumption |
| Consumer-facing companies which manufacture, retail and serve food |
|
Source: LOIM. For illustrative purposes only.
Changing climate: a sustainability challenge
The frequency and intensity of extreme weather events is increasing as a direct consequence of climate change. These threaten the stability of our planet’s food supply, given the negative impacts on both crop yields and productivity.
For example, climate change has increased hydrological variability, which manifests as flooding, droughts and storms. A case study from McKinsey investigated how African agricultural practices, in which 95% of livestock and cropping systems are rain-fed, will have to adjust to increasing hydrological variability. Africa is particularly vulnerable because many of the crops grown on the continent are at the edge of physical thresholds beyond which yields decline.
Between 2008 and 2018, extreme weather events were linked to USD 108 billion in crop and livestock production losses in developing countries. Rising global atmospheric CO2 concentrations may trigger adverse, yet uncertain, effects on crop physiology, while climate-induced migrations of crop pests and diseases is set to multiply agricultural losses.
Weather events. Drought intensification rates have rapidly increased, and during the past 64 years there has been a transition toward more flash droughts over 74% of the global regions identified by the Intergovernmental Panel on Climate Change Special Report on Extreme Events. Kenya, for example, has faced a severe water shortage caused by four consecutive failed rainy seasons amid one of the harshest droughts the East African region has seen in four decades. The Food and Agriculture Organization of the United Nations (FAO) reported that floods have collectively accounted for the second gravest agricultural disaster, next to droughts, as they were responsible for USD 21 bn in crop and livestock losses from 2008 to 2018 in the developing world.
Pathogens. Diseases specific to plants are already responsible for significant pre-harvest losses every year, with smallholder farmers proving particularly vulnerable. Fungal pathogens can induce up to 30% in crop-yield loss. Research has shown up to nearly 50% of beans and maize farmers surveyed in Central America and nearly 50% of potato farmers surveyed in South America have experienced yield losses as a consequence of plant disease. Climate change further increases outbreak risks by altering pathogen evolution, host-and-pathogen interactions and facilitating the emergence of new pathogenic strains.
Pests. The FAO estimates that as much as 40% of global crop production is lost to pests every year. Invasive insects cost the global economy at least USD 70bn annually. A number of the more damaging insects are dependent on a warmer climate. Fall armyworm and tephritid fruit flies, for example, are spreading to new areas as the global temperature rises. The world's most destructive migratory pest, the desert locust, is anticipated to change migration routes in response to climate change. Not only is the prevalence of these pests expected to increase, farmers which have had little to no experience of dealing with these threats may soon find themselves exposed.
Weeds. Weeds compete with crop plants for water, light, and nutrients. Consequently, the presence of these plants has a negative impact on crop yields. Climate change leads to altered environmental conditions that are favourable to arable weeds. For example, aggressive species of tropical and subtropical origins are anticipated to expand northward in the event of a warmer global climate. The diverse gene pool and physiological plasticity of weeds mean that they are likely to be more resilient and adapt better to changes in CO2 concentrations and temperatures than crops. Climate change then may actually prove advantageous for weeds at a time when crops come under greater pressure.
GM Crops: a sustainability solution
Advancements in agricultural science and technology have brought about a GM crop revolution. Manipulation of the genetic material in plants has enabled greater resistance to insects, herbicides and a number of viruses specific to flora. The resulting GM crop technology has led to a direct increase in yields through improved control of pests and weeds. This technology is linked to an additional 330 mn tonnes of soybeans, 595 mn tonnes of maize, 37 mn tonnes of cotton lint, 15.8 mn tonnes of canola and 1.9 mn tonnes of sugar beet since its introduction in 1996.
Drought resistance. Droughts can be devastating to crop yields. But advancements in biotechnology stand to contribute to global food security through the development of drought-tolerant crops. These crops have the potential to improve plant growth and productivity, and to increase the area of arable land worldwide. Recent studies have started to bear fruit on the molecular mechanisms of drought-stress responses and, in parallel, tests of GM crops with drought tolerance have also shown promising results that can be ultimately applied to agriculture.
Source: GM Crops Food. For illustrative purposes only.
Virus protection. Climate change can alter the geographic distribution, biology, pathogenicity, host specificity or life cycle of a pathogen. Rising temperatures can not only affect the survival of pathogens during colder periods, but can also lead to earlier spore release. Consequently, epidemics are expected to increase in severity and spread geographically as climate change continues.
Crops can be genetically modified to become resistant to known diseases. The rainbow papaya, for example, is less vulnerable to the ringspot virus, which previously threatened Hawaiian papaya crops.
Pest control. Insect-resistant plants have the potential for higher yields and require less in the way of pesticide application. Between 1996 to 2020, insect resistant (IR) crop technology used in cotton and maize increased yields by an average of 17.7% and 14.5%, respectively. Commercial soybean farmers in South America have seen an average 9.3% increase in yields since 2013 through the use of this same technology. Cumulatively since 1996, there has been a 92.1 mn kg reduction in maize insecticide active-ingredient use and a 288 mn kg reduction in cotton insecticide active-ingredient use. The fuel savings associated with a decrease in insecticide use feeds into farmers’ bottom line and leads to emissions reductions.
Aligned companies
Companies are creating new profit pools by developing or providing solutions that drive the growth of GM crops. Below are examples of specialist companies in these industries. They are provided as information only and are not necessarily held in our portfolio or represent investment recommendations.
Company1 |
Solution |
| Corteva | A US agricultural chemical and seed company. A major part of the firm is Pioneer Hi-Bred International, which produces genetically modified crops such as canola with insect and herbicide resistance. |
| Bayer | German multinational pharmaceutical and biotechnology company. Bayer has a focus on research & development capabilities in biotechnology related to GM crops including corn, soybeans, sorghum and alfalfa. |
| Sakata Seeds | Japanese company engaged in the production or purchase, sale of the horticultural products. Sakata offers over 900 varieties of broccoli, tomato, squash, watermelon, and cabbage, among others. |
Sources
1 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.
important information.
For professional investors only
This document is issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393. This document is approved at the date of publication.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
UK regulation for the protection of retail clients in the UK and the compensation available under the UK Financial Services Compensation scheme does not apply in respect of any investment or services provided by an overseas person. A summary of investor rights and information on the integration of sustainability risks are available at: https://am.lombardodier.com/home/asset-management-regulatory-disc.html.
Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Asset Management (Europe) Limited prior consent. In the United Kingdom, this material is a marketing material and has been approved by Lombard Odier Asset Management (Europe) Limited which is authorized and regulated by the FCA. ©2023 Lombard Odier IM. All rights reserved.
