Reap what you sow

world in transition

Reap what you sow

Arnaud Langlois - Portfolio Manager

Arnaud Langlois

Portfolio Manager

The agricultural sector faces challenges in terms of its existing practices, and disruption from new regulation and technologies. The world is on the brink of the next agricultural revolution.

The global population is expected to rise from 7.8 billion in 2018 to 10.2 billion by 2060. In the face of limited arable land growth potential, the argument goes that productivity gains in agriculture can only be achieved by using better seeds, a greater number of seeds, more fertilizers and more crop protection products. This overlooks the potential for other solutions.

The agriculture chemical and seed industry in fact face a number of structural issues in the years ahead. The market is missing three factors in particular:

First, there is the growing burden of proof required by regulators from chemicals manufacturers that the environmental impact and safety profile of their products can meet increasingly high standards. This does not just apply to new products but also for old products which have to be re-registered on a regular basis. This has negative implications for the industry’s capacity to innovate, obtain pricing power and meet margins.

The agriculture chemical and seed industry in fact face a number of structural issues in the years ahead.

Secondly, the advent of precision agriculture as a technology enabling a lower usage of chemical products will have negative implications in terms of volume growth for the industry.

Finally, there is the gradual loss of pricing power in seeds due to growing pushback from various stakeholders, and diminishing yield progress.

 

What next?

The Food and Agriculture Organization of the United Nations (FAO) notes that a transition is needed towards more sustainable food systems and that a regenerative, productive farming sector can provide environmental benefits and services while creating rural employment and sustaining livelihoods.

Science and technology are leading a quiet revolution which will have a profound effect on farming practices and techniques.

In that respect, serious progress should be made to rethink farming practices, whether it be around the concept of integrated farming or agroecology, which is based on applying ecological concepts and principles to optimize interactions between plants, animals, humans and the environment while taking into consideration social aspects.

Integrated farming and agroecology are gaining traction on the basis of agronomic science which has led to a dramatic improvement in our understanding of soil and ecosystems – and along the way requires much less external input in terms of fertilizer and herbicide or pesticide.

Science and technology are leading a quiet revolution which will have a profound effect on farming practices and techniques. For example, understanding and exploiting microbes for farming is a rapidly developing part of agricultural biotechnology. A number of companies in this area are reporting commercial success based on developing microbes that helps reduce the need for fertilizer or insecticide, such as a microbe can fix nitrogen from the air into soluble nitrates acting as natural fertilizer, for example. Precision agriculture is another area with great promise, as is agricultural data management.

The sector faces a number of structural issues which can only be overcome through innovation and disruption. There are a number of promising areas within the agricultural space which offer potentially promising investment opportunities.

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