Food and agribusiness continue to set a measurable impact on our environmental, social, and economic dynamics. The five trillion-dollar industry has a far-reaching effect on almost every sector. The industry signifies around 40% of employment, global spending, and 30% of greenhouse emissions. Where significant improvements translated in the abundant food supply, sufficing for the food supply needs of an ever-soaring population looms as a pressing concern. The unwavering trend points towards a sharp rise in caloric and crop demands. According to the statistics, the caloric demand may increase by 70%, and a 100% rise may also be observed in animal and human feed. This increased demand will be reflected in resource constraints. It is doubtful to reach 40% of water demand with a mounting water crisis. At the same time, a decline in food and energy production is inevitable, which might lead us to resource scarcity. If left unaddressed, resource scarcity will augment the crisis and trigger political unrest in many countries. Agriculture technology is proving to be beneficial in increasing productivity and adding cultivation lands in South America, Africa, and Eastern Europe. Where technology supports the situation, reaching the increasing demands necessitates the disruption of the existing trend.
Technological advancements in food and agribusiness acted as an opportunity for investors seeking to make the most out of their money. The global investments in food and agribusiness have been steadily rising and peaked at $100 billion in 2013. The food and agribusiness showed a better total return to the shareholders (TRS) as compared to other sectors. According to statistics, almost 100 food and agribusiness demonstrated a 17% annual increase between 2004 and 2013, in contrast to a 10 percent rise in information and technology and 13% in energy sectors.
Growing investments in food and agribusiness confirm foreseeable prosperity. But investing in this industry requires understanding the crops, geographies, retailing, production, processing, and complex value chains. The fruition of investment is heavily dependent not only on the ample crop yields but also on how the value chains work to result in profitability (Exhibit 1)
Rising trends in food and agribusiness
food and agribusiness encompass a variety of companies including, packaged foods, animal health and vaccines, seed and chemicals, suppliers of agricultural machinery, and data providers of precision agriculture. Even with many companies, meeting the yawning gap between demand and supply is a daunting challenge. To do so, every company involved in the food and agribusiness sector would require ample technical, financial, and human resources. At this point, investors can offer their assistance in closing this gap while seizing an opportunity for a valuable investment.
Here we have elaborated on a few trends that will likely impact the food and agribusiness economies in the coming years.
Changing dynamics of emerging markets
It is predicted that global GDP growth is based on increasing emerging economies. By 2020, countries outside the Organization for Economic Cooperation and Development will contribute the most to the global GDP. The dramatic increase in population and income growth of these countries is translated into their elevated demand for food.
Changing demographics of mature markets
Today, consumers are inclined toward healthier diets and environmental sustainability. As a result of this increasingly changing trend, food production standards are stricter and higher than ever before. Demand for certified and healthier foods meeting safety and environmental standards is preferred over those that do not offer basic nutritional benefits.
Food companies and producers who are quick to adopt this changing trend are better positioned to leverage this trend. Companies can shift to producing fortification and nutrient-rich products to market health-conscious segments.
Unprecedented price swings
Like with other commodities, agricultural prices experienced some swift swings in their prices in recent years. With a sharp economic downturn and surge in food prices, undernourished people increased from 850 million in 2005 to 1 billion in 2008. Moreover, the rise in food prices in 2011 and 2013 rendered similar effects but eventuated towards a decline over a few months.
Use of Big Data
Improved access to more sophisticated data will benefit the food and agribusiness manifolds. The latest advancement in technology allows us to utilize more granular data and employ it to enhance our analytical capability. We can optimally use our resources, increase crop yields, and reduce our costs with improved capabilities.
Turning opportunities into profits
Finding the opportunity is essential; making profits requires a strategic and thoughtful approach. For gaining profitability from the food and agribusiness, investors should consider the following factors:
Develop a thorough value-chain understanding
Investing in food and agribusiness demands a thorough understanding of the value chain and knowledge of the potential variations present in the sector. Investors should consider several companies that comprise food and agribusiness. Companies included in this sector encompasses primary commodity processing, input companies, and a variety of farmer businesses.
Benefit from the growing importance of emerging markets
Considering the increasing demand and supply from the emerging market, investors should recognize and benefit from the ever-increasing significance of the emerging market.
Food and agribusiness have shown significant improvement over the past few years despite the complexities. Pursuing due diligence and adopting the right approaches can help investors gain attractive returns and efficiently contribute to reducing the growing food supply need for billions of people around the globe.
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