A global problem, which the UN has identified as one of the millennium goals, can only be addressed through investments in technology applied to agricultural systems.
According to UN data, it is estimated that more than 800 million people go hungry every day, while food systems are struggling to cope with unfavorable commodity prices and war; as a result, food prices are high and food availability is decreasing.
The World Bank estimates that by 2050, feeding a planet of more than nine billion people will require an estimated 50% increase in agricultural production, and according to Sophie Flak, head of Emergency Solutions Grants (ESG) at Eurazeo, a French investment company, how food demand trends intersect with climate change will become a major investment thesis of private equity funds in the coming years.
Flak puts it this way: "We know that food resilience and adaptation of agriculture to climate change will become a big issue. Humanity will first face the damage of a biodiversity crisis, which is a direct consequence of the climate crisis. The pressure to secure our food supplies has begun and food sovereignty is becoming a big geopolitical issue."
Recognizing the problem is the first step, and venture capital has been turning to sustainable agriculture and biotechnology for the past few years, leading to a transformation of investment in agriculture and food. Most of the investment is now going into agricultural technology start-ups, food science, and vertical farming, i.e. towards agri-technology (AgTech).
According to data from Crunchbase, a platform that brings together business information on private and public companies, $5 billion was invested in agtech last year in 440 financing deals for startups backed by venture capital firms. This is a jump from $3.3 billion in 2020.
The world requires investment to cope with the conditions that climate change has brought about and has led, for example, to drought and extreme heat, reducing wheat production by 10% and average barley yields per acre by 33% in the United States in 2021; unusual rainfall and flooding in China created possibly the worst winter growing conditions on record, and frost earlier in the year damaged Brazil's coffee yields.
According to the Food and Agriculture Organization (FAO), international food prices reached an all-time high in February 2022, but the number of people facing food insecurity worldwide increased by approximately 32%. For example, in the case of the Latin America and Caribbean region, despite long-term progress, hunger has increased again by 2.4 million individuals to a total of 42.5 million people affected by hunger for the first time in two decades.
Such situations are likely to multiply in the coming decades as the impacts of climate change become more pronounced and agricultural food becomes increasingly insufficient. As the world's population only grows, there is a need for more public and private investment to develop new approaches to ensure global food security.
Investment in the development and adoption of agri-technology is required to accelerate the responsiveness and profitability of the agricultural supply chain and advance food security in a situation that could only worsen as the world's population grows. During the Private Equity Wire (the leading website for the institutional private equity investor) panel last January, Joana Castro, head of climate impact at Unigestion - an independent asset manager - said agri-tech is a broad sector that will be "critical" to sustaining population growth in the coming decades.
The Role Of Agrotechnology
Promoting the adoption of healthy eating patterns requires investments to create nutrition-sensitive systems and programs that can ensure an adequate supply of healthy foods for all over time. AgTech is thought of as any innovation used in agriculture to improve efficiency, profitability, and sustainability while maintaining the highest levels of global food security. It is a tool whose building blocks are hardware, software, biotechnology, business models, new technologies, and applications, and which is driving the agricultural industry in the 21st century.
It is the technology applied to agriculture that includes the methods and machinery necessary for efficient production, focusing on the processes used in the sector to improve the use of resources and support the producer in his daily tasks, including agrochemicals, machinery, cellular modified seeds, fertilizers and nutrients, artificial intelligence and robotics.
Indeed, the use of machines and tools to work in the field has a long tradition, but sufficient investment will allow agrotechnology to evolve and optimize quicker, so that it can, for example, detect the ideal time to harvest without damaging the crop, know the state of the crop using sensors or drones, and obtain information on the temperature and humidity of the soil and crops.
AgTech strategies seek to improve agricultural production by minimizing inputs and maximizing results. This is why digital technology, such as the Internet of Things (IoT), is key to meeting the growing demand for food sustainably as IoT-based agriculture collects and analyzes data to help maximize operational efficiency, improve productivity, reduce waste, lower environmental impact, and optimize cost management.
IoT in agriculture refers to devices such as remote sensors, robots, drones, or computer imaging, combined with tools that allow data to be collected and transformed into information that can be shared across networks, without human intervention. The power of data analysis allows more informed and timely decisions to be made to boost agricultural productivity.
Let's take a closer look at some of these tools:
● Remote sensors: Strategically placed around a crop field, they allow measuring and detecting changes in soil moisture and nutrient levels, which helps farmers make decisions based on solid data that improve crop yields and reduce water and fertilizer wastage.
● Agricultural robots (AgRobots): autonomous technologies (such as agricultural drones, automatic irrigation, and autonomous tractors), which reduce traditional agricultural inputs, and help with farm labor shortages-as many farmers are expected to leave the workforce due to age or better opportunities-and speed up food production. (FAO estimates that the world needs to increase food production by 50% by 2050 due to population growth).
● Predictive data analytics in agriculture: uses data analysis of past and current events to gain insights inaccessible beforehand to help predict possible outcomes based on well-informed decisions made today.
● Geographic Information System (GIS): Creates and manages visual representations of data. By connecting the generated data to a map, GIS performs spatial analysis and integrates location data with descriptive information, providing a real-time basis for mapping analysis; it determines which crops and where they should be planted; and how to provide the best possible nutrition to get the maximum yield from each crop.
● Controlled environment agriculture (CEA): employs modified indoor environments to optimize agricultural production. They are enclosures protected from the natural elements and erratic weather patterns and address the results of climate change, such as land degradation and water scarcity. Because they can be located close to population centers, they help reduce the use of fossil fuels in food transportation and reduce transit time, generating less spoilage.
● Precision agriculture: Increases crop yields and reduce the use of fertilizers, herbicides, and water. Using satellite imagery, sensor monitoring, artificial intelligence, and/or geographic information system (GIS) software, data on factors such as crop health, soil properties, and nutrient levels are obtained to determine how many resources are needed for a given segment of the farm.
The World Bank's Efforts
All of the above implies investment that is not always within the reach of farmers. The World Bank, one of the most important sources of financing and knowledge for developing countries, has for some years now been working on food and agriculture, seeking, among other things, to improve food security and access to safe and nutritious food; make agriculture and food more sustainable, productive and resilient in the face of climate change while reducing greenhouse gas emissions; and boost agribusiness by creating inclusive and efficient food value chains.
To this end, it has a portfolio of 164 projects and $2.6 billion in loans for agriculture and food in the face of climate change, and in 2022 has invested, through the International Finance Corporation (IFC), $4.17 billion in agribusiness and food companies, in addition to helping to improve productivity, climate-smart practices, and food security.
Since the beginning of the 21st century, this institution has supported small and medium-sized enterprises in nearly one hundred developing countries, with resources earmarked for innovation in agricultural systems, research to improve the quality of seed production for various crops, the development of climate-smart agriculture, irrigation technologies, water, and soil conservation, and the development of hydroponic agriculture, among many other aspects.
To achieve food systems transformation, boost food security and empower smallholder farmers to achieve zero hunger and poverty by 2030, the bank works with a range of partners and, as of recently, hosts the new Food Systems 2030 Multi-Donor Trust Fund that helps countries rethink their food systems from farm to fork. The idea is to build a sustainable food system that delivers healthy people, a healthy planet, and healthy economies.
The World Bank also leads the Global Platform for Food Systems, Land Use and Restoration (FOLUR), a $345 million, a seven-year program that aims to improve the health and sustainability of the landscapes that produce the world's food. It also hosts PROGREEN, a global partnership for resilient and sustainable landscapes, which works in sectors such as agriculture, infrastructure, and extractive industries that are major drivers of deforestation and forest degradation, and chairs the System Council of the Consultative Group on International Agricultural Research (CGIAR), a global partnership that promotes cutting-edge science to reduce rural poverty, increase food security, improve human health and nutrition, and ensure the sustainable management of natural resources.
Agriculture with Environmental Criteria
Given its traditional heavy reliance on pesticides, fertilizers, and genetically modified crops, agriculture has not always been easily associated with environmental, social, and corporate governance (ESG) criteria. However, sustainable agriculture is attracting more attention to the extent that "Investors want to understand how to make scalable investments in organic-oriented strategies that have a clear ESG angle," according to Darren Rabenou, head of food and agriculture and ESG investment strategies at UBS Asset Management.
However, investors have doubts about the best way to incorporate sustainability into the agricultural sector since, for example, greenhouse agriculture may use much less water than traditional agriculture but often has huge energy requirements for heating and cooling the facilities.
This is why many agri-tech opportunities are perceived as risky by venture capital firms, who would like to wait until the transformational levels of investment are required to make more financial sense. Sophie Flak puts it this way, "We know [sustainable agriculture] is a megatrend, but when will the timing be right? We are working on it. If it comes too soon, it's not good."
The food and agriculture sector may align well with impact-based strategies and ESG in some places. Still, there are also several negative externalities and an increased risk of "impact washing." An unintended social consequence of increased organic farming in less developed countries may be higher food costs for consumers, Rabenou believes.
However, the Consultative Group on International Agricultural Research (CGIAR), in coordination with a wide network of partners, has played a vital role in transforming agri-food and land systems in the face of the climate emergency, ultimately benefiting low-income producers and consumers, who are most at risk.
Its Crops to End Hunger (CtEH) initiative accelerates and modernizes the development, delivery, and large-scale use of new crop varieties to meet the food, nutritional, and income needs of producers and consumers, respond to market demand and provide resilience to pests, diseases and new environmental challenges resulting from climate change. CtEH supports focused, science-based, well-resourced, long-term CGIAR programs and investments in modern plant breeding for priority crops.
Among the benefits of this program, each breeding plan is expected to achieve higher rates of genetic gain and scale of impact through the adoption of farmer-preferred, market-demanded, and climate-resilient varieties. It will also generate more opportunities to integrate and support CGIAR's allied crop programs and apply best practices across its research centers. Still, above all, it will enhance its contributions to the Sustainable Development Goals by 2030 through high-priority staple crops tailored to the specific needs of targeted regions and their populations.
Importance of Zero Hunger
Extreme hunger and malnutrition remain obstacles to sustainable development and create a trap from which people cannot easily escape. Its result is individuals who are less productive, more prone to disease, and thus often unable to earn more and improve their livelihoods.
In 2019, 144 million children under the age of 5 were stunted, and 47 million were affected by extreme thinning; more than 690 million people were undernourished, mainly in Asia and Africa; and 2 billion people worldwide did not have regular access to safe, nutritious and sufficient food.
People experiencing moderate food insecurity often cannot eat a healthy, balanced diet due to income or other resource constraints. If these trends continue, an estimated 840 million people will be hungry by 2030.
Unfortunately, civil insecurity and declining food production have contributed to food shortages and high food prices. Vulnerabilities are already evident in global food systems, and the conflict between Russia and Ukraine presents even more challenges. However, increasing investments in AgTech can help avoid long-term food insecurity and counter geopolitical consequences. Greater adoption of AgTech could facilitate smarter decisions on protecting the world's increasingly scarce resources, which could ultimately mean feeding millions of people.
Food security requires a multidimensional approach: from social protection to ensure safe and nutritious food, especially for children, to transforming food systems for a more inclusive and sustainable world. The important thing is to invest in rural and urban areas and social protection so that the poor can access food and improve their livelihoods.
A world with zero hunger can positively impact our economies, health, education, equality, and social development. It is a key building block for a better future for all.
Moreover, if hunger limits human development, we will be unable to achieve other Sustainable Development Goals, such as education, health, and gender equality.
The new frontiers of AgTech are still being charted in the digital world, where data, tools, and real-time decision-making come together to help agriculture meet growing consumer demands. But this demands investments critical to reducing hunger and poverty, improving food security, creating jobs, and increasing resilience to disasters and crises.
Finally, an invitation to reflect on what we can do to solve these major problems in terms of production, distribution, and access, as they, in turn, present great opportunities for innovation and disruption of systems and sectors that have evolved at a snail's pace. The opportunity from the capital market is enormous. Can you imagine, for example, has been an early-stage investor in the dwarf wheat that sparked the green revolution?
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