Agricultural innovation is needed to solve challenges – Wealth Managers

As food security moves up the political agenda, expert investment managers at Franklin Templeton and RBC Wealth Management focus on the innovation and investments needed to sustainably feed a growing population. sustainable.

This week the Franklin Templeton Institute published a new article – Food Innovation: Investing to feed our future. The paper, which focuses on the food and agriculture sector, examines the opportunities for investors in the sector.

According to Anne Simpson, Global Head of Sustainability at Franklin Templeton, innovation in food and agricultural technologies will be key to boosting agricultural productivity and the nutritional value of food while reducing harmful farming practices. She highlighted how the war in Ukraine, a reminder of geopolitical risk in agricultural supply chains, came on the heels of Covid-19 pandemic-induced inflation, which drove food prices up by more than by 30%. Franklin Templeton’s views are significant because the company was overseeing $1.45 trillion in assets as of May 31 this year.

This was echoed by Frédérique Carrier, head of investment strategy at RBC Wealth Management, who cited key areas where investors can find investment ideas with attractive growth prospects. This includes precision farming which optimizes crop productivity using informatics, genetic technology, indoor farming technologies, vertical farming, LED lighting systems, aeroponics and hydroponics (where plants can grow in nutrient-enriched water or mist without soil).

This news service covers agriculture, food production and related activities at a time when soaring energy and food prices, fueled by forces such as pandemic-induced disruptions, conflict in Ukraine and central bank policy have made food a hot investment topic.

Growing role of private markets
Highlighting the growing role of private markets, Stephen Dover, Chief Markets Strategist and Director of the Franklin Templeton Institute, said: “While public markets play a vital role in our food system, I see private markets playing a growing and significant role in food. innovation to move forward.

He cited examples, saying venture capital investing in food tech and agritech start-ups is steadily increasing. “From 2015 to 2019, over $45.6 billion was invested in food tech startups across 3,200 deals. We believe this space will continue to grow as startups explore lab-grown meat, 3D-printed foods, and other innovations,” he said.

“Private equity investment also plays a major role in food giant mergers and acquisitions,” he added. “The deal landscape slowed down a bit during Covid-19, but picked up, with North American transitions in the third quarter of 2021 exceeding $13.6 billion, of which 76% came from private strategic buyers and capital companies -investment,” he said.

Dover believes private debt will play a key role in financing farmers making the transition from traditional to regenerative agriculture. “In 2019, $3.6 billion in private loans were issued in the United States through private debt managers, including $2.8 billion with regenerative agriculture-related lending criteria,” did he declare.

“Real estate will also play a major role in the expansion of controlled environment farming and vertical farming,” he added. Much of this growth will occur closer to urban areas via infill or suburbs/peripheries to ensure fresh produce is delivered short distances to consumers. “The global CEA market is expected to reach $172 billion by 2025, and the vertical farming market is expected to surpass $31 billion by 2030,” he said.

The virtue of vertical trusses
Franklin Templeton says the allure of investing in vertical farms, where crops are grown in stacked vertical layers, is not purely financial. As investors seek solutions to the world’s biggest problems, vertical farms have the potential to contribute to most of the 17 Sustainable Development Goals. They are more resilient to the climate, their production will be more stable and predictable, and they will be able to respond quickly to changing consumer preferences, producing crops in demand regardless of environmental factors and growing conditions.

Gene Editing vs Genetically Modified Organisms
Carrier pointed out how GM crops have faced widespread consumer resistance over the years, despite their higher yield, tolerance to both drought and heavy rains, and increased resistance to pests and diseases.

“But foods produced through gene editing are often not subject to the same regulations as other genetically modified crops, because many of the changes introduced by gene editing also occur naturally,” she said. “In 2021, Sicilian Red tomatoes were released for sale in Japan; they are one of the first genetically modified foods available to the public. The USDA has also confirmed that these tomatoes will not be similarly regulated. than conventional GM crops,” she added. “The UK is taking a more positive attitude towards GM foods and parliament passed legislation in January 2022 to reduce the time and cost of gene editing trials in the country. Like this new generation of GM foods with additional health benefits evolving, we would expect their popularity to increase,” she pointed out.

Banking sector
The banking sector also has a key role to play in managing and mitigating the impact of the food supply chain on biodiversity and climate change, said David Sheasby, Head of Stewardship and ESG at Martin Currie, on the role of banks in the food system. . “We are seeing that some of the major banks recognize their impact on the food system in their approach to agricultural lending activities. We believe bank executives will seize the potential investment opportunity in this space while effectively managing the risks associated with the food business,” he added. “Banks can further encourage change by setting eligibility criteria that prevent the conversion of forests or ecosystems,” he said.

Dolores W. Simon