How to feed the world while preserving our planet
The global population has reached 7 billion in 2022 and is expected to reach 8.5 billion in 2030. While there is clear pressure to feed more people, it is critical to do so in a sustainable way to preserve our planet. Climate change is now underway, and the agriculture sector is extremely vulnerable to these environmental challenges including severe droughts, invasive crops and pests all leading to poor harvests and less nutritive grains. Negative impacts are already being felt. The all-time-high temperatures recorded in Europe in July have affected crops. Severe drought in Canada (the largest mustard grains producer) has led to a shortage in mustard grains production. Poor harvests due to heat and drought in South America and COVID-19 related staff shortages have led to global supply shortages in edible oils.
While the energy production sector remains the first contributor of global greenhouse gas (GHGs) emissions, the global food system is the second largest contributor. The sector is responsible for one third of global greenhouse gas emissions generated from multiple sources across the whole food system, ranging from the production and use of fertilisers, livestock farming and food waste. The agriculture and food industry are also responsible for water stress including 70% of freshwater withdrawals.
Many companies are already driving the change, providing innovative solutions that are already economically viable to use and scalable. This is supportive of the multi-decade growth opportunities within the area.
Source: Food and Agriculture Organisation of the United Nations (FAO), Citi, July 20221
17% of food-related greenhouse gas emissions are coming from livestock farming, the second largest source after land use, due to enteric fermentation. While livestock farming has profound negative environmental impacts, drastic reductions in meat and dairy consumption seem unlikely to occur in the short to medium-term. It is estimated that over the next decade, global consumption of meat proteins is expected to increase by 14%. This is particularly true in developing countries where wealth is rising. As such, solutions improving the efficiency of farming such as enzymes, microbes and eubiotics that combat mycotoxins, optimize gut health or reduce methane emissions from ruminants should have a positive impact on the environment. A notable player within that space includes DSM, a Dutch science-based company producing animal nutrition and health products. Their feed additive for ruminants including cows helps to reduce approximately 30% of enteric methane emissions. Another solution includes selective breeding where superior livestock are selected based on their DNA. This would help increasing feed efficiency and improve the health traits. Less animals would be needed for the same amount of protein produced.
Production and use of fertilisers
Fertiliser manufacturing accounts for 9% of GHGs emissions within the global food system, occurring from the use of fossil fuels coupled with electricity to produce the fertilisers. There are many ways to address this by using renewable energy, or by reducing the demand in fertiliser use. Such solutions already exist and are economically viable to use; precision agriculture helps farmers to enhance yield, improves planting speed and profitability while reducing the use of land, fertilisers and water. This consists of the use of software or systems that enable improved customer decision making and execution of jobs, increasing resource efficiency. For instance, increased access to analytics allows farmers to make informed decisions regarding application of herbicides and water, which reduce usage and instances of over-application. One player within that space include a US based company, John Deere. Over 315 million acres of farmland have been engaged using John Deere technology and over 44,000 machines have been connected globally.
While 600 million of people don’t have enough food to eat, it is estimated that one third of the food produced is either lost or wasted. This is approximately two billion tonnes of food each year that are produced but never get eaten. This has a significant impact on the environment – if food waste is considered as a country, it is the third largest contributor to global GHGs emissions just after China and the US.
GHG emissions from food waste compared to country emissions can be seen in the chart below:
Source: World Resource Institute (WRI) 2019, FAO, Citi Global Insights
Most of the food waste typically takes place at the retail and consumer end of the value chain. Solutions such as enabling the extension of products’ shelf-life, decreasing microbial contaminations or allowing food preservation are critical to reduce food waste. One player in this area includes Corbion, a Dutch chemicals company that specialises in bio-based ingredients for the agri-food Industry. The company has strong commitment to produce solutions that reduce food waste, contributing more to health while preserving the planet.
The problems and the solutions are scattered through the value chain, and for investors we believe this should be as encouraging as it is complex. There are potential opportunities everywhere as the world adapts to the net zero future laid out by governments – and as we steadily get to grips with the climate impact of the food system that sustains us all.
Companies shown are for illustrative purposes only as of 29/07/2022. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities.
- Food and Climate Change - CitiGPS (citivelocity.com)