Sustainable agriculture - what are investors to do?


Victoria McArdle, Sustainable Investment Analyst

10 October 2017

The huge increase in the demand for animal protein in recent years presents some significant environmental challenges. The livestock sector currently accounts for 14.5% of global greenhouse gas emissions (more than the transport sector). Currently 33% of all cropland globally is used to feed animals, not humans. The UN Food and Agriculture Organisation estimates that the harm caused by farming costs the world $3 trillion each year, from soil erosion and depletion of water resources to oceanic “dead zones” associated with synthetic fertiliser run off.

In addition, intensive farming of animals is creating a growing risk of disease outbreaks and pandemics. For example, 66% of emerging diseases in humans have animal origins. Hormones and antibiotics used in industrial meat production and excess meat consumption also affect human health.

These environmental and human health issues are set against a back drop of consistent global population growth and ever-growing demand for food. As investors focused on sustainability, what do we do?

We believe sustainable agriculture is both critical in importance and underappreciated by the broader investment community. As such, it creates a number of opportunities. We accept that some level of intensive farming is probably necessary to be able to feed people. However 30-40% of food is wasted by some accounts, so the solution is not to keep producing more. We need to produce better. Here are some investment ideas we like:

Memphis Meats – This company produces laboratory grown meat, which we admit is not everyone’s cup of tea (yet). But we note with great interest that Bill Gates, Richard Branson and Cargill are investors. We think people are looking for plant-based and science-based alternative to meat products that will create new markets for companies like Memphis Meats. We have not invested, but we are watching this one with interest.

Danone – We already hold this company in the Sustainable funds. It is the world’s largest manufacturer of yoghurt. It recently bought WhiteWave, a producer of plant based milks, signaling that traditional food companies are now starting to take notice of changing consumer health trends regarding animal vs plant-based foods.

Novozymes – Another pick for our Sustainable Funds. The company’s enzymes mixed in animal feed can help increase intake of nutrients and digestibility thereby reducing the total waste and increasing input efficiency. Its probiotic products could ultimately eliminate or reduce farmers’ reliance on antibiotics. We think this could help address issues related to antibiotic resistance.

Croda – Using as little pesticides as possible is both environmentally beneficial and helps to reduce costs for farmers. Croda has a product that helps minimize pesticide spray drift. Pesticide sprays that drift into the environment around them can damage neighboring crops, pollute surface and ground water, and affect grazing livestock.

Deere – With their iconic green faming equipment, Deere is at the forefront of mechanization that helps farmers be more efficient and less wasteful. Precision agriculture can help farmers apply exact amounts of fertiliser, seed and crop protection, and reduce product overlap and gaps between crops.

Genus - In order to meet growing demand for meat and dairy, higher productivity is key. Genus is a global leader in genomic selection and gene editing which allows farmers to produce higher yields of milk and meat. The company seeks to reduce the environmental impact of protein production whilst continually improving animal welfare.

 

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.