Why invest in agriculture and food

Why would anyone consider investing in agriculture and food production? There are several arguments to make such an investment. The motives can be looked upon from two perspectives: a macro socio-economic and a micro business perspective.

The socio-economic macro perspective:

  • Increase national food security, feed the people and contribute to social and thus economic stability
  • Staple food shortages and rising food prices have more than once ignited unrest and revolution
  • World population growth to nearly 10 billion in 2050 requires the world to produce 40% to 60% more food compared to current figures (FAO). Food demand will continue to increase
  • The current trend of de-globalization and political instability drive countries to rely less on imports when it comes to food. Recent global events have highlighted vulnerabilities in food supply chains
  • The rate of technology development in agriculture is very high, new technologies like enhanced GPS, machine learning, AI, drones and biotechnology are deployed fast
  • New technology offers new investment opportunities like autonomous tractors and crop husbandry robotics that will be introduced in practical farming during the next decade
  • As a result of this technological development, new farming systems are being deployed that close the gap between conventional and organic farming, like precision farming, regenerative farming, vertical farming, minimum tillage and strip farming
  • The total area of arable land is decreasing due to urbanization, infrastructure, soil depletion, erosion, desertification and soil salinization. Therefore, all land that is suitable for agriculture should be farmed while optimizing soil quality and efficiently deploying production factors and farming inputs
  • New crop varieties have been developed that are less susceptible to draught and saline soil conditions and that can be grown in regions previously less suitable for crop production

The business micro perspective:

  • Investing in agriculture and food production provides economic resilience, even during economic downturns food demand remains relatively stable, providing consistent returns compared to more volatile sectors
  • Investments in agriculture can generate income through multiple channels: land value appreciation, operating profits and commodity price increases
  • Investments in agriculture often move independently from traditional financial markets, portfolio diversification therefore helps balancing investment risk
  • Investments in land and commodities often are a hedge against inflation
  • Most governments financially support their agriculture & food sector through grants, subsidies, soft loans and tax incentives
  • Shortening food chains by directly connecting primary producers, processers and retailers is a strong trend world-wide and offers opportunities for investors in agriculture and food
  • Many consumers prefer national, locally produced products. Investors can tap into this emerging trend
  • As family incomes rise, consumers tend to prefer quality products from a known, national brand
  • Investments in modern technology are a pre-requisite to produce quality products
  • Consumers increasingly focus on health, sustainability and transparency which creates appealing niche markets
  • Consumers tend to appreciate efforts made by companies to respect the environment and animal welfare, this creates marketing opportunities
  • Depending on the potential client base and a country’s supportive measures, tapping into eco-friendly farming and carbon credits maybe a compelling option
  • There is a large value-added potential in integrating primary production with food processing. Processing raw agricultural products into consumer ready food significantly increases margins and returns
  • There may be strong local social or political arguments to invest in agrifood that would strengthen company stature and accommodate important stakeholders
  • There may be a national plan to increase food self-sufficiency by promoting and financially supporting agriculture and food processing that can be tapped into
  • Initiators of the project may simply feel a strong urge to invest in agriculture and food, besides the arguments listed above

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