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Agriculture and Infrastructure Investments

In recent years, the world has been beset with myriad economic, financial and geopolitical problems. Financial crises, international terrorism and war are just a few of the issues humanity has been required to face since the start of the new century. Yet, in some respects these issues pale in comparison to an even bigger crisis, as humanity ‘sleepwalks’ into an impending, all-encompassing food shortage.

The Earth’s population is set to exceed 9 billion. In order to meet the extraordinary demand, food production will need to at least double in the coming decades if we are to avoid mass shortages and disruption. Put simply, humanity is quickly running out of food. If we fail to meet the rising global demand for resources over the next 35 years, mass food shortages may become the norm, resulting in global political destabilization, exceeding that produced by the oil industry over the last decade or so.

With global population growth approaching approximately 80 million people per year, the pressure on agricultural infrastructure is becoming untenable. Emerging markets such as India, Brazil and China are at the heart of the world’s rapidly expanding population, and it is in these states that we are likely to see the emergence of supersized populations in the coming years. The rapid expansion and urbanisation of emerging market populations is having a revolutionary effect on the countries themselves. As more people move out of the countryside and enter the urban middle classes, the world’s social and economic landscape will continue to change. According to projections from EY, by 2030 around one billion people in China could be deemed as middle class – as much as 70 percent of the country’s predicted population. The mass urbanisation of people in emerging markets is likely to have a transformative effect on global resources. Already, developing economies are demanding a more resource intensive and Western style standard of living. Westernised diets will ramp up the pressure exerted on an already struggling global agricultural sector in the years to come.

These trends will exacerbate the declining availability of productive land, which is already at a premium. At the current rate, tens of thousands of acres of land is being lost every year to soil degradation, urbanisation and shifting global climates. Accordingly, the productivity of the remaining arable land is a matter of serious concern. Agricultural productivity from viable land is already close to the limit of what is possible using existing technology, and agricultural yields are increasing at less than 1 percent per year.

For some commentators, the issue of food shortages may become significant even earlier than predicted. According to a recent report from the Global Harvest Initiative, if countries do not prioritise agricultural production and the growth of sustainable food sources immediately, it is conceivable that the world will be unable to feed the rising population as soon as 2030. The Global Harvest Initiative’s findings suggest that by 2030 the only region likely to be able to sufficiently feed its people, and provide a surplus of produce, would be Latin America. Food production in the region is likely to exceed local demand over the next 15 years, with remaining food stocks helping to meet the burgeoning demand from Asia’s urbanised and affluent middle class. Latin America’s major economies, including Brazil, Argentina, Chile, Paraguay and Uruguay, are expected to be at the forefront of the region’s increase in productivity going forward.

“Infrastructure and technological development within and around the sector are also in desperate need of capital. ”

Clearly, the challenge of providing regular, affordable and sustainable food sources for such a vast population is enormous. Without drastic intervention, the situation is unlikely to improve. One of the best means of addressing this issue is via sustained and logical investment in the industry, and a wide spectrum of investors are already looking at the agriculture sector as an investment target. Given the economic instability persistent since the onset of the financial crisis, the agricultural sector encapsulates many characteristics sought by investors. It provides for preservation of capital, low volatility and an opportunity to generate significant levels of income, all of which appeal enormously to investors. Furthermore, the diminishing supply of productive assets is contributing to a rise in base value of agricultural land. Opportunities for investment are present across the agriculture supply chain in both developed and emerging economies.

A wide spectrum of investors has earmarked the agricultural sector as an area of interest. Large scale financial institutions, hedge funds and real estate investment trusts, as well as private and public companies, have been pursuing farm ownership and management strategies. The sector’s income generation and capital appreciation prospects will continue to fuel activity. By entering the sector at various points in the value chain, investors can bestow a net positive effect. Good governance at the national and local level is critical if investors and small scale producers are to cooperate and meet the rising global demand for food.