Food Security: COVID-19 To Catalyze The Investment Thematic

Summary

• The world is not on track to achieve Zero Hunger by 2030.
• The current pandemic to add between 83 and 132 million people to the total number of undernourished in the world.
• The business, scientific and investment communities have a big role to play in enabling agriculture to produce food, feed and fiber more productively and sustainably.
• How should the investment community position itself? By taking an exposures to both enablers and structural winners of the trend.

While the COVID’s economic and social consequences are beginning to be better understood, there are also less knowns consequences such as worsening malnutrition and damages to an already paltry global food chain. According to FAO (UN Food and Agriculture Organization), nearly 2 billion people or circa one in every four human beings didn’t have regular and sufficient access to nutrition in 2019 and nearly 750 million or one in ten people suffered from severe food shortage in the same year.

In 2020, with disrupted food supply chain and loss of income for households relying on agriculture globally are likely to make the situation worse. What’s more, the locust outbreak in Africa and the Indian sub-continent has hit food baskets significantly hard, sending a large portion of the global-south further down the poverty line.

FAO’s latest ‘The State of Food Security and Nutrition in the World 2020’ is a perfect refresher to the global food security situation. It is also quite telling of some of the consequences of the COVID. It concludes that the world is not on track to achieve Zero Hunger by 2030, and in fact the recent trends point at the number of people affected by severe hunger to surpass 840 million by 2030. They estimate the current pandemic to add between 83 and 132 million people to the total number of undernourished in the world in 2020 depending on the economic growth scenario.

The FAO quite rightly calls for urgent and unprecedentedly strong policy response. In my opinion, the most important policy response will have to be a diplomatic one that could bring about a reversal in trade volumes decline in agricultural goods that we have seen in the past decade. The other equally important response will be to channel significant investments in improving food supply chains and shoring up innovation in the sector.

The business, scientific and investment communities have a big role to play in enabling agriculture to produce food, feed and fiber more sustainably and for a much larger population to feed in the coming decades. As such there is a huge opportunity of generating sizeable synergies across sectors including Industrials, Technology, Consumer Staples and Utilities etc.

How should the investment community position itself?

Over the medium term, I see 5 main areas of opportunity for global investors, with suggested exposures to both enablers and structural winners of the trend.

Industrial assets - with a focus on automation, smart equipment (precision, measurements, imagery, and monitoring) and animal technology. Example exposure: Deere, Caterpillar, Kubota, Lindsay and Raven Industries etc.

Logistics and supply chain – with a focus on reducing food waste in supply chains, storage facilities, transportation, packaging, and recycling etc. Example exposure: Amazon, Union Pacific and JB Hunt etc.

Food Innovation – with a focus on addressing calories deficit (meat substitutes, lab-grown meat) and more efficient use of land resources. Example exposure: Bunge, Bayer, Nutrien Ltd, Fresh Del Monte Produce Inc. and Israel Chemical etc.

Big data, analytics and IoT – with a focus on enabling tech such as vertical farming solutions, Agri-input market platforms to provide better market linkages, and developing efficient farming as service (digital payments and on demand harvesting etc.). Example exposure: Microsoft, Oracle, Alphabet and Nvidia etc.

Water Resource Management – with a focus on new methods of irrigation (use of sprinklers vs. flooding and drip irrigation etc.), efficient drainage, and water recycling etc. Example exposure: Advanced Drainage Systems