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How will population growth and more westernised diets affect demand for meat products?

The agricultural industry is facing higher demand for products and tighter environmental legislation. This backdrop presents excellent opportunities for Agtech companies.

20 February 2020, at 10:00am

Global population growth is forecast to increase by 10 percent over the next decade according to the Food and Agriculture Organization (FAO), part of the United Nations, which will drive a significant rise in the demand for food. This trend, combined with rising affluence in developing markets, is resulting in a shift towards a greater consumption of meat and dairy products. This will lead to an increase in agricultural output used for feed, likely to prompt a steep growth in the demand for agricultural products. However, in trying to meet this rising demand, the agricultural industry is facing tighter environmental legislation. This backdrop presents excellent opportunities for Agtech companies, to help the agricultural industry address the growing global imbalance between population growth and the need to significantly increase food production with minimum adverse impact on the environment.

These are the key findings of the latest report from Edison Group: AgTech: Feeding a growing global population.

Population dynamics drive consumption and demand

Population increase is the most significant factor behind the projected growth in the consumption of agricultural commodities. According to the 2019 World Population Prospect, it is estimated the world’s population will increase by 10 percent over the next decade, reaching roughly 8.5bn in 2030, 9.7bn in 2050 and 10.9bn in 2100. More than half of this growth up to 2050 is expected to be in just nine countries: the Democratic Republic of Congo, Egypt, Ethiopia, India, Indonesia, Nigeria, Pakistan, Tanzania and the US. Rises in the amount of people with higher disposable incomes has been shown to lead to a change in diet, which includes greater meat and dairy consumption, which in turn will put further demands on crop output.

Tighter environmental legislation expected

Over the past 70 years, farmers have increased yields in a number of ways, including applying synthetic fertiliser and a range of toxic substances to their land. Similarly, some livestock farmers have boosted animal growth by administering antibiotics. Neither of these approaches are in accord with the global trend for more sustainable farming.

These practices, have caused an increase in legislation to reduce the use of fertiliser, certain pesticides and antibiotics. For farmers, it means they need to find alternative techniques to improve yield. In addition, legislation has a significant impact on the proportion of agricultural output diverted to biofuel production. While legislators seeking to reduce carbon dioxide and methane emissions are currently focused on the transportation and power industries, agriculture and related industries account for around a quarter of global emissions. At the current rate, emissions are expected to grow by 0.5 percent each year over the coming decade. Therefore, further restrictions targeted at the agriculture sector seem likely in the near future.

Diversity of Agtech solutions

In response to this dilemma, there is a wide range of technologies that are beginning to be deployed to address both the increasing demand and legislative challenges. Some such as vertical farming, are specific to the agricultural sector. Others, are successful adaptations of already proven technologies from other applications such as using biotechnology to improve yield or enhance resistance to drought or pathogens, deploying connected devices to support precision farming, adding AI to interpret the data or using advanced robotic systems for performing traditional farming tasks.

How to play the AgTech opportunity

There are currently relatively few pure-play listed companies. Startups with successful technology tend to be acquired by larger, more diversified companies rather than seeking an IPO. Listed companies which have incorporated Agtech capabilities to enhance their existing portfolios are, as a result, more common. The report profiles both these pure play stocks and more traditional agricultural supply stocks with an Agtech offer as well as companies whose technology can be used in many sectors as well as Agtech and come with a lower risk.

Anne Margaret Crow, Director at Edison Group and co-author of the report, said: “We see Agtech as a key enabler for farmers across the world. It allows them to increase their output in response to the growing global population and a shift to westernised diets while simultaneously addressing environmental concerns, whether those be cutting carbon emissions from livestock, reducing nitrate run-off or saving bees from extinction. This definitely makes the sector one to watch, with interesting opportunities in both pure play Agtech and more diversified stocks.”

Dan Gardiner, Director at Edison Group and co-author of the report, said: “Agtech companies are taking existing technology such as Internet of Things connected devices, AI and robotics and adapting these to provide solutions to the challenges faced by today’s farmers. In addition to a review of the market dynamics, this report profiles companies that are at the forefront of innovation in this sector and considers the critical role they are likely to play in the transformation of the agricultural industry.”

Read the full article published by Edison Group.