An Investor’s Guide to AgTech and Food Innovation
The global food system is under immense pressure due to three broad trends:
- population growth
This naturally leads to an increased demand for food. By 2060, the United Nations expects the global population to reach 10 billion people. - Limited potential of existing agriculture
The existing methods of farming are very resource intensive and production has already been pushed to the brink. The United Nations estimates that by 2050 food production will need to increase by 70%. - sustainable consumption
The world is consuming a constant amount of food especially in the case of meat. While livestock accounts for 80% of agricultural land, it supplies just 18% of the global caloric supply.
As these trends collide, agricultural technology (agtech) and food innovation are emerging as two possible solutions. This infographic from the Global X ETF will explain both.
AgTech. major topics of
AgTech is the use of technology to maximize crop yields while conserving water and land. Here is a quick rundown of its sections.
Precision Agriculture
Precision agriculture is the integration of artificial intelligence (AI) and Internet of Things (IoT) into traditional farming practices. These technologies can provide farmers with more data, which can be used to increase efficiency.
One example is the John Deere Sea & Spray Machine, which uses various sensors to detect where weeds are. By spraying weeds alone, farmers can reduce their herbicide use by up to 77 percent.
Robotics and Automation
Robotics and automation aim to reduce the amount of manual labor required in agriculture. This multi-billion dollar market includes autonomous berry pickers, which demonstrate 60% higher productivity than humans.
Drones can also play a role, especially in areas where water is scarce. For example, farmers in California are investing in drones that monitor fields for leaks and other issues. They claim that this technology reduces their water input by more than 40%.
Controlled Environment Agriculture (CEA)
CEA is the cultivation of plants in an indoor setting. This market is still in its infancy, but the ability to grow food almost anywhere, all year round, could change the playing field for agriculture.
One of the most prominent CEA methods is hydroponics, where plants are cultivated in a nutrient-rich water-based solution instead of soil. Hydroponics can ease many of the world’s agricultural problems:
| Issue | Hydroponics Benefits |
|---|---|
| food insecurity | A constant stream of nutrients means that crops have 7 to 14 more growth cycles than conventional methods. |
| insufficiency of water | Hydroponics systems use recirculated water, which means that plants grow in up to 90% less water. |
| land degradation | Hydroponics systems can be stacked vertically, meaning farmers can grow 3 to 10 times more food in the same space as traditional farms. |
Source: Princeton University
With increasing pressure on the global food system, achieving long-term sustainability will require innovative disruption. AgTech solutions can certainly increase the output, but what can be done on the consumption side?
food innovation
Food innovation refers to plant-based foods and other alternatives such as laboratory-grown meat. Given the vast scale (and carbon footprint) of the meat and dairy industry, these innovations could yield environmental benefits.
In terms of market share, alternative foods still have a long way to go. The following table lists global meat and dairy sales by category in 2020.
| Market | traditional option | alternative option | optional part of the total |
|---|---|---|---|
| Meat | $1.4 trillion | $6 billion | 0.43% |
| dairy | $574 billion | $18 billion | 3.14% |
Source: Global X ETF
Given that 80% of Americans have bought or are ready to purchase alternative meat products in the future, investors may view the sector as an attractive growth opportunity.
As for the outlook ahead, some analysts believe that by 2040, cultured meat (lab-grown meat) will account for 35% of the global market.
Introducing the Global X Agtech and Food Innovation ETF
Global X Agtech & Food Innovation ETF (Ticker: KROP) strives to provide investment results that are generally consistent with price and yield performance, prior to fees and expenses, Selective Agtech and Food Innovation Index,
| Area | index weight |
|---|---|
| consumer staples | 44.8% |
| Material | 37.3% |
| industrial- | 11.6% |
| Healthcare | 4.1% |
| consumer discretionary | 2.1% |
As of 01/31/2022
Investors can use this passively managed solution to gain exposure to innovation in the agriculture and food industries.
