Opportunities abound in feeding the world, from farmland to irrigation to processing crops to boosting the nutritional content of basic foods.
The outline of the story rests on a couple of estimates: a 30% increase in world population by 2050, which would necessitate a 70% increase in food production. Even if those numbers turn out to be only close-to-right, they provide a reliable base to build on, investment-wise.
Although this story is a long-term one, there are a few things happening right now that make opportunities in agriculture more urgent. On this topic, my friend Brad Farquhar at Assiniboia Capital in Regina, Saskatchewan, sent me a couple of interesting things over the weekend.
Assiniboia Capital manages the largest farmland fund in Canada. As such, Brad is a great source of insight on agricultural markets. I've quoted him many times over the years.
Anyway, Brad sent over a newsletter called the Global AgInvesting Quarterly. The letter's main story is on drought and how it will impact harvests this year. The US just had the worst drought in 50 years. Citing the US Drought Monitor, at the end of August, GAI Quarterly notes:
- 53% of the US was in moderate drought or worse.
- 65% of US farms were in areas of drought.
- 70% of crop and livestock production were in areas of moderate or worse drought.
As a result of these severe drought conditions, the USDA recently cut harvest forecasts for corn and soybeans by 25% and 18%, respectively.
But it is not just the US that Old Man Drought has drained dry. Russia, India and the EU are all struggling with dry weather as well. The GAI points out that drought in Russia will slash this year's wheat harvest by one quarter, while drought in Southern Europe will reduce the corn and soy crops in Serbia and Bosnia by at least 50%.
In India, this year's dry monsoon season has reduced the nation's rise crop by 6%, compared to last year. GAI Quarterly speculates, with evidence both anecdotal and empirical, that we'll see more dry weather in the US Corn Belt - a continuation of a near- term trend.
Meanwhile, the blistering heat that has been a bane to US agriculture has been a boon to Canadian agriculture. Warm weather across the Canadian Prairies has created more prime farming acreage. Brad reports on successful corn and soybean plantings for the first time in Saskatchewan. Brazil is another area that has escaped drought with expected record corn and soybean production.
Dealing with drought means more opportunity for irrigation.
Pulses have much to recommend them. In a world where water is a constraint, it takes much less water to produce a pound of pulses than other foods.
Take a look at how many gallons of water we use to produce the following foods:
- 1,857 gallons/lb of beef
- 756 gallons/lb of pork
- 469 gallons/lb of chicken
- 368 gallons/lb of peanuts
- 216 gallons/lb of soybeans
- 43 gallons/lb of pulses
Pulses, as you see, use the least amount of water. They are also high in protein and fiber, nutrient dense, low fat, gluten free and non-GMO. Pulses also make their own fertilizer by fixing the nitrogen in the soil and require half the nonrenewable energy to produce, compared to crops like wheat. Growing pulses, therefore, also lowers carbon emissions.
Food producers are starting to appreciate these things.
Food companies are now making flour with pulses and mixing it to make not only pastas, but baked goods, snack foods and other packaged goods. Doing this allows them to boost the nutritional content of many foods. Look closely at the photo below, for example, especially the ingredients.
New Barilla Pasta
Yes, "legume flour blend" - you'll see more of this, I guarantee it. And once one food producer like Barilla does it, they'll all follow suit. After all, they can't let a competitor make all those claims about their healthy pasta, while they stick to old-fashioned wheat flour!
Already, a number of food companies have declared ambitious goals: PepsiCo wants to reduce its water use in five years. Heinz wants to reduce carbon emissions by 20% by 2015. Wal-Mart, Carrefour, Tesco and others are all tracking things like water use and carbon emissions. Products that can help them meet those goals - like pulses - will get more attention.
So this is an exciting story.
But the new emphasis on pulses as a food ingredient, and a water-efficient, protein-rich crop, opens up new markets in Europe, the US and China.
for The Daily Reckoning Australia