Food Scarcity Despair Creates a Need for Investment

Global Pressures Reshaping Agriculture

Agriculture is still in its infancy as an investment sector. Although it accounts for 4.1 percent of all global economic activity, many investors are either ignoring or overlooking its longer-term potential.

Overcoming the Challenges of a Growing Population

The world is trying to feed more people with less arable land per capita. The global population is growing by about 70 million people per year, which is almost the same as Germany’s population and the average person eats nearly a ton of food per year. The United Nations predicts global food production will need to increase by 70% to meet global demand by the year 2050.

Meanwhile, arable land has decreased by a third due to urbanization, water scarcity, and pollution. Today, most available arable land is only marginally productive because of overfarming. The land doesn’t have enough nutrients to sustain plant growth. Other available arable lands are too far from infrastructure and expensive to bring online.

To overcome these hurdles, major innovation must be made.To that end, experts in the industry offer two solutions:

• Advanced biotechnology
• Implementing successful farming techniques in developing countries

With respect to advanced biotechnologies, global opposition to genetically modified organisms (GMOs) remains strong despite wide sweeping expert support. Many regions severely affected by hunger, including parts of Africa, impose strict regulations on GMO use due to public safety concerns. While these concerns persist, proponents highlight GMOs’ ability to improve crop yields, resist pests and diseases, and adapt to challenging environmental conditions. The World Health Organization (WHO) advocates assessing the safety of individual GMO products on a case-by-case basis, acknowledging both their potential and the public’s apprehensions.

Moreover, the effort to implement targeted farming response to land scarcity is an ongoing one. The scarcity of arable land poses a major challenge to global food production. Ecological issues like soil degradation, combined with urbanization and political barriers, often render fertile land inaccessible or prohibitively expensive to develop. To overcome this, organizations focused on reducing poverty have proposed investing in small-scale farming as an alternative to acquiring large-scale farmland. By empowering local farmers with tools, training, and access to resources, this approach offers a way to increase food production while avoiding the complications of securing vast tracts of arable land. Small-scale farming also helps restore degraded areas and fosters community-driven agricultural solutions.

Growing Global Middle Class Demands More Meat

According to the Brookings Institution, the global middle class,  which in 2024 consisted of 4 billion people, will continue to grow by 110 to 115 million annually, with Asia  being responsible for most of this growth.

As families move into the middle class, they can afford more food and seek out protein-dense food like meat due to their nutritional value.

Unfortunately, meat is one of the most resource-intensive processes in agriculture, particularly for protein-dense foods like beef. To add a single pound of beef to a conventionally-raised cow, it requires approximately seven pounds of grain. This inefficiency extends beyond grain usage—it also significantly impacts land and water resources. For example, the grains grown to feed livestock account for nearly 70% of all grain produced in the United States, highlighting the immense resource demands of animal agriculture.

This cycle of feeding crops to animals rather than directly to humans places a heavy burden on agricultural systems already strained by limited arable land and water scarcity. Compounding the issue, raising livestock produces substantial amounts of greenhouse gas emissions, including methane from enteric fermentation and nitrous oxide from manure management. Together, these factors make the production of animal protein a key driver of agricultural resource consumption and environmental impact.

The Water Crisis Threatens the Food Supply

Water scarcity directly affects food scarcity. Agriculture and water are inseparable. Today, 70% of freshwater is used for farming. According to the UN, about half of the world’s population is affected by severe water scarcity for part of the year, with many more at risk. Already, two billion people lack access to safe drinking water.

Biofuels Add to the Problem

Ethanol now accounts for about 10% of the fuel in our cars. However, its production diverts significant amounts of corn away from human and animal consumption, driving up the price of this essential commodity. Increased interest in and production of biofuels has also heightened demand for all grain-based products and feedstock commodities.

Many countries have implemented biofuel and ethanol mandates to reduce reliance on fossil fuels and promote renewable energy. While these initiatives aim to address climate change, they have also created unintended consequences. The push for biofuels intensifies competition for arable land and water, resources that are already limited and critical for food production. This competition has the potential to exacerbate food price inflation and contribute to future food scarcity, especially as political support for biofuel production continues to grow.

Investing in Agriculture

Agriculture is not the most investor-friendly sector, but there are a few ways to participate. Agricultural investments generally fall into one of three categories:

• Land ownership
  • Farmland ownership or leasing is one of the most straightforward ways to gain exposure to the agriculture sector. Farmland has shown steady appreciation over the years and is often viewed as a hedge against inflation. Investors can generate returns through lease income or by participating in the production of high-value crops. Regions with water access, fertile soil, and strong infrastructure offer the best potential for returns.
    • Regenerative Agriculture: Farmland dedicated to sustainable practices, such as regenerative agriculture, is increasingly valuable. Consumers are demanding organic and sustainably grown products, and farmland that supports these methods can command higher rents or sale prices.
    • Agri-Tourism: In some areas, farmland owners are exploring secondary income sources through activities like farm stays, events, and local markets.
• Production
  • The production category includes farming operations, agricultural inputs, and the technology that supports efficient and sustainable production. With global food demand rising, production-focused investments can capitalize on the need to grow more food with fewer resources.
    • Precision agriculture technologies like drones, soil sensors, and AI-driven crop management systems are improving yields while reducing costs. Companies developing these technologies or implementing them on a large scale present a compelling investment opportunity.
    • Vertical farming and hydroponics are disrupting traditional farming methods. These systems require less water and land, offering a sustainable solution to urban and resource-constrained regions.
    • Investments in seed technology and genetic engineering, despite controversy in some regions, remain lucrative. Advanced seed varieties that resist pests, tolerate drought, and require fewer inputs are in high demand globally.
    • As consumers seek plant-based and lab-grown meat alternatives, production investments in this category are growing rapidly. Companies developing scalable and cost-effective solutions for alternative proteins offer high-growth potential.
• Post-production
  • The post-production segment includes grain processors, marketing services, and food branding. These businesses often operate with higher margins and are less susceptible to the volatility of raw agricultural commodity prices.
    • Branding and processing agricultural products into premium goods offer substantial returns. For instance, organic food brands, specialty grains, and artisanal products have a loyal and growing consumer base.
    • Investing in companies that modernize the agricultural supply chain can lead to significant gains. Cold storage, blockchain-based traceability, and automated logistics are transforming how food moves from farms to consumers.

Ownership, or farmland leasing, is a primary type of exposure to the sector. The production category includes management services and investing in agricultural inputs and equipment. Post-production businesses include grain processors, marketing, and retail branding.

Within those three categories, investors should look for the following:

• Unique business models — Most farmers have less than a 4% profit margin. This leaves little room for investors to make money. Agricultural businesses must offer innovative ways to produce higher margins.
• High-margin assets — Potash and phosphate deposits offer attractive returns if proven to be economic-mining operations. Attractive attributes include high-deposit grades, low all-in-sustaining costs, and easy access to infrastructure. Why potash and phosphate? Because both provide primary macronutrients needed for industrial fertilizers.
• Compelling valuations — Good businesses can still be poor investments. Use specific methods, like net present value models, to objectively value the business’s future cash flows and factor in a margin of safety.
• Favorable return potential for inherent risk — Seek to take a suitable risk for the corresponding stage, size, and potential future rate of return on the investment.

The world needs more resource-intensive food using less water for more people. This potential crisis presents an opportunity for investors willing to fund solutions.

We think you’ll also like:

1. Investing in Raw Land: This Land Was Made For You and Me
2. Dissecting the Debate Surrounding GMOs
3. What Kinds of Green Investments Contribute to the Green Economy?

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Why Green Investing?
2. Dialogue on the Overall Due Diligence
3. Tech Talk: Current Opportunities for Investing

This article was originally published in November 2018 and updated on April 16, 2021. This article was most recently updated by the Financial Poise Editors.]

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