This is part of the Cowen Sustainability Series in which we discuss a variety of topics and delve into the vision of a more sustainable future. You can read more here.
Today’s agriculture system is using more and giving less.
…Society needs to find a new way of doing things…Cowen Equity Research
At the intersection of nature and advanced technologies lies the solution to some of the most pressing sustainability challenges on the planet today: how to feed a growing global population, improve food security, and conserve soil and water. AgTech targets these challenges with innovative products and solutions that, when taken together, become a comprehensive answer to a highly complex problem.
The numbers tell an urgent story. According to the United Nations, about 50% more food will need to be produced by 2050 to feed an estimated 9.8 billion people worldwide. Today, undernourishment and food insecurity impact nearly 690 million people, or 8.9% of the world’s population—and the numbers keep rising, potentially surpassing 840 million by 2030. Compounding the problem, the UN has also estimated that, given the current rate of lost arable soil, the world’s fertile land could be gone in 60 years.
The problems stem from an expanding population with a growing appetite for food. Over the past 50 years, intensive farming has accelerated the use of land and fresh water. Emissions related to agriculture also have been on the rise, contributing to climate change and climate variability. In turn, more droughts and extreme weather hurt agriculture production and threaten food security. The solutions that have been in place for the past 100 years—industrial farming, deforestation, pesticides, fertilizers, and GMOs—clearly need to be retooled.
Enter AgTech. Innovations in hardware and software, as well as artificial intelligence, could transform agriculture to become more productive—and sustainable. Improvements in growing, harvesting, processing, and distributing food could lead to measurable gains in nutrition and reductions in food waste and packaging. AgTech can combat climate change and improve the environment, including through climate-smart soil technology to sequester carbon and reduce greenhouse gases. Agriculture currently accounts for about 10% of U.S. greenhouse gas emissions. With healthy soil, grasslands and diverse cover crops can sequester carbon, becoming a “carbon sink” to reduce greenhouse gases in the atmosphere and contribute to the ultimate goal of “drawdown”—the point at which greenhouse gas concentrations start to decline steadily and abate climate change.
The Netflix documentary “Kiss the Ground,” narrated by Woody Harrelson, is a fantastic peek into regenerative agriculture techniques that are focused on sequestering carbon and revitalizing soil health. The film sheds light on the environmental impact of entrenched farming practices and offers insight into alternatives that have remarkable results.
Disruptive companies in the ag sector also can contribute to social equity as more people have access to fresh and nutritious food. In fact, deployment of AgTech can help achieve several of the UN Sustainable Development Goals for the planet, including zero hunger, poverty reduction, good health and wellbeing, and climate action.
Below is an overview of some of the challenges and solutions being targeted by AgTech for a greener, healthier, and more sustainable planet.
- AgTech is not one solution, but rather spans a number of applications from making existing farms more productive and environmentally friendly to growing food in smaller spaces, such as vertical indoor farms in urban environments as well as very large farms under glass. In addition, technologies for more precision, higher yields and less waste will improve production, distribution and food safety. Overall, the opportunity is significant. As Cowen’s Research team observes, “The proportion of this societal challenge is so large that we do not see this as a winner take all scenario and see success being determined by ability to execute project development on a grand scale and access to capital.”
- Climate-smart soil technology and other AgTech solutions offer investment opportunities to participate in the growth of disruptive companies in this sector. According to a recent report from the U.S. Farmers and Ranchers in Action (USFRA), approximately $972 billion in capital flows annually into agriculture from institutional, retail, and government investors. “Agricultural capital and outside investments can be better aligned to scale adoption of climate-smart practices, and blended capital is a key enabler,” USFRA states. It further calls for “action steps to leverage technology and finance innovation to accelerate and scale adoption of climate-smart agriculture in the U.S.”
- Looking at food sourcing today, about 32% of fruits and vegetables (including about 80% of tomatoes) are imported into the U.S., largely from Mexico. Replacing these imports with domestically grown crops will reduce the environmental impact from transportation, while increasing food security and improving the shelf life of fresh produce. This, in turn, will help bolster the diets of 9 out of 10 Americans who have insufficient access to fresh fruits and vegetables.
- Among the latest AgTech innovators is Kentucky-based AppHarvest, which is rolling out Controlled Environment Agriculture (CEA) facilities in Appalachia. The company plans to build 12 greenhouses to produce vine crops and leafy greens by 2025. According to Cowen Research, the giant greenhouses are 30-times more efficient than open field growth, with a cost structure that allows them to compete with imported fruits and vegetables from Mexico. For example, AppHarvest’s Morehead, Kentucky, tomato facility uses about 90% less water than open field growth and will produce about 30-times more yield in a 60-acre greenhouse relative to about 1,500 acres of open fields. In addition, these indoor farms are being developed in Central Appalachia, a region in need of capital investment and technology to create well-paying jobs.
- Advancements in automation and science have also benefited vertical indoor farming, a segment of CEA that has captured much of the attention in AgTech over the past few decades. This technology involves growing crops indoors under LED lighting in “layers” that are stacked vertically for efficiency and water conservation. Innovators in the vertical, indoor farming include AeroFarms, Bowery Farms, Fifth Season, Gotham Greens and Plenty.
- Sustainability in agriculture is also targeting the center of the plate, particularly with plant-based proteins that could see a 7.2% compound annual growth rate through 2026. Plant-based meat alternatives are being served up to health-conscious consumers who also have an appetite for “greener” products (the livestock industry reportedly accounts for about 18% of global greenhouse gas emissions). Greater consumer acceptance can transform diets within developed countries; consuming less meat and more plant-based proteins will reduce the land needed for livestock operations and help curtail greenhouse gas emissions. Innovators in this space include Beyond Meat and Impossible Foods, both of which offer products in retail as well as through food service. Another innovator is Memphis Meats, which grows meat products from cells (not animals).
- Hand-in-hand with more sustainable foods is greater sustainability in food packaging, which has been described as one of the biggest issues in the food and beverage industry. Sustainable packaging includes materials and products that are recyclable, reusable, biodegradable and compostable, and/or that are made from renewable resources.
- Reducing food waste is another important part of sustainability. Currently, about 30% of food produced globally is lost after harvest. According to Project Drawdown, a nonprofit dedicated to countering climate change, eliminating food waste will reduce resource demands and mitigate the environmental impact related to that lost production. In developing nations, food waste often occurs because of broken or insufficient food chains. In developed countries, the rejection of less-than-perfect products contributes to food waste. Consumer sustainability can address the latter problem; for example, retailer Imperfect Foods finds a “home” for imperfect or “ugly” fruits and vegetables that cannot be sold to grocery stores.
- Finally, rather than delineate issues as urban vs. rural, or farming vs. the environment, the entire food system needs to work together. According to Cowen Research, this includes agriculture and food being combined in the political agenda. In fact, agriculture can be linked to health, infrastructure, and finance policy as part of a push toward greater sustainable development.
Hunger, nutrition, health, climate change, social equity — these marquee issues come together in one of the most basic human needs: food. For a more sustainable planet, agriculture must continue to transform itself to become greener and more sustainable. AgTech currently in place and on the horizon offers myriad solutions with the potential for feeding—and preserving—the planet.
Certain companies mentioned in this article are clients of Cowen. Cowen will receive compensation for services rendered.
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