Can we turn a “good news, bad news” story into one that’s good for all?
The last few years have not been kind to farmers and producers. We’ve seen seven years of low commodity prices, damaging trade wars, the usual vagaries of weather and then a global pandemic. COVID-19 impacts alone included crops wasted and destroyed for collapse of markets, compounded by food safety challenges and supply chain fragility.
But that’s all changed. The indicators, some sprouting as early as last autumn, look like harbingers of a turning tide, not just a momentary flash. Take a look at any of the 20-year price charts for corn, soy and other crops – all show a steady rise in demand, as well as production, coming off a six-year run of low prices.
Those rising commodity prices are sending cash into the pockets of farmers and producers, their upstream suppliers and downstream processors. The Federal Reserve regional banks in Kansas City, Chicago and Minneapolis have noted farm economy is in its best shape in years, poised to remain strong with “further growth in farm incomes and spending.” As additional proof, there are reports that ag exports to China may hit a new record high of $31.5 billion in 2021 keeping demand – and prices – high.
The surge has already proven strong enough to set off an influx of new spending in certain sectors of agriculture, as farmers suddenly get a chance to imagine spending on farm equipment (sending Deere & Co. profits soaring) or basic inputs, like fertilizers, which have also jumped markedly in price. Farmers may have the flexibility to experiment with new technology, perhaps into green ag tech, animal health and food tech innovations. That willingness to trial new solutions can fuel stronger interest in ag tech and ag- and animal health-biotech innovations.
That’s the “good news” part of the story. But we can’t lose sight of the “bad news” part – the same demand and rising prices also translates to food inflation, higher food prices and more food insecurity for vulnerable and hungry among us on this planet.
Feeding the Hungry
The population of the hungry includes working-class families in the United States for whom inflation brings only a higher food bill. It also includes entire communities – urban and rural – that live in food deserts and the 30 million unemployed. Feeding America estimates 50 million people in the U.S. face hunger, up from 35 million in 2019. Tragically, 17 million of the hungry are children.
We also can’t lose sight of the urgent challenge of feeding humans in developing nations, where even worse pain is evident.
The most recent Food Price Index, published by the World Food and Agriculture Organization of the United Nations, shows the rise in food prices. The Index tracks the monthly change in international prices of a basket of food commodities. The January 2021 Index marked the eighth consecutive month of rising prices as well as the highest single monthly average since July 2014.
The World Food Program of the United Nations expects demand to exceed 138 million people, more than ever in its 60-year history of delivering lifesaving food assistance, according to The Washington Post. This comes as the agency faces major funding shortfalls, too.
What is our response? Corporate America appears to be at an inflection point, based on the COVID-19 impact and the rise of calls for social justice, care for the vulnerable, and environmental sustainability. Those environmental, social and governance (ESG) statements originally crafted by marketers may be actually taking hold in operational business models in response to consumer demand and opportunity in a post-pandemic world. The recent Chobani Child Hunger Summit, which convened USDA representatives, national elected officials, international hunger relief agencies, foundations and more, is a good example of a tangible effort to drive social change using corporate influence. (Not to be naïve about it: there are plenty of other examples of corporations not walking the talk.)
In ag tech, we’re at a point where traditional corporate interests (new products or markets, better margins) easily align with stakeholder and consumer interests – avoiding antibiotics in foods, using fewer chemicals in crops, treating animals better, reducing food waste and generally, providing healthy options for people. ESG investors, including family offices influenced by millennials, are seeking investment options that deliver both environmental and corporate sustainability.
From a Big Ag perspective, now that the dust has settled from the last several years of major M&A shakeups (looking at you, Corteva, Bayer, Elanco and others), there’s an opportunity to focus outward at new research and innovation. That’s good news for startup innovators and academic researchers with technology that could be market changing. We think there will be an influx of new M&A activity at the end of this year and into future years as this new ag cycle takes hold.
About those market-changing technologies: Many are focused on truly cost-effective solutions. Case in point: trace microbial additives – an ounce to the acre – are delivering improved yields and often reducing expense on traditional chemical use. Examples include Sound Agriculture’s SOURCE product that unlock nutrients in the soil, both to improve plant yield and reduce the need for nitrogen fertilizers. (Disclosure: TechAccel is an investor and collaborator with Sound Agriculture and is working on other microbial solutions.) Novel epigenetic enhancements, also developed by companies like Sound Agriculture, allow crops to unlock yield improvement, stress tolerance, and improved traits in a non-transgenic (non-GMO) fashion. Though perhaps not at the heart of some ESG topics, continuing to get more out of a crop with no added resource requirements is core to our challenge.
Other examples include the promising development in RNAi, which I’ve discussed in an earlier article. New manufacturing processes are delivering double-stranded RNA for $1/gram, down from the thousands of dollars a gram of just a few years ago. There’s investment opportunity in systems to manage, track and transport foods; bio-based food coatings and sealants to avoid waste; and new technologies for repurposing and processing agricultural by-products. One more might be the rising attractiveness of carbon capture. With increasing incentives for using soil to offset greenhouse gas emissions, there’s suddenly economic drivers to carbon sinks (maybe) – while also protecting soil as a resource.
The influx of cash into agriculture, therefore, can be channeled for both positive results and addressing the critical challenge of feeding our people. It’s up to us to make our investments and actions produce change for people in need.