Vertical and precision farming in focus but what does it mean for investors?

This global challenge opens up room for innovation and thus delivers the potential for promising investment opportunities for the future.

Due to the fact that people, especially in developed countries, are starting to become increasingly aware about the impact their food has on their body and the environment, as well as on animals, products like alternative meat and alternative dairy have gained a lot of traction in recent years.

We believe that this growth is going to continue in the near future and that alternative meats and dairy products will become a considerable part of people’s diets.

However, it is important to note that these are still premium products for now and sell at considerably higher prices than their animal-based counterparts.

No matter how much eating habits change in the future, food will still have to be grown differently. It will have to be produced in larger quantities, contain more nutritional value, while reducing the input factors needed. One of the recent innovations that can help in trying to resolve this seemingly impossible mission is vertical farming.

Instead of growing crops horizontally on huge fields or in large greenhouses, they are vertically stacked on shelves placed in structures like skyscrapers, shipping containers, or warehouses. This way of growing food has several advantages that will make it an important part of future food production. It is able to grow more crops, with less water, in less space, and without the use of pesticides.

However, there are some downsides that limit the growth potential notably. Vertical farms are very energy and cost intensive, and the crop variability is still quite low, as mostly leafy vegetables or herbs are grown vertically.

Precision farming allows farmers to maximise productivity, quality and yield by ensuring the efficiency of input factors such as water or chemicals and by minimising the risks for pests, flooding and diseases. We believe that the agriculture market shows great potential for a digital revolution that could help the world to better feed its population in the future.

At the heart of precision farming lies the idea of combining information technology and hardware to improve a farmer’s decision-making by using digital techniques to monitor and optimise production processes.

We see precision farming as evolutionary rather than revolutionary. It will be able to reduce resource intensity significantly, making agriculture more efficient and soils more productive.

Food waste or genetically modified organisms are also part of the current discussion around the subject of feeding the world in a more sustainable fashion. By reading or hearing about the current trends in this area, one might get the impression that if we switch our consumption away from animal-based food, build innovative vertical farms, make traditional agriculture more efficient, or even engineer the perfect crops, and reduce our food waste, hunger and malnourishment could be eliminated in no time.

Unfortunately, this is not the case. The innovations and improvements described are mostly driven by trends in the developed world, while the highest prevalence of undernourishment occurs in developing low-income countries.

We therefore believe that there is a discrepancy between what is perceived to be important in feeding the world and what actually is. Weak institutions, conflicts, and corruption, a lack of infrastructure, as well as limited access to water are still prevailing and prevent affordable access to food.

From an investors’ point of view, we believe that segments such as AgTech and FoodTech will remain niches for now, often dominated by smaller and start-up style companies that have not yet reached profitability. Often they are entering into competition with much bigger and much more established food companies which have much more financial firepower.

Due to the niche nature of the segment and the fast-paced environment, investment opportunities may not only arise in public markets but private markets as well.

Carsten Menke and Nicolas Jordan, Next Generation Research, Bank Julius Baer