A further slowing in growth
The looming generational change in agriculture will bring many development opportunities for the sector.
Plant-based meat will provide a great opportunity for investors to meet growing demand for protein across the globe, but the agricultural sector will need to evolve to benefit, according to insights from the recent KangaNews-NAB Fixed Income Beyond the Institutional Sector Summit in Sydney.
In session titled Food: what will we eat and where will it come from? investors heard that the looming generational change in agriculture will bring many development opportunities for the sector.
Farmers in their sixties and seventies have tended to operate their properties fairly conservatively. At the same time, the next generation is not returning to the land to operate the farms in many cases.
Together, this opens the way for investors to come into the sector and drive its further development.
Foreign investors who are familiar with Australia thanks to its mining sector are well attuned to these opportunities. “If you’re already invested from North America for instance, looking at this market, what they see is this massive underdeveloped farming resource with a few holes in the ground that we take some bits out of and we export,” the fund manager said.
“There’s a level of sophistication going to come into this that provides lots of opportunities for people to get exposure to it who never had exposure previously.”
Another area of interest for investors is the development of plant-based meat to meet growing global demand for protein. Additionally, middle class consumers are better informed than ever and are seeking alternatives from clean, safe sustainable production.
While US-based Impossible Foods has attracted a huge amount of attention for its Impossible Burger, Australia is also making great strides in artificial meat. The CSIRO is in a relationship with fast food chain Hungry Jacks to develop a local vegetable burger. The panel heard it has taken the government research body six months to come up with something that took half a billion dollars and five years in the US.
Demand for beef to remain
But it won’t mean the end for beef production, because there will remain continued demand, and ultimately will produce what the market wants, one fund manager said.
“There’s more than half of the globe’s population that’s trying to eat more red meat protein than we can actually produce today,” he said.
“If the customer wants us to produce more plant-based protein products and that’s the right market, then the right way is on a long term sustainable basis. The assets that currently produce beef or lamb today will be transitioned over time.
He described plant-based protein as a great opportunity for the sector if it can take advantage of the growing demand. “This is a chance for evolution for agriculture,” he told the panel. “It’s about being part of supply chains, about producing what customers need rather than the traditional sense of I’m producing this commodity now, who’s going to buy it?”
Diversity a hedge against drought
Despite the many opportunities in agriculture, it is becoming more difficult for investors to gain a long-term view of future earnings, the panel heard. Food is no different to any other sector in that it is being disrupted by technology.
A multifaceted approach to investing including investing across the sector such as distribution as well as production is important, one investment manager said.
Likewise, having diverse holdings in different parts of the country and with different agricultural industries is also a hedge against drought. “What we have to do as investors in agriculture and people that are producing food for the world is be smarter about how we adapt to those circumstances,” an investor said.
Technology which can improve yield, efficiency, and profitability – collectively known as agritech – is becoming an area of focus for investors. Firstly, it can help boost the profitability of their existing investment, and secondly there is also an opportunity for Australia to export newly-developed technologies as well. Australia is also getting better at retaining and commercialising intellectual property rather than selling it offshore, the panel heard.
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