- Global events are challenging the agriculture sector to explore changes in farm-to-consumer supply chains to achieve greater efficiency in the use of scarce inputs, reduce the sector’s carbon footprint, and minimize waste.
- Investments in agriculture infrastructure and associated technological advances can help strengthen global food supply chains by increasing operational efficiencies, lowering costs of production, and decreasing food losses.
- Optimizing food supply chains today for a sustainable path tomorrow can offer investors compelling opportunities across multiple asset classes.
The agriculture industry faces challenges
The past two pandemic years have seen the agricultural sector perform well as the shift to at-home food preparation fueled strong demand from consumers. This surge, however, paired with logistical bottlenecks, created supply disruptions resulting in higher food prices, highlighting the vulnerabilities of existing global supply chains.
With a growing world population and rising incomes, global food systems will need to deliver 56% more food by 2050. Investments in agriculture infrastructure and associated technological advances can help strengthen global food supply chains by increasing operational efficiencies, lowering costs of production, and decreasing food losses. These advances can also contribute to climate change adaptation and mitigation by reducing the use of water, fertilizer and pesticides, displacing fossil fuel use, and minimizing waste throughout the agricultural supply chain. It’s estimated that global growth will boost food demand by 20,500 trillion calories by 2050—a potential opportunity for investors to make a positive difference.
Improving production efficiencies with indoor grow spaces
While open-field farming is the dominant form of agriculture production across the United States, operations are limited to specific growing seasons and are sensitive to weather patterns. As a result, the country imports 32% of fresh vegetables and 55% of fresh fruit consumed by Americans annually; imports, however, are susceptible to inconsistencies in quality and long supply chains.
Controlled environment agriculture (CEA) offers several advantages to open-field farming. By controlling light, humidity, and temperature levels, this technology creates environments conducive to almost year-round growth for certain fruits and vegetables with limited exposure to weather conditions. The advantages of CEA include:
- Improved and more consistent crop yields
- Shorter supply chains, as greenhouses can be located closer to their end markets, which can also reduce carbon emissions associated with transportation to the consumer
- More efficient use of fertilizers and no use of pesticides
- Water conservation through efficient irrigation methods and recycling of water and nutrients
Supporting demand with greenhouse infrastructure
Greenhouses, the traditional form of CEA infrastructure, have been in use for centuries. However, technological advances such as LED lighting, computer monitoring and control systems, precision irrigation, and water and nutrient recycling systems have expanded the applicability of greenhouses to a wider range of crops and geographical locations.
While greenhouse production across the United States has risen over the last several years, current greenhouse supply can’t adequately meet consumers’ demand for year-round produce. An investment opportunity exists to bring efficient and sustainable food production closer to rising consumer demand by strategically building greenhouse infrastructures near major highways and population centers. This would, at the same time, minimize supply disruption risk by reducing the length of current supply chains.
Next-generation agriculture infrastructure
Vertical farming, a next-generation development in CEA, has the potential to become a larger component of overall food production. Instead of farming food on a single level, as in open-air farming and greenhouse operations, this method incorporates advanced technology to vertically stack crops in a highly controlled environment to achieve greater crop production on the same land area footprint. However, vertical farming is early in its industry lifecycle and, given high energy costs and intensive capital requirements, is likely to remain largely focused on high-value crop production.
A sustainable path forward
With the agriculture industry facing a future characterized by natural resource scarcity, supply chain vulnerabilities and more frequent extreme weather events, the greater incorporation of CEA technology into food production offers a sustainable path forward. While open-field farming will likely remain the dominant form of food production, the continued innovation and application of CEA technology is creating opportunities to meet growing food demand with fresh, locally sourced, sustainably produced products.
Agriculture plus solar power equals carbon reduction
For an industry relying heavily on fossil fuels, renewable energy presents another opportunity to fortify food supply chains while reducing carbon emissions.
Source: “Solar industry research data,” Solar Energy Industries Association, 2020. LHS refers to left-hand side; RHS refers to right-hand side.
Among the various sources of renewable energy, solar is one of the fastest-growing alternatives. Solar panels consist of photovoltaic cells that convert the sun’s radiation into electricity. The integration of solar panels into farming operations can:
- Create energy self-sufficiency and production resiliency—Solar energy allows farms to replace existing fossil fuels used in powering farm equipment such as water pumps, lights, electric fences, and storage. By transitioning to renewable energy, farms can become more energy self-sufficient and improve operating profit margins. Example. Manulife Investment Management operates an investor-owned tree nut farm in California. At the time of purchase, the farm operated 60 electrical groundwater pumps and irrigation wells. Through collaboration with PG&E, the local utility provider, four nonproductive areas on the farm were identified where solar arrays were installed to produce electricity. By maximizing previously underproducing land, the farm is now able to sustainably produce the energy needed to operate the pumps and wells. This transition reduced the cropland’s energy cost by 80% and is expected to offset 93% of the property’s energy demand in the long run.
- Reduce carbon emissions by replacing fossil fuel energy production—Solar energy generated on the farm can be sold to local utility providers. This not only helps local communities reduce fossil fuel energy consumption, but it can also provide farmers with a secondary source of income. Example. In 2020, Manulife Investment Management participated in a project to bring solar energy to a Massachusetts community while also maintaining the ground for local farmers. The project, which involves co-developing the same area of land for solar energy and agriculture production, on completion is expected to produce enough energy to power 1,800 homes each year, while maintaining the ground for growing and harvesting cranberries.
By moving toward energy self-sufficiency, farms can streamline operations by creating greater cost control over certain aspects of operations while simultaneously building production resiliency. While the transition to solar energy infrastructure is capital intensive, it directly contributes to the long-term sustainable management of farmlands and croplands that helps decarbonize the economy while providing a return on investment.
Reducing waste through cold storage infrastructure slows climate change
Reducing food waste is another way to fortify supply chains while reducing the agriculture sector’s greenhouse gas (GHG) emissions. Food waste occurs at every stage of the food supply chain. Over 2.5 billion tonnes of food is wasted each year—approximately 40% of all food produced globally; it’s also estimated to contribute to ~10% of total global GHG emissions.
Controlled atmosphere solutions
Food waste on the farm occurs for a variety of reasons. While some loss is inevitable, perishable crops, such as fruits and vegetables, are highly susceptible to market supply-and-demand conditions. If markets can’t absorb seasonal fluctuations in crop production, food may be left in the fields to rot.
An efficient and effective solution to temporary supply-and-demand imbalances is controlled atmosphere (CA) storage, which extends the shelf life of food while maintaining quality. It goes a step above simple refrigeration, combining infrastructure facilities and innovative technology to create the ultimate environment for storing crops by controlling temperature, oxygen, carbon dioxide, and humidity levels.
For example, at Manulife Investment Management’s apple processing facility in Yakima County, Washington, this technology is used to slow down the respiration rate of apples to ensure they stay crisp, colorful, flavorful, and nutritious. While apple harvest season is typically between mid-August and October, consumption is year-round. CA infrastructure enables the apple industry to store fruit at harvest and then match quality apples with consumer demand over the following winter and spring months.
CA technology is also used in food transportation, the vital link between farms and consumers. It works in the same way, extending the life of food during delivery by road, rail, marine, or aviation methods. However, investments in infrastructure logistics are needed to shorten and boost the efficiency of supply chains to further reduce potential food waste during transportation.
Meeting the growing demand for food isn’t just about increasing supply; it requires maximizing better handling and delivery of agricultural products to the consumer. CA technology creates a more resilient supply chain and reduces food waste, and, in so doing, mitigates GHG emissions and climate impacts.
Agriculture infrastructure can offer investors compelling opportunities
To meet future demand and increase supply chain resiliency, the agriculture industry needs to continue to adapt and evolve. Through innovations in agriculture infrastructure and technology, investment opportunities exist to optimize and boost value creation from every part of the supply chain in a sustainable manner, but this type of transformation requires capital—and investors are stepping up.
In the past, a farmland and cropland or infrastructure asset manager would source investment opportunities separately. Now, a more integrated agriculture infrastructure investment approach could offer a new paradigm that leverages a combination of deep expertise in each industry to maximize success through closer partnerships. For example, while a farmland and cropland manager can forecast production and food that will be in high demand, the infrastructure manager can source the right infrastructure to enable production, storage, and processing and can coordinate transportation to deliver it to the consumer in peak demand.
Both the public sector and institutional investors have a role to play. On the public sector side, governments are acknowledging the need to address climate change by offering various programs, grants, and incentives that enable farms to undertake agriculture infrastructure investments. For institutional investors, investments can be made directly or through asset managers that have extensive expertise in farmland and cropland investing, infrastructure investing, and/or both. Traditionally, agriculture and infrastructure investments have offered stable cash flow and long-term capital return.
Optimizing food supply chains today for a sustainable path tomorrow
Since the beginning of the pandemic, empty grocery store shelves have become a more frequent sight due to adverse weather conditions, material shortages, and transportation bottlenecks. While these supply chain struggles should be temporary in nature, the expected growth in population over the next 30 years will put more and more pressure on food production capabilities and global supply chains, especially given the challenges in the face of climate change.
Investments in agriculture infrastructure can help fortify food supply chains in a sustainable manner while offering investment opportunities across multiple asset classes. Those who embrace change early may be best positioned to thrive.
A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange-trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other preexisting political, social, and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment.
Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.
The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.
This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.
Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here. All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice. This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.
Manulife Investment Management
Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model.
This material has not been reviewed by, is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions. Additional information about Manulife Investment Management may be found at manulifeim.com/institutional
Australia: Manulife Investment Management Timberland and Agriculture (Australasia) Pty Ltd, Manulife Investment Management (Hong Kong) Limited. Canada: Manulife Investment Management Limited, Manulife Investment Management Distributors Inc., Manulife Investment Management (North America) Limited, Manulife Investment Management Private Markets (Canada) Corp. China: Manulife Overseas Investment Fund Management (Shanghai) Limited Company. European Economic Area Manulife Investment Management (Ireland) Ltd. which is authorised and regulated by the Central Bank of Ireland Hong Kong: Manulife Investment Management (Hong Kong) Limited. Indonesia: PT Manulife Aset Manajemen Indonesia. Japan: Manulife Investment Management (Japan) Limited. Malaysia: Manulife Investment Management (M) Berhad 200801033087 (834424-U) Philippines: Manulife Investment Management and Trust Corporation. Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G) South Korea: Manulife Investment Management (Hong Kong) Limited. Switzerland: Manulife IM (Switzerland) LLC. Taiwan: Manulife Investment Management (Taiwan) Co. Ltd. United Kingdom: Manulife Investment Management (Europe) Ltd. which is authorised and regulated by the Financial Conduct Authority United States: John Hancock Investment Management LLC, Manulife Investment Management (US) LLC, Manulife Investment Management Private Markets (US) LLC and Manulife Investment Management Timberland and Agriculture Inc. Vietnam: Manulife Investment Fund Management (Vietnam) Company Limited.
Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.