From farm to fork: overcoming supply chain vulnerabilities with agriculture infrastructure innovations

With global food supply chains facing vulnerabilities, we take a closer look at how innovations in agriculture infrastructure can offer a sustainable path forward while creating opportunities for investors along the way.

Key takeaways:

  • 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 2050a potential opportunity for investors to make a positive difference.

The world needs to close a 56% food gap by 2050

Total calorie consumption globally 

This chart shows, based on estimates, there’s a 56% food gap between 2010 and 2050 that needs to be filled. In 2010, the calories needed to feed the global population was 13,100 trillion. By 2050, it’s estimated to be 20,500 trillion.
Source: “Creating a sustainable food future,” World Resources Institute analysis based on FAO (2019a); UNDESA (2017), and Alexandratos and Bruinsma (2012), World Resources Report, July 2019. Data includes all crops intended for direct human consumption, animal feed, industrial use, seed, and biofuels. 

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 
Water efficiency in greenhouse operations
This chart shows that open field production requires 250 liters of water to produce 1 kg of lettuce, while greenhouse operations only require 20 liters to produce 1 kg of lettuce.
Source: “Comparison of Land, Water, and Energy Requirements of Lettuce Grown Using Hydroponic vs. Conventional Agricultural Methods,” International Journal of Environmental Research and Public Health, June 2015.

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. 

Greenhouse production in the United States is on the rise

Total greenhouse vegetables and fresh-cut herbs in the United States

This chart shows, based on estimates, there’s a 56% food gap between 2010 and 2050 that needs to be filled. In 2010, the calories needed to feed the global population was 13,100 trillion. By 2050, it’s estimated to be 20,500 trillion.
Source: Table 39, Floriculture and Bedding Crops, Nursery Crops, Propagative Materials Sold, Sod, Food Crops Grown Under Glass or Other Protection, and Mushroom Crops: 2017 and 2012, 2017 Census of Agriculture-United States Data, USDA, National Agriculture Service, 2017. LHS refers to left-hand side; RHS refers to right-hand side.

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.

Cost of solar energy has dropped
This chart shows the growth in the use of greenhouses for food production across the United States. In 2012 there were 8,759 greenhouses, while in 2017 they climbed to 10,849 greenhouses.

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.

Percent of total production that goes to waste
This chart shows that since 2010 the cost of solar power has dropped as installed capacity has climbed. In 2010 the cost of solar was $5.79 per watt, while in 2020 it fell to $1.25 per watt.
Source: “Driven to waste: the global impact of food loss and waste on farms," WWF-UK, 2021. Global farm stage loss and waste were calculated using a compilation of 2,172 farm stage food loss and waste data points. Data availability was unevenly spread across commodity group and global region, with cereals and fruit and vegetables better represented than others (particularly in sub-Saharan Africa and South and Southeast Asia) and fish and dairy products having the fewest data points.

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.

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Oliver S. Williams IV, CFA

Oliver S. Williams IV, CFA, 

Global Head of Agriculture Investments

Manulife Investment Management

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Recep C. Kendircioglu, CFA, FRM

Recep C. Kendircioglu, CFA, FRM, 

Portfolio Manager, Head of Infrastructure Investments

Manulife Investment Management

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