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Deutsche Bank report on opportunities in agriculture

29 Oct 2009 by Jim Fickett.

I just ran across a Jun 2009 report from Deutsche Bank's Climate Change Advisors group, Investing in Agriculture: Far-Reaching Challenge, Significant Opportunity. It provides a solid introduction, if the area is new to you, and some new insights, if this is an area you've followed.

By way of a very brief background, many people think that there will be increasing strain on agriculture to provide for the earth's population, mainly due to

  • a plateau in results from the “green revolution”,
  • growing world population, and
  • increasing consumption of meat in the developing world.

This will likely result in a long-term uptrend in food prices and in new opportunities in agricultural investments.

The information in this (long – 82 pages) report comes mainly from four sources:

  • digests of many other sources,
  • a joint research project with the University of Wisconsin integrating several sources of data into a comprehensive Geographical Information System (GIS),
  • developing models that simulate the development of the situation over the next few decades, and
  • an analysis of the patent literature for important trends.

I have not evaluated any of their work in detail. However based on my experience in somewhat related efforts, I would take the modeling with a grain (or maybe a handful) of salt, but would expect the GIS integration and the patent trend analysis to provide fairly solid results.

If you would like an introduction to this area, the Executive Summary (pages 6-11 of the pdf) is useful. Perusing the rest of the document in a little more detail provides insights on investment opportunities. Some are widely known and not a surprise, for example the importance of natural gas in nitrogen fertilizer production, a likely increase in cheap tractor sales in India, and the likely increased activity in genetically modified crops.

There were some areas that were new to me. For example there is quite a bit of activity in integrating information from multiple sources to make irrigation more efficient:

Irrigation is one way to ensure that crop water requirements are met. While only 18% of croplands are irrigated, 40% of crop production comes from those lands (Siebert et al. 2005) (Exhibit 53). The extent of irrigation has grown markedly, but it can cause problems such as water quantity depletion (aquifer or surface water), erosion and loss of nutrients from run-off, and soil salinization. In a hotter world, the ability to provide sufficient water for crop production will be a major challenge. Agriculture is already responsible for ~70% of freshwater withdrawals, and with limited exploitable water resources, the agricultural sector will need to use water more efficiently (Siebert et al. 2005) (Exhibit 54). Research and development are needed either to increase the production from the same amount of water or maintain the same production from less water. While it is clear that irrigation is essential to productive agriculture in areas without sufficient rainfall, there is significant room for improvement in this area. …

companies acquiring irrigation technologies such as drip irrigation, which allows for low water-usage while still maintaining high yields (Exhibits 58 and 59). One such example is a major agricultural machinery firm that has declared a goal of significant growth in the irrigation sector. The firm has sought to enter the field in the drip irrigation sector by providing farmers with precision irrigation products. Firms in this area can gather data from planting, growth, and harvesting operations. This information can then be interpreted, distributed, and applied to crop production, providing better agronomic management, increased operations accuracy, and more efficient equipment use. …

Our Smart Irrigation patent landscape illustrates where in the industry we are seeing development activity. Over ten years, patent velocity moved from water pressure and flow technologies to more activity in the area of data management. Furthermore, the maps below portray the consolidation of these irrigation technologies from 2004 – 2008, depicting greater synchronization among the technologies with one another over time. The consolidation has evolved to centralize around data management technologies, particularly with sensors and data retrieval, as well as structural and pipe technologies. This movement represents a clear growth prospect with close to half of the total patents published from 1999 – 2008 focused on this direction.

Since China and India, as well as the developed world, will fairly soon face serious challenges in obtaining enough water for farming, I expect this is an area that would reward further research.