Sustainable agriculture and the future of food.This article is part of the Disruptive Innovation series.
- Food production is heading into a period of major disruption caused by innovative technologies and a need for more sustainable practices
- This is likely to include greater use of indoor vertical farms, plant-based alternatives to meat and milk, and ‘precision agriculture’, in which sensor-equipped machines are used to increase yields
- Investment opportunities include companies directly involved in food production as well as those enabling change
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Human civilisation’s rise was closely bound to that of agriculture. The shift from hunter-gatherer societies to those in which animals and crops were farmed occurred about 11,000 years ago. It freed up time and resources, allowed towns and cities to be established, and made scientific discovery and commerce possible.
While farming and other types of food production have become more industrialised over the centuries, their development has occurred at a relatively slow pace, said investment manager Lee Qian at a recent Baillie Gifford event focused on disruptive innovations.
And when sudden changes have been attempted - for instance introducing genetically modified seeds - they have been met with resistance.
“Farmers operate on razor-thin margins, so they can’t afford to gamble on new technology that they’re unsure will work because one year’s bad crop can cause bankruptcy,” Qian explained.
“And consumers are careful about what they put in their mouths for good evolutionary reasons.”
WATCH: Baillie Gifford webinar on sustainable agriculture and food
But with forecasts of a further two billion mouths to feed by 2050, the status quo is unsustainable.
Agriculture already takes up 50 per cent of the world’s habitable land and up to 70 per cent of its freshwater supply.
It also accounts for about a quarter of greenhouse gas emissions.
And widespread use of antibiotics risks drug-resistant bacteria spreading among intensively farmed livestock that could then be transmitted to the humans who eat them and spread to the wider environment via the animals’ waste.
“The US livestock industry takes on average 100 calories of input to turn into just seven calories of edible protein,” added Qian.
“We must find ways to grow and produce food more efficiently.”
Thankfully several innovations are enabling just that.
Leading the charge is the rise of plant-based substitutes to meat and dairy. Baillie Gifford has invested in two pioneers:
- Beyond Meat - whose ever-growing range includes animal-free alternatives to meatballs, beefburgers, pork sausages and breaded chicken
- Oatly - which makes an oat-based drink that froths up when steamed to make cappuccinos and lattes that many people prefer to the milk-based originals
Vegetarian options have existed for years, but what’s new is an increased understanding of biology, including protein structures and the composition of fatty acids, Qian explained.
This allows new foods to be designed in the lab and then improved upon, similar to the way software is developed. Beyond Meat has highlighted this in its marketing, advertising its Beyond Burger 2.0 as an “even meatier” upgrade.
On the horizon, other companies are developing steaks and other meat cuts made from ‘cultured’ animal cells. This involves brewing proteins in bioreactor tanks to deliver the sensation of chewing into muscle and other body tissues, assuming future generations still have a taste for it.
“In 50 years’ time, the idea of cramming thousands of chickens or other animals into confined spaces and then eating their carcasses may feel really outdated,” said Qian.
“Alternatives are healthier and better for the environment.”
Change is coming to the way vegetables and other crops are grown too.
One approach focuses on biology, adding engineered microbes to seed coatings and soils. The aim is to provide protection against pests and disease as well as to reduce the need for fertilisers, whose production is a major source of carbon emissions.
‘Cell programming’ specialist Gingko Bioworks is one of those involved via its Joyn Bio joint venture with Bayer, as is the industrial microorganisms producer Novozymes.
“The microbes can fixate nitrogen from the air and supply it to the crops’ roots,” explained Qian.
“This provides a natural-based solution that can replace use of synthetic-derived chemical products.”
Another technique, called precision farming, involves the use of cameras, other sensors and software to make a farmer’s interventions more effective.
“As a tractor goes through the fields, computer vision can recognise in real-time the difference between a crop and a weed,” Qian gave as an example.
“The sprayer on the back then applies pesticides precisely on the weeds vastly reducing the amounts needed.”
Other examples of precision farming include:
- controlling irrigation systems to keep soil at the optimum moisture level
- automating the steering of tractors and harvesters. This can ensure fertilisers are evenly spread, vehicle wheels don’t crush crops or overly compact the soil, and fuel use is minimised
- analysing moisture to cut crops at the optimum length
- predicting and monitoring crop yields via imagery collected by drones
- using robot pickers to collect fruit and other produce when affordable human labour is not available
Baillie Gifford holding John Deere is one of the sector’s pioneers.
It invests more than $1.5bn a year in research and development, Qian said. It recently built on its lead by acquiring Bear Flag Robotics, a start-up that allows farmers to co-ordinate fleets of self-driving tractors via a smartphone app.
“It seems to be one of those rare examples where it’s the incumbent doing a lot of the innovation rather than being the one disrupted,” Qian noted.
John Deere’s capabilities are supported by several cloud-based technologies provided by Amazon’s AWS division and the private company Databricks, among others, illustrating how other firms enabling such innovation can also benefit.
Indoor vertical farms promise further disruption.
Plants are grown in stacked layers rising as high as 18m off the ground.
Their operators control how much light, nutrients, oxygen, heat and other inputs are provided. In some cases the resulting crop is harvested and packaged by robotic systems, meaning it’s never touched by a human hand until being opened by the consumers.
The technology is being driven by advances in LED lighting, sensors and computer control systems. But it’s still relatively expensive, meaning early-stage practitioners have focused on high-value crops including pak choi, spinach and lettuce.
“It’s a less mature technology than precision farming,” said Qian.
“But the advantage is that you can locate them next to or even inside cities, in old abandoned factory space, for example.
“And that means you don’t have to transport food as far, which means a lower carbon footprint.”
Other advantages include:
- pesticides are rarely required as the sites are sealed off from outdoors. This means the crops can be sold as ‘organic’ and command a premium price
- there is less chance of crop failure and produce can be grown all year round
- they require much less water than traditional agriculture
Baillie Gifford has exposure to the sector via its stake in SoftBank, which has backed California-based Plenty Unlimited.
And although fund managers have yet to make direct investment of their own, Qian said there had been meetings with vertical farm start-ups. In addition, he added, Baillie Gifford has a relationship with the James Hutton Institute in Dundee, which has explored the technology among its other agricultural research projects.
Food production is being propelled forward by several forces of disruptive innovation, each with the potential to boost sustainability and profits.
And other investment opportunities are likely to arise that will suit long-term investors willing to back agri-tech companies that might take years to reach their potential.
“Being willing to be ambitious, think differently and be bold should differentiate us from the rest of the market,” said Qian.
“It’s about looking for companies where the technology can be validated, where there’s a strong management team with good culture, and they are going after a huge market opportunity.”
Everyone needs to eat and drink, so the potential gains for the companies that do end up at the forefront of future food production are huge.
Investors can benefit financially and support those solving some of the world’s most pressing problems with gusto.
WATCH: Baillie Gifford animation on disruptive innovation
About the Investment Manager
Lee joined Baillie Gifford in 2012 and is an investment manager and decision maker in the Positive Change Team. He is a CFA Charterholder and graduated BA (Hons) in Economics and Management from the University of Oxford in 2012.
Written by Leo Kelion
Assistant editor, Intellectual Capital
You can read our other articles on disruptive innovation via the links below.
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