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An Investor’s Guide to AgTech and Food Innovation

The global food system is under immense pressure due to three global trends:

  1. Population growth
    This naturally leads to an increasing demand for food. By 2060, the UN expects the world’s population to reach 10 billion people.
  2. Limited capacity of existing agriculture
    Existing farming methods are very resource-intensive and production has already been pushed to the brink. The UN predicts that by 2050, food production will have to increase by 70%.
  3. Unsustainable consumption
    The world consumes unsustainable amounts of food, especially meat. While livestock represents 80% of agricultural land, it provides only 18% of the world’s caloric intake.

As these trends collide, agricultural technology (AgTech) and food innovation emerge as two possible solutions. This infographic from Global X ETFs will explain both.

The main themes of AgTech

AgTech is the use of technology to maximize crop yields while conserving water and land. Here is a quick explanation of its segments.

Precision farming

Precision agriculture is the integration of artificial intelligence (AI) and the Internet of Things (IoT) into traditional farming practices. These technologies can provide farmers with more data, which in turn can be used to increase efficiency.

One example is the John Deere See & Spray machine, which uses various sensors to detect where weeds are. By spraying only the weeds, farmers can reduce their use of herbicides by up to 77%.

Robotics and Automation

Robotics and automation aim to reduce the amount of manual labor needed in agriculture. This multi-billion dollar market includes autonomous berry pickers, which demonstrate more than 60% higher productivity than humans.

Drones can also play a role, especially in regions where water is scarce. For example, California farmers are investing in drones that monitor fields for leaks and other problems. They claim that this technology reduces their water intake by more than 40%.

Controlled Environment Agriculture (ACE)

CEA is indoor plant cultivation. This market is still in its infancy, but the ability to grow food almost anywhere, year-round, could be game-changing for farming.

One of the most important CEA methods is hydroponics, where plants are grown in a nutrient-rich water-based solution instead of soil. Hydroponics could alleviate many global agricultural problems:

Publish Advantage of hydroponics
Food insecurity A constant flow of nutrients means crops have 7-14 additional growth cycles compared to traditional methods.
Water shortage Hydroponic systems use recycled water, which means plants grow with up to 90% less water.
Soil degradation Hydroponic systems can be stacked vertically, which means farmers can grow 3 to 10 times more food in the same space than traditional farms.

Source: Princeton University

With increasing pressures on the global food system, innovative disruption will be needed to achieve long-term sustainability. AgTech solutions can certainly increase production, but what can be done on the consumption side?

Food innovation

Food innovation refers to plant-based foods and other alternatives such as lab-grown meat. Given the immense scale (and carbon footprint) of the meat and dairy industry, these innovations could bring environmental benefits.

In terms of market share, alternative foods still have a long way to go. The following table lists the global sales of meat and dairy products, by category, in 2020.

Marlet Traditional Formula alternative option Alternate share of total
Me at $1.4 trillion $6 billion 0.43%
Dairy $574 billion $18 billion 3.14%

Source: Global X ETFs

Given that 80% of Americans have purchased or are willing to purchase alternative meat products in the future, investors may view this sector as an attractive growth opportunity.

For more hindsight, some analysts estimate that by 2040, cultured meat (meat grown in the laboratory) will represent 35% of the world market.

Introducing the Global X AgTech & Food Innovation ETF

The Global X AgTech & Food Innovation ETF (Mnemo: KROP) seeks to provide investment results which generally correspond to the price and yield performance, before fees and expenses, of Solactive AgTech & Food Innovation Index.

Sector Index weighting
Basic consumption 44.8%
Materials 37.3%
Industrial 11.6%
Health care 4.1%
Consumer Discretionary 2.1%

As of 01/31/2022

Investors can use this passively managed solution to learn about innovation in the agriculture and food sectors.

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