The food and agriculture sector is central to some of the most pressing challenges facing mankind. This first article in our two-part digest of a new paper from Impax Asset Management looks at the environmental impact of current agricultural practices and the need to invest in innovative solutions to make them more sustainable.
Throughout the 20th century, governments and farmers focused on maximising food output through mechanisation and the use of fertilisers and pesticides. Resource-intensive agricultural practices contribute around one-quarter of global greenhouse gas (GHG) emissions and undermine the natural capital – including soil quality and biodiversity – that food production depends on.
Consumers and policymakers are encouraging a shift towards more sustainable practices. The solutions range from natural feed additives that improve animal health and productivity to precision technologies that can boost efficiency and reduce the environmental impact.
The case for investing in agricultural innovation
Overcoming environmental challenges and meeting rising demand for nutritious food will take significant investment. We believe this is a tailwind for related companies, from food producers that embrace more sustainable practices to suppliers of innovative technologies.
Climate change
Crop yields can be decimated by heatwaves, droughts, wildfires, floods and water scarcity – all made more likely by climate change. In addition, the agriculture sector is itself one of the largest contributors to climate change. Its greenhouse gas emissions must be reduced significantly to help limit global temperature rises.
Food production accounts for around a quarter of GHG emissions; 53% relate to animal farming, including crops for animal feed and the conversion of land. Agriculture is one of the main drivers of deforestation. Innovations that improve the resilience of crops and reduce agriculture’s climate impact are needed to align the sector with climate targets while improving food security.
Global greenhouse emissions from food production
| Livestock & fish farms | 31% |
| Crops for human food | 21% |
| Crops for animal feed | 6% |
| Land use for livestock | 16% |
| Land use for human food | 8% |
| Transport | 6% |
| Packaging | 5% |
| Food processing | 4% |
| Retail | 3% |
Source: Poore, J., & Nemecek, T., 2018. Reducing food’s environmental impacts through producers and consumers. Science
Severe pollution, environmental degradation
Excessive use of fertilisers and pesticides accelerates ecosystem degradation and contributes to biodiversity loss. Declining soil health is recognised as a major threat to agricultural productivity.
Poor irrigation practices, chemical fertilisers and pesticides, and farming practices such as monocropping and overgrazing, are depleting nutrients and soil health.
More sustainable farming practices, including precision farming technologies, will be essential to addressing these environmental impacts.
Tightening regulations
There is growing political recognition that agriculture’s environmental impacts must be reduced.
At the COP28 climate summit in 2023, governments representing 75% of the world’s population signed a declaration committing to:
- Shift to more sustainable food production and consumption
- Protect and restore natural ecosystems
- Scale up climate adaptation and resilience for food producers.
Efforts to introduce tougher regulations include the EU’s Farm to Fork initiative. This aims to speed up the transition to a more sustainable food system that ultimately has a neutral or positive environmental impact while ensuring access to safe, nutritious and affordable food.
Such legislative initiatives have recently come under pressure. Alongside public concerns over food price inflation and the cost of living, farmers across Europe have protested rising production costs and climate policies that force them to change how they operate.
Despite such responses, we believe legislation will likely continue to tighten.
Investment opportunities across the food value chain
We see a range of long-term investment opportunities amid the rising demand for safe, nutritious food and pressure to lower the industry’s environmental footprint. Specifically, for companies whose products and services play a role in:
- Helping to lower the environmental impact of agriculture and food production
- Focusing on providing nutritious and healthy food
- Enabling the wider availability of safe food
- Helping promote animal welfare standards.
This is an abbreviated version of an article that was previously published by Impax Asset Management.
