Agricultural Products

Agricultural Products

The Agricultural Products industry is engaged in processing, trading, and distributing vegetables and fruits, and producing and milling agricultural commodities such as grains, sugar, consumable oils, maize, soybeans, and animal feed. Agricultural products are sold directly to consumers and to businesses for use in consumer and industrial products. Companies in the industry typically purchase agricultural products from entities that grow such products (either directly or indirectly) to then conduct value-adding activities (e.g., processing, trading, distributing, and milling). Agricultural products companies are also involved in wholesale and distribution. Companies in the industry may source a substantial portion of agricultural commodities from third-party growers in various countries. Therefore, managing sustainability risks within the supply chain is critical to securing a reliable supply of raw materials and reducing the risk of price increases and volatility over the long term.

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Source: SASB

The agricultural sector faces challenges of limited arable land and feeding a growing population. It is the world's largest user of water and accounts for one-third of global greenhouse gas emissions, with animal farming responsible for almost half of that. Investment opportunities include zero-emission machinery and equipment, variable-rate fertilization, and bioenergy. The meat substitute market offers cost-effective protein sources, while bio innovations may drive demand for alternative proteins and impact the logistics and transportation sector.

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Industry Characteristics

• The amount of arable land is likely going to remain constant. As the population steadily grows, we will need to produce more crops from existing resources. By the year 2050, there will be 9 billion people on the planet. To feed this growing population, food production must increase by at least 70%. Source: IBM
• Changes in climate over time can depress crop yields. This would make access to adequate food even more challenging for millions around the world. Similarly, water scarcity is a growing challenge, with global water supply declining relative to increasing demand. Agriculture accounts for 70% of annual fresh water usage globally, and about half of the withdrawals come from sources under stress. Source: JP Morgan
• Deloitte warns that climate change is compromising the food supply by lowering crop yields, reporting that every degree-Celsius increase in global mean temperature can lower wheat yields by up to 6%, rice by up to 3.2%, maize by up to 7.4%, and soybeans by up to 3.1%. As a result, it’s going to become increasingly challenging to feed a human population that’s expected to grow to nearly 10 billion people by 2050. Source: Deloitte

Sustainability Impact

• Close to one-third (27 per cent) of the world’s greenhouse gas (GHG) emissions stem from food and agriculture—over half from animal farming. Source: McKinsey
• The agricultural sector is currently the world’s biggest user of water, accounting for about 70% of water used in the world. Source: Planetly

Sustainability Investments to watch

• $750 billion spend (average for ten-year period 2020 to 2030) - The up-front expenses of low-emissions farm equipment and infrastructure, as well as costs to maintain existing equipment, could be significant for individual farming operations, especially for smallholder farmers. Source: McKinsey
• The net-zero transition in food and agriculture could stimulate demand for the supplies and equipment that enable on-farm decarbonization and further drive the commercialization of new technologies and alternative sources of protein. (1) $840 billion average annual capital spending required to reach net zero by 2050; (2) $570 billion current annual public support (in repurposed subsidies) is provided to agricultural producers in the 51 countries that produce two-thirds of food globally. Source: McKinsey
• The shift toward green farming practices could stimulate demand for the supplies and equipment that enable on-farm decarbonisation. New technologies for disease resistance or for enhanced carbon sequestration could play a powerful role in the transition to sustainable food production. Other economic opportunities could stem from the shift away from the production of ruminant-animal protein and toward other proteins—for example, plant-based “meat” or alternative-protein sources—that could lead to a faster consumer dietary shift. Source: McKinsey

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• Restoration of wetlands