Great outlook, but few avenues to invest

Global agribusiness is a huge industry that is misunderstood by investors. It is centred on the farm and includes everything from soft commodities to food that ends up on a consumer’s plate. It is about all the critical inputs for farming such as seeds, fertilisers, land, plantations, water and farm machinery. Then there is the whole production chain that includes storage, transport, processing, marketing and distribution. Biofuels and aquaculture are also key parts of this now. Agribusiness covers around 33 different sub-sectors.

In terms of opportunities in the sector, there are two main things — one is demand, which is growing, and the other is the supply, which is limited.

The demand is rising, driven by growth in global population, especially in Asia. Additionally, rapid urbanisation, an increase in life expectancy, rising income levels, mainly in the developing world, are the other reasons that have been fuelling demand. Apart from this, we have factors such as the decline in availablity of agricultural land, bio-fuels and climate change.

Within agriculture space also, biotech is one area where there is huge opportunity. Considering the growing population, we need extra land to feed people, but we do not have enough land. Therefore, we will have to increase the yield. So, seed technology and modified seeds will play an important part in this. In this process, there will be companies that will benefit.

For example, seed companies are targeting production of seeds over the next 10 years that will dramatically increase yield and require half the amount of water that is currently used to grow crops. This is important because we are going to have water shortage. Water is also an interesting area of opportunity which will see a large increase in demand for companies involved in irrigation, recycling and desalination.

It will take at least another five-seven years before supply-side issues or related problems are solved. This is because of under-investment over decades in agribusiness by many countries, including India. Considering this, we would like to play this theme for at least the next three to five years.

The outlook for companies in India that operate across this value chain is very good. However, there are very few listed opportunities to invest in agribusiness companies in India.

—As told to Jitendra Kumar Gupta

(The author is director & investment specialist, Deutsche Asset Management)