The Industry
Global trends in agriculture include increasing populations, decreasing arable land, declining yield improvements, growing wealth and calorie consumption around the world, and the redirection of food to biofuel development.
VARIOUS GLOBAL TRENDS DRIVE THE VALUE PROPOSITION IN AGRICULTURE
Agriculture provides the context for primary production—the actual growing of crops or raising of animals for food—but there is much more to agriculture than “working the land.”
Source: Capital IQ
Index returns since March 2011 show macro trends driving an increased investors’ appetite for agriculture stocks in Canada and globally. The above graph shows how agriculture-related stocks have materially outperformed the broader market index over a consistent period of time. Only a few large, high-quality, growth-oriented companies are present in Canada, and the chart indicates an increase in demand for growth-oriented agricultural companies in Canada.
Agriculture
Agriculture begins with science that supports primary production—plant breeding, fertilizing to maximize and support production, animal breeding, and developing natural, plant-based livestock feed to support and maximize growth. Agriculture also includes the monitoring, management and use of soil and water, knowledge of weeds and insects, and the science of grasslands for livestock grazing and feed production.
Primary Production
For primary production that flows into the food sector, agriculture includes processing and developing packaging for food, distributing and marketing that food, and then managing the byproducts that result from those operations.
Primary production that provides inputs for industrial markets incorporates the extraction of fibres, proteins and other subcomponents of crops and livestock into the agriculture industry.
Global Trends
The increasing demand for greater food production is a constant. On the demand side, increasing wealth and populations in developing nations contribute to a progressively greater need for food production. Demand is also increasing for food crops used in biofuel development and other types of non-food or indirect consumption by humans.
Source: Statistics Canada, Census of Agriculture, 1996 to 2006
The decrease in arable land available to produce food is a constant reminder that everyone involved in food production must continually evolve, not only in the context of technology, but also in their management techniques.
On the supply side, global populations are increasing, available freshwater sources are declining, and the amount of arable land per capita is decreasing. The above graph demonstrates that over time arable lands available per person is decreasing worldwide.
Agricultural Value Chain
Large scale, integrated agricultural operators have the ability to expand up and down the value chain through the following:
- Partnership opportunities with key input suppliers
- Internalized grain handling and on-farm, value-added processing
- Partnership opportunities with food manufacturers/processors
- Producing what consumers and processors desire
