Asset owners are increasingly looking at the potential for new technology to bring about a step-change in farm productivity and, in so doing, lift the investment return on their agricultural assets.
In particular, they hope to use new technology in traditional farming to overcome labour shortages and improve operational efficiencies in agriculturally resource-rich countries.
“I think there are challenges in there but [there is] certainly a lot more talk [about investing in agricultural assets]," said Neil Woods, a portfolio manager for New Zealand Superannuation Fund (NZ Super) overseeing the sovereign wealth fund’s rural and forestry investments.
"I think [there is] a lot more awareness of the sector than it was when we started eight years ago,” he added. “I think a lot more pension funds like ourselves are getting into the sector or [becoming] more comfortable with the sector.”
Nevertheless, it remains a difficult sector to access, he noted.
The NZ$40 billion ($27.5 billion) fund currently holds a portfolio of vineyards, beef and dairy farms in Australia and New Zealand. But overall, agricultural investments account for just 1.5% of the fund’s portfolio.
One of the factors holding back investment in traditional farming is labour shortages.
“What's emerging ... as a risk in the primary sector is the availability of labour and people willing to work and harvest the crop," Woods said. "[For] things like vegetables and fruit where it’s still a very manual function, we are really struggling to find the required labour to do those sorts of operations.”
But the landscape could be changing.
The use of technology is “definitely becoming more prevalent” with agricultural businesses starting to use robots to work in glasshouses to harvest crops such as fruits and tomatoes, he said.
Another challenge for agriculturally inclined investors is natural disasters.
But here too new technology can help, say some industry experts.
“We use technology to give us protection against frosts,” said Alistair Nicholson, who is a director of Valic, an avocado producer in New Zealand, and also a representative of several family offices globally through Singapore-based Vulpes Investment Management.
He added that in areas with extreme weather conditions, such as parts of Australia, there are watering systems that protect crops from frost in winter and act as a coolant during times when day temperatures soar to 40 degrees Celsius.
Using new technology – from autonomous vehicles and systems to biotechnology, sensors and satellite systems – will all help to boost agricultural yields, a Moody’s report in May 2018 said.
The growth of technology aimed at agriculture will be driven by the need to meet surging global demand for food, not just from population growth but also from rising incomes as diets improve and become more varied, particularly in emerging countries. The UN Food and Agriculture Organisation estimates that agricultural production will have to rise by 70% by 2050 to meet demand.
Technology is key because most land suitable for farming is already farmed and future growth will need to come from higher yields.
It could, for example, account for as much as 90% of the growth in total corn production in the coming decade, with land expansion accounting for the remainder, the Moody’s report said, citing research produced by the Organisation for Economic Co-operation and Development.