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Frédérique Carrier
Managing Director, Head of Investment Strategy
RBC Europe Limited

One of the biggest challenges of the coming decades is how to feed a growing world population despite limited scope to expand agricultural land and reduced labor supply due to urbanization. Add in unpredictable and extreme weather patterns arising from climate change and it seems like a task of herculean proportions.

A University of Washington study forecasts that the world population, currently at 7.8 billion, could peak at 9.7 billion in 2064, an addition equivalent to almost six times the current population of the United States. To sustain current food consumption patterns, the Food and Agriculture Organization (FAO) of the United Nations predicts food production would have to rise by a whopping 50 percent.

The massive environmental impact this rise would have makes this scarcely sustainable. Agriculture is the single largest user of freshwater, accounting for over 90 percent of global annual freshwater consumption, according to our national research correspondent, while single-handedly generating 18 percent of greenhouses gases (GHGs) worldwide.

Consumers are doing their part. Concerned about the carbon footprint of their food, as well as their own health, they're becoming more discerning. Healthy eating is a priority for many and preferences are undergoing a seismic shift.

To meet these challenges, the agriculture industry has to adapt by delivering more food from fewer resources and producing healthier food via methods that are less harmful to the planet. Demand for tools and solutions to increase productivity and boost profits has increased as it's clear that technical innovations are needed.

Here, we look at some of the innovative agricultural methods offered by agriculture technology that aim to optimize crop yields and efficiencies.

What is AgriTech?

Agriculture technology, or AgriTech, is the concept of technical solutions from farm to table that increase crop yields, or reduce waste, while reducing stress on the environment.

Below, we highlight a few key strategies to deliver more with less. Many of the innovative technologies driving these strategies are already in use in some parts of the world, but we believe their adoption will become increasingly widespread over the next decade.

Some AgriTech strategies to deliver more with less
Some innovations are already adopted but will become increasingly widespread
Strategies Solutions
Increase yields on agricultural lands
  • Precision farming
    • Satellite imaging, drones, sensors
    • Smart irrigation and soil technologies
    • Data analytics with artificial intelligence and big data
    • Internet of Things and connectivity
  • Gene technology
    • Disease and pest resistance
    • Biofortified plants
    • Plant phenomics and smart phenotyping
Controlled environment farming
  • Greenhouse and indoor farming technologies
  • Vertical farming
  • LED lighting systems
  • Aeroponics and hydroponics

Supply chain efficiencies

  • Direct farm-to-consumers (meal kit delivery, e-groceries)
  • Waste reduction technologies
    • Crop waste reuse
    • Cooling and storage solutions
    • Cold chains
    • Smart packaging

Note: Phenomics measures the phenotypes (physical and biological traits) that can be produced by a plant as it develops and as it responds to its environment

Source - RBC Wealth Management

1. Increase yields on agricultural lands

Precision farming

Tractors, harvesters, and other self-propelled farming vehicles have come equipped with GPS capability for the past couple of decades. More recently, drones equipped with autonomous controls, crash avoidance systems, and an array of sensors are making farming more precise and productive by assessing soil moisture and nutrient deficiencies, as well as crop density and health. This can save valuable work hours and reduce costs while improving farm knowledge through the collection and processing of millions of data points.

Drones can also be used to spray powdered insecticide or fertilizer on specific areas to sow seeds, as well as be employed to monitor weeds and pests. Drone-enabled infrared mapping can allow a farmer to assess crop conditions at a cost as low as $5 per acre, according to a 2018 paper from accounting and consulting firm Deloitte. The study argued that the information provided by a drone could permit farmers to boost crop yields by up to 20 percent. As the technology evolves, it noted that farmers will be able to see all the problem areas on a field within minutes, whereas with the traditional method of walking and observing, they would detect a mere 10 percent of them.

Another precision farming solution is smart irrigation, which uses sensors to determine and apply the exact amount of water required by plants. A valuable alternative to flood irrigation, still the most common form of irrigation throughout the world, smart irrigation can enhance yields while dramatically reducing water and electricity consumption. Despite these savings, the upfront costs of installing the technology can be prohibitive, thus making it challenging to be widely accessible.

Further into the future, but perhaps not that much further, Deloitte expects big data analysis will be used to direct robotic systems to spot pests on a plant and blast the appropriate amount of pesticide, or even to recognize ripe fruit and pick it. Thanks to machine learning, robots could be used to harvest a crop, perhaps even predicting harvest periods while anticipating packing and logistics requirements.

In a report issued in 2020, consulting firm McKinsey found that in the U.S., only a quarter of farms have adopted connected equipment, and most of these use the more limiting 2G or 3G networks. With better wireless connectivity, including 5G, it is possible to imagine a world where all the equipment on a farm is synchronized, sharing data to make optimal decisions and implement them from seed to end product. McKinsey posits that advanced connected infrastructure will cover four-fifths of the global agriculture landscape (excluding Africa) over the next decade.

All this change will require substantial reskilling of farmers. Dealers and vendors of farming equipment will likely play an instrumental role in educating and training farmers to the extent that their business success will no longer depend solely on product sales, but equally on how successfully farmers utilize equipment.

Precision farming through digital technologies can improve efficiency, reduce costs, and increase farmers’ returns on investments. According to our national research correspondent, precision farming via artificial intelligence, drones, autonomous machinery, and smart irrigation systems could yield productivity increases of up to 70 percent by 2050.

Gene technology

In the past, fertilizers and seed technologies have been the key drivers of increasing yields. Farmers have been cross-breeding to obtain more robust, productive plants for thousands of years. Genetically modified (GM) crops can be higher-yielding, more tolerant of both drought and heavy rain, and display greater resilience to pests and diseases. Despite widespread consumer resistance to GM foods, such products are unlikely to go away given the challenges outlined at the outset of this article. In fact, there very well may be more pressure to use them. In 2016, more than 100 Nobel laureates signed a letter in support of GM crops and foods, pointing out that distrust is misplaced and outlining their advantages in feeding a world population that is increasing while environmental challenges are escalating.

2. Controlled environment farming

With several major regions that have traditionally supplied much of the world’s food now struggling with disasters brought on by climate change, safe and economical food procurement has become front of mind. Canada is a case in point. In the winter months it's highly dependent on California, where crops have been imperiled by droughts and wildfires, to supply fresh fruits and vegetables. Shortages stemming from the COVID-19 pandemic have only exacerbated supply disruptions, with the realization that a global crisis can freeze supply chains and force trading partners to withhold exports. Moreover, in most developed countries, urbanization has led to a scarcity of farmland around cities. Transportation and intermediary costs can be more than 50 percent of total food costs, according to our national research correspondent, so a solution to ensure economical food supply security has become a priority.

Controlled environment farming is becoming an increasingly compelling option to combat these challenges. Often located on the outskirts of cities, vertical farms grow produce by vertically stacking large trays containing seeds and plants. Within the vertical farm, critical environmental factors are controlled, including light (with efficient LED technology using only the red and blue light spectrum needed by the plants), humidity, and temperature. Pests are largely eliminated. Vertical farms can optimize yields as, for example, they can produce 20 times more lettuce than agricultural fields.

Vertical farms can make use of a variety of cultivation methods. Aeroponics consists of growing crops in the air and spraying the roots with a nutrient-filled water solution. Our national research correspondent points out that according to vertical farming leader AeroFarms, this method uses 95 percent less water than traditional farming. Alternatively, hydroponics, where plants grow in a nutrient-water solution, can also be used. Our national research correspondent estimated that this method requires 12.5 times less water per kilogram of lettuce per year.

Beyond shielding crops from unfavorable weather conditions and using less water, controlled environment farming has many other advantages: avoiding soil erosion, reducing the distance between farm and market, lowering dependence on climate-threatened imports, and largely eliminating pesticides and herbicides as input costs. But we acknowledge there are drawbacks. For example, should a technological problem arise, it could shutter the entire production process. It is also true that so far the applications have mostly been limited to the production of leafy greens. More innovations, such as a new generation of LED lights and seeds that are optimized for indoor environments, will be needed to make these techniques economically feasible for the production of a broader selection of fruits and vegetables and to lower operating costs.

To be clear, controlled environment farming is not about to replace traditional farming altogether. Challenges such as the availability of low-cost land and prohibitive zoning laws remain significant hurdles and are the main reasons why Canada, for instance, is struggling to keep pace with the leaders in this field, including the Netherlands, Israel, the U.S., and Singapore. But to the extent that controlled environment farming can generate a much higher production yield—without being subject to the vagaries of the weather while consuming only a fraction of the freshwater—these approaches can go a long way towards improving food supply security.

3. Supply chain efficiencies

According to the World Wildlife Fund, a third of the food produced globally goes to waste. That's enough to feed three billion people. As it rots, this wasted food produces methane, an especially damaging GHG that's 25 times as potent as CO2 in trapping heat in the atmosphere, according to the U.S. Environmental Protection Agency. Reducing waste could see more food reach growing populations and also lower GHG emissions. Several solutions, including “cold chains” and smart packaging, can help to optimize various stages along the supply chain.

Techniques to reduce waste
Efficiencies can be gained all along the supply chain

Harvesting

  • Improve harvesting techniques
  • Convert unmarketable products into process products

Handling & storage

  • Improve storage techniques
  • Introduce cold chains

Processing & packaging

  • Improve order management
  • Improve factory equipment efficiency
  • Introduce smart packaging
  • Alter production process

Distribution to wholesale or retail markets

  • Improve food date labeling system
  • Modify cosmetic standards to improve salability of imperfect (blemished) products
  • Modify promotional strategies

Consumption (home, foodservice)

  • Reduce package sizes
  • Promote imperfect products

Source - RBC Wealth Management, national research correspondent

A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an uninterrupted series of refrigerated production, storage, and distribution activities, along with associated equipment and logistics, which maintain quality through stable, low temperatures. This process can help preserve and extend the shelf life of produce, seafood, and other perishable foods.

Improving product traceability for just-in-time delivery can reduce inventories and, to the extent that information such as shelf life, moisture, and freshness is available to a tracking device, enhance supply chain efficiency. One solution is smart packaging, which uses sensors or smart labels to monitor product quality and storage conditions. Some forms of smart packaging can trace tampering within the supply chain or alert a distributor/grocer/consumer to spoiled or contaminated food. Smart packaging is widely used in health care, and is increasingly finding its way into the food supply chain. More widespread use could meaningfully reduce spoilage and extend shelf life.

Feed off the changes

Feeding a growing population in the face of shrinking farmland worldwide and all-too-common extreme weather events that wreak havoc on food production is an enormous task.

Technological advancements in agriculture can help mitigate these problems. Agriculture will continue to evolve over the coming years. We believe companies that innovate and bring their solutions to the mainstream—and those that adopt new technologies early—should be in a good position to reap the benefits of their forward-looking strategies.

Investors would be wise to follow these developments as it's often the case that in the midst of big change and industry disruption, there lies investment opportunity.


This article is part of our SusTech series, which explores the confluence of sustainability and technology and why this concept matters as an investment theme.

Read more from the series:


Non-U.S. Analyst Disclosure: Frédérique Carrier, an employee of RBC Wealth Management USA's foreign affiliate RBC Europe Limited, contributed to the preparation of this publication. This individual is not registered with or qualified as a research analyst with the U.S. Financial Industry Regulatory Authority (“FINRA”) and, since they are not associated persons of RBC Wealth Management, they may not be subject to FINRA Rule 2241 governing communications with subject companies, the making of public appearances, and the trading of securities in accounts held by research analysts.


RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.


Frédérique Carrier

Managing Director, Head of Investment Strategy
RBC Europe Limited
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