What is food security, and how does it relate to agricultural investing? For investors interested in making a profit — and a difference in the world — those two questions are worth answering.
Food security might sound like an unusual concept, especially when combined with agricultural investing, but it’s simple to define. The UN Committee on World Food Security describes food security as “the condition in which all people, at all times, have physical, social and economic access to sufficient safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.”
As that definition shows, there are both nutritional and economic aspects to food security. In fact, the UN Food and Agriculture Organization (FAO) has outlined four dimensions of food security: food utilization, physical availability of food, economic and physical access to food, food utilization and stability of the first three factors over time.
While some areas of the world can be considered food secure, those conditions do not exist the world over. Sadly, the absence of food security has many negative consequences. For example, it can lead to malnutrition and other health issues, which are problems that can shape a person’s life from childhood onward. A lack of food security can also lead to problems at the city and country level — after all, those who are malnourished generally cannot work productively.
Agricultural investing: Factors that influence food security
Many organizations are working to improve food security worldwide, but there are numerous challenges that they must face. Often they have to address the issue from several different angles; in some cases, they may have to make emergency interventions, and in others they may make longer-term economic and educational efforts to improve a location’s ability to maintain food security.
One key issue that organizations focused on food security need to contend with is access to food. The World Food Programme asserts that there is currently enough food in the world to keep every one of its inhabitants healthy and active, but the problem is access. Fixing access problems requires looking at infrastructure, trade and economic conditions, and many organizations seek to address those factors.
Of course, the world’s growing population is also a major issue when it comes to food security. According to the FAO, the world will need to produce 70 percent more food to feed an additional 2.3 billion people by the year 2050. Unfortunately, crop yield growth rates are declining, seed technology is reaching its limits and agricultural improvements are slowing.
What’s more, most population growth is expected to occur in less developed countries, where access to the benefits of advanced agricultural technology is even more limited.
Existing agricultural land is shrinking as well, meaning that it will be hard to plant new crops, creating the risk of food shortages and scarcity. The FAO notes that arable land per person fell from 0.38 hectares in 1970 to 0.23 hectares in 2000, and is projected to drop to just 0.15 hectares per person by 2050.
Available arable land that can be used to grow sustainable food is largely located in developing countries, and of that amount, around 80 percent is in Latin America and Sub-Saharan Africa. In fact, in Sub-Saharan Africa, only 22 percent of potentially arable or agricultural land is under cultivation; in contrast, 94 percent of South Asia’s potentially arable land is in use. There is similarly little spare arable land in the Middle East and North America, according to the FAO.
Agricultural investing: Food security and investing
As mentioned, many organizations focused on food security are addressing the issues above and the potential for a global food crisis. One way that they are doing so is through investment in agriculture.
Agriculture investment can come in many forms. The US Department of Agriculture’s food security programs have disbursed more than US$20 million in microloans to farmers in targeted countries and regions. Canada’s food security strategy for developing countries involves three core tenets: food assistance and nutrition, sustainable agriculture development and research and development.
But it’s not just large organizations that can improve food security by investing in agriculture. Individual investors can do so as well, and those who are savvy with where they put their money may be able to make a profit in addition to growing their portfolio. Generally, the investment strategies for the agricultural sector involve investing in natural resources like potash and phosphate. Both play a large role in preventing food insecurity as they provide the nutrients that are required to keep arable land fertile enough for crop cultivation and farming to take place.
For investing in potash, there are several large producers that currently have dominance over the market. However, since food security is a long-term issue, investing in exploration and development companies is important as well. There are plenty of companies developing potash projects all around the world; many are listed on the TSX and TSXV, and others are listed on the ASX.
Like potash, phosphate is also a necessary fertilizer for certain soils and is ever important to ensuring the global population has access to sustainable food. However, unlike potash, which is found in many places globally, phosphate is more scarce. Still, there are a fair number of phosphate-focused companies to choose from. You can learn more about phosphate investing by clicking here.
This is an updated version of an article originally published by the Investing News Network in 2014.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.