Mitigating the Effects of Climate Change on Crops
There is little doubt that a large financial crisis is looming. The signs are all there and the indexes don’t lie. Therefore, it is high time for investors to consider their options. One of the surest destinations for high returns lies in agriculture.
Agriculture is the only commercial sector that has been there since the dawn of civilization. It is the bedrock of all societies and will always thrive as the world population is constantly growing and agriculture provides the most vital of all commodities necessary for our survival: Food.
Agriculture in developing countries especially has the potential for high return, as the sector comprises two key elements:
1.Performance improvement” and
2. “Economies of Scale”.
For example, in a typical African country the yield of rice paddy per hectare is, on average, less than 1 ton, which can be increased up to 4-6 tons per hectare, with the application of proper irrigation and crop management systems.
I have found that investors often consider providing funding to high-tech companies in agriculture. I am an avid supporter of technological innovation and welcome with open arms the trend in precision agriculture, farm monitoring systems, vertical farming etc., where billions are being invested. Such investments are very promising but come along with a high-risk profile and I fear that there is a high-tech hype.
The most profitable of those hypes demand very high initial CAPEX investments (along with high R&D costs), usually to the tune of tens of millions of dollars, making it difficult to scale up and implement internationally. A technologically advanced greenhouse, for example, usually costs $4 milllion per hectare. Managed fisheries with hi-tech water management systems are also difficult to implement in frontier and emerging markets.
Other value propositions, such as crop monitoring systems, while very useful in helping to increase output and improve crop yields, have a downside in that they require a high level of know-how for operation and maintenance.
My recommendation, for those looking for high returns and low risk, is therefore to seek out opportunities which are hiding in plain sight.
I frequently come across ventures all over the world, from Latin America to Africa and Asia, where investments can be made that are relatively low-risk. Time and time again I encounter state-owned idle factories that have been set up to process agricultural produce but have come to a standstill for a variety of reasons, most often inadequate budgeting for spare parts or inexperienced management. In most of the cases I have seen, these factories can quickly be re-activated by investing a relatively small amount of money and resume production, having positive effects for the farming communities around them, creating jobs and supplying less costly foodstuffs for the local population. In essence, there is little point in re-inventing the wheel in emerging and frontier markets when you can just revamp what they already have.
Similarly, there are hundreds of active agricultural ventures in these markets which are highly profitable and are seeking expansion capital. All that is needed is an experienced intermediary to conduct an assessment and guide the investment, as well as a skilful management team to oversee the endeavor and ensure that stays on track.
Investors that are willing to scout out such opportunities in developing countries will find plenty of good investment opportunities. These nations are starving for foreign direct investments and all it takes is knowing what to look for.
Miltiadis Gkouzouris (editor: Adrian Rösiö)