Rise in food prices will continue to increase investments in farmlands and technologies that improve crop yield

Analyst Commentary, Miller Chu: In February 2012, the UN Food and Agriculture World Food Price Index reached 215.27, an increase of more than 53% comparing to five years ago. The agricultural price increase has been driven by two main factors, global population growth and emerging markets. According to the United Nations’ Food and Agriculture Organization, global food supply must increase by at least 70% to match demand if the global population increases by 2 billion from the current 7 billion (which are the current World population projections for 2050). At the same time, demand from middle class in the emerging markets is expected to increase as disposable income increases and the desire for more protein based diets increases, requiring more agricultural livestock feed. Nestle’s CEO, Paul Bulcke, said the increase in agricultural price is likely to continue and will drive investment in R&D and infrastructure to increase farm yield and output. 

The trend seems supportive to some Canadian exempt market products that focus on farmland investments. Improvements in yield outputs, nutritional profile and productivity of commodity crops has increased significantly since the first biotech commodity crop – an insect resistant variety of corn – was first grown and sold in 1996. From 1996 to 2009, yield gains from biotech varieties of soybeans, corn, cotton and canola has totaled 229 million tons (Council for Biotech Information). With increased pressure from high agricultural commodity prices, increasing demand and limited arable lands, the incentive to improve yields is significant. We expect, with the current economic incentives and acceptance of biotech crops, yields will continue to improve through innovation. These factors could potentially benefit agriculturally focused investments.

Source: Bloomberg (Mar 19)

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