Investing to feed the world

Lamiaa Chaabi
Co- Portfolio Manager, Charity Funds

I was born and raised in Morocco – a country where a steady food supply isn’t something everyone can take for granted. With its semi-arid climate, Morocco is regularly afflicted by droughts, and it’s always the lowest-income households that suffer the most when the crops fail. In recent years, the Moroccan government has worked hard to improve the situation – efforts that have been recognised by the United Nations (UN)1. But with nutrient-poor soil, climate change and a reliance on grain imports, food scarcity remains an ever-present threat.

Of course, this doesn’t just affect Morocco. The entire world is moving further away from its goal of ending hunger2. As many as 828 million people were affected by hunger in 2021 – amounting to almost 10% of the global population. That’s up from 9.3% in 2020 and 8.8% in 20193. This is a calamitous situation.

Food and energy: a vicious cycle

Essentially, we’re facing a three-pronged crisis involving food, energy and climate – all of which are interrelated. Rising global temperatures and more frequent natural disasters reduce crop yields. Meanwhile, higher energy prices increase the costs of operating farms and distributing produce. And as countries scramble to produce more energy, they are delaying the green transition and exacerbating the climate crisis; Germany, for example, has recently passed an emergency law to reopen mothballed coal plants.

At the same time, policymakers face difficult decisions in choosing between food security and prioritising the climate transition. To advance the energy transition, more crops are likely to be used to produce biofuels as an alternative fuel source – leaving less to be used to feed hungry mouths and putting even more pressure on food prices. This is a feedback loop that’s very hard to escape.

The war in Ukraine has made the food crisis even worse. Since the conflict began, the effects on the energy market have drawn the most attention. But the impact on the agricultural market has been devastating. The Russian invasion has restricted exports of grain and fertiliser from both Ukraine and Russia – two of the world’s leading producers. Some 45 of the world’s least developed countries import at least a third of their wheat from Ukraine or Russia – and 18 import at least half4.

Thus far, however, these concerns have been underappreciated – both by the public and by investors. But there’s no doubting their urgency. António Guterres, the UN Secretary-General, has warned of the need to “do everything possible to avert a hurricane of hunger and a meltdown of the global food system”5.

Charting a path to food security

So, what can investors do to address this crisis? Well, we can direct our clients’ capital to companies that work to reduce food insecurity. Agriculture is among the most resilient of industry sectors and often performs positively when the rest of the equity market is falling; this is because spending on food tends to hold up, even if tighter budgets cause preferences to change within the sector. So, agriculture’s attractions are all too obvious at present.

And it’s not just investing in food producers. The opportunities run right along the food chain to agriculture equipment, fertiliser manufacturers and distributors. Renewable energy also plays a part, and we are seeing increasing investment in wind farms, solar power and electric vehicles, which improve food security by reducing farmers’ input costs.

Risk: There is no guarantee that a positive investment outcome will be achieved.

Then there’s technology. We’re seeing impressive innovations in precision farming, where technologies such as drones, GPS satellites and data analysis are used to increase crop yields. Agri-tech – the use of science to improve crops – is another fast-growing sector. Last year, supported by government initiatives, start-up companies in this sector raised some $2.6 billion driven by demand for ensuring food security and more sustainable solutions6.

How we aim to help

At BlackRock, we have a focus on companies that offer long-term solutions to the food crisis. And we put a particular emphasis on supporting companies that offer innovative solutions here.

For example, we invest in a leading aquaculture company with strong hygienic and ethical fish handling practices. Aquaculture – essentially, farming fish or other sea creatures – offers a solution to the depletion of the ocean’s fish stocks because the farmed seafood is independent of the natural ecosystem. Farmed sea creatures can even be used to help restore natural fish stocks. Also, protein from fish has a better sustainability profile than that from beef. Seafood is more efficient to produce: fish yields much more edible meat per kilogram of feed than land animals, with lower greenhouse gas emissions7.

Another example in our portfolio is an agri-tech company that uses biotechnology to enhance crop yields. This company is one of the world’s largest producers of fertilizer and also provides seeds, crop protection and advice for farmers.

Biodiversity is a crucial area too. ‘Natural capital’ – which includes plants, animals and other natural resources – is key to mitigating climate change. For example, trees offer a solution for capturing and storing carbon dioxide. Natural capital also ensures a reliable and sustainable food supply. Therefore, by identifying and investing in companies that enable the preservation of natural capital, we are helping to protect the climate and improve food security

My Moroccan background means that the dangers of food insecurity will always feel close to home. But this is a truly global crisis. Balancing the three pressing concerns of food, energy and climate is vital for all of us. So there’s a compelling case for investors to use their influence to improve the situation. And that case is not just moral but financial too. Long-term solutions should bring long-term rewards, and investments in sustainable food production offer the prospect of truly sustainable returns.



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