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The World Is Going Hungry.
Here's How Investors Can Help

As the global imbalance in food worsens, more investment is needed to boost crop yields and reduce waste

ARE WE ON THE VERGE of a food crisis? For many in the developed world, where people regularly share photographs of plates filled with elegant, well-proportioned meals on social media, it may be hard to imagine. But for many others around the world, the plate is empty. According to a recent United Nations report, nearly 800 million people globally don't have enough to eat—and with the world population projected to rise by about a third in the next 35 years, the problem will only get worse. In fact, the UN estimates that global food production needs to increase 60% by 2050 to meet the demands of the growing world population.1 At the same time, more than a third of the food produced today is lost or wasted.

"A huge number of people are underfed, and a huge number of people are overfed," says Paul West, a scientist with the Institute on the Environment at the University of Minnesota. The UN calls an excess of calories "over-nutrition," a problem that afflicts developed nations, where obesity is rampant. This also has a major impact on the millions of under-fed people around the world.

To make matters worse, most of the world's good farmland is already in use. "If you add up all of the cropland, it would be about the size of South America," West says. "All of the pasture land together is about the size of Africa. So we're already farming land that is the equivalent of two huge continents. Simply expanding agriculture's footprint isn't an option."

Meanwhile, water is scarce, and climate change is causing weather pattern fluctuations that make farming difficult to begin with. Faltering crop yields are another key problem. "When we look at the trends in yields from the 1960s up to the present, the rate at which we're increasing is nowhere near on pace to meet the needs of the future," West says.

"At least a third of all the food that's produced is wasted." — Paul West,Institute on the Environment, University of Minnesota

Getting More from the Land

So, how does the world under these pressures offset the imbalance and help the hungry? Much more must be invested in agriculture, says Sarbjit Nahal, head of thematic investing at BofA Merrill Lynch Global Research and an author of the recent report Feed the World: Global Food Security Primer. Today's annual global investment in agriculture—covering everything from infrastructure and natural resource development to research and food safety development—totals about $220 billion. To eliminate hunger, Nahal says, "we probably need to more than double that amount."

Nahal's report points to a few important ways investors might participate in easing the coming crisis. One is agricultural equipment—a $130 billion market today that he believes will grow to more than $200 billion by 2018. Expansion of "precision" agriculture, in particular, will be important. "It uses technology to optimize resources and increase production and profits," Nahal says. "You're looking to make water, fertilizer, pesticide and seed use more efficient." According to Nahal, established agricultural equipment companies as well as some big chemical businesses are getting involved in precision agriculture. Another way to enhance efficiency is through the use of "agribots," such as driverless tractors and drones. Nahal says the global agribot market could increase from an estimated $817 million in 2013 to $16.3 billion by 2020.

Waste Not, Want Less

Increasing the amount of food we produce is one part of a solution to the food crisis. Another is to reduce the amount of food that's grown but not consumed. "At least a third of all the food that's produced is wasted," West says.

In the developing world, most of those losses happen in the fields or as food is transported or stored. Nahal says about a quarter of food wasted in emerging markets stems from inadequate refrigeration equipment—and he sees a significant market for companies that can help solve that problem.

In the U.S. and much of Europe, however, the waste typically happens when grocery stores or consumers throw food away—to the tune of over 35 million tons in the U.S. in 2013, according to the U.S. Environmental Protection Agency.2 The amount that gets tossed by consumers in developed markets is equivalent to all the food that's produced in sub-Saharan Africa each year, according to Nahal. France recently passed a law requiring that supermarkets give unsold food to charities rather than throwing it out, or face fines of up to €75,000 or possible jail time.

Changing how we grow and consume food is also essential for the health of the earth itself. Agriculture accounts for about 25% to 30% of all of the planet's greenhouse gas emissions, according to West, as well as 70% of water use.

Indeed, the link between climate change and food production is clear: "Forty percent of the global land mass is at risk of extreme weather," says Nahal, who cites drought as one of the biggest threats to global food production. Near-term solutions to the water crisis as it affects agriculture could include improved approaches to water treatment and recycling, and getting "more crop per drop" through drought resistant seeds and crops, drip irrigation and other emerging technologies.

Investors who want to help alleviate global food shortages might consider stocks and exchange-traded funds (ETFs) focused in areas that could play a role in increasing crop yields, reducing food waste and helping feed a growing world population. In the process, they could aid in efforts to continue what is known as the Green Revolution, a 20th-century movement fathered by the biologist Norman Ernest Borlaug, who was awarded a Nobel Peace Prize for developing disease-resistant and high-yielding strains of wheat and rice in Mexico, India and elsewhere.

As the world continues the search for solutions in the 21st century, West believes that there are three key elements that can help avert disaster: "grow more food on land already used for agriculture, produce food sustainably with less impact on the environment, and use what we already grow more efficiently."

3 Questions to Ask Your Advisor

  1. What are the kinds of investments that help to reduce food waste?
  2. Are there any large multinational companies that focus on solutions to the global food crisis?
  3. What are the ETFs that address shortages of food and water?

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1 Food and Agriculture Organization of the United Nations: http://www.fao.org/nr/sustainability/food-loss-and-waste/en/

2 U.S Environmental Protection Agency, “Advancing Sustainable Materials Management: 2013 Fact Sheet,” June 2015:  http://www.epa.gov/wastes/nonhaz/municipal/msw99.htm

The material presented in this article is based on information obtained by BofA Merrill Lynch Global Research as of September 2015. 

Exchange Traded Funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost. 

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