The next big thing in investment?

I met a friend over the weekend, and one of the more interesting topic of discussion was the recent press on food shortage, and the increase in food prices plus food producing countries taking steps to ensure they have enough to feed themselves before exporting.

It seems that a big shot consulting firm forecasted sometime back that food producing countries are producing more efficiently, coupled with improvements in the supply chain, that soft commodity prices would stay depressed for a while.

Companies, having paid mucho bucks for that piece of report, naturally under invested in their technologies and products that form the basis of agricultural usage, such as fertilizers etc etc.

What the consulting firm did not envisage is crop disease, weather that have gone amok and competition from another sector for the raw feedstock: energy.

So today we see the following trends (this is by no means exhaustive and represents my own view OK?)
1) Biofuels: government subsidy meant that the farmers or middle men get more money to sell their corn, sugarcase, palm oil etc etc to biofuel makers than to traditional food processors. As a result, soft commodities have seen their prices increase, which naturally leads to increase cost for end processed material such as flour, rice etc etc.

I advocated once back that I thought Biodiesel would partially offset the world's hunger for energy. I still do, except now, I advocate that the suppliers seek out alternative feedstock; in particular feedstock that does not compete in the food chain. There are aleternatives out there, one of them being jatropha.

Jatropha does not need as much maintenance palm oil, plus it is able to survive in inhospitable land. Therefore, in theory, it would be better for the citizens of Beijing (or the outskirts) to plant jatropha to prevent the yellow desert from encroaching Beijing and the reduction of sand storms in the capital.

But I digress.

2) Due to global warming, we have seen the weather turn upside down. At least in Singapore, what was dry season is now innundated with rain. In Australia, when there was supposed to be rain, it is dry as a bone. Recent pictures have shown the Artic shelf shrinking, thus leading to increase in the sea level.

3) Diseased crops. Because of the factors above, plus the liberal use of pesticide, I believe that the insects have grown resistant to the pesticide, plus leaving the crops prone to more diseases

4) There are genetically modified plants available, but due to the bad press and lack of legislation (or progressive, sane legislation) it meant that these GM plants are not getting into the food chain. To some it may be good, but to other, it would be bad as investment into GM food research would be channeled elsewhere, and we would never know the long term effects of consuming GM foods.

But these GM foods hold the promise of better yield and shorter growth cycles and hardier plants. Does that not justify additional research into GM foods? Who are all the people making noise about GM foods? People with a full stomach and more than enough food on their plates, or the poor and hungry in Africa?

5) Under investment from suppliers. Chemical companies supplying into the agricultural industry have been under-investing in their product segment due to the misguided belief that the soft commodity market would remain soft, therefore the margins would be kept in the lower range.

But now, they have been pressured to produce more, and manufacturing efficiency can only increase the output by so much. Additional facilities need years to build and tool-up and tested before they too can come online and produce at great volumes.

Therefore as I see it, the next growth cycle in investment would naturally go into the soft commodity business sector.

Where are areas of opportunity?
1) Green pesticides. Many of these plants have in-built mechanism to keeping itself safe from insects and such. One key items is how do we find and couple these defense mechanisms from different plants to achieve the ideal outcome.

2) Green fertilizer, or at least greener ways of fertlizing the ground.

3) Hardier seedlings. TO be quite honest, the fastest way to get results is through genetic modification (GM), but the GM monster is still very prevalent among the learned and noisy. What I do not advocate is a chimera seed, where animal gene is inserted into plantform (if at all possible - I am no scientist), but in between plants I believe should be OK. I could be wrong. Also along the same vein would be seedlings that grow faster, and yield more end products.

4) Improving the production efficiency. Simple and yet impactful. Can Statistical methods and efficiency programs such as TPM and 6 Sigma be used in the harvesting and later on, producing process? I bet there are  areas of opportunity.

I had the opportunity to learn a bit about social entrepreneurship, and I think this could be in line with what I am advocating. So in essence labs like Temasek Life Sciences, AVA and a lot of Malaysian Uni should gear up their research to reap the returns in a few years time.

Will I be right, will I be wrong. Only time can tell. I'll revisiting this again in a few years and perhaps so a post-mortem!

End.

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