Across developed economies, secure access to food supplies has been taken for granted for decades. Until recently, consumers have had little reason to doubt that supermarket shelves would always be well stocked and ingredients from around the world would be readily available.
Severe international supply chain disruption in 2020 in the wake of the covid-19 pandemic challenged that complacency. Two years later, Russia’s invasion of Ukraine, which blocked exports from one of the world’s major grain producers and contributed to a wave of food price inflation, further dispelled it.
As a result, food security has shot up the policy agenda. Peter Bachmann, managing director for sustainable infrastructure at Gresham House, tells Agri Investor: “It’s a massive priority. Every policymaker I speak to recognizes that food security is probably the number one thing that we need to start to get a better handle on.”
And while Western governments are suddenly waking up to threats to food security, shortages have long been a recurrent feature of everyday life across much of the Global South. The UN says that one in 11 people globally went hungry in 2023, including one in five in Africa.
But one of the surprising realities of food insecurity is that there is no global shortage of food. The world produces enough food for everyone to consume almost 3,000 calories a day, according to the UN Food and Agriculture Organization, easily enough to meet nutritional needs. The main problems are that copious volumes of food are wasted, and that food is not efficiently delivered to everywhere it is needed.
Agriculture investors are stepping up to tackle these problems in a variety of ways. With more than 700 million people classed as food insecure, and climate and geopolitical shocks occurring more and more often, there is no time to lose in the race to strengthen the resilience of global food systems.
Vertical farms
One way to shorten agricultural supply chains while also tackling waste is to invest in controlled environment agriculture, including vertical farms and advanced greenhouses.
Vertical farming allows more food to be grown locally, which lessens dependence on supply chains that span continents and are inherently vulnerable to disruption. It also requires far less water than field-grown crops, and some operations avoid using pesticides entirely.
Countries in parts of the Middle East, where the ability to grow crops is severely limited by harsh climate conditions, are among the leaders in this space. Bustanica, the world’s largest vertical farm, opened in the United Arab Emirates in 2022. The facility was fully acquired by Emirates Flight Catering earlier this year. Much of its output of leafy greens is consumed by airline passengers.
Singapore is another major proponent of vertical farming, while countries in Europe and North America are moving at variable speeds in encouraging investment.
Gresham House is invested in a UK-based vertical farming operation, Fischer Farms. While several similar businesses have struggled in recent years amid rising energy costs, Bachmann says that one of the main costs – LED lighting – has been on a steeply declining curve. He says that LED costs at Fischer Farms’ second facility were half that of its first operation, despite the second facility being seven times larger.
“The LEDs were, in effect, about 14-15 times cheaper in just three years,” Bachmann says.
The falling cost base for vertical farming contrasts with field crops, where the costs of input such as fertilizers, water and labor have been continuously increasing.
“We’re now at a tipping point where vertical-farm produce is at or below the price of field-grown crops,” says Bachmann.
As well as reducing costs, Bachmann says that the sheer volume of produce that can be grown in ultra-efficient vertical farming operations is a major bonus for food security. He reports that Fischer Farms can achieve up to 60 harvests a year for some produce, compared to just two or three for field-grown equivalents.
Bachmann believes that vertical farming can allow Britain to swap leafy green imports for domestically grown produce within the next few years. The next target will be soft fruits, he says. With sustained investment, Bachmann says cereal crops could also be grown indoors on a large-scale.
And Bachmann sees no sign of the vertical farming revolution slowing down, with incremental improvements continuing across a range of parameters in vertical farming operations. “We’re just constantly amazed,” he says. “We’ve got a levelized cost of salad that’s constantly coming down.”
Starting simple
While strengthening food security in high-income markets depends largely on technological innovations, far more basic interventions in developing countries can have a major impact.
Anup Jagwani, global head for agribusiness at the International Finance Corporation, the private sector arm of the World Bank, notes that investments in reducing food waste can use “very simple” methods. For example, an IFC investee company in Nigeria, Babban Gona, provides smallholder farmers with bags and tarpaulin to stop pests pilfering food stockpiles. He adds that the IFC has a big program on warehousing, which can be extremely helpful in reducing food waste.
“The low hanging fruit of food security is the fact that 40-50 percent of all food produced in sub-Saharan Africa is lost post-harvest at some point, mostly due to cold chain related issues and lack of processing infrastructure in the country,” says Chris Wayne, head of agriculture investing at impact investing firm Acumen. “There’s a clear solution orientation towards investing in that middle of supply chain infrastructure that’s going to keep a lot more of that food fresh, healthy or processed in the value chain.”
Wayne argues that part of the solution is investing in “companies that have short supply chains from the farm to the facility, plus a facility to the end retailer in-country,” which he says are far less exposed to global crises. Acumen, for example, has invested in a Kenyan aggregator company called FarmWorks that provides smallholders with input services then purchases their produce and sells it to larger retailers. This brings farmers much closer to markets, thereby helping to reduce the risk of post-harvest losses.
Yet, securing the level of private sector investment needed to tackle food security in emerging markets has been a long-standing challenge. Many investors are deterred by real and perceived risks in emerging markets, says Wayne. “We really do need commercial capital to see this as an opportunity and take risks,” he says, adding that governments also need to do more to create enabling environments for investment.
Acumen relies on donor and philanthropic capital for evergreen-style facilities that back early-stage companies, while it also operates blended finance facilities with a more typical GP-LP structure. “We recognized that there was a clear gap in the market for that stage of capital where the ticket sizes are a little bit bigger, the scale expectations a little bit bigger,” says Wayne.
Ultimately, he says, he is quite bullish that blended finance can help drive greater investment into agricultural businesses that can scale-up and tackle food insecurity. Wayne explains: “We’re seeing a step change in the foundational work that should drive the future commercial capital to this space.”
