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Climate Change and agriculture : risks and opportunities

According to Schroders’ Climate Change investment team, climate change acts as a threat multiplier to the sector on top of the dual impacts of the increased demand and decreased supply, and that this will present various investment opportunities throughout the value chain

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Demand for agricultural produce will continue to increase due to the increasing global population, as well as the impact of increasing economic growth (improved diets). With the majority of population growth occurring in the developing world, where much of the global economic growth is expected to come from, this will result in a significant change in dietary demand. It is estimated that between 2001 and 2014 the global population will increase by 16% which will require a 30% increase in grain yields to support this. Compare this with the figures from 1989-2001, where population increased 19% and grain yields increased 11%, and the impact of the growing economies of the developing world become clear.

While demand is increasing, available productive land is in decline, yield growth is reducing and there is a growing competition from the biofuel industry for feedstock.

Agricultural productivity falls into the “Environmental Resources” theme of the climate change strategy, the other themes being Clean Energy, Energy Efficiency, Low-Carbon Fossil Fuels and Sustainable Transport.

Then there is the issue of global climate change and mankind’s need to mitigate it and adapt to it. Agricultural production (excluding forestry) accounts for 14% of global emissions (if deforestation is included then the figure rises to 31%), and so as efforts increase to reduce global emissions we expect to see the agricultural production sector having to play its part (there are already some examples of climate change legislation impacting the sector). In addition, the sector will have to adapt to the impacts of a changing climate, which will impact growing patterns, rainfalls and disease vectors, for example. Climate change therefore presents risks and opportunities to the sector, and the Schroders’ Global Climate Change fund aims to invest in those stocks that are clearly aligned with the opportunities.

Through our research, we have identified various mitigation and adaption options for the agricultural sector, as well as stocks that are exposed to these.

The table below, highlights some examples:

We conclude that climate change acts as a threat multiplier to the sector on top of the dual impacts of the increased demand and decreased supply, and that this will present various investment opportunities throughout the value chain and that there will be high levels of food price volatility over the coming decades. We have identified the sectors that will benefit from this within the agricultural production value chain as well as the benefits to food retailers whose valuations are positively correlated to inflationary food prices.

Giles Money , Matthew Franklin , Simon Webber , July 2011

Article also available in : English EN | français FR

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