AgTech guide: Four things to think about when investing in high tech agriculture stocks
Food & Agriculture
Food & Agriculture
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About 815 million people around the world are underfed — while another 1.9 billion are overweight or obese.
And yet a third of the world’s food is wasted.
These statistics from the United Nations underline the complicated — and urgent — nature of the “feed-the-world” theme.
Here’s another. In little over a decade, the Earth will have another billion mouths to feed as the global population surges to 8.5 billion by 2030.
“As the rise in global population puts increasing stress on food supply worldwide, the demand for more food and better nutrition will only increase,” Morgan Stanley analysts said this week in research outlining how “impact investors” can help fund companies helping to achieve end hunger while also making money.
>> Scroll down for a table of ASX-listed stocks offering exposure to AgTech
There’s no doubt in the coming decade there will be a huge focus on AgTech — technology that improves farming productivity.
There will be a 21 per cent rise in milk consumption and a 30 cent increase in farmed fish by 2026, the UN Food and Agriculture Organisation, estimates.
“Improving food security requires a reduction in food waste since about one-third of food produced worldwide currently being lost or discarded,” Morgan Stanley equity strategist Jessica Alsford said.
Changing consumer demographics will also impact demand for certain foods, making efficient production critical, Ms Alsford said.
“Agriculture and livestock productivity will need to be improved to cope with the growing population and the expanding middle class.”
AgTech stocks listed on the ASX
Surprisingly, for a country that relies on agriculture as a key economic driver — there isn’t a huge selection of AgTech stocks on the ASX.
Stockhead monitors about 16 stocks that are either AgTech developers or food producers who are significant users of cutting edge technology.
Many have lost ground over the past year — but that could mean opportunity if Morgan Stanley is right.
AgTech developers focused on proprietary technology or new approaches in crop growing and food production include the likes of Sensera (ASX:SE1), which makes Internet-of-Things chips that are tagged to the ears of cattle to transmit data.
Roots Sustainable (ASX:ROO) is another pure-play AgTech working on technology that heats or cools roots to regulate crop temperatures and produce faster yields — even out-of-season. The Roots share price is up 70 per cent on its December 2017 issue price of 20c, to 34c this week.
Hydroponics developer Roto-gro (ASX:RGI) makes rotary “vertical farming” systems that it says achieve “massive” yields. It announced in January it was looking to launch cannabis crop-growing services for licensed marijuana farmers.
Food producers focused on incorporating technological practices into their production for sustainability reasons include stocks like beef producer Australian Agricultural Co (ASX:AAC) and salmon farmer Huon Aquaculture Group (ASX:HUO).
Abundant Produce (ASX:ABT) is in the “plant IP” game and has been developing “a range of food crops that can be grown under non-ideal conditions, particularly greenhouse vegetables, such as cucumbers and tomatoes.”
The ASX may soon host many more AgTechs if agricultural innovators heed the call of the National Farmers Federation for new technology to boost farming output to $100 billion a year to cater for consumption and exports.
Current farmgate output is just $59 billion, meaning there’s some way to go yet and agtechs have a chance of helping achieve that goal.
What to look out for when investing in AgTech stocks
There are four things investors should watch for when considering AgTech opportunities, according to new research from Morgan Stanley:
“In particular, investors should look at companies with higher yields compared to industry average,” Morgan Stanley analysts write.
Punters should look for numbers on how a company is boosting food production itself, as well as any details of how much more precise an approach makes farming. Investors can look for figures on use of sensors in soil, how automated sensors are used and what farming machinery is on the table.
2. Animal health
Livestock health is a key area of the global agtech space, with companies like Antara supplying products that protect the gastro health of cattle.
Morgan Stanley suggests investors in this space look at how many animals can be treated with a company’s technology, how much research these companies do and a company’s sustainability practices in order to work out the size of an opportunity.
3. How land and fertilisers are used
Punters should consider “should look at KPIs [key performance indicators] such as amount of land on which the products are used and initiatives to help ensure chemical fertilizers are used in a responsible and sustainable manner,” the paper says.
Agtech plays should focus on precision farming practices that reduce the space taken to farm and amount of chemicals used, says Morgan Stanley.
4. Consider the climate change angle
Food security and climate change are interlinked and many agtech plays are trying to develop solutions for changing weather conditions.
Morgan Stanley researchers say there’s a significant opportunity when it comes to irrigation, machinery and machinery plays that insulate crops from the affects of floods and higher temperatures.
>> Here’s a list of ASX stocks that offer exposure to AgTech:
ASX code Company One-year price change* Price Jul 18 (intraday) Market Cap ROO ROOTS SUSTAINABLE (*listed Dec 2017) 0.7 0.34 21.1M RGI ROTO-GRO 0.203389830508 0.355 32.4M FOD FOOD REVOLUTION 0.1875 0.057 24.7M NUF NUFARM -0.0564753912452 8.32 2.7B RIC RIDLEY CORP -0.0678321678322 1.333 409.4M HUO HUON AQUACULTURE -0.0940695296524 4.43 384.3M WOA WIDE OPEN AGRICULTURE (*listed Jul 2017) -0.1 0.18 AAC AUSTRALIAN AGRI -0.197771587744 1.44 868.0M ANR ANATARA LIFESCIENCES -0.226315789474 0.735 HCT HOLISTA COLLTECH -0.3 0.077 14.7M BGT BIO-GENE TECH (*listed Nov 2017) -0.35 0.13 16.0M ABT ABUNDANT PRODUCE -0.372093023256 0.27 14.0M JJF JIAJIAFU MODERN -0.444444444444 0.1 8.5M SE1 SENSERA -0.5 0.175 ESE ESENSE-LAB -0.712 0.072 5.8M CLI CROPLOGIC (*listed Sep 2017) -0.75 0.05 5.9M