The current Covid-19 pandemic has greatly affected most businesses and many of them start to evolve. More importantly, it makes people ponder what’s coming up next and you will hear that a lot in coffee shops. When you hear people explain how the glove making industry is becoming the next “Big” thing similar to the 5G technology, you will realise how little people understand about either of them. Generally, most people just look at what businesses are doing well during the pandemics (pharmaceutical, glove, logistics, e-commerce etc) and start pouring money into them. Well, in this case, I mean throwing their money into the zero-sum game of stock market speculation rather than making productive investments.

For me, I somehow develop a strong faith in agriculture – I think its potential will certainly outlast the current pandemic and my own life expectancy. The reasons are very simple if we just go back to the basic common sense.

1. Population Growth

The United Nation has projected an increase of 2 billion population in the world in the next 30 years and how are we going to sustain so many mouths to feed? I think we have three choices. We can kill a portion of them (like how we wiped out 75 million in WW2), implement birth control (doomed to fail miserably) or find the best way to feed them. Of course the last is the only sensible option and to feed this 2 billion people is not easy. As people are getting more prosperous and having a penchant for quality food higher on the food chain, we need to grow the equivalent amount of food we have grown in the past ten thousand years. Roughly speaking, countries will need to increase food production by 60-70% in the next 30 years.

That simply tells us that the market is enormous!

2. Geography

Even though we have plenty of inhabited land according to what we see on Google Map, most of that is not suitable for farming due to soil condition, lack of water source, climate and logistical challenges. Arable land with sufficient water source is in short supply and this is not easy to resolve. For countries like Saudi Arabia, UAE and Singapore, I don’t think they can ever achieve self-sufficiency in terms of food security.

Fortunately, Malaysia has considerable amount of natural advantages in terms of climate, supply of arable land, water supply and labour (though it’s getting more challenging). Despite having such advantages, we are still a net importer of food and this is where the potential lies.

3. Technological Advancement

We would have experienced major famines if we didn’t attain the technological breakthroughs in chemical fertilisers and genetically modified crops. No matter how controversial they are, we cannot run away from the fact that the resulting jump in crop yield has sustained our current 7 billion population. Take away GM soy and you probably have to pay many times the current price for meat. If you think that’s suffocating then what about the 680 million people living on less than USD2 per day?

Traditional agriculture assumes significant risks because it relies heavily on weather and other ecological changes beyond our control. The future is to shift agriculture into a more controlled environment using robotic technology, artificial intelligence, genetic engineering and big data powered by advance sensors. This is the era of precision farming and that includes reducing the waste generated from food logistics.

4. Capital

There are growing number of investment funds paying attention to food production and agritech due to the underlying potential. The more active ones are sovereign wealth funds from countries facing severe food security threat. Funds from Saudi Arabia and UAE were busy buying overseas arable land and investing in agritech companies to secure the most important lifeblood in times of crisis.

As long as we can create a sustainable, profitable and scalable business model, there is a ready pool of capital to supercharge its growth. Here we are talking about smart money looking for long term sustainable return rather than hot money which leaves a trail of destructions on its way out.

5. Competition

I generally don’t like industries governed by the winner-takes-all fundamental which is so prevalent in the Silicon Valley because the odds are heavily stacked against the small guys. I don’t know any agriculture giant which completely dominates one particular market that no one else can survive. CP Group is probably the largest poultry company in South East Asia but there are plenty of smaller companies thriving in local markets across the regions. You will see the same trend among many other agriculture sectors and there are plenty of opportunities for the small guys.

The barriers of entry for each agriculture sector differ by a lot but it is possible to start with low barriers of entry and then build economic moat around the business. For example, a traditional vegetable farm can evolve into vertical urban farm powered by 5G technology. You don’t usually get this opportunity in other capital intensive or highly regulated industries.

As agriculture generally doesn’t offer supernormal profits and outsized returns, I don’t see an influx of players backed by speculative capital. Therefore I don’t expect lots of boom and bust driven by dizzying competition. In fact, agriculture requires a lot of hard work and it certainly doesn’t sound sexy at all. The unsexy appearance is what I love the most because it doesn’t attract speculators.

***

I’m certainly not stupid enough to say that agriculture is the best way to make money because there are significant operational risks and many other problems attached to it. Have you heard of plant disease? What about livestock mortality, escalating energy cost, commodity price swing and profiteering by middleman? If agriculture is so good then why are there so many impoverished farmers around? These are very long stories and I shall leave it for another time.

To me, the key is getting into the right sector that you understand its key risks and build a sustainable business model out of it with whatever resources you have.