Feeding the world has become more challenging. But the issue is not just a result of supply constraints for wheat, corn, barley and sunflower oil, as a result of the Ukraine-Russia situation. The problem lies deeper. And the solution is creating a substantial long term opportunity for investors.
One would assume that farmers globally would simply rotate their crops, or grow more, to fill the gaps and enjoy the elevated prices. But there are two issues:
- Food needs fertile ground, which while abundant in Russia and Ukraine, is not the case in alternative farming countries. The price of fertilisers and fertiliser related inputs (Potash, Nitrogen-Phosphorus based fertilisers, and ammonia) are soaring. Why? Belarus, Russia and Ukraine are the world's largest suppliers and the supply is not coming.
- Climate Change related weather patterns are not helping. Alternative large producers of Corn (such as Brazil) and Wheat (such as several U.S. states) are experiencing poor harvests as a result of low rainfall and warmer conditions.
One quick solution would be to reduce food waste, which may happen automatically given the high cost of food. But this is a partial solution at best.
Some countries have already restricted the exports. For example India (Wheat) and Indonesia (Palm Oil). But for a country to become food dependent, like North Korea, puts a country at risk when crops fail as a result of disease or extreme weather conditions. It's a long-term solution with caveats, that does not solve todays problems.
The more likely solution will come from fertiliser production and food protection companies. Given the expectation that food price inflation and supply constraints are likely to persist for several years ahead, the food security thematic has gained the attention of the institutional investor community.
