Researchers say 71% of global consumers now consider sustainability when making purchasing decisions. This shows a growing preference for products that balance profit with environmental responsibility. It's a clear mandate from the public—one that has investors showing renewed interest in sustainable agriculture.
Many agricultural businesses are already responding to the shift in consumer sentiment. This process has included the following:
- Improving environmental impact: Reducing water consumption, pesticide use, and environmental damage
- Social responsibility initiatives: Such as fairer labor practices and greater community engagement
- Economic viability: Reducing climate change risk and protecting long-term profitability
The question for investors today is whether operations following this trend are worth capital allocation. Let's consider the case.
The Business Case for Sustainable Agriculture
Sustainability is a social issue for consumers. But for agricultural companies, it's become a pathway to increased profitability. Sustainable growth operations are more efficient, which reduces costs. They also open access to new markets, which can expand a customer base.
Sustainable agriculture firms also enjoy a better reputation. Consumers care about climate change risk and want to support sustainable businesses because of it. Becoming a sustainable business is a pathway to earning these customers' loyalty.
Together, these factors make sustainable agriculture companies worthy of investment. These businesses have lower costs than competitors, a better reputation on the market, and an easier path to earning customer loyalty.
Investment Opportunities in Sustainable Agriculture
If investing in sustainable agriculture is worth considering, the next question is how to get exposure. There are several options, including:
- Direct farm investments
- ETFs and other funds that track sustainable agriculture
- Companies creating sustainability-focused agricultural technology
Some investors are also engaging with companies that aren't sustainable yet but could be soon. For example, a large farm may be able to increase its profitability by embracing sustainability. Investing in that farm and helping it make the transition can be a strategy for generating outsized returns.
Your best option for exposure may depend on your preferred level of involvement. Direct farm investments take more work to manage than ETFs—though not if you invest through a firm that handles management.
Concerns and Challenges
One of the difficulties of investing in these companies is that sustainability can be hard to measure. Each country sets its own labeling standards, but these don't always tell the whole story. Investors need to spend time measuring a potential acquisition's sustainability to understand truly where it fits in the market. This requires some expertise.
Another factor to consider is ongoing changes in regulations and policies. These favor sustainable operations in most developed countries, but that can always change. This makes it important for investors to monitor policy evolutions in the countries they prioritize.
Turab Musayev: Agriculture as a Diversification Pillar
If decades of institutional-grade investment experience have taught me anything, it's that diversification matters. Time and time again, investors who have diversified outperform the market and are better able to withstand its drawdowns.
Investing in sustainable agriculture is an excellent way to diversify your portfolio. The growing global population should create heightened demand for essential food commodities.
At the same time, climate change is increasing. This could eventually make sustainable growth operations the new standard. Investors who get exposure to the asset class now will be well-positioned for the future.
Wollstone Capital has focused on hazelnut plantations throughout Italy. Our sustainable practices increase yields naturally while reducing the cost of inputs compared to nonsustainable operations. We also track and optimize our orchards' carbon cycles to protect yields long-term. Feel free to reach out if you'd like to learn more about our work in this space.
Turab Musayev is an expert in natural gas, electricity, and LNG trading and infrastructure projects. Since 2006, he has held senior positions in various international companies operating in the energy sector.
