News & media Fruitful Opportunities in the Global Food System: Transforming Financing for Necessary Change
The global agricultural value chain stands at a critical juncture, poised for a significant transformation. As the sector seeks to evolve, a question is arising: does the financing of agriculture need to transform as well?
Agriculture and food production have marched in lockstep with our development as a species and as a society, serving as catalysts for profound geographic, environmental, societal, economic, and political changes. The importance of a functioning global food system is undeniable—our survival depends on access to nutritious food. The range, availability, and reliability of today’s food supply systems are remarkable achievements driven by human ingenuity and the desire – and need – to trade. The benefits of these global food systems have been enjoyed worldwide, with staples like potatoes, tomatoes, oranges, sugar, tea, and coffee becoming ubiquitous across cultures. Over the past half-century, technological advancements, capitalist endeavours, and globalization have fuelled the growth of these systems, increased food production, improved nutrition, and promoted greater diversity in food options.
However, the system is not yet achieving the needed output or distribution. Despite the substantial productivity gains that have been achieved during the past several decades, food production and distribution are failing to meet global needs consistently. Estimates suggest that between 713 and 757 million people (8.9% and 9.4% of the global population) suffered from hunger in 2023, according to the UN’s Food and Agriculture Organisation. While globally food poverty affects one in three people (2.33 billion)[1], where people do not have regular access to adequate food.
Despite the overall increase in food production, the value chain – put crudely – is not working effectively. Globally, many receive more calories than they need daily, highlighting both the imbalance in food distribution and the massive food waste within the system—estimated at 30% of all food produced. The inherent complexity of the global food system has been exposed by recent events, notably Russia’s invasion of Ukraine, which disrupted global grain production and supply chains. The conflict and resulting sanctions have also impacted global fertilizer supplies, creating financial burdens for farmers and threatening future crop yields. The full extent of the damage to Ukraine’s agricultural lands is still unknown, but the consequences for global food security are expected to persist for years.
In response to these challenges, there have been calls for more localised food production – a less complex chain. While producing food locally has its benefits, relying solely on local sources is unlikely to achieve the resilience and production capacity required for global food security. Climate change is already having a profound impact, with extreme weather events such as droughts – as seen in Greece – and unprecedented rainfall – as seen in the UK – causing havoc for farmers and reducing regions’ ability to sustain themselves.
Furthermore, the current state of the infrastructure within the system must be rationalised against the magnification of these concerns.
The global population is forecasted to grow significantly, increasing to 9.7 billion by 2050[2]. An increase of almost 20% from current levels. In addition, food demands and diets are changing. A growing global middle class and an increased focus on plant-based diets in the West, likely leading to higher crop demand for both animal and human food.
At the same time, sustainability concerns are no longer optional, they are essential. Agriculture is deeply dependent on natural capital and resources, yet intensive farming practices have degraded soil health, which can lead to reduced yields and increased reliance on inorganic fertilizers. Soil degradation, caused by both agricultural practices and broader societal impacts (i.e. urbanisation), is diminishing the land’s productivity. Furthermore, the agricultural sector is a major contributor to climate change, estimates suggesting that 22% of global greenhouse gas emissions stem from agriculture, forestry and other land use (this does not include CO2 that has been sequestered)[3].
Future resilience is equally critical. Agriculture depends on stable and predictable climates, but climate change is leading to increasingly erratic weather patterns, threatening the ability of regions to grow and produce food in both the short- and long-term.
In short, the global food system is creaking. The weight of a myriad of pressures is bubbling to the surface and it is clear that the sector needs to once again undergo a transformation. Fortuitously, a demonstrable example has been made in the energy sector. A sector which, perhaps surprisingly, shares the characteristics of a need for security in supply, access and sustainability.
Just as with the ongoing energy sector transition, transforming the global food system will require substantial capital reallocation. Traditionally, governments and public capital have been the large supporters of national agricultural efforts, given the links and need for food production and security, employment and economic growth. The agricultural sector globally receiving more than $700 billion[4] a year in public support. However, a substantial financing and capital gap exists. An estimated $140 billion per year is required to tackle poverty and hunger, $50 billion of which is needed from the private sector for farm developments[5]. While an annual $80 billion[6] in funding is required to meet increased food demand. This is to say nothing of the $250-430 billion annually needed to transform global food system into a regenerative one[7].
This transformation requires a wave of capital and financing across the entire value chain, from both public and private sources. The private sector has begun to recognise the opportunities within the sector, both financial and to create beneficial change, and interest has grown substantially across the value chain in this alternative asset class. Venture capital has begun to flow into agtech, with $3 billion invested in 2023 alone, while the number of agriculture-related funds has also grown dramatically.
Investors are recognising the benefits of this asset class within their portfolios – the fundamentals of the farmland sector are attractive. Demand for food is rising, whilst suitable land is restricted. Yet in addition, the agricultural value chain also offers benefits including low correlation to other asset classes, capital preservation during downturns, a strong inflation hedge, and the opportunity to support vital global initiatives. But a wave of capital is required across the value chain. With opportunities abounding this is beginning to take hold, as investors and allocators recognise the potential boon to portfolios from the asset class.
Opportunities thrive across the value chain, catering to the diverse needs of investors. From the burgeoning agtech sector to the long-term capital needs of large-scale producers, there are investment opportunities that match the risk/reward criteria of various financial market participants. Just as with the energy transition, the agricultural revolution will require capital at every stage.
Operating over all bar one continent, the developments to the food production have importantly allowed for and highlighted countries and regions with superior growing and exporting potential. Regions, which have comparatively low domestic demand, population density and superior natural capital, be it soil composition, climate or available land are poised to become superpower producers and exporters. Thereby shoring up the food system, by enhancing food production, security and resiliency.
Investments are also needed in crop development to reduce resource requirements, such as water and nutrients, and to improve resilience to droughts, floods, and other climate-related challenges. Similarly, investment in logistics, such as upgrading distribution centres and refrigeration capabilities, can lead to a more efficient and resilient food system despite the high initial costs and longer payback periods.
For capital to be effective to all, however, there must be a shift away from the short-term thinking that often influences agricultural financing and investing more generally. The benefits of the sector to allocators and investors being realised over longer investment periods. While one of the main limiters to the transformation of the sector is the lack of access to appropriate long-term capital, particularly through structures that account for the sector’s seasonality.
To facilitate this, producers, distributors, and others associated with the agriculture value chain require financing that is medium- and long-term in nature. This type of financing enabling investment in initiatives, transformations and conversions that require several years to fully embed but once implemented drive improved land management, land quality and importantly yields. Without the cost to the environment.
There is no denying the immense pressures facing the global food system. However, with the right financing and investment strategies, transformation can and must be achieved. The opportunities are plentiful, and the need for action is urgent.
Cordiant’s Approach:
Cordiant has a long track record of providing tailored, growth capital solutions to the agriculture value chain. Cordiant has deployed over a US$ 1 billion into the global food systems. As with all its focus sectors, deep industry and operating knowledge in combination with extensive financing experience underpins Cordiant’s approach to agriculture investing. The financing approach is designed to account for the intricacies and realities of food producers, distributors and all other operators in between. Cordiant seeks to provide mid-sized farming enterprises with operational expertise, access to agricultural technology and financing for critical enablers of sustainability and productivity, thereby playing a role in marrying a focus on food security with an emphasis on more sustainable practices.
Cordiant’s dedicated Agricultural Investment Teams are based in Sao Paulo, London and California. Cordiant has both equity and credit agriculture value chain investment solutions available.
[1] FAO. The State of Food Security and Nutrition in the World 2021
[2] OECD-FAO Agricultural Outlook 2021-2030
[3] United States Environmental Protection Agency. Global Greenhouse Gas Overview
[4] World Bank. Public Policy and Expenditure
[5] World Bank. Mobilizing Capital for Development in Agriculture & Food
[6] World Bank Group. Agriculture Finance & Agriculture Insurance
[7] The Rockerfeller Foundation. The Financing for Regenerative Agriculture (2024)
