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"Liquid returns"

Liquid returns: investing to tackle agriculture’s water challenge

21 July 2021

7 minute read

Imagine turning on the tap for a glass of water and nothing comes out. It sounds scary, but without interventions in water management and agricultural processes it could become reality.

The world has a water problem. Climate change alongside rising populations and intensive farming practices are stretching supplies to the point that, in many countries, water is becoming a threatened resource.

Globally, around one in nine people lack easy access to clean water1, a fact that presents economic as well as health challenges: Water.org estimates that time spent sourcing it costs developing countries around $260bn in economic opportunities each year.

Agriculture holds a key to the solution because more than two-thirds of the fresh water supply is linked to food production, according to the UN2.

Investing for change

Technologists and innovators are working at speed to develop tools to combat the problem. Options to reduce water consumption are plentiful throughout the food value chain, from land-use, input materials, processing, packaging and transport, to consumption and waste management (see diagram below).

Damian Payiatakis, Head of Sustainable and Impact Investing at Barclays Private Bank, argues investments here have the potential to make a positive impact as well as a financial gain.

“As an investor, the increasing demand on our food systems is a positive indicator for an attractive market,” he says. “Addressing the risk of water scarcity and stress is critical to the viability of the industry. It’s at this intersection that more interesting, and impactful, investment opportunities can arise.”

"The food value chain - Ecosystem, Production, Processing, Distribution, Consumption, End of use."

Solutions on tap?

Innovations abound in the race to solve agriculture’s water problem, ranging from precision or AI-driven technology to high-concept large-scale infrastructure.

At the mega-project end of the scale, Dr Rachael McDonnell, Strategic Programme Director at the International Water Management Institute, says one solution could be channeling city waste to agricultural land.

“A growing amount of water is going into waste sewage systems because cities are bigger,” she says. “We shouldn’t be flushing it away; it contains good nutrients and if you have pipes to link it to agriculture then you can join up the system.”

In other parts of the value chain, established corporations are seeking to grow by providing innovative solutions to these water issues.

For example, Aquatic Informatics, a subsidiary of Danaher, has developed innovative water management tools to tackle the challenges faced by the driest and most drought-prone areas.

The company’s AQUARIUS Time-Series tool is a powerful water management platform that allows farmers to better understand, in real time, the hydraulic and water quality integrity of their distribution networks through advanced data management and analytics. The tool is helping farmers better utilise their limited water resources for optimal agricultural production.

Similarly, Microsoft’s FarmBeats workstream is building out a range of affordable end-to-end data-driven tools to accelerate the transition to precision agriculture, with a focus on farms in the developing world where the effects of water scarcity are felt most severely.

The cutting-edge AI-technology provides farmers with key information – where to sow, when to harvest and importantly how much to water – boosting the efficiency and productivity of agriculture on a huge scale whilst operating within our planetary resource constraints.

Innovators entering the market

Meanwhile, a variety of early-stage companies are seeking to provide breakthrough solutions, or even disrupt the entire food value chain.

San Francisco-based Eat Just has developed a range of plant-based alternatives to animal food products. Co-Founder and CEO, Josh Tetrick, notes that plant-based substitutes for foodstuffs such as mayonnaise, normally produced with chicken eggs, dramatically reduce the amount of water required in the food system.

“The process of making animal products, from a steak to a chicken egg, requires one-third of our global freshwater. We supply more water to grow the crops for farm animals to eat directly than the crops for human beings,” he says.

“New technologies and investments in plant-based products and cultivated meat can dramatically change this equation. They do so by using 90 per cent less water for a comparable gram of protein, allowing the human population to enjoy protein without denying the world's most essential ingredient – fresh water – to communities that need it the most."

Within Barclays, a specific Eagle Labs AgriTech programme was established to support UK agriculture and its supply chain through research, events and collaborations with AgriTech businesses, promoting cutting-edge solutions to businesses from farms to retailers.

Seizing the moment in 2021

Roxanne Martin, AgriTech Innovation Lead for Barclays Eagle Labs, says end users are increasingly mindful of agriculture’s role in water scarcity, arguing a growing number of farming businesses having to adapt as a result.

“That’s being driven by policy, but consumers are also a lot more aware,” she says. “It’s creating opportunities for food producers to diversify income streams. We’re seeing more farmers interested in vertical farming and hydroponics. Two or three years ago you wouldn’t have seen that.”

Vertical farming, in which plants are grown in stacked layers, saves water because there is far less evaporation than in traditional field-based systems. Hydroponics, meanwhile, though water-based, use less water because there is no soil to soak it up.

If consumer appetites are driving change, then global events might also bring a new impetus. Containment measures designed to reduce the impact of the Covid-19 pandemic have exacerbated the problems that cause water stress, potentially bringing the need for solutions into sharper focus, while high-profile events earmarked for later this year could draw more attention to the topic.

The UN Food Systems Summit, UN Biodiversity Conference (COP 15) and UN Climate Change Conference (COP26) all planned to take place this year, highlight global efforts to move the needle on themes related to climate change and scarcity.

For Damian Payiatakis, given this heightened awareness it is an ideal time to look for investment opportunities.

“Novel technologies, approaches, and processes are needed to address the substantial and growing issue of water scarcity and stress,” he says. “Solutions exist, but they need capital to scale. Investors have a critical role to support these innovations. While not for every investor, taking risks in leading businesses in this market has the potential for environmental, as well as financial, rewards.”

If you have any questions about this topic, or about our approach to sustainable investing, please do contact your Private Banker. You can also access our latest investment insights here.

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