January 20, 2021
January 20, 2021
- Eurozone heading to double-dip recession
- Agritech developments offer opportunities for investors in 2021
One Big Takeaway
We are in the midst of another period of agricultural revolution in the face of growing global demand for our oldest commodity: food.
Since the 1960s, the global supply of arable land per capita has decreased by half due to rapid population growth and urbanization. With neither trend showing any sign of letting up, the expansion of the global middle class (and their waistlines) during this century will only ratchet up pressure on global food supplies. Currently 28% of the world population consumes more than 3,000 calories per day. That figure is expected to grow to 52% by 2050.
To meet this need, global food production must increase by 70%. But with arable land already limited, 90% of that growth in production will have to be achieved by increasing yields. The Green Revolution of the 50s and 60s sought to do just that, by harnessing new technologies and agricultural expertise— high-yielding cereals, new fertilizers, irrigation methods, and mechanization – in the face of rapidly increasing demand. The beneficial effects on crop yields of this technological era have, however, long since faded. Indeed, their environmental costs are only now being fully counted.
Today’s focus has moved toward precision agriculture: the creation of a fully connected ecosystem designed to cope with increased demand, by using digitization and other technical improvements to achieve higher degree of precision from tillage to harvesting. This method increases profits, reduces inputs and protects the environment. In the US alone, farm operating profit for precision-agriculture adopters is $66 higher per acre than non-adopters, creating an addressable market of $240bn.
While demand for agricultural products is set to grow by 1.1% p.a. between 2005 and 2050 (roughly in line with expected global GDP growth), there are a number of opportunities open to investors to take advantage of new technologies involved in precision agriculture. From seeding and fertilizing, to precision irrigation and digital field monitoring, as well as exciting developments in hydroponics (using nutrients in water instead of soil, which bode well for verticalized urban farming experiments), the sector is likely to see major advances in the coming years.
Chart of the Week
COVID-19 disrupted the shipping industry in 2020, at first reducing demand and then creating a bottleneck of shipments in ports and regions under lockdown. Last year’s upheaval has dis-balanced the global distribution of empty containers, leading to a host of logistical challenges and a shortage of empty containers in ports around the world that need them. As a result, the cost of shipping a 40-foot freight container between China and Europe has more than quadrupled over the past 8 weeks, from to $2,000 in November to $9,000 this month. The logistical log jam caused by thousands of empty containers stranded in Europe and the US is now having a potentially inflationary impact on the entire supply chain.
Chinese economy shows signs of impressive growth
In the fourth quarter of 2020, the Chinese economy registered consensus-beating growth, with a rise in GDP of +6.5% year on year, compared to +4.9% in the previous quarter. This means that China ends the year as the only major economy to record positive GDP growth (+2.3%) despite the effects of the pandemic on global trade. Industrial production also grew by +7.1% between the third and fourth quarter, with retail sales up by +4.6%. December in fact, recorded China’s highest-ever monthly trade surplus of $78bn, after three consecutive double digit export growth numbers. This boom was fueled largely by higher demand for medical products and lockdown-related items, such as electronic goods.
Mixed signs for the US Economy as Eurozone tips towards double-dip recession
The latest data for US economy shows mixed signs of health. The core consumer price index inflation has remained steady over the last 6 months of 2020, with a year-on-year rate hovering around 1.7% or 1.6%. Momentum in retail sales has faded but is poised to pick up in the second quarter of 2021, while industrial production +1.6% and manufacturing production +0.9% are up and outperforming the consensus. Meanwhile, the Eurozone is heading towards a double-dip recession as the fourth quarter of 2020 showed GDP contraction at between 1.8% and 2.3% after what had been strong rebound of 12.5% in the third quarter. With lockdown measures likely to remain in place for most of the first quarter of 2021, a further contraction appears likely.
Data to Watch
· 25 Jan: The German economy has helped to maintain momentum in Europe’s faltering recovery, but January’s German Ifo Business Climate Index will indicate whether the winter months are taking their toll on Europe’s powerhouse.
· 28 Jan: The 46th President of the United States, Joe Biden, inherits a raging pandemic, but he will at least be hoping for a gentle welcome in US GDP figures for the last quarter of 2020.