Agriculture produces the world’s food, fuel and fiber and is rapidly being impacted by technology, regulation, and changing consumer preferences. As the industry evolves to feed an ever-growing global population, here are some investment trends to watch in 2019.
1) Agriculture Qualified Opportunity Zones
The federal government’s Tax Cuts and Jobs Act of 2017 established Qualified Opportunity Zone (QOZ) provisions to stimulate economic development. These provisions provide potentially significant tax benefits to investors who re-invest capital gains into long-term investments in QOZs. Both farmers and agriculture investors stand to benefit from these regulations. The Sustainable Agriculture Opportunity Zone Fund’s goal is to achieve tax-advantaged capital appreciation in production agricultural projects that are economically, socially, and environmentally sustainable.
Soil-based agriculture has dominated food production for tens of thousands of years. More recently, so-called "novel farming systems" have become more prevalent. Hydroponic farming is a method for growing plants without soil, using mineral nutrient solutions in a water solvent. Hydroponics can rapidly help serve unmet demands for fresh organic vegetables, grown close to their market. To certify soil for organic farming after its been used in conventional farming takes years. Hydroponics operators can bypass that timeline.
Though limited by volume, growing food in hydroponic greenhouses has many advantages. Because the greenhouse's temperature and inputs can be precisely controlled, plants grow faster and face fewer diseases than their counter-parts outside in soil. A closed-loop irrigation system results in major water savings and uses less fertilizer, while not introducing pollutants into groundwater and soil. These greenhouses can be adapted to many different crops, and facilitate ease of rotation, which enable the farmers to more quickly react to changing consumer demand. Finally, growing hydroponic vegetables closer to consumers will help reverse the trend of foreign produce imports and transporting food across the oceans.
Anyone who has visited a grocery store or farmers market recently has noticed an uptick in produce labeled organic. Organic is a labeling term that indicates that the food or other agricultural product has been produced through USDA approved methods. Overall, organic farm and ranch operations must demonstrate in excellent recordkeeping that they are protecting natural resources, conserving biodiversity, and using only approved substances. There are many strict guidelines and regulations organic producers must meet to be USDA certified organic, which typically raises the costs of organic foods compared to conventional or GMO products. Organic produce sells for higher prices and those prices are less volatile than conventionally-produced fruits and vegetables, which can reduce risks for investors in these crops.
4) Urban Farming
Simply put, urban farming, also known as urban agriculture, is growing or producing food in a city or heavily populated town or municipality. This way of production is used to keep transportation costs down, encourage local consumption, and bring agricultural jobs to places they wouldn't normally be. It’s also a way for consumers to get to know their food better, as we enter the age of wanting to learn more about our food system and how its produced. Investors should understand the profit dynamics with urban farms, as payroll and real estate costs can be much higher than a similar-sized rural operation. On the other hand, urban farms often sell their premium produce directly to high end restaurants, cutting out distribution costs.
5) Hemp & Cannabis Production
Hemp, not to be confused with marijuana, are both part of the Cannabis plant family. Cannabis contains a variety of different compounds called Cannabinoids, two of the most dominant are Tetrahydrocannabinol (THC) and Cannabidiol (CBD). Both Cannabinoids have shown to provide profound benefits to the human body; however, THC induces psychoactive effects (gets the user “high”), while CBD does not contain any psychoactive properties. Hemp contains a very low concentration of THC, while marijuana is abundant in THC. Because of this, marijuana is grown for recreational and medicinal purposes, and hemp actually refers to the industrial, non-drug variant that is cultivated for its fiber, hurd, and seeds.
Cannabis legalization is slowly making its way across North America (with Canada leading the way), and investors are looking to cash in. The market for marijuana is set to grow substantially over the next few years. The current market is valued around $8.5 billion with sales set to be around $23.4 billion by 2022.
In what President Trump called a “tremendous victory for the American farmer,” the 2018 Farm Bill was recently signed into law which legalized hemp at a federal level, and allows states to have programs for growing industrial hemp commercially. The new law allows for transporting hemp across state lines, expanding export and sales options. Additionally, crop insurance is now available for hemp operations, making it less of a risk for farmers to produce. Driven by explosive growth in hemp-based consumer products, the global hemp market is expected to jump to $10.6 billion by 2025.