A few years ago, before OPEC decided it would flood the world with supply, a barrel of oil at $200 was a distinct possibility. Given the meteoric rise in alternative energy, OPEC’s supply splurge was a smart commercial play.
$200 a barrel would have foreshortened their profit horizon even more as everyone rushed out to buy an electric car and a Tesla wall.
It was critical that the oil price did not reach $200 a barrel. It would have been a disaster for western agriculture because farming drinks the stuff.
There are few obvious alternatives to fertilizers and pesticides produced by factories run on fossil fuels. As yet, there are no electric tractors, harvesters or crop dusters and the transport system that moves produce to market invariably involves a vehicle.
These energy subsidies in modern farming are critical to the yields and supply chain efficiencies that we take for granted.
The reliance on energy inputs is acute. There are very few modern farm businesses that could survive a sharp doubling of input costs.
We didn’t get $200 a barrel and we may not if renewables continue to show reliability and economies of scale benefits to grow their market share. But for primary producers the situation remains precarious. Input costs are rising faster than production efficiency gains and the bumper years that farmers used to rely on to get them through lean times are not as frequent or as big as they were.
Production systems will transition of course. Farms are ideal candidates for distributed energy and technologies that can recycle nutrients on-site. The more a farming system is closed the less inputs it needs. Farming nirvana would be pest and disease free fields where the only inputs are to replace the nutrient and biomass that goes to market.
The challenge is how to transition.
The innovations are already around with more arriving by the day, especially for smart solutions that sense, record and evaluate growth conditions to match inputs precisely. Even old-school options like a greenhouse over the paddock can work.
Generational change means that young farmers familiar with clouds and apps are around to drive these technologies without fear. They will just need permission from grandad to get on with it.
The rate limiter right now is investment. Change at this scale requires institutional scale cash and this is acting coy. Past forays by mainstream investors into agriculture were not the earners they could have been. The opportunities were left to the banks and specialist funds.
In Australia for example, just 0.3% of the $2 trillion in superannuation funds is invested in agriculture despite food and fibre consistently contributing more than 3% to GDP, over $50 billion per year. If capital matched the output percentage another $54 billion of investment funds would be available.
And where else will the money go given that superannuation assets are expected to treble to over $6 trillion by 2030. Coincidentally, the FAO expects food production will need to increase by 70% by 2050 .
Given the demand side numbers from 7 billion souls growing at 75 million a year, it currently looks like an opportunity missed.