Real assets: Tastes and ties between food and cities. Three trends transforming agriculture
As the world’s population increases and concentrates in cities, the nature of farming will evolve
While millions of New Yorkers hustle through hectic days amid towering skyscrapers, there are millions of apples, avocados and almonds that must be grown, harvested and delivered to sate their appetites. Farms fuel cities — which is why farms and cities have always had a symbiotic relationship. Cities cannot exist without farms, or vice versa.
Burgeoning cities and shifting consumer tastes are transforming the food ecosystem and the investing landscape. The global demand for food will only increase, which makes farmland a good investment opportunity. Yet, as cities transform, so must farms. How will farms evolve into the modern era?
We support the evolution of farms to be more efficient and technologyenhanced. As the world’s largest farmland investor with agricultural operations on four continents — we’ve identified three key trends that are redefining agriculture investment fundamentals:
Trend #1: The next generation is creating a new generation of farms
The world’s population — currently 7.6 billion — is projected to reach 9.8 billion by 2050. This phenomenon of rapid growth will continue to pressure the world’s farms to produce more food, feed, fiber and fuel — with greater efficiency and profitability. At the same time, experts predict that 68% of the world’s population will live in urban areas by 2050, compared to half of the population today.Among those moving from rural to urban areas are many young people, which has contributed to increasing the average age of U.S. farmers to 59.
Taken together, these trends present institutional investors with the opportunity to play a major role in building tomorrow’s agricultural system. Since young people have less interest in managing farms, farms need to take greater advantage of technology to enable producers to unlock the power of scale. Automation and mechanization, enhanced farm data management, and consistent evolution in farming practices make it likely and logical for farmers to increase their scale. However, investment in new land to achieve scale requires significant capital. Since new land acquisition might not represent the optimal use of the farmer’s capital, it creates a meaningful entry point for long-term, institutional investors.
In addition to capital, institutions bring scale, knowledge and staff expertise to the table. Nuveen, for example, has agronomists, foresters, entomologists, farmers and sustainability experts as part of its team, with the aim of enhancing the value of its farm investments.
Such partnerships may appeal to farm owners who want to keep their farms while also renting additional farms to achieve greater scale economies and to optimize their agricultural equipment. Other farm owners may view partnerships in the context of a succession plan, letting them monetize their land for the next generation — who have moved to the city.
Case study: Napa Vineyard: Developing sustainable water management
Trend #2: As urbanization reduces the availability of arable land, boosting farmland efficiency is critical
One of the consequences of urbanization is that the development of transportation systems, housing, and commercial and industrial centers can result in conversion of arable land at a time when the need for food continues to rise. Recent research suggests that nearly 33% of the world’s adequate or high-quality food-producing land has been lost in the past 40 years. This is why it’s essential to optimize the production of existing arable land — to produce more food and reduce the pressure on arable land and the resulting pressure for deforestation.
To boost farmland efficiency, Nuveen employs a number of sustainability practices that increase agricultural productivity of our assets over the long term.
Here are a few of the sustainability practices we measure to help increase productivity:
- Chemical and production inputs: Tenants use variable-rate or equivalent technologies to apply fertilizers or pesticides efficiently across virtually all of our row crop portfolio (99.6% in 2018).
- Soil health: Ongoing testing (at least every four years) is conducted to monitor soil health and assess PH and nutrient levels.
- Water management: Irrigation practices are implemented to conserve water (e.g., drip, sprinkler or laser-leveled land irrigation), particularly in water-stressed regions.
In addition, Nuveen has taken important steps to discourage deforestation, particularly in sensitive ecosystems like Brazil. Deforestation contributes to an estimated 15% of global carbon dioxide emissions. In 2018, Nuveen adopted a Zero Deforestation Policy for our farmland investments in Brazil to discourage the depletion of forested areas and native vegetation.
Trend #3: Urbanites lean toward higher-nutrition, higher-value foods
The rapid growth in urban populations will drive greater demand for food — but what kind of food will that be? Increasingly, as the incomes of urban dwellers rise, they are able to buy foods that both cost more and are more nutritious. For example, urbanites tend to consume less from the grains group (such as wheat and corn) and more dairy and meat. They also consume more prepared foods, which typically carry a price premium. This changing dietary preference, combined with a continued influx of people into cities, will impact every aspect of the food supply chain and create new challenges for delivering foods (particularly fresh vegetables and fruits) into the urban core.
Nuveen is cognizant of these and related trends, and we invest in both farmland and agribusinesses to take advantage of exciting opportunities. For example, the rising middle class is accelerating the demand for “super foods” and clean, healthier protein. Eggs and tree nuts, such as pistachios and almonds, align well with this trend. Accordingly, Nuveen has established itself as a top-five grower of almonds in the United States.
These three trends connect the interests of investors, farmers and consumers — and illustrate the vital role that capital can play in ensuring that the world will have the food it needs, cultivated in sustainable ways, in tomorrow’s world.
Irrigating a typical vineyard requires about 165,000 gallons of water per acre, which is a lot of water for drought-prone California. So, we worked with the Napa Sanitation District to route treated wastewater to vineyards and other locations. The results? 75% reduction in groundwater use and 65% reduction in irrigation costs.
Download Nuveen knows: Upcoming urbanites