Climate Change And Sustainable Agriculture—3 Stocks To Buy

The Impact Of Climate Change On Agricultural Production

Climate change impacts agriculture significantly. Climate change affects crop yields, livestock productivity and the nutritional quality of cereal. High temperatures result in plants getting inadequate moisture, resulting in less grain production. Major food crops that help meet the global demand for and supply of cereal, are highly sensitive to climatic changes. According to the UN’s Financing for Sustainable Development Report 2023 (FSDR 2023), between 2008 and 2018, 26% of the overall effects of climate change loss and damages affected the agriculture sector—including agriculture, forestry and fishery. As it worsens, climate change can also lead to intense droughts, water scarcity, severe fires, rising sea levels, flooding, melting polar ice, catastrophic storms and declining biodiversity–all with dire consequences for agricultural productivity.

The Need For Sustainable Agriculture

Research indicates there is a need to increase food production by about 45% by 2050 to meet the projected increase in population and consequent demand for food grain. This calls for taking steps to ensure the sustainability of agriculture.

Sustainable agriculture is about farming in a way that is able to provide for our present textile and food needs without compromising the society’s future need for the same. There is an evident need to protect the environment, save and expand our natural resource base, and maintain and improve soil fertility. This can be achieved by reducing chemical usage, managing water wisely, reducing reliance on non-renewable energy and promoting biodiversity. According to the Food and Agriculture Organization of the United Nations, “sustainable food and agriculture (SFA) contributes to all four pillars of food security–availability, access, utilization and stability–and the dimensions of sustainability (environmental, social and economic)”.

Investing In Sustainable Agriculture

Companies across the globe are recognizing this and many have their objectives aligned to this cause. Some are investing in sustainability as part of their ESG initiatives, while others have their business objective aligned with this goal.

Sustainable Agriculture—3 Stocks To Buy

The products of the companies below serve as inputs in the farming practices employed in the move towards sustainable agriculture.

Deere & Company (DE)

This leading agricultural machinery and equipment manufacturer, commonly known as John Deere, is committed to sustainability. The company’s precision agriculture technology helps farmers increase agricultural productivity while reducing environmental impact. Deere has also been investing in efficient farming equipment and in the reduction of greenhouse gas emissions.

The company has a strong balance sheet, and its revenue growth and profitability are better than its peer Caterpillar. The growth outlook for the company remains positive. The company’s consistent dividend payment record (33 years) coupled with a conservative payout ratio (15%) that is well supported by earnings and cash flow, also make it a great pick for income investors. Trading at 13X earnings currently, moving averages indicate DE stock is currently in the buy zone.

Nutrien (NTR)

The world’s largest provider of crop inputs, produces and distributes fertilizers, crop protection products and seeds. Nutrien has been investing in regenerative farming practices to help farmers improve crop yields with minimal environmental impact. The company intends to help “growers increase food production in a sustainable manner,” according to its website. Nutrien is already on track to increase its fertilizer production to address and capture the demand from an anticipated increase in crop production globally. Additionally, its strategic acquisitions in Brazil are focused on tapping into the high potash demand from the region. World Bank data indicates Brazil is one of the top consumers and the top importer of fertilizers in the world. The study also expects fertilizer prices to stay higher for longer, benefiting producers such as Nutrien. While the stock appears to be trading at an attractive price point (about 5x earnings) as compared to the industry average (11X-12X earnings), NTR stock may take its time to reflect the value generated from cost efficiency and its strategic initiatives.

Mosaic (MOS)

Mosaic is one of the top providers and marketers of concentrated phosphate and potash fertilizers and feed ingredients for the global agriculture industry. Mosaic is committed to encouraging responsible nutrient management, improving soil health and supporting sustainable farming practices.

Revenues and earnings have been rising steadily on an annual basis. Moreover, the company’s cash flow strength allows it to deliver shareholder value via dividend increases and buybacks, despite the volatility in the fertilizer market. The uncertainty caused by the Russia-Ukraine situation, coupled with a renewed drive to source domestically, should benefit U.S.-based Mosaic as a key supplier.

While stocks such as Deere, Nutrien and Mosaic are great picks for agro-ESG-focused stock pickers, exchange-traded funds such as VanEck Future of Food ETF (YUMY), iShares Emergent Food and AgTech Multisector ETF (IVEG), Global X AgTech & Food Innovation ETF (KROP) and VegTech Plant-based Innovation & Climate ETF (EATV) offer broader exposure to the space.

These are ideal for investors who would prefer to diversify their exposure across the space. Among these, EATV has been a star performer in terms of returns over the past year.

Conclusion

Sustainable agriculture is poised to open the doors to more innovation and profitability. As awareness rises, and with it sustainable agricultural practices, we should see this space offering more opportunities. Governments and international organizations are already doing their bit in the form of special grants and subsidies for investing in the space. Consequently, businesses are leveraging these incentives to optimize their gains, in turn boosting shareholder returns. ESG-minded investors who have recognized this trend are already tapping into the market early, eyeing long-term profitability.

It’s time capital market investors got the original green sector—agriculture—back on their radar.

SDGs, Targets, and Indicators

1. SDG 2: Zero Hunger

   • Target 2.4: By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems, that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding and other disasters, and that progressively improve land and soil quality.
   • Indicator 2.4.1: Proportion of agricultural area under productive and sustainable agriculture.
   • Indicator 2.4.2: Average income of small-scale food producers, by sex and indigenous status.

2. SDG 13: Climate Action

   • Target 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.
   • Target 13.2: Integrate climate change measures into national policies, strategies and planning.
   • Target 13.3: Improve education, awareness-raising and human and institutional capacity on climate change mitigation, adaptation, impact reduction and early warning.
   • Indicator 13.3.1: Number of countries that have integrated mitigation, adaptation, impact reduction and early warning into primary, secondary and tertiary curricula.
   • Indicator 13.3.2: Number of countries that have communicated the strengthening of institutional, systemic and individual capacity-building to implement adaptation, mitigation and technology transfer, and development actions.

3. SDG 15: Life on Land

   • Target 15.1: By 2020, ensure the conservation, restoration and sustainable use of terrestrial and inland freshwater ecosystems and their services, in particular forests, wetlands, mountains and drylands, in line with obligations under international agreements.
   • Target 15.2: By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests and substantially increase afforestation and reforestation globally.
   • Indicator 15.1.1: Forest area as a proportion of total land area.
   • Indicator 15.2.1: Progress towards sustainable forest management.
   • Indicator 15.2.2: Proportion of important sites for terrestrial and freshwater biodiversity that are covered by protected areas, by ecosystem type.

Analysis

1. SDG 2: Zero Hunger

   The article discusses the impact of climate change on agricultural production, highlighting how climate change affects crop yields and livestock productivity. This aligns with SDG 2, which aims to end hunger, achieve food security, improve nutrition, and promote sustainable agriculture.

   The specific target under SDG 2 that can be identified based on the article’s content is Target 2.4, which focuses on sustainable food production systems and resilient agricultural practices. The article emphasizes the need for sustainable agriculture to ensure food production meets the projected increase in population and demand for food grain.

   The indicators mentioned in the article that can be used to measure progress towards Target 2.4 are Indicator 2.4.1, which measures the proportion of agricultural area under productive and sustainable agriculture, and Indicator 2.4.2, which measures the average income of small-scale food producers.

2. SDG 13: Climate Action

   The article highlights the impact of climate change on agriculture and the urgent need to address climate-related hazards and natural disasters. This aligns with SDG 13, which focuses on taking urgent action to combat climate change and its impacts.

   The specific targets under SDG 13 that can be identified based on the article’s content are Target 13.1, which aims to strengthen resilience and adaptive capacity to climate-related hazards, and Target 13.2, which aims to integrate climate change measures into national policies and planning.

   The indicators mentioned in the article that can be used to measure progress towards these targets are Indicator 13.3.1, which measures the number of countries that have integrated climate change education into curricula, and Indicator 13.3.2, which measures the number of countries that have communicated capacity-building efforts for climate change adaptation and mitigation.

3. SDG 15: Life on Land

   The article emphasizes the need for sustainable agriculture to protect the environment, maintain soil fertility, and promote biodiversity. This aligns with SDG 15, which focuses on protecting, restoring, and promoting sustainable use of terrestrial ecosystems, sustainably managing forests, combating desertification, and halting biodiversity loss.

   The specific targets under SDG 15 that can be identified based on the article’s content are Target 15.1, which aims to ensure the conservation and sustainable use of terrestrial ecosystems, and Target 15.2, which aims to promote sustainable forest management and halt deforestation.

   The indicators mentioned in the article that can be used to measure progress towards these targets are Indicator 15.1.1, which measures the forest area as a proportion of total land area, Indicator 15.2.1, which measures progress towards sustainable forest management, and Indicator 15.2.2, which measures the proportion of important sites for biodiversity covered by protected areas.

Table: SDGs, Targets, and Indicators

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: forbes.com

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