What’s the difference between agriculture and agribusiness? And more importantly, why does it matter?
As the human population continues to rise, the world’s existing food systems will be put to the test. The failure to feed the growing worldwide population could result in civil unrest on a massive scale.
To stop that from happening, we will have to take a close look at the demographic changes reshaping our world. From rapid urbanization to overpopulation in impoverished regions like Africa, these changes present food security challenges on an unprecedented scale.
Confronting these challenges will require a large-scale shift – from agriculture, to agribusiness. A world-wide scaleup of the agriculture industry is the surest way to prevent a global food crisis from taking place.
Let’s take a look at what this shift would entail and how it can be achieved.
Economies of Scale
In the developed world, what we typically refer to as agriculture is, in fact, agribusiness. Agribusiness is essentially a corporate activity, and takes a variety of measures to increase efficiency. These can include technology, machinery, genetic engineering, fertilizers, pesticides, herbicides, and large tracts of land.
Agriculture, on the other hand, is not scaled. Crop genetics are not tightly monitored or controlled, much of the labor inputs are manual, and the goods produced are generally for local, small-scale consumption. In turn, agriculture generally has less of an impact on the environment.
The use of pesticides has been increasing for decades
Agriculture is all well and good. In fact, over a billion people globally depend on agriculture to survive. But agriculture on its own is not enough to meet the food security needs of a global population. In developing countries especially, agriculture must be converted into agribusiness to allow populations to thrive.
Reorienting Towards Agribusiness?
But how can agriculture reinvent itself as agribusiness? The short answer is this: capital. Indeed, access to capital is one of the chief causes of agricultural underdevelopment. In developed markets, agriculture is highly financialized, and funds of various kinds are heavily invested in all phases of the supply chain, especially farmland.
The same does not apply to emerging markets. In many regions of the world, such as Latin America, Southeast Asia, and Africa, smallholder farms persist, failing to employ the economies of scale and technological advancements that make agribusiness profitable in other regions.
To solve that problem, the agriculture industry in these emerging economies must find a way to better access capital, especially capital from the first world. Creating scalable, structured, and traceable systems for investment in emerging market agriculture will be crucial for the overall success of the industry.
Scaling Up: A Concentrated Effort
But converting agriculture to agribusiness isn’t just about directing capital to the agriculture sector. This change must be accompanied by changes to the infrastructural and logistical capacities of emerging markets. Other aspects such as education and the availability of technology are also key.
These processes all work in tandem with each other. No matter how sophisticated, agribusiness can’t survive without adequate access to markets. Bringing new technologies and best practices into a country is also key for a large-scale conversion to agribusiness.
The value of these conversions is something that we’ve seen repeatedly over time. In Romania, for example, average farmland values rose over 2000% in a period of less than 10 years, and similar phenomena have occurred in Brazil, Bangladesh, and even the United States.
But where do these valuational increases really come from? After all, the climate conditions, soil quality, and other natural factors tend to remain the same. Agricultural scale-ups happen collectively, as entire regions bring in new infrastructure, technologies, and pest practices.
One of the most common criticisms of agribusiness is that it is simply too hard on the environment to be sustainable in the long term. While in some cases this is true, there are a variety of methods that agribusinesses can use to reduce their environmental impact.
One is the use of organic farming. By avoiding the use of harmful pesticides, herbicides, and chemical fertilizers, agribusinesses can help preserve the quality of the soil, which will help the business stay sustainable into the future.
Another is proper management of water resources. Water scarcity is another serious issue facing the world today, and agribusiness has a major role to play in confronting it. Without an adequate strategy for the conservation of water resources, agribusiness can pose a serious threat to water security.
It is crucial for agribusiness to limit its water consumption
So how can agriculture convert to agribusiness on a scale necessary to satisfy the food security needs of a growing population while simultaneously avoiding the exploration of the world’s crucial water resources?
Mass production without mass waste is a delicate balancing act, but it can be achieved. The first step is to look for undeveloped or underdeveloped land where water resources are plentiful. In the long term, converting arid regions into farmland through irrigation places too much strain on water systems, as California’s residents are now learning the hard way.
Latin America, however, has the world’s largest freshwater resources per capita, and its variety of altitudes and topographies are ideal for a wide range of crops. By starting in regions where water is readily available, agribusiness can avoid putting excess pressure on water resources.
A large-scale conversion from agriculture to agribusiness won’t be easy. It’s going to take time, local knowledge, and quite a bit of money, both from institutional players, governments, and private investors. Not only that, but it must be done properly in order to avoid an equally devastating environmental disaster.
But progress is already being made. With over $131 billion in AUM, institutional investors are increasing their holding in agriculture, especially in farmland, and AUM in sustainable investments topped $17 trillion in the United States alone, as of last year.
Sustainable funds have realized huge growth
With some help from innovative businesspeople and no small amount of capital, the world is ready to confront the challenge of shaping agriculture into agribusiness.