Agriculture Is Broken; AgTech Can Fix It
Erik Kobayashi-Solomon, Contributor, Forbes
Nov 28, 2018
Imagine that you need to break a $10 bill. You hand the cashier the $10 note and, rather than a $5 bill and five $1 bills, he hands back a single $1 bill.
Certainly, you would be upset. And if you couldn’t extract another $9 from the cashier on that occasion, chances are next to nil that you would ever try to get that shop to make change for you again.
Believe it or not, this transaction – where a consumer offers 10 units and receives only one unit in return – happens literally every second of the day in developed countries. It is not dollars we are exchanging, though, it is calories.
According to a research paper published in 2009, it takes 10 calories of petroleum-based energy to create a single consumable food calorie. The reason for the imbalance is twofold: production methods and distribution networks.
Regarding production methods, the synthetic fertilizers used in crop production are manufactured through the Haber-Bosch process, which relies upon a petroleum resource – natural gas – as a primary input. Natural gas is needed to manufacture the ammonia that forms a crucial building block for synthetic fertilizers.
Grains are used to feed meat animals, so in a real sense, we are feeding natural gas to our chickens, hogs, and cattle as well. Energy is also used in the irrigation, sowing, and reaping processes. Altogether, scientists estimate that it takes a little over eight calories of petroleum-based energy to “manufacture” one food calorie.
The remaining two or so energy calories necessary for us to consume a single food calorie come in the transportation process. I live in Chicago and can drive to my local supermarket to buy a tomato any time of the year – even during the dead of winter. Those winter tomatoes must be shipped in from somewhere!
As an investor, if you showed me a company whose revenue increases were tied to gradual population rise but which was paying $10 in costs to produce a profit of $1, I would show you the best short idea in the world!
Believe it or not, this is the equation on which our modern system of agriculture is based.
AgTech – an industry about which I have written before – is focused on changing this upside-down energy cost equation and rationalizing the process of producing food. It is hard for me to imagine a better area in which to invest.
While my previous AgTech article highlighted mainly American firms, the best example of the advances in this industry is not to be found in the US – the leading agricultural exporter globally – but in the Netherlands – the second largest.
According to this article in National Geographic (which contains some striking photographs and videos of Dutch farms), the Netherlands boasts only 1/270th the land mass of the U.S. located at roughly the same latitude as Saskatchewan, Canada, but exports a comparable amount of food...
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