This article was first published in the Partner Content section of the Financial Times (FT.com).
Developing countries account for three quarters of the world’s population, are disproportionately vulnerable to the impacts of climate change, already account for two thirds of global emissions, yet receive a small fraction of annual investment in climate transition. This represents a chronic misallocation of resources and is a failure of our global financial system to get to grips with the reality of climate change.
Emerging markets have the potential to ‘leapfrog’ straight into renewables-based energy systems, without developing the addiction to fossil fuels the Western world is now trying to wean itself away from. Climate solutions in emerging markets often represent entirely new growth and development, as opposed to the more politically challenging replacement of legacy industries in the West.
The major exception to this deprivation of capital from Emerging Market climate solutions has been China’s development of world-leading manufacturing scale in upstream renewables and mobility. The emergence of global battery pioneers such as CATL and BYD is, justifiably, already a well-known emerging markets climate success story.
There are, hearteningly, other homegrown climate leaders beginning to rise to the specific challenges of different developing countries, despite the current indifference of global capital markets.
Latin America is an increasingly significant global agricultural powerhouse, accounting for a disproportionate share of the agriculture sector’s 18% contribution to global emissions.1 The World Bank estimates that the region currently houses around 6.6 square million kilometres of agricultural land: in other words, roughly two Indias.2
Despite a rising global demand for food (the UN Food and Agriculture Organization estimates developing countries need to double food production by 2050) this cultivated area cannot expand materially without compromising wilderness zones critical to biodiversity and global carbon absorption, particularly the Amazon and Cerrado regions of Brazil.
Agriculture needs to learn to produce more with less, while simultaneously reducing its existing carbon and local pollution footprint via restraint in use of toxic, emissions-intensive chemicals. Innovation in biological inputs, pioneered by companies like Bioceres Crop Solutions in Argentina, represent great promise on this front. The targeted application of precisely formulated bacteria can help both substitute harmful chemical products and achieve better yields for farmers.
‘This work has the potential to be a gamechanger on so many levels,’ says Rebecca Lewis, co-CEO of Arisaig Partners. ‘These innovations in food security allow sustainable and resilient agriculture in Latin America, and elsewhere in the world. This is a farming revolution that supports the volatile ecosystem in which we now live. This can only be good for society.’
Farmers, as well as the global food system, face one further major environmental challenge. Climate change will make our weather generally hotter, will make dry places drier, and increase the frequency of extreme weather events which can severely damage agricultural yields. In Argentina, thanks to a historic drought, soybean yields during the 22/23 growing season were down by roughly half.3 In anticipation of the increasing frequency of such events, Bioceres Crop Solutions has developed genetically modified variants of soybeans and wheat, named HB4, which have an enhanced ability to withstand drought. HB4 wheat, for example, improved yields by an average of 27% over the last three years in areas of median productivity and is typically capable of producing 2-4 tonnes per hectare.4
With geopolitics further complicating the question of food security and developing countries most exposed to the fallout from climate change, investment opportunities in agricultural productivity in emerging markets should become increasingly prevalent in the years ahead.
China now appears to be displaying a renewed enthusiasm for the potential of genetically modified crops, as it looks to become more self-sufficient in feeding its population.
In India, where 46% of the population5 still works in agriculture (yet contributes just 18% of GDP),6 improving agricultural productivity is perhaps as close to a social and economic panacea as it is possible to imagine. As well as building up the country’s resilience to the impacts of climate change, it would unlock vast improvements to overall productivity and boost incomes for the country’s hundreds of millions of smallholder farmers.
This material is being furnished for general informational and/or promotional purposes to professional investors only. The views expressed are those of Arisaig Partners and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact, nor should any reliance be placed on them when making investment decisions. This material does not constitute independent research and is not subject to the protections afforded to independent research.
The statements and views expressed herein are subject to change and may not express current views. Arisaig Partners makes no representation or warranty, express or implied, regarding the accuracy of the assumptions, future financial performance or events. Emerging markets are generally more sensitive to economic and political conditions than developed markets and may be more volatile and less liquid than other investments.
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