Risks to Global Food Supply and Impacts to Investors – Steve Yuzpe
“Control oil and you control nations; control food and you control the people.”
Steve Yuzpe is the Chief Financial Officer for Sprott Resource Corp., a publicly traded company that invests in the private equity side of the natural resource sector.
Steve spoke about investing in agriculture at the Agora Symposium in Vancouver. He believes the world will one day be faced with localized food shortages and globally rising food prices that could create, in the worst-case scenario, civic upheaval in the most affected areas.
According to Steve, there are several factors threatening the global supply of food. Climate change, he says, causes weather conditions to become more volatile, potentially having an enormous impact on our food supply and the productivity of existing farmland. Steve also believes that water issues are probably the least discussed factor when people talk about food scarcity. Agriculture and other uses are depleting non-refreshing, ancient fossil aquifers all over the world. When they run out, they are finished. The most intensely used ‘fossil water reserves’ will eventually disappear. In particular, the Ogallala Aquifer, which supplies about 30 percent of all groundwater used for irrigation in the U.S. is running out, he says. Lake Mead and the Colorado River are also examples of areas under water stress in the U.S.
“Food insecurity and food inflation are a permanent part of our world going forward,” Steve told the crowd.
“Ultimately, I believe that wars will be fought and governments toppled over the need for food and water.”
“The term ‘peak water’ will become more commonly used over the coming years. By some estimates, at least 56% of the world population lives in ‘water vulnerable’ areas.”
I followed up with Steve after the speech: What investment ideas in agriculture could pan out?
“The areas where there may be opportunities in agriculture over the next five years include taking advantage of the growing consumer demand for healthy foods, and greater attention being paid to nutrition. Companies that provide food traceability and safety services, like the tags on the ears of animals being raised for meat production, are likely to benefit. As we tragically saw during the mad cow disease outbreak that culminated in a European ban on British beef in 1996, the ability to trace the source of food is essential to assuring a safe food supply.”
Do soil degradation and erosion spell a definite decline in food production? Is this an inevitable side-effect of agriculture?
Unsustainable agricultural practices are the single greatest contributor to the global increase in soil erosion rates. “Soil erosion is potentially a huge problem in the future and yet, it does not need to be problem.” Modern no-till techniques have evolved, in which an air drill sends the grains and fertilizers into the ground without disrupting the topsoil, Steve explains. “But this has only been applied to 10% of agricultural production so far -- a shame for the farmland we continue to lose every year. Once the organic matter and moisture have left the soil, it takes a lot of time to build back up.”
Could water rights be a good way to play the need for greater food production, and a possible shortage of water?
“Investing in water is also interesting but, of course, water is a basic necessity for survival, which means that governments are unlikely to allow prices to rise too much. Right now, water is almost free, so it’s mispriced. If you want to invest in water rights, the best places to invest are in geographic areas where the local constituency can afford to pay market rates and there is rule of law. Otherwise, your investment is likely subject to a lot of political risk, as government control of prices and confiscation become more than just possibilities.”
Steve Yuzpe has 15 years of experience with financial administration management in public and private corporations. Sprott Resource Corp.is a Canadian-based company, the primary purpose of which is to invest and operate natural resource projects. Through acquisitions, joint ventures and other investments, Sprott Resource Corp. seeks to provide its shareholders with exposure to the natural resource sector for the purposes of capital appreciation and real wealth preservation.
U.S. Department of Agriculture: http://www.nrcs.usda.gov/Internet/FSE_DOCUMENTS/stelprdb1048828.pdf
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Sprott Inc., a public company listed on the Toronto Stock Exchange, operates through its wholly-owned direct and indirect subsidiaries, including: Sprott Asset Management LP, an adviser registered with the Ontario Securities Commission; Sprott Private Wealth LP, an investment dealer and member of the Investment Industry Regulatory Organization of Canada; Sprott Global Resource Investments Ltd., a US full service broker-dealer and member FINRA/SIPC; Sprott Asset Management USA Inc., an SEC Registered Investment Advisor. We refer to the above entities collectively as “Sprott”.
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