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March 2022Disruptive Technology | ESGSmart farming world
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March 2022
By: Davey Jose, Amy Tyler, Sean McLoughlin and Jeremy Fialko
Smart farming world
Enabling sustainable growth
As global populations rise, feeding
the world won’t be the only issue
on the mind of society, companies
and investors
There is a need to address the
negative impact from crops and
livestock in agriculture, such as
emissions and other ESG factors
Smarter farming technologies,
from robotics to big data, and
synbio to genetics, can help feed
the world more sustainably
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Global Thematic research
1
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March 2022
Smarter farming to feed the world sustainably
Food, glorious food! Despite global population growth set to be lower in a post pandemic age, we
believe that this factor alone may not be sufficient in alleviating the pressure to feed world
sustainably. For example, the negative issues of climate change, environmental and labour factors
from agriculture are increasingly at the top of the mind of society, companies and investors.
By 2050, we expect the global population to hit 8.5bn. The UN expects each person to consume
12% more than they did at the turn of the century. We believe this implies that total food
consumption may grow by 60% at the midpoint of the century.
In this report, we outline key data point observations, issues and pressure points for feeding the
world sustainably. This includes global population growth dynamics, food demand as well as
environmental and labour issues. This sets up the thematic motivation for the report and then
we move on to look at how various smart farming tools are being used today in making
agriculture more sustainable in the longer run.
What is smart farming? Smart farming naturally includes technologies such as robotics and
connectivity, often using Internet-of-Things to track and automate activity on farms. But in the
modern day, farms are also starting to use big data, artificial intelligence, drones and
blockchains to process and make sense of activity in real-time. However, as the farm becomes
smarter, allowing the production of crops, feeds and livestock to increase yields, reduce water
use, energy and labour, this digitisation also brings issues of cybersecurity and hacking.
We believe there is value in understanding smart farming beyond the traditional definitions of
simply pure digitisation. So we look at how innovations such as vertical farming, hydroponics,
alternative protein for human consumption, synthetic biology and animal protein/pain killers can
help with reducing water use, emissions and improving ethics in the modern agriculture setting.
We also look at the regulations landscape globally to support smarter and sustainable farming.
Did you know?
Global population set to rise to 8.5bn and world set to consume 60% more food by 2050
Food related GHG emissions are responsible for 26% of global emissions
Global AgTech to grow from about USD22bn today to nearly USD140bn by 2030
Digital farming technology increased yields up to 30% recently in trials in India
Vertical (indoor) farming uses no soil and 95% less water than traditional methods
Feeding the world
Population growth,
environment and labour
issues in food production…
Understanding smarter
farming applications today
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March 2022
21st century smart farming
Source: Finistere Ventures, HSBC
The rise of disruptive technologies …
… and their impact on sustainable growth
Technology/application
Connectivity
Robotics
AI, big data & data analysis
Drones
Blockchain
Cybersecurity
Alternative proteins
Synthetic biology
Genetics, medicines
Vertical/indoor farming
Circular economy
Key: ● Direct impact ○ Indirect impact
Emissions Crop yield Land Water Animals Labour Ethics/social
○ ● ● ● ● ●
○ ● ● ● ● ● ●
● ● ● ● ● ● ●
● ● ●
● ● ● ● ●
○ ○ ○ ○ ○ ○ ●
● ● ●
● ● ○
● ● ● ● ●
● ● ● ● ● ●
● ○ ○ ○ ●
Autonomous tractors: help to
ensure quality, reduce labour costs
and exchange harvest data Harvesting robots: machine
learning to identify specific crops
Cybersecurity: help to secure
confidential agriculture data, and prevent
disruption from ransomware attacks
Robotic milking systems: largest
and most established agricultural
robot technology
Controlled environments:
optimised growing conditions
Blockchain: traceability from
seeds to feeds, harvesting,
packaging, delivery and sales
AI & big data: robots
to manage high-tech
indoor farms, collect
data from harvest and
evaluate crop yield
Drones: precision
spraying of pesticides
and spatial mapping
Plant-derived proteins: meat and dairy
alternatives to help reduce CO
2
emissions
Synthetic biology: engineered
microbes deliver nutrients direct to
crops, increasing yield
Precision agriculture:
technology, research and big
data to increase crop yields and
limit levels of manual input
Hydroponics:
plants grown in water and provided
with exact nutrients required
Vaccines: healthier
animals should result in
better economic
outcomes, reducing
need for antibiotics
Anaesthetics &
analgesics:
pain management and
animal welfare,
genetics to improve
efficiency of animal
protein production
USD90-138bn
The smart farming sector
could grow by 15-20% through to
2030e, valuing the space at
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● Disruptive Technology - ESG
March 2022
Working smarter on farms…
The rise of disruptive technologies
Smart farming naturally includes technologies such as robotics, with connectivity being a crucial
part of the jigsaw. At our expert event on smart farming in 2021, the panellists highlighted how
due to farms being in rural areas, good, stable connectivity was a pressing issue to be solved.
Good connectivity is needed in these smart farms, so their systems can operate using Internet-
of-Things to track and automate activity. Farms are also starting to use big data, artificial
intelligence, drones and blockchains to process and make sense of activity in real-time.
However, as the farm becomes smarter, allowing the production of crops, feeds and livestock to
increase yields, reduce water use, energy and labour - this digitisation also brings issues of
cybersecurity and hacking.
Chart 1. HSBC Disruption Framework: Smarter farming
Source: HSBC
Early
disruption
Hype
mania
Gradient of estimated expectation vs. reality
Digital health:
Synbio, biologics, genetics
Backlash
window
Real
application
New normal
Connectivity: GPS, cellular
networks, IoT, 2/4/5G, low powered
area networks (LPWA), satellites,
cybersecurity and cyber insurance
Automation: Robotics, AI/big bata
analytics, drones, vertical and
indoor farming, aquaponics
Experiential: Blockchain, alternative
proteins, circular economy
Smarter tech to feed world
The agriculture sector presents a host of intertwined environmental
issues, which can only be exacerbated in the quest to feed the world
We look at a number of key technologies available today which we
believe can make farms and the agriculture sector smarter…
Hence addressing environmental and other concerns from
food production
21
st
century farms…
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March 2022
We believe there is value in understanding smart farming beyond the traditional definitions of simply
pure digitisation. So we look at how innovations such as vertical farming, hydroponics, alternative
protein for human consumption, synthetic biology and animal protein/pain killers can help with
reducing water use, emissions and improving ethics in the modern agriculture setting. See Chart 1
for our HSBC Disruptive Framework, to see how commercial the various technologies are today.
Our analysts around the world help us identify some of the key technology trends enabling the
farms of the 21
st
century to not only improve productivity to feed the world but also do it in a
sustainable fashion. See Table 1 giving a high level view of which sustainable themes various
technologies in this chapter tick.
Table 1. Smart farming matrix: Impact on sustainability growth themes
Technology or application
Emissions
Crop yield
Land
Water
Animals
Labour
Ethics/social
Connectivity
○
●
●
●
●
●
Robotics
○
●
●
●
●
●
●
AI, big data & data analysis
●
●
●
●
●
●
●
Drones
●
●
●
Blockchain
○
●
●
●
●
●
Cybersecurity
○
○
○
○
○
○
●
Alternative proteins
●
●
●
Synthetic biology
●
●
○
Genetics, medicines
●
●
●
●
●
Vertical/indoor farming
●
●
●
●
●
●
Circular economy
●
○
○
○
●
Source: HSBC
Key: ● = Direct impact, ○ = Indirect impact
Key: Connectivity framework = red, Automation = orange. Experiential = blue, Digital health = green
Smarter farming market size
Global GDP in 2019 was estimated to be USD87.6trn by the World Bank. It also estimated
agriculture’s percentage of global GDP to be about 4% in the same year. This implies that
global agriculture GDP in 2019 was USD3.5trn.
The chart below shows us that total R&D spend in agriculture was 10% of the total value of the
agriculture sector in 2018, with an average of 15% for the previous half decade. We
approximate that agriculture R&D spend globally was about USD350bn in 2018.
Chart 2. Agriculture infrastructure and R&D trends
Source: OECD FAO
In 2020, the smart agriculture and food tech (or AgTech) was estimated to be USD22.3bn in its
market cap by venture capital firm Finistere Ventures. This included investments ranging from
technology in precision ag to alternative proteins. From 2011 to 2020, this was a CAGR of 56%. So
approximately, this means AgTech is about 25% of agricultural R&D spend. We estimate that
AgTech could grow by 15-20% through to 2030.
0%
20%
40%
60%
80%
100%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agriculture
Infrastructure
R&D and
Extension
Producer transfers
Other
Consumer
transfers
Marketing, Storage
and Inspection
Admin costs
Thinking more farming
innovations…
Agriculture is a USD3.5trn
industry
Smartening agriculture
could be a USD90-138bn
market by 2030…
5
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March 2022
Smarter farms through robots and connectivity
The future farm essentials: robots in disguise
Digital technologies and robotics can help create fully autonomous solutions that are
sustainable, in the sense they can be more resource-efficient, and cost effective because they
help reduce overall labour costs.
Emerging applications of robots or drones in agriculture include weed control, cloud seeding,
planting seeds, harvesting, environmental monitoring and soil analysis. Automation and robotics
for smart farming encompass a range of technologies, which include the below:
1. Autonomous tractors: allow driverless farming to help ensure quality and lower labour costs.
Further, e-tractors exchange data on use and charging needs to optimise energy consumption.
2. Harvesting robots: vegetable picking robots, equipped with machine learning to identify
and harvest a specific agricultural crop, are enabling automated harvesting.
3. Robotic milking systems: allow cattle farmers to automate the milking process. Milking
robots are the largest and most established agricultural robot technology.
4. Drones: remote-controlled consumer or prosumer drones are used for aerial image acquisition.
5. Controlled environments: using building automation solutions for vertical farms, where
optimised growing conditions for plants and other foodstuff products are created in a reliable and
energy-efficient way. Also known as Controlled Environment Agriculture (CEAS) in this domain.
Agricultural technology news site AgriTech Tomorrow pegs the global agricultural robot market
size at USD19bn in 2026e, rising at a CAGR of 10% (based on a December 2020 study).
A November 2021 UK government study estimated that the agriculture robot density in the UK
(measured in robots per million hours worked) would increase from below 1.0 by 2025 to around
8.0 by 2030 and further to 21.6 by 2035. The study also predicted that in the agriculture sector
up to 30% of tasks could technically be automated by 2035, equivalent to an estimated
GBP4.5bn of GVA, driving productivity increases of 0.9% relative to baseline by 2035, adding
an estimated 0.7% to GVA relative to baseline.
High initial investment costs are a barrier to growth for the agricultural robot market. Other
identified barriers in the agricultural sector include drone regulation; digital skills shortages; and
problems with research and testing.
The 21
st
century connected farm…
Farming optimisation and productivity gains are increasingly important given the uncertain
conditions that dictate the output, including climatic conditions or pest control, to name a few. It is
also key when considering the finite (and increasingly under constraint) resources such as water.
Farming benefits from technology through three dimensions: first, by predicting the environmental
parameters (rain, temperature, wind), second, by measuring parameters on the ground (crops,
livestock, inventories) and third by collecting and analysing data to build a decision model, which in
turn would improve productivity on the ground. From a technology standpoint, we observe a
combination of satellite and mobile technologies including 5G supported drones:
Satellites: provide the underlying data to observe and model climatic conditions but also,
through spectral analysis, help to predict the output of a specific crop and determine actions to
fix underperforming plots. GPS (Global Positioning System), from their 20km-away orbit, can
help a farming device to move with precision or to define precisely the boundaries of a field.
Mobile: cellular networks can support farming using IoT (Internet of Things) technology. Smart
farming devices can monitor climatic conditions on the ground (sensors indicate if a field needs
watering or fertilizer) or help in making decisions on when to feed and milk animals for example.
Sean McLoughlin*
EMEA Head of Industrials
Research
HSBC Bank plc
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
Robots to make farms more
sustainable…
Agri bots USD19bn by 2026e
Nicolas Cote-Colisson*
Senior Analyst, TMT
HSBC Bank plc
Adam Fox-Rumley*, CFA
Analyst, Telecoms
HSBC Bank plc
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
Is investment cost a barrier
to entry?
Internet of Cows?
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March 2022
Satellite technology as a support for smart farming is well known, but the development of 5G
technology could take farming to another dimension. The IoT ecosystem is currently supported
by 2/3/4G technologies but also by low powered wide area networks (LPWA) that can support
Machine to Machine and IoT devices that don’t require high data loads.
5G technology will expand the capacity of IoT. The standalone version of 5G (also called Release
16, an end-to-end 5G architecture from core to access, with a cloud-native configuration) can support
one million IoT devices per square km, with improved power and connectivity controls.
Another feature of 5G is ultra-reliable and low latency communications. This feature could be
vital for automated flying drones (checking crops and livestock) but also to support mobile
vehicles with robotic arms that could pick fruit for example: the connectivity would allow the
sensors/camera to identify the stage of development and the actions to take thanks to
computing power sitting at the edge of the network).
Software is playing a key role: the amount of data collected by satellites and mobile sensors can
be processed and supported by AI and ML processes, leading to higher productivity eventually.
New(er) fundamental tech:
Digital farming, big data/AI, drones, blockchains and cybersecurity
Digital farming
Digital farming is primarily about the use of data-driven insights to optimise farm management,
but also includes online marketplace for farm products. With AI and cloud computing systems,
the data generated at different levels through precision farming tools can be integrated to
generate region or field or even each plant specific insights to advise the farmers on the right
time of sowing and tilling, what crop to sow, how much and what fertilizers to apply and more.
For instance, field specific crop and soil conditions available through precision farming can be
combined with geospatial/satellite data and pricing information. These data can be used in
predicting weather, pest attacks and price information. The benefits are higher output and cost
savings to farmers.
Some of the advisory services are offered via mobile based apps free of charge which facilitate easy
adoption among the farming community. Paid services are available at a relatively lower cost (say
USD5-10/acre) with limited investments in hardware by farmers. The simplicity and low cost of such
mobile based services means that adoption of this type of technology is likely to be much faster.
The return on investments on the use of digital agriculture services, in general, seems
compelling. For example, Accenture has said that there is a USD55-110/acre increase in profits
due to digital agriculture. This is larger than the overall profitability per acre, which is about
USD250-300/acre for corn and soybeans in the US, while the cost for digital ag service is as low
as USD5-10/acre, depending upon the level of service.
Table 2. Return on Investment on Farm Edge’s comprehensive package at USD6/acre
Services
Details
ROI (USD/acre)
Acres tested
Variable Rate
Technology
Targeted response in select areas within the field that aids higher yields
and optimum input use
31.84
9.5m
Nitrogen-Manager
Reduces nitrogen use by 10% and increases yields by 5%
36.30
663k
Moisture Manager
Decision making on irrigation, nutrition needs and yield forecasting
27.3-49.3
172k
Analytics
Seed selection, planting dates, input efficiency etc
5-120
6.4m
Field mapping
Maps Soil and crop health, harvest, scouting etc
3.25
6.4m
Weather sensors
Hyper local weather information
1.26
12.8m
Predictive modelling
Disease and pest modelling and planning field operations
7.75
11.9m
Equipment tacking
Measuring productivity and fuel performance, speed regulation and
helps in predictive maintenance
3.0
12.8m
Source: Farmers Edge
5G IoT for sensors and
mobility
Drone as a Service or Robot
picking fruits?
Santhosh Seshadri*, CFA
Analyst
HSBC Securities and Capital
Markets (India) Private Limited
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
Return on investment for
farmers…
7
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March 2022
The charges by Farming Business Network, a co-op in North America, is lower, with a flat
USD700 per user per year. As can be seen in the table below, the ROI for digital services range
from USD3-120/acre based on the case studies observed in over 6-13m acres by Farmers
Edge. The advantage is that some of these services can be accessed simply through mobile
apps, and a typical full package service would just require investments in basic hardware like
guidance systems and low cost sensors, that are already used widely in developed markets.
Full-suite services such as field-specific advisory require investment in hardware that could be a
challenge in most EM markets where the small size of landholding and upfront capex costs do
not justify the economics. Hence these markets are likely to be more focussed on basic services
that also limit the benefits to farmers. High speed internet connectivity in farms, a pre-requisite
for the smooth functioning of connected systems, is another barrier even in developed countries
where the 5G rollout is still in the early stage.
Regulations and policies that restrict or limit the use of UAVs/drones could increase the cost of
data collection and limit the offering of services. The key challenge for companies that are
investing in digital farming is the way to monetise of data. Those that are using the data to
improvise their core business or to upsell/cross sell products are more likely to succeed than the
companies that offer fee based services. Hence, many start-ups and companies are developing
open source platforms to gather necessary data input. Again, regulations that restrict use of
data can be a headwind in the path to monetize the data.
Drones
Specialised drones are used for image sensing and pesticide spraying which will result in cost
savings to farmers through increasing labour efficiency and reducing pesticide use. China, which is a
leader in drone manufacturing, has seen exponential growth in drone use for agriculture over the last
two years. We think drones will see an increasing adoption in the future due to the following reasons:
High efficiency and labour cost savings: Drones are much more efficient than manually
spraying of pesticides, a practice that is followed in many emerging markets such as India,
Brazil and Indonesia. Drones are much more cost and input efficient than a conventional
sprayer and can reach difficult terrain that cannot be easily accessed by machines.
Low pesticide use: According to various drone companies and testimonies by farmers as
reported in news articles, drones can save pesticides use by 30-80% depending upon the crop.
Service-based model aiding easy adoption: A farmer can hire a drone rather than
spending upfront on buying a new drone. Also, it helps overcome issues related to a lack of
training. In China, farmers can hire a drone and a pilot at CNY15 per hectare for spraying,
considerably lower than labour costs.
Aerial mapping instead of manual scouting: Drones with multispectral and hyper
spectral sensors can capture information on soil moisture, crop health, pest impact, and
nutrient absorption/deficiency. The data collected can provide insight on preventive
measures and issues can be addressed in a timely manner that prevent yield losses, and
are more efficient than manual scouting.
Regulations and policies that restrict or limit the use of UAVs/drones are the key barriers. Many
countries require a drone to be operated by a trained professional who holds the requisite
license, which could increase the cost of operations. China’s DJI, PrecisionHawk in the US and
TSX listed AgEagle are notable players in drone manufacturing.
Barriers to adoption and key
players
Santhosh Seshadri*, CFA
Analyst
HSBC Securities and Capital
Markets (India) Private Limited
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
Key barriers and drone
players
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March 2022
Blockchains
Blockchain technology empowers the traceability of all kinds of information in the food supply chain
from seeding and farming to harvesting, packaging, delivering and selling. Key benefits include:
Ensuring the safety of food;
Improving efficiency as the tracing can be done in seconds; and
Enhancing famers’ income as they can get fair pricing for high quality food.
In Asia we observe that internet companies with cloud services all provide this service to
farmers, including Alibaba, JD and Tencent.
Cybersecurity and farm theft
The increased adoption of technology in any sector doesn’t come without its challenges, especially
when it comes to cybersecurity. A 2018 report from the US Department of Homeland Security looked
at a range of cyber threats that face the “precision agriculture” section, as this space adopts “new
digital technologies in crop and livestock production”. It found various cyber threats to agriculture
supply chains including: theft of confidential agriculture data, corrupting data to disrupt crop and
livestock, damage sensor networks to harm health of animals and more.
Furthermore, the FBI said in 2016 that agriculture is becoming “increasingly vulnerable to cyber-
attacks as farmers become more reliant on digitized data”, this includes threats via ransomware.
2021 saw a very high profile ransomware attack on JBS, which controls about 25% of the cattle
processing in the United States. Last year also saw a Minnesota agriculture company called Crystal
Valley Cooperative become the target of a ransomware attack, which took its operating systems
offline. It left the company unable to mix fertilizers or carry out orders for livestock feed.
1
Application of smart farming:
alternative proteins
Introduction to the technology
Alternative proteins cover the whole range of foods where plant-derived proteins are used to
replace those traditionally derived from animals. The category can broadly be split into two main
components: meat and dairy alternatives. Versions of these products e.g. tofu and rice milk
have been part of the diet in certain regions for many years but, in recent years, technological
advances have led to a huge expansion in the range and quality of products.
Within dairy we have seen the emergence of nut and oat milks but it is on the meat side where the
changes have been most starting. Products such as the Beyond and Impossible Burgers offer
virtually the taste and texture of meat but are entirely plant derived. Advances in fermentation
technology will also increasingly allow products derived from fungi to faithfully replicate meat.
How it will influence the farming industry
The growth of plant-derived proteins will influence the farming industry in a number of ways. For
a start it will lead to increased demand for a number of specific inputs which are used heavily in
the current generation of plant-derived products with pea protein and oat among the prime
examples. Moreover, the types of fungi best used in fermentation products are usually particular
varieties which can require very specific conditions to thrive and the cultivation of these could
rely increasingly on smart/precision farming techniques.
On the flip-side, consumers’ shifts away from animal protein on environmental grounds (mainly
in developed markets) places an increasing onus on the agricultural industry to find ways of
reducing its emissions as a means of winning back certain consumers.
______________________________________
1
"Minnesota grain handler targeted in ransomware attack", Agweb, September 2021.
Charlene Liu*
Head of Internet and Gaming
Research, Asia Pacific
The Hongkong and Shanghai Banking
Corporation Limited, Singapore Branch
Charlotte Wei*
Analyst, Internet Research
The Hongkong and Shanghai
Banking Corporation Limited
Peishan Wang*
Analyst, Internet Research
The Hongkong and Shanghai
Banking Corporation Limited
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
Smarter farms mean more
digital threats…
Jeremy Fialko*, CFA
Head of Consumer Staples
Research, Europe
HSBC Bank plc
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
What is alternative protein?
Changing farming by
changing type of inputs
And reducing emissions…
9
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March 2022
Current penetration and growth forecasts
Penetration of plant-based products is still very low (chart 3) with figures ranging from 0-3.5%
for meat and around 5-16% for plant-based milks (and lower for plant-based dairy as a whole).
Chart 3. Global market share of plant-based products (2020)
Source: HSBC, Euromonitor
Main barriers to adoption
After a very strong 2019 and 2020 the alternative proteins category faced more difficult
conditions in 2021, particularly on the meat side. Having tempted a lot of new consumers as the
technology emerged, certain novel products found it hard to hold onto them while attracting
additional converts also became tougher.
We attribute this to some of the drawbacks the category currently faces. For a start the products
are generally much more expensive than the traditional animal derived proteins. While,
particularly on the meat side, they face some resistance from their highly processed nature and
the long lists of ingredients they contain. Fungi-derived fermentation products in particular offer
the promise of much more concise ingredient lists.
The power to reduce CO
2
emissions
As outlined, one of the main attractions to consumers of plant-derived protein alternatives is
their lower CO
2
footprint. Particularly on the meat side, the emissions savings through switching
to plant-derived products are extremely large. Even in dairy, the average plant-based milk has
CO
2
emissions c70% below that of traditional dairy
Chart 4. GHG intensity of different foods
(CO
2
eq./kg protein)
Chart 5. GHG intensity of milk/milk
substitutes (kgCO
2
eq./lit)
Source: Our World in Data, Clark and Tilman 2017
Source: BBC citing Poore & Nemecek, 2018.
3.5%
6.9%
13.1%
0.3%
1.5%
4.7%
0.1%
1.8%
5.5%
1.4%
7.9%
15.9%
1.1%
4.1%
10.0%
2.1%
5.1%
11.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Meat alternatives Dairy alternatives Dairy alternatives (milk only)
Asia Pacific Africa Latin America North America Europe World
221.6
35.6
35.1
31.8
24.4
21.2
4.6
4.4
0.6
0
50
100
150
200
250
Beef/mutton
Pork
Dairy
Poultry
Eggs
Rice
Wheat
Maize
Pulses
3.2
1.2
1.0
0.9
0.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Cow milk
Rice milk
Soy milk
Oat milk
Almond milk
Alternative proteins could
grow from USD40bn to
USD140bn by 2030…
Will cost or processed nature
deter consumers?
Up to 70% less CO2 than
traditional dairy…
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Application of smart farming:
Nitrogen fixation and the synthetic biology solution
The fertiliser problem
Nitrogen is essential in the growth and development of plants and while c78% of the
atmosphere is made up of nitrogen, that is not available in usable form to plants.
The synbio solution
Synthetic biology platforms can engineer and design microbes that replicate the behaviour of
naturally occurring nitrogen fixating microbes – as seen in legumes – and transfer the desired
nutrient to any targeted crop – thus providing plants access to usable nitrogen and increasing crop
yields. These genetically modified microbes outperform both organic microbes and industrial
fertilisers. Unlike natural microbes, their influence is not limited to a specific type of crop. Also, unlike
fertilisers, engineered microbes do not have a GHG footprint, do not utilise fossil fuels in the
manufacturing process and do not cause run-off water pollution. The delivery mechanism is via
seeds, with the engineered microbes coated onto seeds before they are sown.
Chart 6. Global fertiliser industry market
value (2020 – cUSD200bn)
Chart 7. Carbon emission comparison:
Ammonia vs nitrogen fixating microbes
(kgCO
2
/kg)
Source: IHS Chemicals, HSBC
Source: IEA, Pivot Bio
Key challenges
We believe that scaling might be the biggest hurdle for synbio nitrogen fertilisers as the majority
of these projects are currently in the research phase and are yet to scale commercially. Also,
despite not falling under the genetically modified (GM) food classification, there remains a
possibility of poor consumer adoption since the process uses bioengineered organisms.
Additionally, crops, soil conditions, weather, temperature, water availability, seed distribution
and farming practices are significantly different from place to place. Hence designing microbes
that can work across multiple different environments poses a big challenge.
Applications of smart farming:
Medications, genetics and GM
Medicines to better Animal Health
Animal health medicine is a USD40bn+ market: Zoetis, one of the largest listed animal health
companies, cites the size of the animal medicines and vaccines sector at approximately USD40bn.
This total market is split between companion animal products (CAP, i.e. products for pets) and
farm animal products (FAP, i.e. products for farm animals). Growth in both segments is expected
to be quite robust with a number of companies and consultancies expecting multi-year industry
growth of around 4-7%.
Other
Fertilisers
USD120bn
Nitrogen
fertilisers
USD80bn
0.0
0.5
1.0
1.5
2.0
2.5
Nitrogen Fixating microbes Ammonia
Nitrogen fertilisers
responsible for c3% of
global GHGs
Sriharsha Pappu*
Head of Chemicals, Energy
Transition Coordinator
HSBC Bank plc
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
Scaling synbio still an
issue…
Anand Date*, CFA
UK MidCap Equity Analyst
HSBC Bank plc
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
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Genetics to improve the efficiency of animal protein production
Companies breed for elite traits using the genome of individual animals to inform breeding decisions.
Breeding decisions are taken to maximise the prevalence and intensity of positive traits and vice
versa. In practice this means elite animals exhibit more protein per unit of feed, better health and
lower emissions than non-elite animals.
Gene editing goes one step further than genomic selection. Using CRISPR technology, genes that
already exist in a species’ genome are turned on or off to achieve desired results. For example, a
gene edit which successfully confers resistance to a specific virus would be highly attractive from an
economic and welfare point of view.
Much like the use of medicines and vaccines, the barrier to increased utilisation of elite genetics
is typically cost and awareness. In many parts of the world, farming remains relatively backyard
and informal. As average farm sizes increase however, and production consolidates and
becomes more technical, the trend is clearly towards a focus on greater efficiency which would
include incorporating elite third party genetics into the production cycle.
Genetically Modified (GM) crops
Modifying traits of crops can be seen occurring thousands of years ago and has bought benefits
to both the economy, environment and society. They have been able to increase yields
significantly, adapt to climate change and serve growing populations with both food and
commodities such as cotton. They provide an opportunity to reduce pesticide use, minimising
the impact on the environment. Additionally, the application to the energy sector remains a
promising avenue for the GM crop. With rising biofuel adaptions, modified energy crops can
assist the green transition to cleaner energy.
However, challenges with the technology remain, and can hinder their adoption globally.
Environmental hazards of GM crops include gaining a competitive advantage and reducing the
prevalence of other species, reducing biodiversity. Safety to human health also poses a
challenge due to lack of large-scale studies and the risk of unintended consequences to health,
such as antibiotic resistance. Although these challenges remain, GM crops have a role to play
in the transition to more sustainable farming.
Vertical farming
Vertical farming (aka indoor farming) is the practice of growing plants/crops in vertically stacked
layers in warehouse, containers, rooftops or even skyscrapers. These farming techniques stimulate
plant growth through artificial control of lights. The plants are grown without soil and use 95% less
water. Moreover, these farming techniques do not use pesticides as the problem of weeds/insects is
non-existent in a controlled environment. Fertilizer/nutrient use are reduced by as much as 60%.
Given the proximity to demand centres, vertical farming can save significant costs on cold storage
and transportation (c30% of cost for horticulture such as lettuce vs c10-15% for grains).
Vertical farms have an environmental benefit as they reduce stress on limited resources such as
land and water. As per Aerofarms, vertical farming in one acre of land can produce as much
food as a 390-acre traditional farm does and can be grown in urban areas on low cost real
estate. The success of vertical farming depends on overcoming cost and technological barriers.
Technology and cost economics are the key barriers
Currently, lettuce and other leafy greens are the most popularly grown plants in vertical farms as
they are easy to grow. The technology for indoor production of berries, aubergines and other
fruits and vegetables in the vertical, are in the developmental stage. Further, offsetting the
benefits are comparatively higher set-up costs and an increase in operating expenses.
Electricity to power up LEDs is the single largest operating cost. Higher operating and capex
costs relative to conventional farming makes the model viable only in specific cases that are
What is the technology?
Going forward, gene editing
may become more prevalent
Barriers to adoption
GM is not a new technology
Worries of GM crops exist
but play a role in sustainable
farming…
Santhosh Seshadri*, CFA
Analyst
HSBC Securities and Capital
Markets (India) Private Limited
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/
qualified pursuant to FINRA regulations
Leafy greens in vertical
farming
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catering to niche markets where the produce can be sold at a premium and there is a need for
reliable supply, for example - supply to airlines and restaurants. Aero farms took 9 years to
make meagre profits, according to Forbes, while many vertical farming companies have also
closed their business due to high costs involved. On the bright side, investment interest in the
space has picked up recently that could foster new technologies and help bring down the costs.
Market size and recent deals
BIS research estimates the market size of vertical farming at USD5.5bn in 2020 and expects to
reach a CAGR of 24% through 2026 to reach nearly USD20bn. High growth potential and its
sustainability credentials have attracted growing investments in the space. According to
Pitchbook, cUSD1.9bn was invested in vertical farming start-up companies in 2020, almost 3x
higher than 2019 levels.
Circular economy
The standard model for an economy is a linear one, where raw materials are extracted from the
earth, processed into goods which are used, and then disposed of as waste. A circular economy is a
closed loop in value chains where materials intended for waste are reused/recycled to create new
products, minimising resource inputs, while reducing emissions. This concept is gaining traction due
to growing populations in the face of finite resources, and the growing focus on sustainable living.
The agricultural industry is responsible for roughly 70% of global water use. Utilising a circular
system can assist in reducing this number, and the potential to reuse irrigation water. This
would not only save water, but if treated properly, can provide valuable nutrients.
A third of food is wasted each year, contributing to the inefficiencies of the agricultural sector,
ultimately exacerbating land management, water use and emissions problems. In a more circular
economy, this waste can be deployed for other resources.
The key to making sure resources such as water aren’t wasted through the agricultural supply chain
is to encourage more circularity in the industry. This can be somewhat addressed in the first stage
in the supply chain. Precision farming and Hydroponics are two developments the industry can
adopt to help achieve this for the value chain and a more sustainable approach to agriculture:
Precision agriculture – This is the use of technology, research and big data to increase
crop yields while limiting the levels of inputs to ensure the correct amount of substances are
used in the right areas and times. Inputs such as water, pesticides and fertilisers can be
limited and directed to where they are required most. This reduces the impact agriculture
has on the environment via its water use, emissions and waste, as well as pollution via the
over use of harmful substances.
Hydroponics – A type of agriculture that doesn’t require soil, whereby plants are grown in water
and provided with the exact amount and type of nutrients required. Modern hydroponics utilise
data and automation to increase yields by taking control of which conditions the crop grows in.
This is sustainable and reduces waste via managed water usage and provides less risk of
pollution elsewhere. However, this type of farming has its risks. These include large amounts of
energy usage (due to it typically occurring indoors) and the economic cost incurred for the
infrastructure required, therefore, not suitable for smaller farms with lower budgets. Coupled with
hydroponics is aquaponics, which varies by the use of fish to provide a natural source of
nutrients instead of adding the fertilisers directly to the system. The plants naturally filter the
water and create a circular system benefiting both plant and fish.
Vertical farming expected to
be worth USD20bn by 2026
Creating a closed loop to
reduce waste and resource
inputs
Agriculture uses 70% of
global freshwater
Utilising waste for fertiliser
and biofuels
This is an abridged version of a report by the same title published on 03-Mar-22.
The full note is available to clients of HSBC Global Research and contains a further look at the
topic at hand.
Please contact your HSBC representative or email AskResearch@hsbc.com for more information.
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Disclaimer
The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed
herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the
specific recommendation(s) or views contained in this research report: Davey Jose, Amy Tyler, Sean McLoughlin, Jeremy Fialko, CFA,
Nicolas Cote-Colisson, Sriharsha Pappu, Santhosh Seshadri, CFA, Anand Date, CFA, Charlene Liu, Kiri Vijayarajah, Robin Down,
Kailesh Mistry, CFA, Adam Fox-Rumley, CFA, Charlotte Wei and Peishan Wang
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