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Ag Tech investment opportunities emerge as farmers turn to AI

Telus Corp. is among the companies applying big data and analytics skills to improve farm-to-table efficiency.

The next time you spot a two-for-one deal at your grocery store, spare a thought for how the store knew how many pallets of chicken wings or spaghetti sauce to order and how the food processor knew how many of each to make.

Matching that supply and demand was once guesswork, but increasingly companies are using sophisticated software, artificial intelligence and cloud-based data analytics to put the two together in a more efficient way.

For investors, this is one aspect of so-called agricultural technology (agtech), which is creating opportunities as climate change and drought create urgency for better farm-to-table efficiency. One company investors can turn to for a low risk way to play this emerging sector, comes from a place they might not normally look. Telus Corp., (TSX:T), the internet and mobile phone services giant, is now applying its data management and analytics skills to this area as well.

“A third of the world’s food is wasted because it’s in the wrong place at the wrong time,” says John Raines, president of Telus Agriculture & Consumer Goods, a $400 million a year business, whose revenue grew 37 per cent year-over year.

“[We want] to improve the sustainability, availability, quality and ultimately the affordability of food and consumer goods supply.”

Mr. Raines grew up in rural Missouri and is still involved in a family farm that grows corn and soybeans. He says Telus Agriculture & Consumer Goods is the third largest provider of solutions for consumer trade promotions, helping match supply with demand for those buy-one-get-one-free deals. Its customers include nine of the 10 largest global agricultural companies and 70 of the top 100 consumer goods companies. Those names include Unilever, Nestlé, Tyson Foods, Johnson & Johnson and Procter & Gamble.

Telus CEO Darren Entwistle (R) and John Raines, president of Telus Agriculture and Consumer Goods in Missouri, where Mr. Raines has a family farm. Credit: Supplied photo

The unit has made 11 acquisitions since 2019 in the software as service area, employs 1,600 people and does business in 50 countries. It was renamed in July to include consumer goods.

Along with its food processing and consumer packaging clients, Telus Agriculture is also aiming its applications at farmers.

“A farmer is trying to determine from a soil sample what type of seed to plant and how much to plant,” Mr. Raines says. “And then how to manage weeds and disease. We are not trying to produce the seed. We’re not trying to sell the crop protection products. We are using analytics to help them do what they do much better, much more efficiently and much more sustainably.”

The Telus software connects farmers and seed retailers via an app. It displays data on how much seed is needed for a certain acreage and how best to control weeds. It incorporates weather patterns, soil composition, seasonal rain and sunshine. It helps determine application rates for fertilizer and pesticides and when best to irrigate.   

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If the unit’s growth continues, Telus Agriculture could see a spinoff in the latter half of the decade, Mr. Raines says. 

If so, the spinoff would follow the path laid out by Telus International Inc. (TSX:TIXT) which became a stand alone unit in 2021. Telus International has $2.4 billion in revenues and helps companies such as Fitbit and Uber manage online content and customer service. Telus Health, with $1.6 billion in revenues, is likewise being groomed. Telus Health helps doctors, dentists, and clinics manage bookings and organize records. In June, it paid $2.9 billion for LifeWorks Inc., previously called Morneau Shepell Inc. which provides mental-health and employee-wellness services. 

For Telus investors, the potential of these spin offs may be one more reason to own the stock. For those interested in a more targeted ag tech approach, there are two exchange traded funds (ETFs) to consider.  Both are recent launches; both are small with overlapping holdings, and both have sold off from their issue price.

The iShares Emergent Food and AgTech Multisector ETF (ARCA:IVEG) was launched this April. It has US $5.6 million in assets and holds 39 companies in the technology and sustainable food production and packaging areas.  

The GlobalX Ag Tech and Food Innovation ETF (ARCA:KROP) was launched in July 2021. It has US $7 million in assets and 30 stocks including such Canadian names as Nutrien Inc. and Maple Leaf Foods Ltd. Another large holding is Corteva Inc., the chemical and seed company. The iShares ETF also holds Nutrien and Corteva.

Alec Lucas, a GlobalX research analyst in New York who oversees the ETF, says as the climate changes, it becomes important to make better use of expensive crop inputs such as seed, water and fertilizers.

GlobalX ETFs analyst Alec Lucas says AI is helping create labour-saving farm management tools. Credit: Supplied photo

“We look at ag tech as increasing efficiency and output while decreasing inputs,” he says.

The GlobalX fund has a 60-40 weighting between agtech and food innovation so the holdings include Beyond Meat Inc. as well as John Deere Ltd.  The iShares ETF also holds these two.

Deere, for example, offers many precision agriculture products and will begin marketing a driverless tractor later this year. The tractor collects data via sensors on such things as soil composition, weed concentrations and weather.

Mr. Lucas says tools that reduce labour needs, automate irrigation and make greenhouses smarter are in demand. Labour shortages are acute as the average age of farmers rises.

“We think the current environment is pretty powerful for boosting the long-term potential of agricultural technology,” he says.

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This article appeared in the Globe Advisor section of the Globe & Mail’s Report on Business on Sept. 20, 2022. For reprint information please view this page

Adam Mayers writes about investing and personal finance. He is a contributor to the Globe & Mail’s Globe Advisor and a contributing editor to Gordon Pape's Internet Wealth Builder newsletter. Adam was Business Editor and investment columnist at The Toronto Star and is the author of six books.

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