Are These Agriculture Companies Prepared for Rising Global Populations?

Are These Agriculture Companies Prepared for Rising Global Populations?

The global population only continues to grow, and life expectancy is rising in tandem. According to the most recent annual report from The Mosaic Company , the global population recently passed seven billion and will reach nine billion by 2050.

Not surprisingly, then, the pressures facing global food production are immense and complex. After all, farm land is a scarce resource, meaning agricultural production must improve both on an absolute basis as well as improve efficiency in order to meet the corresponding rise in demand for food.

As a result, agricultural production is a core emphasis throughout the world, particularly among the emerging economies, which means big business for Deere & Company , Monsanto , and Mosaic going forward.

Seven billion mouths to feed (and counting)
Those shocking numbers mean agriculture will be of huge importance for many decades, and the situation is further complicated by the fact that, again according to Mosaic, farmers will have to grow as much food over the next 50 years as they have over the full course of recorded human history. In light of this, it appears that strong underlying business conditions of the agriculture industry are all but a certainty.

This is extremely positive for not just Mosaic, but Deere as well, which derives more than three-quarters of its total sales from its agriculture & turf segment. That division posted 32% operating profit growth in the third quarter, year over year, driven by strong growth in both price realizations and shipment volumes.

Not surprisingly, Deere is reaping the rewards of solid growth in the emerging markets. In particular, Brazil is a region showing great results for Deere, the major factor behind the company's projections for South American agricultural retail sales to increase 20% this year as opposed to 2012. As Deere advises investors, "global population and income growth in developing nations will drive increased demand for agricultural output and infrastructure investment."

Booming populations, and by extension middle classes, in the emerging markets make investment in under-developed nations a key priority not just for Deere, but for the agriculture industry's seed and fertilizer suppliers as well. Seed giant Monsanto is determined to capitalize on emerging market growth, and has demonstrated that commitment by generating 45% of its 2012 net sales from outside the United States. Above-average growth is being realized in several emerging economies, including Brazil and Asia-Pacific, where sales grew 25% last year and 21% since 2010, respectively.

Agriculture needs nutrients
It's a simple reality, but a truth nonetheless, and the exact reason why Mosaic has a bright future ahead of it. Mosaic operates two business segments, Phosphates and Potash, both of which supply key nutrients to the agriculture industry. While the potash market is currently in a state of upheaval stemming from the breakup of one of the world's largest partnerships, causing potash prices to decline precipitously in just a few months, the long-term fundamentals remain extremely positive.

This provides Mosaic management with great confidence in its company's future, despite the near-term pressures. President and CEO Jim Prokopanko recently had this to say about the future of his company: "The long-term positive crop outlook for crop nutrient demand has not changed; high commodity prices are driving record farm returns and making our products more affordable than ever before. These strong fundamentals are expected to drive near record global phosphate and potash shipments in calendar 2013."

The Foolish takeaway
While the world's population and demand for food continue to grow, one thing that isn't growing is the amount of land available for food production. That means farmers will have to reap increasing amounts of food from roughly the same amount of land.

As a result, Deere, Monsanto, and Mosaic have huge opportunities to provide their products and services to an industry desperately grappling for solutions. Should each of these companies succeed in its growth initiatives, especially within the emerging markets, their shareholders will likely profit handsomely for many years to come.

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