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Farmers turn to high-tech tools to grow profitability

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2023-06-05          201653

The concept of “precision agriculture” has become increasingly important for farmers looking to maximize crop yield, or the amount of agricultural production harvested per unit of land, says David Wagner, co-portfolio manager of Fidelity® Agricultural Productivity Fund (FARMX).

Launched in 2020, the fund is a thematic equity strategy dedicated to investing in companies that help to increase food-production efficiency amid a backdrop of a growing global population and declining per-capita supply of arable land.

Precision agriculture acknowledges the reality that not only will one farm’s conditions be different than the next, but even within a single field of corn, there is going to be variation within that field. A farmer's ability to measure all of this has been limited—until recently, according to Wagner.

“Whether it’s soil health, slope of the land, the amount of moisture in parts of the field, or even proximity to other crops, agriculture companies have developed new technology to collect this important data,” Wagner says.

Wagner likens this to artificial intelligence, drones, satellites, and tractors with smart sensors, all being used to gather data and help farmers figure out precisely how each inch of the farm needs to be treated. With these precision tools, he explains, a farmer’s goal is to use fewer cost inputs, such as herbicides, pesticides, and even water, while still driving crop yield.

“This concept plays directly into the investment theme of trying to do more with less to feed the world's growing population,” says Wagner, who co-manages the fund with Steven Calhoun. “There is a fixed amount of arable, or farmable, land and natural resources that will be needed to serve growing demand for food, due to growth in global population.”

Wagner and Calhoun look for investment opportunities across multiple industries that can help address and present solutions to this problem.

“If you think about how farming has traditionally worked for thousands of years, success or failure largely comes down to farmers’ decision-making and execution skills,” says Wagner. “They learn through years of family tradition, experience in the field, and on-the-ground observations.”

Wagner cites Deere (DE) and AGCO (AGCO) as companies that have developed smart-farming technology to improve productivity, adding that sales of these tools have become a greater percentage of their profitability.

As of April 30, Deere was the fund's largest holding by a wide margin, and AGCO also was a notable position.

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