Mergers and acquisitions demonstrate the lure of sustainable farming

In recent years, the world of mergers and acquisitions (M&A) has shown an increasing appetite for investments in sustainable farming. A combination of environmental concerns, shifting consumer preferences, and regulatory pressures has drawn the attention of investors to the agricultural sector, where companies are increasingly prioritising sustainable practices. 

As the world’s largest industry, agriculture employs over a billion people and generates $1.3 trillion dollars annually. While sustainable farming can preserve ecosystems and improve soil and water health, unsustainable practices harm both people and the environment. As global demand for food rises, sustainable resource management is crucial. 

As a result, technologies like vertical farming, hydroponics, and carbon farming are rapidly becoming integral to mainstream agricultural operations. From agritech firms to regenerative agriculture initiatives, the industry has become a hotbed of activity for dealmakers eager to capitalise on this new frontier. 

The appeal of sustainable farming is not just about corporate responsibility—it's about seizing opportunities in the growing market for greener alternatives and innovative farming techniques. 

Sustainable farming trending up

In the first quarter of 2024, the sector saw a more than 600% jump in M&A deal value —from US$820 million in Q1 2023 to US$5.87 billion. In Europe, investment in the sector has soared as companies seek to integrate Environmental, Social, and Governance (ESG) principles into their operations. 

While Europe is a key growth market, with regenerative agriculture set to expand at 14.1% annually from 2023 to 2029, the surge in investment activity is not confined to the region. Despite a dip in deal values in the US, agritech is set to outperform the broader venture capital market in the near term. The Biden administration's drive for more stringent climate policies, including subsidies and tax incentives for sustainable farming, has further fuelled the push for investment in the sector. Meanwhile, UK AgriFoodTech firms secured a notable $1.3 billion in 2023, making the UK the second-largest market by investment. 

Why the rising interest in sustainable farming?

The push for ESG initiatives

The shift towards ESG initiatives has evolved from a niche concern to a regulatory and financial necessity. As investors push for greater transparency and sustainability, businesses are rethinking their strategies to integrate ESG principles.

This transformation is particularly pronounced in agriculture, a sector responsible for nearly a third of global greenhouse gas emissions. The need for innovation—and the corresponding investment opportunity—is significant since the agricultural sector is responsible for almost a third of global greenhouse gas emissions. Companies offering sustainable alternatives like organic farming, reduced pesticide use, and carbon sequestration are seeing rising valuations and becoming prime acquisition targets.

Growth and opportunity in the sector

Beyond ethical considerations and regulatory push, the sustainable farming sector presents substantial business opportunities. With the global population approaching 10 billion by 2050, the demand for food is expected to increase by more than 50% in a base-case scenario. Traditional farming methods are no longer sustainable at such a scale due to heavy reliance on resources such as water, land, and chemicals.

In contrast, sustainable farming, supported by agritech innovations, offers viable solutions to meet growing food demands while minimising environmental damage. The adoption of data-driven farming techniques, from AI to satellite monitoring, is helping to optimise resources, manage climate risks, and improve crop yields. Agritech companies are stepping up to address critical issues such as water scarcity, soil degradation, and pest control. Larger corporations are acquiring these firms to strengthen their sustainability credentials and future-proof their operations. 

This shift has not only attracted venture capital but also strategic buyers from outside the sector, such as tech giants and private equity firms, eager to enter the growing market.

M&A gains momentum as the agritech investment landscape evolves

The rise in M&A activity has also been sparked by a drop in agritech investments, as startups seek sustainable business models and incumbents look for innovative solutions. After experiencing explosive growth, agritech investment plummeted by 40% in 2023, with indoor farming hit hardest, dropping from over $2 billion to under $500 million. Its share of global venture capital has fallen to 5.5%, a six-year low, down from 6.7% in 2022 and 7.6% in 2021.

In response to harsh fundraising conditions in 2024, M&A is emerging as a key strategy for companies to scale up and attract strategic buyers. At the same time, tech companies are entering the sector, drawn by the critical role of data in agriculture and the need to adapt to climate change. 

What this means for sustainable farming moving forward

The rising interest in sustainable farming is more than a passing trend; it signals a long-term transformation in the global agricultural sector.

Growing concerns over food security and the rising demand for healthier, chemical-free options are expected to keep interest in agritech robust.

As climate change continues to disrupt food supply chains worldwide, adopting sustainable practices will become essential to ensuring both productivity and profitability in farming. Governments and private investors are pouring capital into research and development of eco-friendly farming techniques, recognising the critical role sustainability will play in the future of agriculture. This M&A surge suggests that sustainable farming is rapidly evolving into a mainstream sector, where scaling up and innovation are essential for success.

Companies are positioning themselves as leaders in sustainable agriculture, aware that what was once considered a niche is quickly becoming a central pillar of global agricultural strategy. The future will demand not only innovation and scalability but also strict compliance with evolving ESG standards. For companies in the sector, the challenge lies in staying ahead of the curve while seizing the immense opportunities.

Invest with strong partners

As the demand for sustainable farming grows, so does the need for trusted advisors who can navigate this rapidly evolving landscape. HLB Global is uniquely positioned to support businesses through its transaction advisory services, offering expert guidance on mergers, acquisitions, and divestitures within the sustainable farming sector.

Learn more about HLB's transaction advisory services. Discover how we can help you navigate the complexities of sustainable agriculture and ESG investments.