Food for thought: Dealmakers drawn to Europe’s sustainable farming sector

The strong environmental, economic and social case for sustainable farming looks set to spur future M&A in Europe’s agricultural sector

M&A in the agricultural sector received a boost in the first quarter of 2024. Deal value rose by more than 600 percent year on year from US$820 million in the first quarter of 2023 to US$5.87 billion in the first three months of this year.

One of the key drivers for this increase has come in the form of sustainable farming: the use of non-conventional systems that meet the needs of current and future generations while prioritizing energy efficiency. Sustainable farming is tipped for significant growth. Indeed, the global market is predicted to more than double, from approximately US$13 billion in 2022 to around US$31 billion in 2031.

While more costly than conventional farming methods, the benefits are clear. According to the UN, sustainable agriculture techniques use up to 56 percent less energy per unit of crops produced, create 64 percent fewer greenhouse gas emissions per hectare, and support greater biodiversity than conventional farming.

Europe is a key growth market, with its regenerative agriculture market projected at an impressive 14.1 percent compound annual growth rate from 2023 to 2029. Germany has emerged as the regional leader, while the UK and France are also posting strong growth.

With the agriculture sector accounting for ten percent of EU greenhouse gas emissions, all eyes are on sustainable farming and its potential to cut down on carbon waste while meeting the food needs of a growing population.

The number of disruptors offering innovative solutions is rising with demand. Berlin-based startup IrrigationNets, for example, offers a cost-efficient alternative to desalination plants with its technology for converting seawater or salinized groundwater into fresh water. Brussels-based Global BioDesign, meanwhile, reduces the need for pesticides through its biocontrol pest solutions.

Giants look to cash in 

Global fast-moving consumer goods (FMCG) players are betting big on the sector, drawn in by the double incentive of boosting sustainability across their supply chain and retaining valuable customers.

In a clear sign of confidence in sustainable farming, Danish multinational brewer Carlsberg has pledged that 30 percent of its raw ingredients will come from regenerative methods by 2030—a figure set to increase to 100 percent by 2040. Meanwhile, soft drinks and snacks giant PepsiCo aims to take a regenerative approach to seven million acres of farmland by 2030.

Regenerative farming is a sustainable approach that allows the land, soil, water, nutrients and natural assets to regenerate themselves. While the exact definition can be unclear, it is being hotly pursued by FMCG players looking to fulfil their net-zero pledges.

Investment on the rise 

Several significant deals have taken place over the past few years as public and private investors look to capitalize on sustainable farming’s growth potential across Europe.

Mirova, the sustainability-focused arm of global asset manager Natixis Investment Managers, is currently a leader in the space. Its US$9.3 million investment in Koa was the largest fundraising to take place in the sustainable agriculture space since the start of 2023.

Announced in December last year, the deal will enable the Swiss-Ghanaian cocoa producer to increase its production capacity as it looks to generate additional income for more than 10,000 cocoa farmers by 2024.

Companies are increasingly looking to add complementary sustainable practices and scale growth. Organic fruit and vegetable provider Organto Foods acquired New Fruit Group as it looks to build a "one-stop shop" in organic and value-added fruit and vegetable products. Announced at the start of 2023, the €1.6 billion deal aims to boost supply relationships across the Caribbean, South America and Africa.

In December 2023, Norwegian chemicals company Yara acquired Agribios Italiana’s organic fertilizer business in a bolt-on acquisition as it looks to support its organic strategy across Europe. Improving soil health has been described as the foundation of sustainable farming, yet it is estimated that a third of the earth’s soil is degraded due to modern farming practices.

Deal drivers

The environmental, social and governance, or ESG, agenda should be a major driver of future dealmaking in the sustainable agriculture space. A number of investment funds now focus on agritech and sustainable production assets—a trend that could have a transformative impact on Europe’s sustainable agricultural industry.

Following its recent investments, Mirova is currently looking to raise €350 million for a new successor fund. UK investor M&G, meanwhile, recently announced a €150 million commitment to the Regenerate European Sustainable Agriculture Fund, which invests in regenerative farming projects across Europe.

The entrance of global technology players into the sustainable agriculture market is another likely key driver of dealmaking activity. Google is making inroads in the sector, recently launching, a tool that uses artificial intelligence and machine learning to build a more sustainable and resilient food system. While agritech assets have suffered a drop in valuations over recent years, interest from tech players could push up valuations and increase M&A opportunities in the sector.

The future trajectory of sustainable agriculture will be intrinsically linked with regulatory developments. It is estimated that 70 percent of EU soil is unhealthy, with ongoing erosion costing Europe’s farmers €1.25 billion each year. Tackling soil degradation is currently a key focus for the EU, with its Farm to Fork strategy targeting a 50 percent reduction in the use of chemical pesticide by 2030.

European farmers are also under increasing pressure to disclose greenhouse emissions throughout their supply chains. As of January 2024, companies incorporated in the EU are required to report their indirect, or scope 3, carbon footprint. The increased focus on scope 3 emissions will raise investment demand for data collection and monitoring.

Interest from global consumer companies is also primed to drive dealmaking in the sector. Household names such as Danone, PepsiCo, Nestle and Cargill recently pledged to commit US$2.2 billion in funds in regenerative farming practices. This is on top of US$2 billion already invested. There is a clear business case for global food suppliers to invest in this fast-growing industry to meet net-zero goals, resulting in more bolt-on acquisitions and joint ventures.

Outlook: Farming for the future

Sustainable agriculture may appear to be on a one-way trajectory, but the movement has faced criticism from some. The most significant challenge has come from farmers unwilling to move from conventional techniques to new, often expensive, sustainable practices.

Following fierce protests from farmers across Paris, Berlin and Brussels earlier this year, the EU dialed down its green farming rules. However, in mid-June the bloc pushed through the Nature Restoration Law, which requires member states to put measures in place to restore at least 20 percent of the EU’s land and sea areas by 2030, and all ecosystems in need of restoration by 2050.

Alongside the new legislation, the strong social and economic case for sustainable agriculture is likely to be a key driver for future deals. As governments and future generations look to more environmentally friendly farming methods to combat climate change and ensure a healthy food supply, dealmaking and investment in the sustainable agriculture market are only likely to increase.

Receive M&A Explorer quarterly email updates when new data is available.