While the majority of world's surface is covered by water, only about 2.3% is considered fresh and fit for human consumption. More than a billion people currently do not have access to this precious commodity, and as our global population continues to explode we’ll have a recipe for increasing scarcity.
 
That’s a major issue- even more so when you consider that all these people will need to eat as well.
 
The bulk of H20 demand stems from agriculture and farming uses, meaning that the convergence of these two facts makes a compelling case for the portfolio play in irrigation equipment. For investors, betting on the firms that provide these necessary water efficiency products could be one of the biggest themes of the next few years.

SEE: Natural Resource Investing
 
Seventy-Percent 
Investors in the Ag-space usually place their bets on companies such as tractor maker Deere (NYSE:DE), fertilizer producer Potash (NYSE:POT) or Monsanto (NYSE:MON) for its innovative seed products. However, investors wanting to find Ag gold may want to bet on something more simple- water.
 
According to data provided by the Organization for Economic Cooperation and Development (OECD), agricultural demand currently accounts for around 70% of total water used in the world today. That compares to just 20% for industrial purposes and 10% for domestic drinking water use. Already, this torrid demand has put pressure on water tables, aquifers and snow packs as farmers try to keep up with rising food requirements. The OECD estimates that farmers will be required to produce almost 50% more food by 2030 and double production of grains and livestock by 2050.
 
That’s a tall order for our water supplies considering freshwater withdrawals have tripled over the last 50 years. Globally, demand for freshwater is increasing by nearly 64 billion cubic meters a year. Those increasing withdrawals have wreaked on traditional stores of fresh water. For example, the massive Ogallala aquifer in the Midwest- which stores as much water as Lake Huron- has seen its water levels drop by more than 50 meters in some wells. That equates to depletion of 10% of the total volume.
 
As we continue to drain our natural aquifers at alarming rates due to agricultural use, water efficiency is quickly becoming increasingly important. That means some big bucks for the firms that help farmers reduce their water consumption and ultimately their rising future costs.

SEE: Water: The Ultimate Commodity
 
The Triple Portfolio Play 
Midcaps Lindsay Corporation (NYSE:LNN) and Valmont Industries (NYSE:VMI) have been on a tear as the U.S. has faced one of the worst droughts in recent history. It’s certainly easy to see why. Both manufacture irrigation equipment that reduces water, energy, and labor costs for farms. They also currently provide the irrigation equipment for just over two-thirds of the entire United States harvest. Perhaps more importantly, both Lindsay and Valmont have significant presences in major international growing regions as well.
 
Lindsay pioneered the use of a central pivot irrigation system, which allows the units to flow up and down steep grades, turn corners and provide greater crop yields. That innovation continues as the company has added GPS-guided and water sensing equipment to their arsenal. All of this has helped the firm continue to report strong earnings. Lindsay recently reported that earnings for the second quarter of fiscal 2013 increased by 50% versus a year-ago. Those reported results also were well ahead of the analyst predictions.
 
Like Lindsay, Valmont manufacturers a host of pivot irrigation equipment. However, the firm is aggressively moving into the international space and markets its products in more than 100 countries. All in all, Valmont does roughly 45% of its business outside of the U.S. That’s a jump up from just 25% a few years ago. That’s helped boost the company’s cash flows and dividends for investors.
 
Finally, while most people will recognize Toro's (NYSE:TTC) bright red lawn movers at their local golf course, the company also has a very profitable micro-irrigation unit. These systems allow for less water to evaporate and enable farmers to grow crops in less than ideal dry conditions- think the Middle East, India and Africa. This could be a boom to Toro as these areas are exactly where the populations are exploding and need more food. (L6)
 
SEE: Economic Trends We Can All Profit From

The Bottom Line 
Water use for agriculture continues rise at extreme levels. Given our plants growing population, that demand will only get worse. The trio of Lindsay, Valmont and Toro are on the forefront of proving the necessary equipment needed for water management and efficiency during irrigation. For investors, they could just be the three best long term plays in Ag.     

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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