By Niraj Shah, Collectives Analyst
Not that we needed any reminders, but with the UN’s food price index hitting its third consecutive record in March at 34%, this highlights the serious challenges facing the global food system. A look at the past offers hope for the future, where we see opportunity for advisers to help their clients grow their wealth in sustainable ways.
Global food production has increased substantially over the past 50 years, making food more affordable even as the world’s population has doubled. These gains have been driven by the industrialisation and globalisation of food production and supply chains. But, as we explain in our Planet Paper: Feeding the planet, they have significantly increased greenhouse gas emissions and deforestation, as well as, degrading soils and ecosystems.
Farming faces multiple challenges. There will be nearly 10 billion people on earth by 2050 — there is a huge shortfall between the amount of food produced today and what will be needed to feed everyone by then. But intensive farming has damaged the land. COVID-19 and the war in Ukraine remind us of the fragility of long supply chains. We are seeing a structural shift in the number of companies helping to feed the world more sustainably.
Many firms are responding to the need to shift away from diets that are bad for us and for the planet and to capitalise on opportunities in plant-based foods and milks. Some are focused on grains like soybeans and seitan, as well as oat and nut milks. Others are developing next-generation protein-rich meat alternatives and ‘cultured’ (lab-grown) meat.
For now, we think many ‘alt protein’ stocks are trading too speculatively and their business models are a little untested. But the huge surge in popular demand for plant-based milks, for example, shows there is a large addressable market of people keen to embrace ‘food 2.0’ and its potential climate and health benefits.
Hi-tech down on the farm
Many companies are developing innovative production methods augmented by data-driven technologies that could play a major role in the transition to more environmentally friendly farming. Vertical techniques allow crops to be grown in multiple layers on top of each other in virtually any location (including underground tunnels and disused buildings).
Hydroponic vertical farming enables crops to be grown in soil-free liquid nutrients, while aeroponic approaches allow them to be grown in nutrient-supplemented air or mist. It is still early days for many of these companies so it remains hard to determine which may emerge as the eventual winners, but the growth potential in their market is huge.
Simple technologies (like smart-phones and solar water pumps) can lead to more sustainable farming. Several companies are developing innovative machinery and equipment, including robotics for precision weeding and crop fertilisation, self-driving tractors, drones and satellites. It’s a mature market and some large firms have gained sizeable market shares. But smaller start-ups are emerging. We believe firms that have mastered precision agriculture will be able to take advantage of technologies in their infancy, such as complex gene editing of crops and robots to harvest them.
Waste not, want not
Many firms ranging from large multi-national food producers, retailers and supermarkets to niche specialists are working across the food ecosystem to tackle the world’s food loss and waste problem. Less loss and waste could ease pressures to produce more to feed a growing population. In turn, this could have a dramatic impact on efforts to limit climate change.
Nutrition and life science companies are developing preservatives to increase shelf-life and protect against bacteria. Warehousing and logistics providers are offering intelligent fulfilment solutions. Outside the global food giants, private companies and not-for-profits are recycling waste food and distributing surplus food. It’s difficult to identify which could grow into the global mega-caps of tomorrow but see strong potential in this market.
Our food resources play a critical role in the health of our planet, but the global sustainability agenda has focused on energy. A food revolution has begun even if it still has a long way to go. For now, farming and the food industry are highly fragmented. Smaller private companies and not-for-profits are driving some of the more innovative approaches to overhauling our food ecosystem. We expect these dynamics to shift over the medium to longer term as larger companies spend more on research and development and acquire younger leaders in the field of sustainable agriculture.
This is one of the long-term investment themes that we will be keeping an eye on as we look to help our clients be responsible stewards of their wealth (and health).
