No such thing as a free lunch

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June 15, 2021


A growing world population and the challenge of climate change requires investors to think outside the box when it comes to food production, says Newton portfolio manager Yuko Takano.

What’s on the menu?
  • Agricultural equipment and technology firms
  • Crop improvement, protection, and nutrient management companies as well as those involved in animal health.
  • Companies offering smart food products (microbiomes, prebiotics and probiotics), processing technologies, alternative foods like plant-based meat and dairy, and those whose business is ingredients and flavorings.
  • Online food delivery platforms
  • Food companies offering more sustainably sourced packaging, those with optimised value chains and those providing cutting-edge recycling solutions.

How much thought do we give to the food on our plates? In our modern age of excess consumption and convenience it’s easy to forget some uncomfortable truths about how we are fed.

According to the Intergovernmental Panel on Climate Change (IPCC), between 21% to 37% of global CO2 emissions result from food production, while 50% of the world’s habitable land is given over to the same.1,2 With the global population expected to exceed 10 billion by 2100,3 the question of where our food comes from and how it’s produced is an increasingly urgent one.

But for Takano, the question of future food sustainability is one of opportunity as well as challenge.

She notes how, in developed countries consumers have begun to alter their shopping preferences as they become more conscious about the origins and environmental impact of their food. This is spearheading trends in clean labelling and environmentally friendly plant-based proteins.

“The way people consume their food has evolved significantly in the past decade,” says Takano. “Wider global trends centered on convenience-based consumption are driving growth in food retail and distribution, with online platforms gaining share.”

Meanwhile, as part of a trend towards greater awareness, recycling and the prevention of food wastage have become ever more important to consumers and businesses. And, for Takano, that means the future of food production and distribution will place an even greater emphasis on limiting waste.

“Around one third of all food produced for human consumption is thrown away or left to rot,” she says. “That amounts to more than one billion tons of food waste every year. There’s mounting pressure on companies to ensure their products are sustainable with packaging that can be recycled.”

All of this adds up to potential opportunity for investors who can anticipate future trends in food production and consumption and know where to look for the companies that are making a difference.

Here, Takano points to three sub-themes that she believes hold promise: agriculture and production, processing and innovation and retail and distribution.

Agriculture and production

On the first sub-theme, Takano highlights how climate change and resource scarcity (particularly freshwater reserves and land suitable for farming) are placing further pressure on already severely strained global crop yields.

In the US and on a global level, the amount of land deemed suitable for farming has fallen dramatically over the last 50 years, they note. When adjusted for population gains, arable land has declined by 52% in the US and 48% globally since 1961.4 While the pace of this decline has slowed, albeit modestly, in recent years, as populations continue to urbanize and more arable land is converted for buildings, the need for new technologies and solutions to boost global crop yields will be even more paramount than they are today.

According to Takano, companies well placed to respond to this challenge might include agricultural equipment and technology firms and those working on seed improvement, crop protection, nutrient management and animal health.

Food processing and innovation

On the second theme, Takano highlights a bifurcation of food preferences worldwide. In developing economies, the focus is on increased protein consumption as an emerging middle class moves away from purely subsistence-based diets. In contrast, developed economy consumers are now placing a premium on alternative, healthier food products with longer shelf lives and a less harmful environmental footprint.

In this space, Takano believes companies offering smart food products (microbiomes, prebiotics and probiotics), processing technologies, alternative foods like plant-based meat and dairy, and those focused on ingredients and flavorings could prosper.

“The rise of ‘flexitarians’5 in the developed world is likely to serve as a long-term tailwind for companies offering plant-based proteins, and ingredients companies further up the value chain which provide the critical inputs for alternative-protein products,” they say. “As plant-based meat becomes more popular we foresee the addressable market in the US – currently the largest market – growing from US$13.5bn in 2019 to more than US$36bn by 2028.”

New markets in Asia and South America should also serve as long-term tailwinds for these companies over the coming years, they add – with higher demand for alternative proteins a future growth driver for leading flavorings and ingredients companies, whose solutions are key inputs into most plant-based products.

Retail and distribution

The final sub-theme considers those companies operating further down the global food value chain. Here, a greater awareness of the importance of nutrition is fueling a quantifiable shift towards natural products and ‘clean’ labeling.

At the same time, heightened consumer awareness has led to growing calls for increased sustainability and ‘traceability’ of food; with companies now facing the prospect of losing market share if they fail to optimise supply chains, reduce waste, and become more efficient with their resource usage. A concerted anti-plastic movement should continue to serve as a powerful structural tailwind for companies offering sustainably sourced packaging, those with optimised value chains, and those providing cutting-edge recycling solutions, Takano notes.

A further trend within the food retail and distribution area is the emergence of online food delivery platforms. From China to the US, consumers armed with smartphones can now have groceries or restaurant products delivered to their door with a few simple clicks.

“The case for food delivery in China is particularly compelling, with penetration rates for on-demand food delivery set to triple by 2023,” Takano concludes. “A tripling of penetration levels in an economy as populous as China, combined with impressive gains in income per capita, implies ample scope for growth in this new, innovative distribution market.”

1 IPCC: ‘Special Report: Climate Change and Land’, 2019

2 Our World in Data: ‘Half of the world’s habitable land is used for agriculture’, November 11, 2019

3 United Nations: Growing at a slower pace, world population is expected to reach 9.7 billion in 2050 and could peak at nearly 11 billion around 2100. June 17, 2019.

4 Newton Investment Management. Accessed June 2021.

5 Those who are not strict vegetarians, but who are looking to reduce their animal protein intake.


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