investment viewpoints

Packaging new food systems

Packaging new food systems
Conor Walsh, CFA - Portfolio Manager

Conor Walsh, CFA

Portfolio Manager

The process of aligning food systems with global climate goals is underway and this is shaping a number of investment opportunities. Specialised food packaging solutions in particular have reached an inflection point.

 

Need to know

  • Food packaging needs to evolve. The current system relies heavily on single-use plastics to protect products and extend shelf life, which are carbon-intensive and polluting
  • Demand for packaging is expected to nearly double by 2040, meaning there is a significant opportunity for shifting capital to alternative, sustainable models
  • There are a number of alternative models that are becoming more commonplace on supermarket shelves.

 

Food packaging in transition

New food systems are required in order to feed a growing population while staying within, or helping restore, vital planetary boundaries. This transition demands a range of transformations in the way we produce, distribute and consume foods. New profit pools are being generated and are anticipated to represent a USD 1.5 trillion global market by 2030 as part of a sustainable investment universe.

Companies that provide specialised products and services along the value chain are a key feature of this universe, and food packaging providers in particular look to be presenting opportunities for investors. Generally speaking, packaging providers aligned with this trend are in the business of substituting traditional plastic for cardboard, metal and other forms of bio-based plastics.

Single-use plastics are the prevalent material currently used to protect products and extend shelf life. These fossil-fuel-based products raise the carbon footprint of foodstuffs and contribute to the growing problem of plastic waste entering the oceans, damaging marine habitats, and also polluting ecosystems on land. The European Union, for example, estimates that 70% of all marine litter is made up of single-use plastics, and the safe planetary boundary for pollutants, including plastics, has already been exceeded, according to an international team of researchers. The situation is starting to prompt regulators to take notice, while the UN Environment Programme is working to table a legally binding international agreement addressing the adverse impacts of plastic pollution by 2024. With demand for packaging expected to nearly double by 2040, there is a significant opportunity for shifting capital to alternative, sustainable models.

 

Alternative models

There are a number of alternative models that are becoming more commonplace on supermarket shelves. Bio-based plastics, for example, are made from biological resources rather than fossil fuels. These polymers can also be biodegradable and offer a reduced carbon footprint when compared to many traditional plastics used in food preservation and containment. The bio-based plastics market has significant capacity for growth, spurred by regulatory deterrents for plastic use, and a more eco-conscious consumer. The market is projected to reach USD 40 billion by 2030, up from USD 10.2 billion in 2021.

Dutch company Corbion1 specialises in packaging solutions sourced from renewable materials, including bio-plastics. Its PLA (polylactic acid) packaging reflects a carbon footprint that is 75% lower than for conventional materials and is produced from renewable feedstocks like sugarcane, corn, sugar beet and cassava. Besides composting, PLA bioplastics also offer additional end-of-life options like mechanical and chemical recycling. The company reports growing demand for this aspect of the business, and is expanding existing lactic acid facilities used in the production of PLA, as well as constructing a new plant in Thailand.

The company’s bio-based plastic is used in a variety of applications such as food and beverage packaging. NaKumarkets a water bottle that uses PLA packaging and is said to be made from 100% bio-based plastic and 20% certified recycled content. The bottles are reportedly collected, sorted, and cleaned after use, at which point they are mechanically recycled for use in other applications.

 

 

Sources: 

3. Systemiq, 2022
 

Elsewhere, it is estimated that around 17% of all plastic packaging could be eliminated by a shift to paper, coated paper or compostables. The transition away from plastic rings is important to the preservation of biodiversity and addressing the issues associated with planetary boundaries. The WWF estimates that plastic rings commonly used for six-pack beverages take around 400 years to break down and can be extremely harmful to marine wildlife. US packaging company Graphic Packaging1 holds a leading market position in paperboard products used in food and beverage packaging. One of these products is a fibre-based alternative to plastic rings and shrink film, which is experiencing growing demand, according to the company, which expanded the product into new geographies in 2021, including Canada and Brazil. Graphic Packaging also recently upgraded its estimated addressable market from USD9 billion to 12 billion.

Food systems are responsible for approximately 34% of global anthropogenic GHG emissions. Waste and inefficient waste management throughout the supply chain augment the scale of the problem, emphasising the need for preservation materials which extend the shelf life of foods while moving away from fossil-fuel production and pollution. In the UK alone, consumers throw away £2.1 billion worth of fresh produce a year due to spoiling. There are a number of promising and sustainable solutions to this issue. For example, start-up Apeelhas developed a layer of edible plant material, which slows the oxidation process and spoilage of fresh produce. It claims the process extends the lifespan of avocados by up to a week.

Food packaging needs to evolve. The current system relies heavily on single-use plastics to protect products and extend shelf life, which are carbon-intensive and polluting. The development and adoption of sustainable food packaging has reached an inflection point that signals a path towards mass-market adoption. Investing in companies driving this transition, as part of the larger transformation to new food systems, positively exposes investors to shifting profit pools and interesting investment opportunities.

 

Sources

1. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

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