investment viewpoints

Investing in the future of food

Investing in the future of food
Conor Walsh, CFA - Portfolio Manager

Conor Walsh, CFA

Portfolio Manager
Michael Urban, PhD - Chief Sustainability Strategist

Michael Urban, PhD

Chief Sustainability Strategist

 

There is an urgent need to re-evaluate our wasteful and unsustainable food systems if we are to meet the challenge of feeding a growing global population amid geopolitical shocks, climate change and unprecedented biodiversity loss. How can investors align portfolios with this shift?

 

Need to know:

  • Sustainable food production stands to represent a USD 600 billion market in 2030
  • We estimate companies which provide specialised products and services enabling this transition will make up a USD 100 bn market in 2030
  • Sustainable food consumption is on track to represent a USD 800 bn market in 2030

 

The keys to unlocking new systems and profit pools

Moving to more sustainable food systems is dependent on investing in solutions that not only boost agriculture productivity and help improve nutrition for people worldwide, but also reduce negative impacts on the planet. Agriculture is a primary driver of planetary boundaries transgressions, and transitioning to models stands to potentially unlock annual revenue streams of USD 1.5 trillion by 20301, up from an estimated pool of about USD 727 bn in 2021.

At LOIM, we focus on several investment sub-themes that we believe are key to unlocking these new profit pools, including:
 

1. Sustainable food production: a USD 600 bn market in 2030

Growth opportunities exist for companies producing biological and synthetic inputs and food products. These include businesses focusing on:

  • Aquaculture
  • Animal feed and health
  • Fertilisers
  • Agricultural products
  • Food additives and ingredients

The transition to new food systems will change the type of foods we consume and the way we produce them. This has implications for the growth of sustainable aquaculture, for example, which has numerous sustainability benefits over agriculture, including a modest emissions intensity compared to terrestrial livestock, in particular cattle. Reductions in wild fish supply by 2050 mean that the aquaculture market will need to grow from 115 m tonnes in 2018 to 150 m tonnes by 2050, according to the World Resources Institute.2

A greater focus on sustainable animal feed and health will enable us to maintain a much smaller but much cleaner animal-based food production.3 Inefficient livestock consumption of crop produce is currently a huge problem, as just 55% of the world’s crop calories are eaten directly by people, while 36% is used for animal feed, requiring a process whereby we ‘cut out the middle-cow’.

Clean and bio-based fertilisers will need to replace fossil fuel-based ones, while new food additives and ingredients must be substituted for old ones to manufacture plant-based foods in lockstep with improving technologies and shifts in consumer preferences.


2. Enabling solutions: a USD 100 bn market in 2030

We are interested in the potential for companies which provide specialised products and services that enable transformations along the value chain. These include companies focusing on:

  • Farming and food equipment
  • Enabling technologies
  • Food packaging 
  • Life sciences
  • Logistics and delivery

Enabling solutions will help build innovative cross-cutting business models. We expect to see the rise of new electrified farming equipment that is compatible with regenerative and precision agricultural practices, for instance. Enabling technologies will also help us make better production and consumption decisions. For example, satellite monitoring can track the health and abundance of crops and use this data to adjust watering and feeding cycles to maximise yields. The targeted application of fertilisers will reduce waste and help restore soil health, and resale apps can prevent unwanted but good food from being wasted.

New food-manufacturing equipment will emerge, notably to produce a range of alternative proteins at scale. Innovations in food packaging, logistics and delivery will both improve speed to prolong the life of produce and products, reducing wastage.

 

3. Sustainable food consumption: a USD 800 bn market in 2030

Consumer-facing companies which manufacture, retail and serve food are well-positioned to benefit from the transition, such as those engaged in:

  • Food manufacturing
  • Food retailers
  • Restaurants and canteens

The food and drinks that we manufacture, distribute and consume will change profoundly in the coming years. We estimate that intake from some food groups, such as red meat and sugar, will drop by 50%, while demand for other food groups, such as legumes, vegetables, nuts and fruits, will increase by at least 100%. The meat and dairy aisles of supermarkets and options on restaurant menus are likely to shrink as plant-based foods transition from being alternatives to the norm.

This transition will be underpinned by the accelerating pace of innovation in plant-based, fermented, cultivated and insect-based proteins by 2030. In turn, this should change what food is provided to consumers as companies take advantage of expanding alternative-protein profit pools. 

 

A non-linear transformation

In our view, the transition to new food systems will not be a linear process in which a primary focus on increased production is followed by sustainability concerns. In contrast, it will be a disruptive systems-change warranting a thematic investment approach.

Our focus on clear sub-themes guides us to key interactions within the value chain, and those between the value chain and the environment, that are driving the transition. We then assess whether they are generating investment opportunities and aim to generate alpha by capturing shifts in profit pools, with an emphasis on quality.

This approach includes the integration of forward-looking sustainability analysis and metrics, such as implied temperature rise and forest management, in addition to ESG scores.

 

Capturing inflection points

Our research suggests that 10 out of 13 sectors underpinning the new food systems will have reached inflection points by 2030, setting innovations on a course towards mass-market adoption. For example, technologies supporting the transition in aquaculture have already reached the mass-market phase, while the transition in fertilisers, employing green ammonia and circular bio-fertilisers, is at an earlier stage, with the potential to scale up significantly. We define inflection points as moments when markets find a new equilibrium as sustainable products and services progress from niche to mass market.

 

MARKET INFLECTION POINTS: AN ASSESSMENT COVERING 13 FOOD SYSTEM SUB-THEMES, WITH A HORIZON OF 2030

SUSTAINABLE FOOD PRODUCTION

SUB-THEME KEY TRANSITION SOLUTIONS MATURITY BARRIERS 
TO SCALE
RISK/
RETURN 
PROFILE
DEMAND 
OUTLOOK
INFLECTION POINT 
REACHED BY 2030?
Aquaculture Non-fed aquaculture, sustainable feed1 Mature Medium Medium Good Likely

Agricultural products

Regenerative agriculture, alternative proteins2

Emerging

Medium

Medium

Good

Likely

Food additives & ingredients

Alternative protein ingredients3

Emerging

Low

Low

Good

Likely

Animal feed & health

Sustainable feed, preventative animal welfare4

Mature

Low to medium

Low

ST Good, LT Poor

Feed: likely (for some

products) Health: uncertain

Fertilisers Low-carbon and bio-fertilisers, green ammonia Emerging High High Good Unlikely

 

ENABLING SOLUTIONS

SUB-THEME KEY TRANSITION SOLUTIONS MATURITY BARRIERS TO SCALE RISK/RETURN PROFILE DEMAND 
OUTLOOK
INFLECTION POINT 
REACHED BY 2030?
Food & farming equipment  Electrified and smart equipment,5 alternative protein infrastructure

Mature

Medium

Medium 

Good

Likely

Life sciences

Synthetic biology

Mature

Medium

Medium

Good

Likely (for some products)

Enabling technologies

AI & predictive analytics, track & trace solutions5

Growth

Low

High

Good

Likely (for some products)

Food packaging

Bio-based packaging6

Emerging

Low

Medium

Good

Likely (for some products)

Logistics & delivery Electrified transport, smart distribution, food Growth Low Medium Good

Likely (for some products) chain improvements7

SUSTAINABLE FOOD CONSUMPTION

SUB-THEME KEY TRANSITION SOLUTIONS MATURITY BARRIERS TO SCALE RISK/RETURN PROFILE DEMAND 
OUTLOOK
INFLECTION POINT 
REACHED BY 2030?
Food manufacturing  Alternative proteins, increased fruit & veg   Emerging Medium Medium Good Likely

Retailers

Alternative proteins, local sourcing, increased fruit & veg, food resale8

Emerging

Low

Medium

Good

Likely

Restaurants & canteens

Alternative proteins, local sourcing, increased fruit & veg, food resale

Emerging

Low

Medium

Good

Likely

Source: LOIM amd SystemIQ. Notes: 1 Aquaculture companies must work with animal feed manufacturers to source sustainable feed. 2 Including insects, fermented, cultivated and plant-based proteins. 3 Including enzymes and nutrients. 4 Including health planning and vaccines. 5 Including precision ag, robotics and indoor farming (e.g. CEA). Incl. blockchain & RFID. 6 Incl. bio-coatings. 7 Including cold chain management. 8 including food waste resale apps.

 

These paradigmatic shifts will disrupt profit pools, either by altering the opportunity set in existing markets or by creating new sources of demand, thus causing an abrupt materialisation of risks as well as unlocking potential upside for financial-market investors.

In listed equity markets, opportunities can be captured by investing in companies transitioning their business models in anticipation of shifting profit pools, as well as by investing in new enterprises targeting new profit pools.

At LOIM, we aim to invest in innovative, proven products and solutions with the potential to transform food systems. To discover more on how LOIM is investing in the future of food, click here.

 

Sources

[1] LOIM analysis; based on FOLU (2019) Growing Better: Ten Critical Transitions to Transform Food and Land Use
[2] A fish stock of which abundance is at or greater than the level that can produce the maximum sustainable yield (MSY) is classified as biologically sustainable. In contrast, when abundance falls below the MSY level, the stock is considered biologically unsustainable. MSY is the level at which the population can persist in perpetuity.
[3] (Cassidy, West, Gerber, & Foley, 2013)
 
 

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