Thematic investing focus: The future of food

Multiple authors
2024-01-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
agricultural-methods-technologies-growing-demand-food

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

A variety of secular trends are spurring innovation and disruption in the global economy and creating what we believe are attractive thematic investment opportunities. In this series of articles, we take a close look at some of these trends, the breadth of the opportunity set and the related risks. 

Here, we focus on the future of food, a broad and, we believe, era-defining theme that brings together the interests of individual citizens, policymakers, health experts, environmentalists and innovators. 

Among our key conclusions: 

  • The way the world is currently being fed is unhealthy, but change is coming because of shifting consumer preferences and government policy.
  • Global food demand will surge in coming years, even as global food supply becomes less stable in the face of supply-chain challenges and the effects of climate change.
  • The global food system has reached a tipping point, and the boundaries of industry and the investable universe are set to expand in many new directions. 

A full plate: key trends in the global food system

We see several trends that we believe will, over time, spur innovation and investment opportunities in the global food system: 

Dietary changes — With the increased use of sugar, salt and trans fats, food has become less healthy and contributed to rising obesity rates across all income groups (Figure 1) and an increase in diet-related diseases around the world, including high blood pressure, diabetes mellitus, and heart disease. Notably, while affluent countries have greater access to nutritional foods, they also have higher obesity rates, as consumers tend to opt for energy-dense and nutrient-poor foods. Despite changing diets, we think this phenomenon and the associated health costs are likely to persist for the foreseeable future.

Figure 1
thematic-investing-focus-the-future-of-food-fig1

At the same time, there is growing awareness of the role nutrition plays in holistic wellness, driven in part by government efforts, including educational campaigns and dietary guidelines. The consumer understanding of a healthy diet also continues to evolve, from a focus on low-fat, low-calorie choices to a preference for foods fortified with healthy ingredients, high-protein foods and supplements. 

In addition, food science and nutritional genomics have allowed for dietary customisation, including allergy/intolerance solutions and alternative proteins. And, importantly, consumers are prepared to pay: 80% of millennials say they are willing to spend more for the perceived benefits of a healthier diet.

Case in point: Insulin management in the US

Obesity is a global health challenge today, creating a large market for the treatment of associated diseases such as diabetes. A US-based company has been taking an innovative approach to insulin management, focused on tubeless and wireless technologies that may offer a variety of advantages over conventional pumps.

Example is for illustrative purposes only and not intended as an investment recommendation. 

Growing demand — Current demand and population trends indicate that the world needs to produce 60% – 70% more food globally by 2050.2 Much of the demand will be in emerging markets, where calorie demand growth is highest, driven by population growth and increasing GDP per capita, but affordability and accessibility are lowest. 

Meeting this demand will require productivity-enhancing technologies (the primary source of crop yield growth, as shown in Figure 2), including the continued mechanisation/digitisation of the farming process and the development of alternative farming methods. After decades of scant government funding for agricultural R&D, we believe these innovations will benefit from growing policy support in the years ahead, made critical by the increasing impacts of climate change and land degradation. 

Figure 2
thematic-investing-focus-the-future-of-food-fig2

Food security — Even as demand grows, the weaknesses in global food supply chains have been on display and raised issues related to food production and self-sufficiency to the level of national security concerns. For example, 65% of the world’s wheat comes from just five markets: Europe, China, India, Russia and the US (Figure 3), all of which have experienced some form of production disruption in recent years (war, extreme weather, export controls). 

Figure 3
thematic-investing-focus-the-future-of-food-fig3

Over the long term, climate change in particular poses a significant risk to food supply and security, as it makes weather patterns less predictable, leading to greater variability in crop yields. Resource scarcity is a concern as well, with the loss of arable land due to urbanisation, industrialisation and reduced biodiversity. 

Presently, very few countries can claim food self-sufficiency, and populations are growing fastest in the parts of the world with the most fragile food supply chains. With this in mind, we expect strong long-term demand for solutions to food security, including innovative approaches to improve crop and animal health and yields.

Case in point: Livestock innovation in Britain 

A British company is utilising advanced genetic and data gathering techniques to improve animal breeding technologies. This may help reduce disease, use of antibiotics, and methane emissions while increasing efficiency (more protein with less food, water, and waste). Animals may also be more resilient amid the increasing effects of climate change.

Example is for illustrative purposes only and not intended as an investment recommendation. 

Sustainable food — Globally, the “farm to fork” value chain — from fertiliser production to food packaging manufacturing — is responsible for an estimated 26% of global greenhouse gas emissions.3 Beyond direct emissions, poor production practices have also had knock-on effects such as excessive water consumption, soil degradation and loss of biodiversity. 

Given the expected population growth, the world will require less destructive ways to generate calories for human consumption. Fortunately, many of the same technologies needed to improve productivity, mentioned above, can also help drive resource efficiency, requiring fewer inputs (for example, fertiliser and water). Other potential solutions include nonanimal sources of protein (to reduce the carbon footprint associated with animal meat) and alternatives to plastic packaging (given the lack of recycling infrastructure). 

Finally, we see regulations promoting a circular economy, renewable fuels and agricultural innovation as a critical development. For example, Europe’s Farm to Fork Strategy, established in 2020 as part of the European Green Deal, seeks to reduce dependency on pesticides and excess fertilisation, increase organic farming and support the use of sustainable packaging, among other changes. 

The investment opportunities and risks

We believe these trends will benefit a wide variety of companies and industries, including:

  • Food and beverage companies with healthy food portfolios, ingredient producers, supplement makers and companies offering medical solutions for obesity
  • Companies providing crop-protection chemicals, seeds, food-processing machinery, agricultural machinery and alternative farming solutions
  • Manufacturers of paper and aluminum packaging, second-generation renewables and alternative foods

As with any investment theme, there are risks to our outlook, including government inaction, geopolitical risks and wealth-destructive inflation. But we believe that there will be meaningful changes ahead in food consumption and production, and that long-term-oriented investors will find attractive opportunities aided by demographic, policy and innovation tailwinds. 


 1Source: Nielsen
2Sources: World Bank, Food and Agriculture Organization of the United Nations
3Source: Our World in Data

Our approach to sustainable investing

Experts

Related insights

Showing of Insights Posts
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Adding thematic equity investments to a multi-asset portfolio: An allocator’s handbook

Continue reading
event
Whitepaper
2024-01-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Thematic investing focus: The transportation revolution has arrived

Continue reading
event
Article
2023-11-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Have we reached the end of a tech era? 

Continue reading
event
Article
2023-11-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Thematic investing: Long-term thinking for a short-term world

Continue reading
event
Article
2023-12-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Thematic investing focus: The accelerating drive for financial inclusion Continue reading
event
Article
2023-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Wanted: A better definition of thematic investing Continue reading
event
Article
2023-09-20
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Mid-2022 Asset Allocation & Investment Strategy Outlook Continue reading
event
Article
2023-07-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Related Insights