The investment case for sustainable food

We are in the middle of a food revolution. Not only do we want to know more about what we are eating, but we also want to know more about where it’s coming from.

This is far from a flash-in-the-pan trend. It is a response to a global problem that needs to be solved.

Global food systems are already struggling to meet the dietary needs of the world’s 7.8 billion-strong population.[1] Obesity and related diseases are on the rise, and the devastating environmental impacts of unsustainable farming and manufacturing processes have become abundantly clear.

Unless something changes, these problems are only going to get worse. After all, the global population is on track to hit 10 billion by 2050.[2]

More and more of us are realising that the world is truly at stake. And today, swathes of companies are forming and repositioning to meet our growing demand for healthy, affordable and nutritious food made using environmentally-friendly methods.

This makes complete sense from a business perspective.

The products and practices that surround sustainable food collectively represent an enormous frontier growth market that is here to stay.

Getting in on the ground floor not only allows companies to give something back to the earth, but it could also stand to make them huge multiples of long-term returns.

Alongside the electrification of vehicles and the rise of renewable energy, we see today’s food revolution as one of the investment opportunities of the century.

So how did we get here?

Put simply, conventional food systems have been, and continue to be, unable to keep up with rapid population growth.

With so many more people to feed, the focus has been forced away from nutrition and towards the supply of as many calories as possible for as little cost as possible.

This “economies of scale” approach has given rise to countless dire consequences.

Take the soaring use of inexpensive fossil fuels, mechanised agriculture, chemical fertilisers, food processing and unsustainable packaging practices as an example.

Ask any scientist, and they will tell you that all of these lead to nasty processes such as fertiliser run-off, nonpoint source pollution and greenhouse gas emissions that damage local, regional and even global ecosystems.

We have also seen a disproportionate shift in global food production towards less emerging markets. This makes sense for first-world businesses – labour and taxes are lower in these nations while environmental regulations are laxer.

However, the burden on the receiving end is terrible. Traditional food systems are regularly damaged or destroyed, hitting population health, ecosystems and cultures in the process.

The World Resources Institute puts the scale of the crisis well when it says:

“If today’s levels of production efficiency were to remain constant through 2050, then feeding the planet would entail clearing most of the world’s remaining forests, wiping out thousands more species, and releasing enough greenhouse gas emissions to exceed the 1.5°C and 2°C warming targets enshrined in the Paris Agreement, even if emissions from all other human activities were entirely eliminated.”[3]

The health implications make for just as unpleasant reading. As you would imagine, the focus on quantity rather than quality has hit the quality of food around the world and caused a great uptick in related illnesses.

Roughly 463 million people now live with diabetes globally, according to the International Diabetes Federation. This figure is set to soar to nearly 700 million by 2045.[4]

But things are changing

A marked, global shift away from conventional food systems and towards sustainable food systems has emerged in recent years, across both corporations and populations.

These are now central to many, if not all, of the 17 members of the UN’s Sustainable Development Goals.[5]

Sustainable food systems pretty much do what they say on the tin: they provide healthy food to people while also protecting and improving the environmental, economic and social networks that surround food.

This covers everything from the development of more sustainable food distribution systems, the creation of sustainable diets, and the reduction of food waste.

Companies aligned with these goals present the perfect blend of vast growth potential and responsible operating practices.

Gaining exposure to what we see as a one-in-a-generation, sustainable investment opportunity, should be viewed as a must.

There are several sub-sectors via which to gain this exposure such as plant-based and organic foods, vertical farming food safety and testing, precision farming and agricultural science, land-based aquaculture and sustainable packaging.[6]

They might all seem a little ‘futuristic’, but like it or not, the sustainable food revolution is here to stay and the long-term effects for our health and the environment are clearly being taken very seriously by many nations across the world.

It is very likely to be healthy for our investment prospects too and could well be the key to unlocking outsized returns as sustainable food systems begin to dominate the world.

Related ETF

FOOD: Rize Sustainable Future of Food UCITS ETF

References:

[1] Worldometer, “World Population”, October 2020. Available at: https://www.worldometers.info/world-population/#:~:text=7.8%20Billion%20(2020),Nations%20estimates%20elaborated%20by%20Worldometer.

[2] United Nations, “The World’s Population Is Set to Reach 11 Billion by 2100”, 2018. Available at: https://www.statista.com/chart/3823/the-worlds-population-is-set-to-reach-11-billion-by-2100/

[3] World Research Institute, “Executive Summary (Synthesis)”, 2020, Available at: https://research.wri.org/wrr-food/executive-summary-synthesis

[4] International Diabetes Federation, “Facts and figures”, February 2020. Available at: https://www.idf.org/aboutdiabetes/what-is-diabetes/facts-figures.html

[5] Food and Agriculture Organization of the United Nations, “Sustainable food systems”, 2020. Available at: http://www.fao.org/3/ca2079en/CA2079EN.pdf

[6] Tematica Research, “Sustainable Future of Food Global Classification”, Pages 4-8. Available at: https://rizeetf.com/wp-content/uploads/2020/09/Tematica-Research-Sustainable-Future-of-Food-Global-Classification-September-2021.pdf