Investing from farm to fork
The global population is expected to grow from 7.7 billion to 10.9 billion by the end of the century. This population growth means more people require more food, water, materials and energy from an already resource-strained planet. As the world population rises the demand for these basic needs will increase. Early estimates suggest that this structural shift will require trillions worth of investment by 2050, and this significant capital reallocation provides opportunities for investors across the entire food value chain. As part of our efforts to become more efficient, the global food system needs to become more sustainable. Some of the ways we can do this are by reducing greenhouse gas emissions and considering the impact on biodiversity.
Food systems are the biggest lever we have available to address our most pressing environmental and social challenges simultaneously. We access nutrition through our basic needs allocation in the Ravenscroft Global Solutions Fund. The theme is underpinned by several long-term trends including changing demographics, sustainability, technological development, and a focus on health and globalisation.
Given the immense environmental pressures caused by food production, a huge opportunity exists for companies that are innovating and improving the sustainability of food production and food systems, all the way from farm to fork. Precision farming, animal and plant health products, and food waste solutions are seeing strong growth and are areas that our fund managers are identifying as exciting investment opportunities.
Around the world, there has been a shift in consumption habits and diets as more people demand healthier and more sustainable foods. Increased availability of information and innovation in science have driven improved awareness of the impact poor diets can have on our health and an increasingly technologically minded consumer base is driving dramatic growth for businesses in food e-commerce, personalised nutrition, and food traceability. In addition to this, governments and regulators are increasing demands for reformulations of food and drink products to reduce levels of sugar (as seen with the sugar tax in the Philippines), salt and saturated fats while consumers are turning towards foods and supplements with functional benefits such as improving immunity.
The production of food is the largest use of critical resources such as water, land and energy, which means sustainability of the sector requires food to be produced, packaged, transported, distributed, and consumed in ways that protect both natural resources and the environment. The funds we have selected in this space invest in companies that are developing solutions to help secure the world’s future food supply. These solutions include innovations to improve productivity in farming, increase efficiency in food transportation and processing, and maximise the nutritional content of the food we eat. John Deere, which we access through Schroder Food & Water, is just one such example that is leading the way in agri-tech.
There are also investment opportunities in businesses working towards better food security by shortening complex supply chains and ingredient players helping to find alternatives in areas like meat and dairy. For example, Pictet Nutrition owns International Flavours and Fragrance, which works on meat alternatives like Beyond Meat. There are also innovative businesses enabling more efficient production through precision farming and sustainable agriculture to produce more with fewer natural resources and chemicals.
One of the greatest advantages when it comes to investment in this space is that the world needs food regardless of the market environment. The funds we invest in have diversified portfolios of businesses with strong pricing power and defensive end markets. With much investment needed globally into our food system and a number of tailwinds already in play, we believe the nutrition theme will be shaping the world around us for years to come.