Putting the value back in the food chain

Thankfully, governments, scientists, entrepreneurs and investors are all starting to consider how the food supply chain can be innovated and improved. But time is not on our side and action needs to start quickly to ensure the upcoming shortfall in supply can be met.

Demand for food is rising rapidly, reflecting the growing worldwide population. The United Nations (UN) predicts that the overall population will expand from less than eight billion currently, to around 10 billion by 2050. That’s a lot of additional mouths to feed.

On top of that, the type of food people are eating is changing. The move from rural to urban living is accelerating, especially in emerging markets, with more than two thirds of the global population expected to be living in urban areas in 30 years’ time. Many of these new urban dwellers are achieving better incomes and are consequently consuming more higher quality food, such as meat and dairy.

At the same time, a worldwide focus on healthier eating habits is also driving change. The UN estimates that the number of people classed as obese now outnumbers those considered chronically underfed. This means the challenge has expanded from ending hunger to fighting obesity. The food industry has firmly embraced this trend and the health and wellness industry is valued at almost USD 769 billion¹.

The need to meet environmental and climate change commitments is another factor driving the transformation of food production. Governments worldwide have adopted policy initiatives to improve environmental efficiency.

According to the UN, food production accounts for 30% of greenhouse gas emissions, which are generated throughout the supply chain; livestock and fisheries, crop production and land use are all key contributors. Surprisingly, transport emissions are a relatively small percentage – but all could be reduced through smarter and more efficient ways of production.

While similar to the poor carbon-footprint of industries such as energy and aviation, food production’s culpability has been slightly below the radar. To some extent this could be attributed to consumers enjoying the convenience of having year-round access to a wide array of foods. Yet, millennial consumers are starting to take a more mindful approach about where their food comes from and how it has been produced. This has resulted in a significant rise in veganism and flexitarianism and is influencing spending decisions (considered to be around USD 40 billion a year²), which is forcing the industry to adapt.

Climate change is also changing the natural food production capabilities of the planet – impacting crop yields, soil and produce quality. Warmer weather conditions are expected to drive food production away from countries near the equator to those nearer the poles. This could see a radical switch away from key agricultural producers like Brazil, Australia and Midwest US towards China, Canada and Russia.

Agricultural production has also been a major contributor to deforestation – studies have suggested for example, that the rising demand for soy (largely to feed livestock, rather than for soy-based meat substitutes) has led to the Cerrado region of Brazil, for example, losing half of its natural vegetation to soybean plantations³.

These are all challenges that need a viable solution.

Food waste is the final hurdle in establishing a food production chain that is fit for our changing needs. The UN estimates a third of food produced is wasted and accounts for 8% of greenhouse gas emissions⁴. This is not something that can be ignored – if we are to address issues around food shortage this unnecessary waste must be addressed.

As ever, there is a divide between the developed and developing world. In the latter, waste is largely a function of production and transportation, while in the former it is most prevalent in consumption – both by retailers and consumers.

The UN is seeking to halve food waste within ten years as one of its Sustainable Development Goals. Such initiatives are vital to achieve the change that is required.

While the list of challenges to be met seems insurmountable, the UN and governments worldwide are launching initiatives to tackle these changes. The world of industry and investment is also getting on board, developing new technology innovations to provide solutions.

The scope of farming is being transformed through the use of robots and drones to increase efficiency, biochemistry to improve crop yields and vertical farming to provide urban communities with locally-produced food.

Food waste prevention initiatives are helping industries such as hospitality to review their food spend, while biotechnology companies are seeking to develop plant-derived protection for the surface of fresh produce to extend shelf life. Secondary markets are selling foods that otherwise would be wasted and there are initiatives to create value out of discarded food, such as using unsold bread to make beer.

On the transportation side, smart thermostats are being used to better monitor the temperature levels of storage during transit, while blockchain technology is being used to track produce, improve traceability and provide the authenticity consumers are increasingly seeking.

Many of these existing initiatives are at early developmental stage and need investment in order to fulfil their potential. But with such an important subject, it is imperative to research and identify the market-leading companies of the future that will transform this space.

At BNP Paribas Asset Management, we believe positive change is already underway and we are already seeking out those companies with a SMaRT – ‘Sustainably Manufactured and Responsibly Transformed’ – approach to food production. Our SMaRTFood Fund invests in the agricultural revolution to support a better future via identifying long-term investment opportunities across the food value chain, from ‘field to fork’.

To learn more, visit our investment themes page.