Are the world’s food supply challenges solvable?

The topic of food security has recently shot to the top of the agenda, not only for governments and economists but also for investors.

The war in Ukraine has highlighted the fragility of cross-border supply chains and countries’ dependence on food imports, as well as adding to existing inflationary pressures. But behind this near-term challenge there are more structural fears about future food supply based on a growing global population and climate change.

The fact of the matter is that our current food supply practices are no longer sustainable and need to be addressed quickly. Such a large-scale transformation will turn the connected agricultural and food supply industries on their heads and such disruption will inevitably present investment opportunities…

The way we produce and supply food is facing a number of important sustainability challenges.

Global demographics are changing. The global population is expected to near 10 billion by 2050¹ – an increase of around 25%. This jump is sizeable enough, but the amount of food we need to produce will double². Not only will there be more mouths to feed, but as people accumulate more wealth they tend to consume more calories per capita, and these additional calories generally come from animal proteins which are very resource intensive and linked to high GHG emissions.

The way we produce food, especially animal protein, is directly contributing to climate change. Deforestation can be attributed to the production of crops for animal feed, but dairy cattle themselves also emit methane during the digestion process. Climatic shocks and extreme weather are also impacting the production of agricultural products and shrinking agricultural regions.

Finally, food production is incredibly resource intensive – it uses vast amounts of water, land, fertiliser and crop protection chemicals. If we are to increase our food supply by another 50%, will the strain on the planet’s natural resources will be too great?

Compounding these food supply challenges is the fact that around a third of the food we produce is wasted globally. That’s enough to feed an extra two billion people³.

Food waste can stem from crops rotting on farms, food being damaged during transportation or food that is just thrown away by supermarkets or consumers. And the latter problem is worsening. Consumers are demanding more fresh food and these types of foods are perishable and have shorter shelf lives, which naturally leads to higher wastage levels.

When we consider all the resources that go into producing food, the fact that so much is being wasted is a problem that must be solved quickly.

The good news is that there are a growing number of ways to address and tackle our food supply problems. A shift to more resource-efficient plant-based foods, better packaging and sophisticated irrigation and harvest technologies are just some of the trends that are already underway.

The food supply transition will also be accelerated by a growing consumer awareness of the link between food and wider sustainability concerns. Whereas in the past consumers were more influenced by price and the power of brands, their focus is now shifting to the food itself – the ingredients, how it’s produced and where it comes from. Digitalisation is empowering this awareness by giving consumers the tools to access analysis and assess the quality of products.

The journey from farm to fork is also a growing issue, with many consumers demanding more locally sourced produce. Meal kit delivery companies are covering this angle, as their unique business model sources products directly from farmers and delivers those ingredients directly to consumers, bypassing both the wholesaler and the retailer. Ingredients of these sorts are typically seasonal and mostly local which provides them with a competitive advantage as they are less reliant on trade flows.

Such changes in consumer habits will force food manufacturers to act and adapt.

The most immediate and most noticeable consumer-led change is the shift away from heavily processed foods to more natural foodstuffs. This is principally represented by a rise in plant-based diets where consumers are making a choice to avoid environmentally harmful meat and dairy products and replacing them with plant-based alternatives. This is an important change, as plant-based diets are far more resource efficient. For example, 100g of animal feed will only produce 30g of chicken, 19g of pork and just 7g of beef⁴.

Assisting this shift is the vast amount of innovation in the sector, which is improving product quality and helping steer it into the mainstream. And as the market grows, product development is also increasing so there is now a far greater range of tasty products with better nutritional profiles.

Another key breakthrough has been the strategic change in in-store merchandising. Instead of plant-based meat displays being restricted to slow-moving aisles for frozen and speciality products, they have been moved into the fresh meat aisles. This has meant these products are more visible to consumers, raising their profile as well as sales volume.

The challenge of food waste is also starting to be addressed, with solutions being developed throughout the value chain. These range from the use of natural food ingredients, such as lactic acid, to help extend the shelf life of highly perishable foods. Improved packaging to help keep food fresher for longer, and over longer distances. And companies investing in better food transportation logistics, such as green handling or cold chain storage equipment.

In the US, GPS technology is used to better inform farmers on when it’s best to irrigate and when to harvest. Such technology can also help with flood detection, which should lower the spoilage of crops. Another radical change is to replace the use of chemically-based fertilisers and pesticides with biological solutions that are less harmful to the wider environment and other insect life.

The quicker and more effectively we can eradicate food waste, the more we ensure the food we grow actually reaches the end consumer.

The world’s food supply challenge may have been brought to our attention by to the situation in Ukraine, but the long-term threat to food security will not be resolved when that crisis ends. The unsustainable practices of the agricultural and food production industries must be addressed.

Thankfully we are seeing innovation right across the food sector, from farm to fork, as companies strive to seek solutions and consumers demand change. And where there’s change, there’s potential for investors to prosper.

At BNP Paribas Asset Management, we believe that certain activities in the food supply chain will be exposed to disruption, meaning there will be opportunities for well-positioned companies to outperform. Our SMaRT – Sustainably Manufactured and Responsibly Transformed – food strategy seeks out those innovators so that our clients can play a role in helping to resolve the food sustainability challenge.