Investors should look beyond the energy transition and transform the food system for a more sustainable planet, argues Mariella Rice-Jones, Responsible Investment Analyst at Brooks Macdonald.
The urgency to transform our global food system cannot be overstated. Governments and companies across all sectors are increasingly taking action to tackle the dual crises of climate change and biodiversity loss. However, these efforts will be in vain if we fail to also transform the way we produce and distribute food. A recent UN report revealed that food systems account for 29% of greenhouse gas (GHG) emissions, 80% of deforestation and are the single largest cause of biodiversity loss on land.
While the path to a sustainable food future is not yet clearly defined, transformative action is required across the entire food production chain. This will require a concerted effort from multiple sectors, creating a plethora of investment opportunities and making a win-win for the environment, the economy and investors.
Investing in productive and less environmentally harmful agriculture
Opportunities are growing in precision agriculture, which includes a range of technologies which can take the guesswork out of pesticide and fertiliser use, irrigation, and livestock management, thereby enhancing productivity while mitigating carbon emissions and reducing biodiversity impacts.
Some of the more nascent technologies such as drone imagery, AI and robotics, are predominantly being developed by young and innovative private companies which will gradually move into listed markets via IPOs and acquisitions by incumbents as these technologies scale and become more commercially viable. However, larger global players should not be overlooked in the space – with established companies such as John Deere increasingly deriving sales from smart machinery.
As with any sustainability solution, it is also important to consider potential for unintended consequences as well as trade-offs. Critics of precision agriculture argue that it may reinforce established industrial agriculture and that the reliance on digital technology systems will concentrate power in corporate hands. Merging precision agriculture technology with agroecological principles could be the key to addressing this, and companies like Deere are well-positioned to accelerate this evolution of farming practices.
The need to reduce our reliance on animal agriculture
One of the best ways to strengthen the global food system is to reduce our reliance on its most inefficient and highest-emitting sector – animal agriculture.
A promising solution is emerging in the form of alternative proteins which mimic the experience of eating animal products but are more resource-efficient and produce a fraction of the GHG emissions. Their supply chains are also simpler and less vulnerable to disruption.
Plant-based proteins are currently attracting the most investment and are already widely available through companies like Beyond Meat and Impossible Food. And lab-grown meat (cultivated from cells in labs) is inching closer to commercialisation, reaching major milestones including the approval of sale in Singapore. The US Food and Drug Administration has also recently completed its first premarket approval of a cultivated meat product.
The lab-grown meat industry could still generate negative environmental impacts – the facilities required at a global scale will use huge amounts of energy, which will only be sustainable if renewables are used. However, assuming careful management, there are clear benefits to scaling up. Alternative proteins are becoming increasingly affordable, and lessons can be taken from the renewable energy transition; wind and solar used to be more expensive than fossil fuels, but this dynamic has now flipped, due to a combination of government policies and innovation.
Opportunities for investment extend beyond food production. The extent to which plant-based diets are adopted will depend on their health benefits, taste, and public perception, and this creates a potential for innovation across a range of sectors.
The importance of reducing food waste through investment
Nearly 25% of calories produced for human consumption are lost or wasted in the food supply chain, contributing to global hunger as well as the climate crisis. Addressing this loss and waste could potentially reduce 6-8% of all human-caused GHGs.
Supermarkets and food manufacturers like Tesco and Unilever have key role to play in working through their supply chains to reduce waste and these companies have made good progress.
Coupled with this increased focus on reducing waste, there are also examples of companies delivering more direct products and services to tackle the challenge. Darlington Ingredients is one solutions provider, collecting roughly 15% of the world’s meat industry waste before turning it into value-added products such as green energy.
The increased use of refrigeration to extend the shelf-life of foods and minimise waste will have higher energy use and costs, supporting in turn the need to increase the efficiency of refrigeration and the ‘greening’ of the energy grid.
While there are still plenty of unknowns regarding what the future sustainable food system will look like, investing in a more productive and less environmentally harmful agriculture, reducing our reliance on animal agriculture and reducing waste will all be crucial.
As the data shows, we cannot stick with a business-as-usual scenario, and we believe investors will find attractive opportunities in companies that are enabling and accelerating more sustainable food systems, aided by significant demographic, policy, and innovation tailwinds.