BLOG: Food for investment thought
If we are what eat, I’ve become a Salmon Sashimi – it’s been my choice of takeaway over lockdown.
But I’ve also been looking forward to going to a restaurant or a pub again and sampling some other culinary delights – and maybe encouraging friends and family to think more about what they order off the menu.
I read an article recently, written by Rahul Bhushan, co-founder of Rize ETFs. It got me thinking about our food choices. In it, he said: “We must talk about the food transition, in the same way as we talk about the energy transition.”
Because believe it or not, the food industry accounts for 26% of the world’s greenhouse gasses, with the meat industry being the biggest culprit*. Cow, sheep, and poultry farming accounts for more emissions than those from ships, planes, trucks, and cars put together. So, our choices matter. Picture this: if the entire US population stopped eating meat, it would be like taking 60 million cars off the road.
And, while much has been made of the importance of sourcing food locally in order to reduce our carbon footprint, the later stages of food production (packaging, retail transport, processing and preparation) only contribute to about 5 to 10% of global greenhouse gas emissions. What we eat is just as important as where our food comes from.
Investor appetite for meat substitutes
I’ve been a vegetarian since I left university, but I’m still in the minority. Although the global vegan and vegetarian market is said to be worth more than $50bn, and the sale of plant-based meat alternatives are set to grow by about 20% annually in the coming years, the global meat market in comparison is worth $1,000bn.
But there are companies emerging across the food value chain that are building a more sustainable and secure food system.
For example, Oatly became a listed company earlier this month and is set to open its first UK factory in 2023. CEO Toni Petersson told the BBC the UK is “the biggest single market in Europe for us and growing really strong.” The IPO follows other plant-based food brands that have gone public in recent years, such as vegan burger maker Beyond Meat.
However, as Carl Stick, manager of Rathbone Income, (and a vegan himself), pointed out, there are lots of companies looking at ways of producing plant-based alternatives. “The technology’s getting better but I’m not sure that the barriers to entry are always going to be there.”
Are there other ways to invest?
Major supermarkets like Tesco and Sainsbury’s are one option. Simon Adler, manager of Schroder Global Recovery fund, commented: “One attraction of the supermarkets is that they have the ability to adjust what they sell according to consumer preferences. Given how quickly those are moving, investing in a new food company that may be flavour of the month today carries the risk that tomorrow they’ve passed their sell-by date. Whereas the supermarkets can stock what is popular and ensure they stick to the times. We think that has a better risk and reward profile than trying to work out what the next food fashion will be.”
Some fast-food chains have also committed to aggressive science-based targets (SBTs) in order to reduce their impact on the planet. McDonald’s (a top ten holding in Lazard US Equity Concentrated), Domino’s Pizza, Chipotle Mexican Grill, Wendy’s Co, Restaurant Brands International (which owns Burger King) and Yum! Brands (owner of KFC, Pizza Hut and Taco Bell) have either set or publicly stated they will set SBTs to reduce emissions.
Major food groups such as Nestle could also play a part. A holding in GAM Star Continental European Equity and Waverton European Capital Growth funds, Nestle already has a range of non-dairy creamers, for example, and has redeveloped favourites like Carnation condensed milk into a plant-based alternatives from a blend of oat and rice flour.
Ben & Jerry’s also offers dairy-free versions of its ice cream. The range is fully vegan meaning it doesn’t include ingredients like eggs or honey either. The brand is owed by Unilever, a holding in Ninety One UK Alpha and Threadneedle UK Extended Alpha.
Luciano Diana, co-manager of Pictet Global Environmental Opportunities fund added that it’s exciting times “Because we have the technology to try to manufacture some proteins and effectively bypass animals. And if we look at the pace of technology innovation that we’ve seen over the past few years and project that another 10 or 20 years, there’s going to be some incredible changes to our society.”
And then there’s the fish farms. John Bennett, manager of Janus Henderson European Selected Opportunities, told us recently that he is invested in Mowi, a Norwegian salmon farming business. “It’s a very fast-growing source of protein,” he said. “And of the major food proteins, it is actually the most environmentally sustainable. In the salmon versus red meat contest there’s only one winner in terms of the environment.”
Funds investing in changing diets
If you are looking for funds investing across this theme there are a number on offer.
Pictet Global Environmental Opportunities identifies companies where a minimum of 20% of their activities are actively solving environmental challenges like sustainable packaging, water quality and alternatives to intensive agriculture.
‘Improved health’ is one of three megatrends Liontrust Sustainable Future Managed is investing in and LF Montanaro Better World has nutrition as a theme. The managers of this fund said: “The drivers are many, from animal welfare to environmental concerns and social trends such as veganism. New food alternatives – such as plant-based proteins – are disrupting traditional business models. Look into food marketing companies such as Greenseed if you need help promoting your food product.”
Rize Sustainable Future of Food UCITS ETF is another alternative. It doesn’t invest in any land reared meat or sea-based fishing and excludes non-recyclable packaging and palm oil, amongst other things.
Whilst we still have a long way to go in the food transition, big change usually starts small. As Rahul stated: “It could start with you, and what you choose to eat today.”
All fund holding information sourced from fund factsheets, 30 April 2021. Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
Juliet Schooling Latter is research director at FundCalibre