Investment implications of a food revolution

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The confluence of climate change and a rising world population will require new approaches to food production. Here, the Newton Future Food investment team considers the opportunities and risks of this brave new world.

Of all the revolutions spawned in the 20th century, few were as significant as the revolution in food production in the years after the Second World War. The introduction of higher yielding crop varieties, pesticides, fertilisers and the adoption of widespread mechanisation transformed agriculture – bringing more food to the table than ever before.

By one estimate – thanks in large part by what became known as the ‘green’ revolution – global crop yields increased by 44% between 1965 and 20101, while cereal yields in developing nations more than doubled between 1961 and 1985.2

More food meant more people – and in the decades since the beginning of the revolution the world population has grown by around five billion people.3 In the absence of this Third Agricultural Revolution, the argument goes, a less populous world would be poorer, far less well fed and far less secure in its food supply.

Today, according to Newton’s Future Food investment team, we stand at the threshold of a new transformation in agriculture. This time, driven by continued population growth, the imperative is to find new sustainable methods of production – but now with the added complication of climate change.

“With food supply chains being placed under increasing pressure, businesses and policymakers must research, invest and innovate to discover new and improved ways to feed a growing population with less arable land per capita, but with a heightened threat of climate-related disruption,” says the team. “Farming yields globally must increase, but this increase must come with more sustainable methods, less pollution, less antibiotic resistance, improved animal welfare, reduced chemical use and better water and energy conversion.”

Unorthodox eats

With rising demand and constraints on supply, the race is on for alternatives to traditional foods. Some interesting choices are already beginning to emerge:

  • The dairy alternatives market has seen substantial growth in recent years and shows no signs of slowing down. Valued at an estimated US$22.6bn globally in 2020, the non-dairy market is projected to reach US$40.6bn worldwide by 2026.1

    New Food: ‘The rise of the non-dairy consumer’, 15 June 2021

  • The edible insects market could be a future source of protein for a growing world population. Its size exceeded US$112m, globally in 2019 and is estimated to grow at over 47% CAGR between 2019 and 2026.2

    Global Market Insights: ‘Edible Insects Market Size by Product’, February 2020

On the consumption front, too, the impetus is towards new preferences in eating and drinking. In developed economies, for instance, wealthy consumers are increasingly opting for natural products, sustainably sourced and with traceability at their heart.

In emerging economies, in contrast, a rising middle class with more disposable income than ever before, is moving from traditional subsidence diets to those with a higher protein intake. This bifurcation of consumer choices has the power to reshape the world, according to the team, with profound consequences for investors.

“Especially in advanced economies, consumers are demanding greater transparency and traceability of food, cleaner labels and healthier ingredients with fewer synthetic chemicals,” says the team. “Now, more than ever, there’s a coordination of both pressure and intent among consumers, businesses and policymakers to spearhead action for real, positive change to promote the transition towards a circular economy.”

A fertile field?

Looking further forward, the implication for investors of this coming food revolution is clear. The team notes, for instance, that the current shift away from carbon-based energy production towards renewables will find its counterpart in the agricultural sector. If the green revolution was all about the adoption of fossil fuel-derived fertilisers and the implementation of petrol and diesel-powered machinery, then the next iteration of the revolution will be about mitigating that carbon footprint.

“It’s an example of one of those long-term structural shifts that, when coupled with disruption caused by technological innovation, could provide fertile ground for future investment opportunities,” says the team. “For the first time in decades the food chain is changing substantially and investors, we’d argue, need to be cognisant of that right now.”

The team believes the shift in the means of production will be driven not just by changing consumer preferences but by policy and regulation too. In the UK, for instance, the government is soon to publish the first major review of its food strategy in 75 years. In Europe, the European Commission is reviewing the environmental impact of its own agricultural practices. The UN agenda on Sustainable Development Goals (see box-out) has been adopted by 193 member states. Concludes the team: “It all adds up – and the expectation is that future standards around food production will become even stricter than they already are.”

Food for thought: Sustainable Development Goals in action

In 2015, the United Nations set out 17 goals designed to improve the quality of life on the planet for all. Of these, nearly half are directly linked to the question of food production and consumption (although many of the others are indirectly linked too):

  • No Poverty
  • Zero Hunger
  • Good Health and Well-being
  • Quality Education
  • Gender Equality
  • Clean Water and Sanitation
  • Affordable and Clean Energy
  • Decent Work and Economic Growth
  • Industry, Innovation and Infrastructure
  • Reducing Inequality
  • Sustainable Cities and Communities
  • Responsible Consumption and Production
  • Climate Action
  • Life Below Water
  • Life on Land
  • Peace, Justice, and Strong Institutions
  • Partnerships for the Goals.

Important information 

https://www.bnymellonim.com/outlook/global-disclosure/

GE651055    Exp: 11 February 2022

¹ Journal of Political Economy: ‘Two Blades of Grass: The Impact of the Green Revolution’, 2021
² Gordon Conway: ‘The doubly green revolution: Food for all in the twenty-first century’, 1998
³ Worldometer, global population statistics, accessed 14 July 2021.

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