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World Food Day: Feeding the future and your portfolio

CPR’s Stéphane Soussan on his top food firms, and why investing in changing trends and waste reduction offer sustainable returns

Today, even though 821 million people suffer chronic undernourishment, according to the UN’s Food and Agriculture Organization (FAO), around one third of the food produced in the world gets lost or wasted.
World Food Day is held on 16 October to raise public awareness and encourage investors, governments, citizens and charities to consider how they tackle food waste.
To meet demand, the FAO claims that the agriculture sector in 2050 will need to produce almost 50% more food, feed and biofuel than it did in 2012. This challenge will be heightened by the effect of combined megatrends like world population growth, urbanisation and increasing pressure for food and water. The world’s resources are finite, and the investment community has an important role to play in addressing one of the most pressing global challenges of our time.

Reducing supply chain waste

Although a problem apparent across all economies, the stages of food waste occur at different points in the food chain, depending on the market. For developing countries, 40% of food waste occur during the early stages of the food value chain, such as post-harvest. In medium- and high-income countries, food is lost during the later stages of the supply chain. With retailers, large quantities of food are wasted due to quality standards that over-emphasise the importance of appearance. One way to decrease losses and food waste is to identify other uses for food that is persistently thrown away. Another solution is improving packaging and logistics in emerging economies. The Institute of Mechanical Engineers estimates that in Vietnam, rice losses from field to table can amount to 80% of production. Developing the processes and systems used in the management and transportation of crops can help reduce inefficiencies and waste.

Capitalising on mega trends

Megatrends like world population growth, economic development and urbanisation are creating structural changes and transforming the food value chain. With a growing population and improved living standards, people are consuming more food, leading to new types of food production. Convenience food is one sub-sector that has enormous growth potential, driven by diet diversification and lifestyle changes. Mondelez, the global snacking and food company, has developed a range of high-quality products distributed across 160 countries. With 35% of the company’s net revenues in 2017 driven from emerging economies, the business is capitalising on economic development and the latest trends in food consumption. The popularity of the global snacking and convenience food market is expected to continue to grow significantly, with the US snacks market expected to increase 39% from 2010 to 2020. The rise of the convenience food sector and diet diversification has also helped promote healthy snacking. Retailers like Sprouts Farmers Market have transformed their product offering, with 90% of all sold products being natural or organic. One of the largest organic retailers in the US, from 2013 to 2017, Sprouts Farmers Market doubled their sales. Leveraging this megatrend can help investors reap the benefits of long-term growth.h6. Responding to changing consumer behaviour

Changing consumption habits have created new growth opportunities for investors as companies are forced to adapt and evolve their products in response to new consumption behaviour. We believe that change is being driven by two sources: consumers and start-ups. Suppliers are reacting to changing consumer requirements and start-ups have been disrupting the traditional business models, forcing multinationals to adapt and evolve. The development of the organic food and drink market is one example of consumer disruption and start-up innovation. Amsterdam-based Wessanen, a multinational organic food and drink business, has established a brand that connects people with the natural environment. Driven by consumer interest in plant protein and natural produce, Wessanen is one business that has capitalised on changing consumption patterns to establish highly sought-after brands. Consumer interest in organic produce is expected to remain strong, with estimates valuing the global organic market at $61.61bn in 2020.

Investing in innovation and technology

Investing throughout the food value chain can offer much needed capital to promote sustainable food provision and encourage new forms of innovation. Advances in technology have helped the global food chain evolve and adapt to changing consumption patterns, but further capital is needed. At CPR Asset Management we see potential upside for businesses focused on water production. Water demand is expected to increase by 55% from 2015 to 2050 and significant investment in water facilities will be needed to meet population and agriculture demand.
We believe precision agriculture has the potential to play an important role in boosting water productivity and optimising the use of products like seeds and fertilizers. Already, small businesses are promoting precision agriculture tools through drones, satellite data and sensory detection to improve planting operations. However, further capital will be required to ensure the approach is available across both emerging and developed economies.
We recognise that against a backdrop of scarcer resources, we need to produce more food using a sustainable, long-term investment strategy. The UN forecasts that the world’s population will reach a staggering 9.7 billion by 2050. Investing across the food value chain will help improve food yield production whilst offering a diverse investment universe. For asset owners hungry for growth, there are many benefits to investing in a sector committed to feeding the future.

Stéphane Soussan is a Portfolio Manager of Global Thematic Equities at CPR Asset Management, which is owned by Amundi.