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Food security, sustainability and nutrition hatch new investment theme

Samantha Chiew
Samantha Chiew10/21/2021 10:40 PM GMT+08  • 9 min read
Food security, sustainability and nutrition hatch new investment theme
You are what you eat and what you invest.
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Even before the world was gripped by Covid-19, food security was already a dire problem. The pandemic made the crisis worse and highlighted the biggest challenge facing the world in the coming decades: How is it going to feed its steadily growing global population?

As of September, the world’s current population stands at 7.9 billion. According to the United Nations, this number is expected to hit 9.7 billion in 2050. With a 2 billion increase in just about 30 years, how is the world going to have enough food and water to go around? \

“We are facing enormous challenges when it comes to our food systems and these challenges are not just environmental challenges, they are also health and social related,” says Gillian Diesen, client portfolio manager in Pictet Asset Management’s thematic equities team, in an interview with The Edge Singapore.

“We have this growing population for whom we need to produce more food and we have to do that within the context of climate change and fewer natural resources, whether that is water or land,” adds Diesen.

Sharing this view, Frédérique Carrier, managing director, head of investment strategy at RBC Wealth Management, says, “Today’s realities and tomorrow’s challenges are calling for new, technology-driven food production and distribution solutions spanning a range of activities from farm to table.”

As Carrier points out, consumers are increasingly taking responsibility for the sustainability of food sources. Consumers these days are also becoming more concerned about the food they eat. They are demanding more information on the food they consume as they take charge of their own health and the environment. Healthy and sustainable eating is increasingly becoming a priority for many, and dietary preferences are undergoing a seismic shift.

However, with changes come challenges and the need to adapt. Agriculture and food industries will have to listen to consumer’s demand for healthier food through less harmful methods and produce accordingly.

Malnutrition and obesity

“We have this incredible global crisis, which today we all think of Covid-19 as the cause but actually, under the surface, there has been this bubbling crisis of malnutrition for quite some time,” says Diesen.

Many may think that the term “malnutrition” is only associated with hunger or the lack of certain nutrients. But the way Diesen sees it, in today’s world, it is just as much about issues like obesity as it is about hunger.

“So it is this double burden of malnutrition, where you have some people [in the ends of both spectrums] — those who just don’t have the proper access to food at all and others who have access to too many empty calories,” she adds.

Partly catalysed by the Covid-19 pandemic, several governments in the past 18 months have start to put in place policies to encourage healthy eating, such as implementing a ban on junk food advertisements and sugar taxes. Meanwhile, consumers too are becoming more aware of their health and nutrition intake as media outlets have reported that those with pre-existing health conditions have a higher probability of being more severely impacted by the Covid-19 virus.

“Covid-19 definitely put the spotlight on the link between diet and health. But I think it also put a lot of other things in the spotlight, such as food security,” says Diesen.

She notes that during the height of the pandemic, food — especially quality and healthy food — became more difficult for consumers to access as lockdown measures and panic buying by consumers wiped out in-store stocks.

Simplifying the food supply chain

“I think there was a real and sudden kind of realisation that we have a food system that is incredibly global with food chains that are very long and complex — and that has its own risks,” says Diesen.

Diesen now expects a lot of food companies to shorten that food supply chain in order to increase food security. Some of the ways could include indoor vertical farming, which allows for leafy vegetables and fruits to be grown in densely populated areas. The farm being so close to the “table” can help to reduce transport and storage costs, environmental costs as well as the risk of contamination.

On the upstream end, precision farming is a solution that is becoming increasingly popular thanks to the advancement of technology. From GPS-enabled and autonomous farming vehicle to drones and sensors to increase productivity, valuable work hours and manpower costs were conserved while the science of knowledge and farming could be drastically improved through the collection and analysis of data.

On the part of the farmers, they have to be nimble and willing to adapt to the new farming methods and pick up the new skills needed. But the way Carrier sees it, “dealers and vendors of farming equipment will likely play an instrumental role in educating and training farmers to the extent that their business success will no longer depend solely on product sales but equally on how successfully farmers utilise their equipment”.

“Precision farming through digital technologies can improve efficiency, reduce costs and increase farmers’ returns on investments. According to our national research correspondent, precision farming via artificial intelligence, drones, autonomous machinery and smart irrigation systems could yield productivity increases of up to 70% by 2050,” adds Carrier.

Another solution that has also become a large trend among consumers are alternative protein products.

Referring to plant-based protein and other alternative protein solutions, Diesen says, “These are examples of potentially more sustainable and more resource-efficient ways of feeding the world and its growing population, especially with the resource constraints that we have. Also, these products are ultimately potentially healthier — at least from a combined people and planet perspective — than the meat produce we eat today.”

Singapore too is positive about the growth of alternative protein. Already, Singapore’s sovereign fund Temasek Holdings, has invested in several large and small companies both local and overseas that are in the alternative protein space. Some of its investments include Impossible Meat, Beyond Meat, NextGen and EatJust.

According to a report by PwC, Rabobank and Temasek, evolving tastes and demands of Asian consumers, changing demographics, rising affluence, and growing incomes, will drive US$2.4 trillion (55%) of the US$4.4 trillion incremental food spend in the next decade.

An additional US$750 billion in investment on top of the US$800 billion forecasted in 2019 (bringing the total to US$1.55 trillion) is now required to satisfy growing demands for healthier, safer or more sustainable food options.

To that end, priorities of Asian consumers have evolved from spending their growing disposable income on more expensive, tastier food towards value-seeking; demanding additional attributes as they become more sophisticated. Hence, Asia’s food and agricultural industry needs to tap on this consumer-driven incremental food spend by developing new products and business models in response to the fast-evolving tastes and demands of Asian consumers.

Speaking on the investment opportunities in Asia’s food and agriculture industry, Anuj Maheshwari, managing director, agribusiness, Temasek, says: “Asia’s Agri-food sector offers tremendous opportunities for investors, entrepreneurs and businesses. In order to achieve NetZero2050 and the United Nations Sustainable Development Goals, the industry needs to reinvent itself. Consumers too are demanding more sustainable, healthier foods and show willingness to pay for it. This is an unprecedented time in Agri-food tech space where companies who are open to new ideas and create innovations will be able to create massive financial value, social benefits and improve planetary health. It is our hope that the report encourages greater innovation in the sector”.

Stocks that ride the trend

With the trend on food security and nutrition now booming, here are some stocks that are expected to ride the trend.

Homegrown foodtech company Oceanus on Aug 23 established a new subsidiary Sino Food Group to trade in global food supply chain management and strengthen food security within the region. Sino Food Group has been appointed as an approved distributor of China Resources Wufeng, a food enterprise group under China Resources, one of Fortune Global 500 companies, and a state-owned enterprise.

“China, being a dominant market player in Asia, offers immense potential and growth opportunities in the food supply chain sector. We are confident that Sino Food Group will bolster the global food supply chain and supplement food security in Asia,” says Oceanus’ CEO Peter Koh.

Meanwhile, Mainboard-listed Hong Lai Huat is also determined to contribute to the global food security scene by switching its focus from property development in Singapore to an agriculture developer in Cambodia with its upcoming 10,000ha agriculture hub. The hub will see facilities such as a solar farm, warehouses, cold chain facility and food processing factories to support the companies that want to build their food-processing plants in Cambodia.

“We want to tell the whole world that whoever wants to build their food-processing factories or any other development that contributes to food security in Cambodia can work with us. Here, we can offer the land and jointly cooperate with other companies to play a big role in helping countries in the Asean region to achieve sustainable and reliable food security,” says Dylan Ong, group general manager and executive director of Hong Lai Huat.

With alternative protein and plant-based meats becoming more popular as a solution towards food security and sustainable food, companies such as recently listed OTS Holdings intends to ride the trend too.

Apart from ensuring quality and proper safety for its traditional canned meat and waxed meat products, OTS Holdings is jumping onto the plant-based meat bandwagon and is about to launch a brand new range of ready-to-eat plant-based meat products to provide consumers with a more sustainable and healthier product. This plant-based protein product is expected to launch in April 2022. On Sept 2, SAC Capital initiated a “buy” call on OTS Holdings with a target price of 40 cents.

Apart from individual stocks, asset managers such as Pictet manages a fund that specifically invests in the nutrition and food security sectors. The Nutrition Fund’s current assets under management (AUM) stand at about EUR1.3 billion ($2.06 billion) as at end July, representing a 250% growth from EUR335 million as at end 2018. Some of the fund’s top holdings include Koninklijke DSM, Kerry Group, Deere & Co, International Flavours & Fragrances, and more. Clearly, investors have built up an appetite for food security-themed investments.

Photo: Bloomberg

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