The 1973 film Soylent Green portrays a bleak view of our future. At the heart of the dystopia is a housing crisis caused by rapid population growth while pollution has largely killed off plant and animal life. The result of these factors, and the main theme of the film, is a lack of food. Those who are rich enough can spend more than $200 on a lettuce, tomato, onion and stick of celery. The choice for everyone else is limited to a high-energy protein wafer marketed as Soylent Green. The product feeds a growing and predominately poverty-stricken pop produce from land and sea, there are concerns around the damage we are causing our ecosystem as well as the increasing number of people who need feeding. The problems featured in Soylent Green may not be as acute in the real world, but we can see them approaching on the horizon.
Back in 1973, the world had 3.9 billion citizens; today there are more than 8 billion of us. And it’s not just the population that is growing. In 2021, 828 million souls struggled to access enough food, according to the UN. Worryingly, that stat increased by 46 million people during that year, although Covid may have been a factor. This is an issue that is expected to get worse. The UN believes that 9.3 billion people will be living on our planet by 2050, and, if this proves to be the case, we will need to grow 60% more food than we do today.
This means producing more from a fixed landmass, so more intensive farming is required. But some modern agricultural practices kill the microbes that keep the soil fertile thus making it harder to grow produce. Agriculture also consumes 70% of the world’s freshwater, according to the World Bank, which predicts that demand for the mineral will increase by 15% if enough food is to be grown in 2050.
Then there is climate change. The industry is a major emitter of climate-harming gases, so it is clear that new ways of producing food will have to be found. “We have to ask ourselves, what the food system needs to look like in 10, 20, 50 years’ time to feed 10 billion people while combating climate change and reversing nature loss,” says Oliver Williams, global head of agricultural investments at Manulife Investment Management.
A broad universe
To produce more food of the right quality to eliminate malnutrition while making the supply chain more sustainable needs investment and lots of it. The International Food Policy Research Institute puts the annual funding gap at the best part of $350bn (£282.5bn) a year until 2030, making the $20bn (£16.1bn) invested annually in tackling climate change in agriculture, forestry and land use nowhere near sufficient.
But, it seems, investors are interested. Williams is seeing a desire by the stewards of private capital to solve the problems within the food system. “I have been here for two-and-a-half decades and investor interest in agriculture and the food system is growing dramatically,” he adds.
This growth is evident in food production systems that are designed to halt the negative impact on the environment, such as controlled agriculture through indoor grow spaces. “We are seeing a lot of investment going into that space as a way to bring primary production closer to large population centres,” Williams says. The benefits here are two-fold in that more food is being grown using fewer resources and is traveling fewer miles to the consumer.
Aside from ventures developing innovative production systems or new products, there is the option of supporting more traditional businesses in the industry become more efficient in areas such as production, packaging, processing and storage. “There is a broad investable universe here,” Williams says.
Evolving tastes
However, when it comes to building a sustainable food chain, we believe the “real opportunity is on emissions”, Williams says. Producing food generates 37% of the harmful gases that damage our climate and sends average temperatures higher. “The food industry’s supply chain is one of the biggest contributors to climate change, as how we produce, process, store and distribute food is energy consuming,” Williams says. “We are working on decarbonising the system.”
This is a sign that the food system is going through a significant evolution, says Williams. “We are in a different phase of the agricultural system. It is about finding ways for the food value chain to produce more with less inputs,” he adds. This means new methods of production, new products, data systems and platforms to connect to consumers.
Creating alternative meat products is an area of innovation where the food chain is attempting to be more sustainable, as meat and dairy are the main culprits when it comes to harmful emissions.
There is a growing number of products using plant-based substitutes to mimic, for example, the profile of beef. One of these products big selling points is that they look like a burger, taste like a burger, has the texture of burger, but it does not contain meat. Does this make it a nutritious alternative? With the level of processing involved to re-create the profile of a beef burger, people may think otherwise.
Other innovations that could solve the problems of the food chain include reducing the reliance on synthetic fertiliser, especially nitrogen. Legumes are playing a significant role here in improving soil health. They are one such ingredient that can be used for purposes that have not been a focus in the past.
Using legumes in this way can lead to different outcomes on the ground, which are more sustainable and better for soil health and for overall biodiversity. This last point is important. Food production is also, the UN says, the main culprit in causing damage to the ecosystem, which feeds us, gives us medicines, purifies the air, fights climate change and, if we look after it, protects us from natural disasters and disease.
Yet, our food production practices have been identified as putting 24,000 species, or 86% of the world’s total, at risk of extinction. The global rate of extinction is reported to be higher than at any time during the past 10 million years.
Other innovations are being developed to make crops more durable, easier to grow, to last longer, to be resilient to extreme weather patterns and long-term storage. Such innovations will help reduce waste, which is the other challenge in trying to feed a growing population and reduce the negative impact on the climate and ecosystem.
Reports claim around 40% of food globally is wasted across the supply chain, accounting for about 10% of greenhouse gas emissions.
“Whether it is in controlled environment agriculture or in additional storage and packaging to reduce waste, investors are working on making the supply chain sustainable,” Williams says. “You grow a crop, pick it once a season and then have to store it in a way that keeps the quality high so you can sell it throughout the year. This is the real opportunity and investors have been executing on it for some time.”
For many, this is what the future of the food chain will look like and it needs to happen if we are to avoiding being an endangered species.
“There are a lot of innovations happening to make the food supply chain more sustainable in the long run while using less inputs, whether that sustainability is measured by soil health, water retention capacity or by reducing waste,” Williams says.
The long game
There are plenty of options for investors to help make the food chain more sustainable, but what’s in it for them? “Investors are attracted to this space because of the good cashflows, it is negatively correlated, it was resilient throughout the Covid pandemic and the returns are fairly predictable,” Williams says.
He adds that returns depend on where and how you invest in this theme, but he would expect this space to generate a “single to double-digit return over the long run”. Investors looking at tackling the issues within the food system should not expect to make a fast buck. “Agriculture is a longer duration investment,” Williams says. “We recommend longterm holds of 10, 15, 20 years-plus around these investments.”
Investors also need to be aware of the variable nature of the food production sector, where farms face extreme weather events, droughts, floods and supply chain disruptions. “The food system doesn’t deliver well on a quarterly basis, but patient capital has been well rewarded over the long run,” Williams says.
Something for everyone
For Williams, sustainability is producing food products without harming the capacity of the underlying asset to produce the same level of food in the future. Failing to understand this definition could be a barrier to creating a more sustainable food system. “There is a lot of confusion as to what sustainable agriculture means,” Williams says.
A common conversation includes people believing that sustainable is the same as organic. “People use labels interchangeably,” he says. “We need a common standard like Leading Harvest so consumers can understand sustainability at the primary production level. That would bring clarity, and with clarity, there will be activities that could support it.”
And there are plenty of activities that investors can fund to support. Investing in the food chain with the aim of making it sustainable is a diverse theme. There is everything from early stage venture capital technology companies to traditional real estate as farmland is real estate asset.
“The food system is complex. There are opportunities for innovation at every step of the supply chain and the food industry is experiencing that,” Williams says, adding: “For investors, the food industry could offer compelling opportunities and potentially the right risk-return characteristics.”
Williams adds that the food sector could offer a tremendous opportunity to make a difference to the world while being rewarded, but he warns that investors need to be matched with the right timeframe.
So, to save humanity, more food needs to be produced from a fixed landmass, using less water, less packaging and systems designed to reduce waste while the end product needs to travel fewer miles to your dinner plate. If we fail to implement these systems and solve these problems, we may have to turn to plan B: producing a high energy protein wafer called Soylent Green.
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