Food – ESG Feature
mate change and, if we look after it, protects us from natural disasters and disease. Yet, our food production practices have been identified as put- ting 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 endan- gered 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 cash- flows, it is negatively correlated, it was resilient throughout the Covid pandemic and the returns are fairly predictable,” Wil- liams 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 long- term 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,” Wil- liams says.
We are in a different phase
of the agricultural system. Oliver Williams, Manulife Investment Management
Something for everyone For Williams, sustainability is producing food products with- out harming the capacity of the underlying asset to produce the same level of food in the future. Failing to understand this def- inition could be a barrier to creating a more sustainable food system. “There is a lot of confusion as to what sustainable agri- culture means,” Williams says. A common conversation includes people believing that sus- tainable is the same as organic. “People use labels interchange- ably,” he says. “We need a common standard like Leading Har- vest 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 sup- port. Investing in the food chain with the aim of making it sus- tainable 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 opportu- nities 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 imple- ment these systems and solve these problems, we may have to turn to plan B: producing a high energy protein wafer called Soylent Green.
Issue 120 | February 2023 | portfolio institutional | 31
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