Rising demand, changing consumer tastes and digitization are radically transforming the global food sector. Holger Frey, manager of RobecoSAM’s Sustainable Food Equities Strategy, explains how technological innovation is presenting attractive investment opportunities across the entire value chain.
With the world’s population set to rise to 9.7 billion by 2050, global food production will need to soar by 70% to meet demand. 60 million new consumers come to the dinner table every year. In absolute tons consumed, China’s appetite for poultry products has already overtaken the US’s. Yet on a per capita basis, to match US consumption, China’s appetite for poultry would have to quadruple, demonstrating how global food supplies will be stretched in the coming decades.
Although undernourishment has nearly halved in the last 20 years, over 800 million people still go hungry. Meanwhile, around two billion worldwide suffer micronutrient deficiencies. In developed countries, marked consumption shifts are underway, with more consumers opting for sustainably-sourced and naturally-nutritious food.
Sales of organic food, already accounting for high single-digit shares in some West European markets, are expected to significantly outpace conventionally-grown produce as consumers better understand the health and environmental effects of their nutritional choices.
Source: RobecoSAM Investment Research Team, 2018
Technological innovation has helped boost food production for centuries, from the 19th century invention of the internal combustion engine to developments in synthetic chemistry in the 1970s. Today, tractors and combine harvesters operate more efficiently thanks to GPS. Yet digital penetration in the food sector has lagged behind other industries, perhaps reflecting farming’s dependency on dynamically-changing external factors such as weather or disease.
However, rather than rely on historic knowledge, farmers can now benefit from solutions that harness the rapid evolution of mobile and sensor technology, improved computing and storage capacity, and the ability to systematically collect and analyse data. M&A activity reflects the technological changes transforming the sector; in 2017, global agricultural machinery giant John Deere bought robotics start-up Blue River Technologies to help build out its artificial intelligence capabilities.
Machine learning can enable agri equipment to distinguish between weeds and crops, automatically applying sprays with unprecedented accuracy and efficiency, slashing chemical consumption.
‘Big data’ and the step-change in analytical power are transforming laboratory research: vast volumes of data can be analysed, detecting patterns and solutions previously hidden in chaos. The discovery of ‘biologicals’, naturally occurring microbes that boost plant yields or protect against pests and diseases, is particularly promising, with Denmark-based Novozymes rolling out soil inoculant, a microbial product that improves plants’ nutritional uptake.
Yet even incumbents like Novozymes face challenges from disruptive start-ups, such as Indigo Agriculture, which compiles the genetic and microbial information of plants that have grown under challenging environmental conditions. Using machine learning algorithms, Indigo aims to match the perfect microbiome with specific plants, geographies and desired characteristics.
Technological innovation is moving swiftly through the food value chain. San Francisco startup Impact Vision aims to replace traditional invasive, time-consuming sample-based food testing with non-invasive hyperspectral images of the electromagnetic wavelengths emitted by materials. Combining spectral images with machine learning enables Impact Vision to rapidly measure nutritional value, freshness and protein, fat and moisture levels.
The ability to differentiate between fresh and frozen-thawed fish provides valuable insight into supply chain practices and protects against fraud. As hyperspectral sensors decrease in size and price, the company has the potential to equip consumers’ smartphones with real-time versions.
Technology is enabling food producers to tap into new territories, including controlled environment aquaculture. As space around Norway’s fjords becomes scarce, offshore technology is helping salmon farms move to deeper waters. Meanwhile, onshore, Faroe Islands-based salmon producer Bakkafrost is using advanced technology to dramatically boost the weight of young salmon (smolts) raised in land-based tanks.
The system reduces mortality rates among smolts later put into harsher ocean waters, also raising environmental standards with biofilters to recycle 99.7% of water used in production.
As well as changing the way food is produced, processed and transported, technology is changing the way consumers view food. Beyond bio-chemicals and AI-enabled weeding, technology will give tech-savvy farmers of the future even better tools to nurture and protect crops, animals and farmed fish, helping to deliver a sea-change in food production. Technology-driven transformation throughout the sector will continue to create compelling opportunities for innovative companies and investors alike.
Source: RobecoSAM Investment Research Team, 2018
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