singaporeen
The future of food will be healthier and more sustainable

The future of food will be healthier and more sustainable

14-04-2021 | Insight

The increased focus on health and well-being is impacting all aspects of consumer spending. This includes food production and dietary patterns. Current changes are forcing dominant food producers to rethink their offerings. But they also offer attractive investment opportunities in niche segments, such as plant-based food and beverages, meal kits, and food ingredients.

  • Sam Brasser
    Sam
    Brasser
    Analyst

Speed read

  • Food demand is shifting toward healthier and sustainable products
  • Several attractive niches set to benefit from this 
  • Large incumbent players are at risk of falling behind

Food production and dietary patterns have changed profoundly over the past 50 years. Rising crop yields and efficient production have helped to improve life expectancy as well as to reduce hunger, infant and child mortality rates, and global poverty. However, these benefits have been partially offset by a number of detrimental side effects.

These include massive environmental degradation due to unsustainable farming practices, as well as rapidly expanding health problems, ranging from widespread obesity to heart disease, as diets have tilted toward higher-calorie and heavily-processed foods. Faced with these challenges, consumers are now gradually changing their behavior by opting for healthier and more sustainable products.

Stay informed on Sustainable Investing with monthly mail updates
Stay informed on Sustainable Investing with monthly mail updates
Subscribe

Figure 1: Large parts of the population are overweight

Source: WHO Global Health Observatory. Date: 2018

In the US, for instance, sugar and dairy consumption have been decreasing. Although the declines in demand have been slow, the impact on food producers has been profound. The country’s milk industry has been under pressure as consumption has been falling by 40% since 1975. The drop in cow’s milk consumption has been partly replaced by plant-based dairy products.

Incumbents under threat

In this context, large incumbent players of the consumer-packaged goods market are facing increasingly stronger headwinds, as they still derive most of their sales from relatively unhealthy food products. These large groups have been investing in healthier and more sustainable foods, because these segments are growing faster than their core categories.

Food giants have an opportunity to improve the healthiness of their products, and in fact, they are

Food giants have an opportunity to improve the healthiness of their products, and in fact, they are. Those with the right strategy of becoming more sustainable and selling healthier food could in fact benefit from shifting consumer preferences, if they use their large capital resources and distribution networks. 

Smaller packaged-food companies, with superior health and sustainability credentials, appear to be better positioned for now. While impact investors could argue that food giants are not best-in-class yet, they do impact the diets of more people than smaller-sized companies as they undergo positive change.

Focusing on attractive niches

Meanwhile, shifts in consumer preferences also offer attractive investment opportunities in segments such as plant-based food and beverages, meal kits, and food ingredients. Pure-play food companies in these segments are becoming more relevant to consumers, they operate in a very large market, and have relatively low product penetration. This provides growth opportunities. 

Sales of plant-based food, for example, are growing at steady 10% to 15% annual growth rates in the US, EU, and UK.1  Moreover, they still represent only a fraction of total food sales, leaving ample room for future growth. In the EU and UK, just 2.5% of dairy sales and 0.7% of meat sales are plant-based.2  This compares to 0.6% of all US retail food sales being plant-based.3

Figure 2: Dairy is the largest category in US plant-based food

Source: The Good Food Institute, SPINS and IRI. Date: 2020.

Meal kit companies also feature attractive prospects. They deliver boxes with mostly fresh, specific ingredients on a weekly basis to customers’ homes. As such, they enjoy a vast addressable market, with high growth potential. Some of these businesses have been growing at high double-digit rates over the past few years, with significant acceleration during the Covid-19 pandemic.

Another example of an attractive niche in the food production sector is related to ingredient companies. These have been experiencing structurally higher volume growth relative to general food businesses. Over the past decade, ingredient companies’ volume growth has averaged 3.5%, compared to 0.5% for their general food counterparts.4 

Ingredient makers benefit from supplying a high value-add product that influences the user experience at a relatively low cost. At the same time, competitive pressures are lower relative to other food businesses, as ingredient companies often compete in an oligopolistic market. Barriers to entry such as scale, increasing product complexity and regulations further lower competitive pressures.

Meanwhile, increasing fish consumption in China presents an opportunity for listed Atlantic salmon companies. Fish is one of the most efficient meat products, in terms of environmental impact.5 Every 100 kg of feed yields 56 kg of edible fish meat, compared to only 7 kg of beef meat. In addition, only 7.9 kg of CO2 are produced for every kg of edible fish meat, compared to 39 kg for a kg of beef meat.

Consumers reducing their environmental footprint are therefore likely to switch from pork and beef to fish and poultry. China’s per capita consumption of salmon is currently only 60 grams per year, while Europe’s is about 2 kg, which means that the market for salmon in China is far from saturation and still has great development potential.

A ‘pick-and-shovel’ approach for the kitchen

Indirectly related to the food production sector, companies supplying professional kitchen equipment also represent an attractive segment for investors, because they benefit from growing demand for restaurant food, whether it is eaten in an actual restaurant or delivered to the consumer’s home.

Major opportunities for these suppliers stem from growth in eating-out expenditure, the replacement of traditional equipment, and emergence of ghost kitchens6 servicing food delivery. In recent years, expenditure on eating out has risen 4% to 5% annually.7  Although recently interrupted by the pandemic, we believe consumers will continue to increase spending on eating out in the future.

Digitalization is coming to all sectors and restaurants are no exception

Finally, digitalization is coming to all sectors and restaurants are no exception. Digital enablers for the restaurant industry tend to feature attractive subscription and transaction-fee-based business models. Therefore, we expect the number of restaurants subscribing to these types of services to continue to grow at a rapid pace over the coming years.

1ING, Good Food Institute, SPINS and IRI. Date: 2020.
2Euromonitor. Date: 2019.
3United States Census, The Good Food Institute, SPINS and IRI. Date: 2019.
4Jefferies. Date: 2020.
5Barclays Research and MOWI. Date: 2020.
6Ghost kitchens are a professional food preparation and cooking facility set up for the preparation of delivery-only meals. However, a ghost kitchen differs from a virtual restaurant in that a ghost kitchen is not necessarily a restaurant brand in itself and may contain kitchen space and facilities for more than one restaurant brand.
7McKinsey. Date: 2020.

Leave your details and download the publication

Disclaimer

I agree to the Robeco Disclaimer and the collection and use of my personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy Policy,  including for the purpose of direct marketing of Robeco products or services. Your data will be treated with utmost care and will not be passed on to third parties.

Important information

This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation.
The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license.
An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.

Subjects related to this article are:
Logo

Important Information

Warning/Important note: This website contains information which is only available to qualified investors as defined below. If you are not a qualified investor, please click “I Disagree” to leave the website.

By clicking on "I agree", I declare that: 

  • I am a qualified investor as defined under 1
  • I have read and understood the Terms and Conditions and Disclaimers as described under 2

1 - This website may only be accessed directly or indirectly by the following persons in Singapore:

1) “institutional investor” under section 304 of the Securities and Futures Act (Cap.289)(“SFA”), which means:
(i) the Government; (ii) a statutory board as may be prescribed by regulations made under section 341 of the SFA; (iii) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is (A) to manage its own funds; (B) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or (C) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country; (iv) any entity (A) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and (B) whose funds are managed by an entity mentioned in sub-paragraph (iii); (v) a central bank in a jurisdiction other than Singapore; (vi) a central government in a country other than Singapore; (vii) an agency (of a central government in a country other than Singapore) that is incorporated or established in a country other than Singapore; (viii) a multilateral agency, international organisation or supranational agency as may be prescribed by regulations made under section 341 of the SFA; (ix) a bank that is licensed under the Banking Act (Cap.19); (x) a merchant bank that is approved as a financial institution under section 28 of the Monetary Authority of Singapore Act (Cap.186); (xi) a finance company that is licensed under the Finance Companies Act (Cap.108); (xii) a company or co-operative society that is licensed under the Insurance Act (Cap.142) to carry on insurance business in Singapore; (xiii) a company licensed under the Trust Companies Act (Cap.336); (xiv) a holder of a capital markets services licence; (xv) an approved exchange; (xvi) a recognised market operator; (xvii) an approved clearing house; (xviii) a recognised clearing house; (xix) a licensed trade repository; (xx) a licensed foreign trade repository; (xxi) an approved holding company; (xxii) a Depository as defined in section 81SF of the SFA; (xxiii) an entity or a trust formed or incorporated in a jurisdiction other than Singapore, which is regulated for the carrying on of any financial activity in that jurisdiction by a public authority of that jurisdiction that exercises a function that corresponds to a regulatory function of the Authority under this Act, the Banking Act (Cap.19), the Finance Companies Act (Cap.108), the Monetary Authority of Singapore Act (Cap.186), the Insurance Act (Cap.142), the Trust Companies Act (Cap.336) or such other Act as may be prescribed by regulations made under section 341 of the SFA; (xxiv) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere; (xxv) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors; (xxvi) the trustee of such trust as the Authority may prescribe, when acting in that capacity; or; (xxvii) such other person as the Authority may prescribe.

2) “relevant person” under section 305(1) of the SFA, which means:
(i) An accredited investor; (ii) a corporation the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; (iii) a trustee of a trust the sole purpose of which is to hold investments and each beneficiary of which is an individual who is an accredited investor; (iv) an officer or equivalent person of the person making the offer (such person being an entity) or a spouse, parent, brother, sister, son or daughter of that officer or equivalent person; or (v) a spouse, parent, brother, sister, son or daughter of the person making the offer (such person being an individual).

3) any person who acquires the units [in a collective investment scheme] as principal if the offer is on terms that the units may only be required at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of units in a collective investment scheme, securities, securities-based derivatives contracts or other assets, and if the following condition is satisfied: (i) the offer is not accompanied by an advertisement making an offer or calling attention to the offer or intended offer; (ii) no selling or promotional expenses are paid or incurred in connection with the offer other than those incurred for administrative or professional services, or by way of commission or fee for services rendered by any of the persons specified in section 302B(1)(d)(i) to (vi) of the SFA; and (iii) no prospectus in respect of the offer has been registered by the Authority or, where a prospectus has been registered (A) the prospectus has eAccxpired pursuant to section 299 of the SFA; or (B) the person making the offer has before making the offer 1. informed the Authority by notice in writing of its intent to make the offer in reliance on the exemption under this subsection; and 2. taken reasonable steps to inform in writing the person to whom the offer is made that the offer is made in reliance on the exemption under this subsection.

4) Or otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

If you are not any of the types of persons described above, you are not authorized to enter this website and you should leave this website immediately.

2 Terms and Conditions
You acknowledge that you have read these Terms and Conditions (“Terms”) prior to accessing the website located at www.robeco.com/sg (“Website”) and you agree to be bound by the Terms.  If you do not agree to all of the Terms, you are not an authorised user and you should not use the Website. The Website is owned by Robeco Singapore Private Limited (company registration number: UEN. 201541306Z), which is licensed by the Monetary Authority of Singapore (“MAS”) pursuant to the Securities and Futures Act (Cap.289) (“SFA”) of Singapore, and is managed by Robeco Singapore Private Limited and/or its affiliates (collectively, as “Robeco”). The Website is intended for and should be accessed by institutional investors or accredited investors (as defined under Section 4A of the SFA) of Singapore.  The Website is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the Robeco to any registration or licensing requirement within such jurisdiction.  It is your responsibility to observe all applicable laws, rules and regulations of any relevant jurisdiction. The content contained in the Website is owned by Robeco and/or its information providers and is protected by applicable copyrights, trademarks, service marks, and/or other intellectual property rights.  You may not copy, distribute, modify, post, frame or link the Website, including any text, graphics, video, audio, software code, user interface, design or logos.  You may not distribute, modify, transmit, reuse, repost, or use the content of the Website for public or commercial use, including all text, images, audio and/or video.  Robeco may terminate your access to the Website for any reason, without prior notice. Neither Robeco, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from the access of the Website.  You agree to indemnity and hold Robeco, its associates, directors, officers or employees harmless against any and all claims, losses, liability, costs and expenses arising from your use of the Website due to violation of the Terms. Robeco reserves the right to change, modify, add or remove any parts of the Terms at any time and for any reason.  The Terms shall deemed to be effective immediately upon posting. The Terms shall be governed by, and shall be construed in accordance with, the law of Singapore.

Disclaimers
The Website has not been reviewed by the MAS. Accordingly, the Website may not be accessed directly or indirectly to persons in Singapore other than (i) to an institutional investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to Section 305(2), and in accordance with the conditions specified in Section 305, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. 

Nothing in the Website constitutes tax, accounting, regulatory, legal or investment advice.  The Website is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation or for the purpose of soliciting any action in relation to Robeco’s businesses, or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer and solicitation. Any reproduction or distribution of information from the Website, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited.  By accessing to the Website, you agree to the foregoing.  

The funds referred to in the Website are for information only.  It is not a recommendation or investment advice, nor does it mean the funds is suitable for all investors.  The contents of the website is not reviewed by the MAS.  Any decision to participate in the funds should be made only after reviewing the sections regarding investment considerations, conflicts of interest, risk factors and the relevant Singapore selling restrictions.  You should consult your professional adviser if you are in doubt about the stringent restrictions applicable to the use of the Website, regulatory status of the funds, applicable regulatory protection, associated risks and suitability of the funds to your objectives.

Any decisions made based on the information contained in the Website are the sole responsibility of yours.  Any investments made or to be made shall be with your independent analyses based on your financial situation and objectives.  The investments and strategies contained in the Website may not be suitable for all investors and are not guaranteed by Robeco.  

Investment involves risks and may lose value.  Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future.  The value of your investments may fluctuate.  Past performance is no indication of current or future performance.  The Website may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies and such projection or forecast is not indicative of the future.  The information contained in the Website, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available on an “as is” basis and without warranties of any kind, whether express or implied, and reflects prevailing conditions and Robeco’s views as of the date published or indicated, and maybe superseded by subsequent events or for other reasons.  The information contained in the Website are accordingly subject to change at any time without notice and Robeco are under no obligation to notify you of any of these changes.  Robeco expressly disclaims all liability for errors and omissions in the information presented in the Website and for the use or interpretation by others of information contained in the Website.

Robeco Singapore Private Limited holds a capital markets services licence for fund management issued by the MAS and is subject to certain clientele restrictions under such licence.  An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.

I Disagree