Russia’s invasion of Ukraine has highlighted many things, not only our naivety at thinking a war within the confines of Europe would never happen again.
One of the starkest wake-up calls has been the dawning realisation that Ukraine is one of the world’s major breadbaskets and we’re dependent on it for a fifth of high-grade wheat and about 7% of all wheat.
The fact that large swathes of Ukrainian farmland are now inaccessible, littered with landmines or occupied by invading Russian forces means the disruption to the spring planting season is already affecting future supplies.
The whole world operates on a 90-day food supply – if food production stopped today, we would have a 90-day supply of food to feed the world – and we currently have 800 million people on Earth subsisting on less than 1,200 calories per day. The conflict means there is a real risk of a famine in emerging economies – our food security is in danger.
The crisis has created unprecedented calorie deficits, food inflation and widespread shortages in commercial fertiliser supplies. And the effects of the latter will be felt deeply and painfully by some of the most vulnerable regions of the world.
Of course, in the sustainable food stakes, the war in Ukraine is the latest in a long line of disasters. Climate change and extreme weather events have been conspiring for a long time to affect the food supply chain and agricultural production.
With food inflation ratcheting up – and the stomachs of millions at risk of not being filled – the sustainable food challenge is one that needs to be addressed immediately.
The world of investment has a significant role to play in terms of the capital that can be deployed towards solutions. Key to this strategy is the ability to identify the important themes in food sustainability and the sectors that will provide the solutions the world needs.
In our opinion, there are four main areas:
Bio-based fertilisers: The key to reducing dependency on energy and fertilisers from Russia involves a greater shift towards bio-based fertilisers. These optimise the use of nutrient-rich ingredients such as manure and sewage sludge and will reduce Europe’s dependence on imported fertilisers – as such, they will have an increasingly important role in future food production.
Plant breeding and precision farming: Progress in plant breeding and precision farming could produce healthier crops and higher yields. One of the biggest problems in agriculture is that, globally, farmers have concentrated their efforts on too few plant types, ones that are suitable to our current environmental conditions – so any changes in climate, for example, could seriously hamper harvests. Diversifying and increasing the numbers of plants the world farms and eats needs to be a key focus.
Holistic and environmentally sustainable production systems: Production systems such as mixed-farming, agroecology and organic farming also have the potential to optimise nutrient cycles, strengthen the resilience of the agriculture sector and use minimal levels of chemical inputs. They will be key in the move towards sustainable food production.
Alternative protein sector: In recent years there has been a decline in the appeal of the consumption of meat. The rise of veganism and vegetarianism is partly down to people’s personal choice and taste, or for health reasons but also the environmental impact – the carbon footprint created from cattle ranching and animal rearing is widely known. So the rise of synthetic protein will play a key role in providing the world with calories, whilst having a positive impact on carbon production associated with food.
As investors, then, where can we look to find opportunities that play to this theme? There are a ton of options, but investors need to tread carefully. Where there is a green trend, there is a propensity to greenwash – companies or funds that purport they tick sustainability boxes, but when you look under the bonnet, they really don’t.
One fund that authentically follows the sustainable food theme is Pictet Nutrition. Pictet Nutrition invests in companies that ‘secure the world’s future food supply,’ including innovations to improve farming productivity, increase efficiency in food transportation and maximise the nutritional content of food.
The Rize Sustainable Future of Food ETF is another – it says that the security of the world’s food system is one of our most pressing challenges and the need to provide nutritious, affordable food while reducing the environmental impact is increasing. Both these funds are a credible way for investors to access this theme.
The weaknesses in our food system are clear and the Ukraine war has only served to shine a light on these structural vulnerabilities. The investment world knows what it needs to do in terms of channelling money. The question that now remains is whether the world wants to. And time is running out.
Patrick Thomas is head of ESG portfolio management at Canaccord Genuity Wealth Management. The views expressed above should not be taken as investment advice.