For 2023 and beyond, we have identified food security as a key investment driver where solutions from environmental technologies are set to benefit from high demand.
Food security runs across several of our core themes for Jupiter Green including circular economy, sustainable oceans & freshwater systems and sustainable agriculture & land ecosystems.
It was a prominent topic at the meeting of the Group of 20 leaders in Bali in November 2022 and the United Nations COP27 gathering in Egypt. Russia’s invasion of Ukraine only exacerbated an already fragile global food system by disrupting grain supplies with knock-on impacts felt throughout the global economy.
We expect food systems will come under greater pressure and scrutiny in the coming months as the connected issues of affordability, security and sustainability continue to challenge the sector - creating opportunities to invest in long-term solutions to these problems.
The sector has certainly come out of 2022 rather bruised. Adjusting to the inflationary environment was a big challenge for food producers who often have complex global supply chains to manage.
A key dilemma for the sector is that agricultural food production is a major contributor to climate change, water stress and biodiversity loss whilst simultaneously being a sector that will is already being severely disrupted by these issues.
Knock-on impacts of climate change and energy costs are already being felt around the world. According to the UN Food and Agriculture Association, food production accounts for 25% of greenhouse gas emissions, 30% of global energy consumption, 72% of freshwater usage and 40% of land usage.
Despite this, our analysis shows that only 5% of global listed companies that target environmental solutions markets are focussed on agriculture, far outweighed by the number of companies in other more prominent areas like clean energy and transportation.
There is clearly a lot of work to do, but we are starting to see a confluence of factors act as a catalyst in driving this area forward much in the same way that energy and transport markets began to ramp up decarbonisation efforts over the previous decade.
The powerful forces for change should giving rise to a wave of new and innovative growth companies gaining commercial traction. Recent approval of cellular (lab-grown) meat products by the US Food & Drug Administration was an unprecedented step that completely changes the future landscape for development of new technologies, which were previously considered to be decades away due to the lack of a supportive regulatory framework.
This is a clear signal that innovation in food production is welcome – and whilst the sector is still relatively nascent this simply means the size of the opportunity is significant.
While innovations such as these grab headlines, we see this landscape as very positive for the prospects of established businesses with existing solutions in other industry verticals that will benefit from the agricultural sector catching up.
A great example is Novozymes, a firm that manufactures enzymes for use in food and beverage production (as well as other agricultural and industrial uses) from baking and brewing and plant based alternatives, to solutions used in farming to improve crop yields or pest-resistance.
The application potential is huge, particularly as governments seek to feed a growing global population whilst reducing the volume of land needed to produce everything we eat.
Food security as a theme offers a rich investible universe encompassing both well established companies and smaller companies who are at the frontier of this sector and challenging our perceptions of normal.
Over the next few years, this market will only grow and evolve even more, providing investors with clear opportunities to identify value and benefit from an industry which will shift the dial significantly in global efforts to mitigate climate change.
Jon Wallace & Noelle Guo are investment managers of the Jupiter Green Investment Trust. The views expressed above should not be taken as investment advice.