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Your part may be key to solving the climate crisis.
Technology, improved efficiency, and changing tastes could help food production reduce its huge environmental footprint. Agriculture is responsible for a quarter of all greenhouse gas emissions, 80% deforestation, 70% water use and 78% of freshwater and ocean pollution. SustainalyticsMorningstar Company. A warming planet also causes more extreme weather and harms biodiversity, which leads to lower crop yields.
“The world’s climate initiative won’t succeed without addressing agricultural in some way,” Ammar Jam, comanager of VanEck Future of Food ETF. (YUMY). “We are nearing an inflection point which will redefine what food means to us.”
Investors are increasingly interested in food innovations. James’ portfolio is one of many new funds that are available to meet the demand.
Food Demand is on the Rise
The world’s total population is Promised to jumpFrom 7.8 billion today, the number of people who will be in the middle class by 2050 could rise to nearly 10 million. Today, the middle class is growing faster than ever before.—This usually correlates with increased meat consumption. The amount of soil erosion and contamination is also decreasing. arable land.
Geopolitical tensions are making it more difficult to find food. We all know that Russia invades UkraineThis has driven oil prices higher. However, the prices for corn, wheat, vegetable oils, and fertilizer have all risen. Russia and Ukraine account respectively for a quarter of global wheat exports. The outlook for Ukraine’s wheat harvest this summer looks grim.
“We notice fuel most, but food may pose the greatest threat to global stability.” WritesJeremy Grantham, strategist and co-founder of GMO asset manager. The long-term increase of food prices will destabilize political systems and squeeze incomes.
A shift towards a more sustainable food supply
People are becoming more mindful about food and their preferences are changing to favor sustainable foods.
This is allowing companies to focus on sustainable, organic, smart farming, healthier, and vegetarian products. Food retailers have a role to play in increasing efficiency and reducing food waste.
Venture capitalists funded 1,358 deals in food technology worth $39.3 Billion in 2021, a double of the previous year. According to PitchBook, a Morningstar business. Many of the funds went to online grocers, who saw their popularity rise during the pandemic. There were alternative protein investments, such as $500 million in Impossible Foods which is expected to go public later this year.
Alternative proteins have attracted investment from companies such as Kraft Heinz, Mars, and Kraft Heinz. (KHC)Tyson Foods (TSN), which has its own plant-based brand, Raised & Rooted. According to PitchBook the global market for bio-engineered foods is expected grow 7.6% annually to $45.9B in revenue by 2026. Morningstar estimates that sales of plant-based meats could reach $29 billion by 2030, according to Morningstar.
There are also food suppliers, such as grocery and ecommerce companies that are improving inventory planning to minimize spoilage and waste. This will help to prevent food shortages. Amazon.com (AMZN)Online grocery shopping is a dominant market, but Kroger is the leader (KR)For example, Instacart has partnered with e-commerce company to develop automated fulfillment centers and build a self-driving delivery fleet. According to PitchBook research the market is expected grow 22.8% annually over the next five year to $677 billion by 2026.
Technology is an important tool that improves cooking accuracy, reduces food waste, tracks food suppliers and improves food security. The market for food tech is growing at a rate of mid-single digits per year. It is expected that it will generate $85 billion in revenue by 2026.
What role can investors play in the future of food?
Many food giants are also refashioning their businesses, in part thanks to investors who are pushing them towards evaluating their business models.
Investors are pushing companies to adopt sustainable food packaging which can reduce carbon emissions. They also push companies to adopt sustainable food packaging. prevent deforestationand soil degradation, eliminate waste food, and supply sustainable and alternative proteins.
Food isn’t traditionally a growth sector. But investors are interested in growth in innovation. If investors are interested in taking part in the food innovation trend, here are some strategies to consider.
The Morningstar Global Food Innovation Index
The Morningstar Global Food Innovation Index is made up of companies that are able to capitalize on consumer demand for healthier food and have material revenue exposure.
There are 40 stocks in the index, including Corteva (CTVA)Neogen, the largest producer of genetically modified crops and natural crop chemicals. (NEOG), which performs animal and food testing to aid farmers make better breeding decisions and herd management decisions; Beyond Meat (BYND), the plant-based meat outfit.
This year, not all stocks are winning. Beyond Meat and Neogen both fell sharply in 2022. The market is savageing growth stocks and pondering whether Beyond’s products will continue to be in high demand. Andrew Lane, Morningstar’s director for equity research and index strategies, says that the outlook is bright. Lane points out that Neogen and Beyond’s revenues are expected increase by more than 25% annually over the next five year.
How are Food Innovation Funds performing in the real world?
I found a handful of funds—including three that launched in 2021—that focus on the future of food. I excluded exchange-traded funds that were focused on underlying food commodities, and the misleadingly named US Vegan Climate ETF. (VEGN)This isn’t food-related, but excludes companies that cause harm to animals or the environment. Its largest holdings are Tesla (TSLA)UnitedHealth (UNH)Nvidia, and. (NVDA).)
VanEck Agribusiness ETF, valued at $1.9 Billion, is the largest fund. (MOO), which tracks MVIS Global Agribusiness Index. Nearly a quarter has assets Sewn up in 3 holdingsBayer, the drugmaker; Deere, the machinery manufacturer (DE), and Zoetis, an animal health company (ZTS). 54 holdings are included in the fund.
Next is the $225 Million iShares MSCI Global Agriculture Producers Exchange Traded Fund (VEGI), which tracks MSCI ACWI Select Agriculture Producers Investable Market Index. It holds 144 stocks. But, more than a quarter of the fund is in Deere or Nutrien (NTR)Archer-Daniels Midland, one of the top fertilizer companies in the world, is also an agricultural commodities trader Archer-Daniels Midland (ADM).
Fidelity’s young agricultural productivity was the best performer for this year. (FARMX)The, which was launched on April 7, 2020. The Morningstar US Large-Mid Index fell 6.1%, while the fund was up 20.5%. The strong performance of Western fertilizer stocks contributed to the gains. The number of people who had died was on the rise Before Russia invaded Ukraine, there was a lot of potash available. Russia and Belarus account for a third of the global potash market, a fertilizer feedstock.
The Outlook for Alt Proteins, Plant-Based Foods
Stocks have stagnated this year despite the bright future of alternative proteins and other plant-based food options.
One reason is that investors are concerned that Beyond Meat will struggle in a world of increasing competition. One survey found that a Muted reception for Beyond’s McPlant burger at McDonald’s (MCD).
VanEck’s James says that investors seem to be extrapolating Beyond’s struggles to the alternative protein space in general. James is actively managing VanEck Future of Food ETF. It launched in November 2021 and has been sharply down this year. Other holdings, such as Oatly, a plant-based beverage specialist, have also been affected. (OTLY).
James believes these concerns are unfounded. “From my point of view, after speaking with management team members, their message is that they have no plans to change their strong growth assumptions for plant protein,” he stated.
James stated that he expects Oatly to grow revenue by 50% by 2023, and then “transition into low-double-digit growth through 2020.”
Here are some things to remember when investing in food innovation
Thematic funds can be difficult to use in asset allocations, it is true.
Sheryl RowlingFinancial advisor and columnist at Morningstar.com,, avoids them.
“How far are your assets going to be divided?” Rowling said. “If you only focus on one sector, it doesn’t make sense to my eyes.” Rowling said. (Morningstar’s Lane noted that the Morningstar Global Food Innovation Index currently resides in the mid value section of the Morningstar Style Box. This may be due to the presence of large, slow growing companies while small, innovative businesses are thriving.
Another thing to note: For sustainability-minded investors, some of the holdings may have poor environmental, social, and governance ratings. (Read our latest(See Beyond Meat and Tyson. Morningstar Sustainability Ratings vary widely in relation to the funds.
Jeff Gitterman, a financial advisor with a significant practice in sustainable accounting, currently invests through funds such GMO Climate Change in food. (GCCAX)Venture capital, and is open to investing through thematic funds as long as they account less than 5%.
“Food tech can be used to address many of these issues” [climate]Gitterman identifies the issues.
