Food production and agriculture have a significant impact on the environment and climate change. Addressing the issues, which range from deforestation to unhealthy working conditions, is urgent and can be disruptive, but the remedies offer opportunities for investors.
The impact of commercial farming on the environment varies across all major foodstuffs, but animal products in general and beef in particular account for the larger part of food’s impact on earth – 31% of greenhouse gas (GHG) emissions and 43% of land use (see exhibit 1).
Excessive water use, irrational land use, greenhouse gas emissions, herbicides spilling into the water and the soil – the list of repercussions is extensive and can be found all along the food supply chain. To give but one example, land is cleared for agriculture, causing deforestation; crops are then grown at the expense of trees, causing CO2 emissions and removing CO2 sinks; in turn, feed made from the crops leads livestock to emit methane, adding to an already daunting GHG problem.
Next to the environmental aspects, there are social wrongs and inequalities than can be tied to food and food production. Underpaid farmers are at one end of the supply chain, which includes poorly paid and poorly housed migrant workers doing menial jobs in the fields, greenhouses and abattoirs. The issues run all the way to unequal access to affordable, sufficient, safe and healthy food.
The current health crisis has served to highlight other food-related issues, laying bare for example, working conditions in slaughterhouses, meat processing plants and warehouses. The pandemic swept through facilities, disrupting production and causing meat shortages on shop shelves.
In April/May, the facilities became COVID hotspots as workers handling meat on closely packed long conveyor belts infected each other and cold storage conditions kept the virus alive longer. Many of the workers in the US and Europe are migrants, working in shocking conditions. Their often insalubrious accommodation facilitated the spread of the virus.
Employers were forced to invest heavily, spending millions on air conditioning and personal protective equipment and amending shifts, highlighting the industry’s weaknesses and the risks to investors. On the flipside, attractive investment opportunities emerged for suppliers of automation equipment and artificial intelligence tools to the meat industry.
In another aspect of the social side of food investing, the pandemic has underscored, if not reinforced, consumer awareness of the need for more conscious consumption and the ability of food to contribute to health and wellbeing. Indeed, the crisis accelerated the trend towards eating more plant-based foods and away from diary and meat consumption.
The impact of eating meat, beef and pork in particular, is considerable: its ‘hoofprint’ contributes to climate change, pollution, deforestation, methane emissions – livestock accounts for 15% of GHG emissions – and a loss of biodiversity.
A change in diet to pulses, beans, and lab-grown and vegan meat substitutes can help to reduce the global warming effect of GHGs and reshape an inefficient and harmful food system. Indeed, scientists have warned that to keep global temperature rises under control, we need to eat less meat, consume less sugar, drink less milk, and eat more greens, nuts and seeds. This has ‘transformative potential’.
There are various options to reduce the environmental effects of the food system:
Scientists argue that it will take a combination of measures to sufficiently mitigate the expected rise in environmental pressure from the food system by 2050.
Dietary changes can create opportunities across the food industry value chain. A shift in the role of meat in diets has led to a big rise in flexitarian eating, with the move towards more planted-based foods having become mainstream. This is forcing food producers and processors and ingredients companies to adapt, but also driving retailers to provide better access to and visibility of these products.
Encouragingly, these and other efforts are contributing to making the food supply chain more and more sustainable as well as more resilient to health and economic shocks. By moving in this direction, food, food production and agriculture are increasingly eligible for investor portfolios focused on investing based on environmental, social and governance (ESG) criteria.
Listen to the podcast with Agne Rackauswaite, research analyst at IMPAX asset management whose particular expertise is companies operating along the food and agriculture value chain
 “Moving from current diets to a diet that excludes animal products has transformative potential, reducing food’s land use by… 76%; food’s GHG emissions by… 49; acidification by 50%; eutrophication by 49%; and scarcity-weighted freshwater withdrawals by 19% for a 2010 reference year.” Source: Reducing food’s environmental impacts through producers and consumers, Science, Feb 2019 https://josephpoore.com/Science%20360%206392%20987%20-%20Accepted%20Manuscript.pdf
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.