Innovative companies around the world are working to improve productivity in farming, increase efficiency in food transportation and maximise the nutritional content of the food we eat. We believe such companies represent sustainable long-term opportunities for investors.
Covid-19 has disrupted the food sector's supply chains and is set to change consumer eating habits for good.
Spending an entire day in the fresh air and sunshine, having the freedom to roam in outdoor space of some 108 square feet, and being able to feast on delicious wildflowers in open pastures untouched by pesticides or herbicides. This is the leisurely daily routine that the "girls" - or hens - at Texas-based food company Vital Farms enjoy in return for producing their highly prized eggs. It's a scene you'd expect to come across in a small organic farm, the sort run by a family committed to ethical production. Vital Farms certainly started out that way. But it is now going big. So big in fact that, in 2020, the ethical food company secured a valuation of USD1.3 billion in one of the sector's most-anticipated initial public offerings.
The food industry will soon be full of companies like Vital. That's because the firm's success owes much to some powerful trends unleashed by Covid-19. Two stand out. First, food producers are having to re-configure their supply chains after the pandemic disrupted global trade. It's an environment where complex international sourcing and distribution networks are under pressure and under scrutiny. Second, the industry now has to cater to the needs of a more demanding customer base - one that cares less about convenience and more about the nutritional and ethical aspects of what it buys and eats.
Covid: shaken and stirred
The pandemic has unleashed turmoil across a wide range of industries. Food suffered more than most. Lockdowns and border closures disrupted the distribution of agricultural products and also led to severe labour shortages at food processing facilities. At the same time, Covid-19 triggered a change in consumer behaviour.
A survey by consultancy Accenture conducted during the pandemic found that consumers increasingly prioritised health and sustainability when deciding what to buy.1 It is perhaps in the meat industry where the pandemic-induced transformation is particularly acute. Slaughterhouses and meat-processing plants found themselves in the frontline of the Covid battle after cluster of virus cases emerged in facilities worldwide.
But keeping facilities safe and virus free isn't the industry's only problem. The pandemic also brought into relief the health and environmental costs associated with meat consumption and production.
Internet of Food Things
Compared to other parts of the food industry, meat production is very labour intensive. This became a vulnerability during the virus outbreak as plants struggled to remain operational with severely depleted workforces. Many producers now see technology as means to improve their resilience.
The same is true for industries beyond meat. Greater use of automated systems would not only ensure food security and quality, however. It brings the added benefit of more efficient resource use. We believe the production lines of the future will be built on sensor networks, the Internet of Things and blockchain technology.
The public health crisis has also trained a spotlight on food hygiene standards. Unsettled by the rapid spread of the virus, consumers have understandably become concerned at the possibility of food being a transmitter of disease. Technology can help assuage such fears.
Taste of the future
Faced with a growing world population and climate change, the food industry was already under severe strain even before Covid-19 struck. Looking ahead however, the pandemic could help revitalise it. If food producers and distributors move quickly to deploy advanced technology and innovation to meet growing consumer appetite for food that is healthier and more sustainable, the industry will be fit to meet the demands of the 21st century.
[1] Accenture COVID-19 Consumer Research, conducted March 19-25 and April 2-6, 2020
The Pictet-Nutrition fund: investing in the future of food
- Our Nutrition strategy directs capital to companies which improve sustainability, access, and quality of food necessary for health and growth. The strategy invests across the entire food chain, from farm to fork.
- Long-term growth potential: both governments and consumers are demanding higher quality food and improved diets. Therefore, companies enabling better nutrition should benefit from growth.
- Responsible and sustainable approach: companies that provide solutions to increase output with minimal resource use and waste (i.e. lower environmental impact) will be crucial in the shift toward a more sustainable food system.
- A diverse and resilient opportunity set: across several sectors and geographies with different characteristics; supported by strong long-term secular growth tailwinds, the fund aims to outperform the broader market over economic cycles.
- The fund is suitable for investors who are prepared to invest for the long term and are willing to take a potentially higher risk with their investment.
- Each stock must have a high thematic "purity" for it to qualify as a potential investment. Thematic purity is a proprietary indicator of how specialised a company's activities are. In Nutrition strategy, we exclude activities such as the manufacture of beef, palm oil, alcoholic and carbonated soft drinks as well as unhealthy snacks from this purity calculation.
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