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Food security challenges put spotlight on sustainable transition

For many around the world, 2022 has seen a dramatic rise in food prices. This has been caused by the compounding effects of climate change, supply chain interruptions linked to the Covid-19 pandemic, trade disruptions and rising energy prices resulting from the war in Ukraine.
While prices have come down from the highs seen earlier this year, the global food situation may remain tight until 2023 or beyond due to declines in grain stores, low/ending commodity stocks, high fertiliser and energy prices and the impact the conflict in Ukraine is also having on agricultural production.
Figure 1: number and percentage of population that is undernourished
Number and percentage of population that is undernourished
Source: FAO, IFAD, UNICEF, WFP and WHO, The State of Food Security and Nutrition in the World 2022, 6 July 2022
Unfortunately, this risks a continuation of the upward trend seen in global food insecurity since 2019 (Figure 1). It also increases the risks of social and political disruption, particularly in countries most dependent on food and fertiliser imports, while increasing inequality in developed countries.
The convergence of events effecting the food system between 2020 and 2022 has been remarkable, but it may not be a rarity in the future. The physical impacts of climate change, volatility in energy pricing along with the energy transition, increasing water stress and the degradation of biodiversity will only further increase pressures on the food system over the coming years and decades. As we have seen this year, such pressures and shocks can lead to protectionism and disruption to trade and have an impact on food security.
In our view, the increased awareness of these pressures will accelerate the shift toward a more resilient and sustainable food system. Recent policy developments have begun to highlight this, drawing connections between food security issues and sustainability. For instance, the US Inflation Reduction Act (IRA) passed in August includes funding for “climate smart agriculture”, while the recent White House summit on biotechnology highlighted the role of innovations such as synthetic biology in achieving food security and environmental objectives.
The transition towards a more sustainable food system will be wide-ranging and multi-faceted. To identify the investment implications of this shift we have developed a framework of five cross-cutting themes that will underpin and shape the transition: increasing resilience to climate and water stress; finding new ways to improve productivity; decarbonising food production; producing protein, more efficiently; and improving access, affordability and health outcomes.
Ultimately, each of these five themes will need to be pursued concurrently and in ways that are complementary and mutually reinforce one another. As highlighted in Figure 2, each theme will require the adoption of policy measures and a scale-up of related technologies, bringing risks and opportunities for the food sector.
Looking ahead we plan to use this framework to explore the sub-themes, supporting technologies and implications for both incumbent food and agricultural companies and potential disruptors.
Figure 2: mapping the elements of the sustainable food transition
Elements of the sustainable food transition
Source: Columbia Threadneedle Investments, 2022

A wasted opportunity?

Taking the theme of “new ways to improve productivity” as an example, a major area of focus is food waste. With a third of food estimated to be lost or wasted across the value chain, reducing waste is arguably among the most critical drivers needed to improve productivity in the food system. Reducing food waste could also mitigate around 8%-10% of global greenhouse gas emissions and lessen environmental pressures through reducing the water, land and agricultural inputs required to produce the food which is currently wasted. In addition, there are social benefits that will come from improving efficiency and availability of food.
Food waste is a well-known problem but, due to its complexity, the historically low price of food and misaligned incentives, addressing it has generally not been a high priority. However, with global food price inflation and increased awareness of food insecurity we believe this will change with the introduction of more incentives for consumers, companies and governments to reduce food waste.
As this unfolds, companies will increasingly need to account for, and take action to reduce, food waste within their operations and supply chains. This must become an integral component of relevant companies’ routes to meeting both net zero and biodiversity goals.
Despite the challenges that reducing food waste brings, it also provides opportunities (Figure 3). At each stage of the food value chain, reducing food waste can create markets for new technologies, products and business models; help companies to engage customers; spark innovations in supply chains; and reduce costs.
Figure 3: opportunities in the food chain
Stage of production
Food production lost/wasted (%)1
Risks and costs
Opportunities
Company examples
Pre-harvest
Key drivers of food loss:
  • Pests and disease
  • Drought and extreme weather
  • Inadequate harvesting techniques, lack of adequate or economic labour
  • 8%2
    Increased costs and volatility within food supply chain
    Lost revenues for producers
    Biocontrol (enzymes and microbes)
    Early pathogen detection and biopesticides
    Predictive pest analytics Machine learning for rapid molecule development for pests
    Novozymes
    Greenlight Biosciences
    FMC
    Enko
    Harvest to processing
    Key drivers of food waste:
  • Lack of infrastructure and energy for crop drying and refrigeration
  • Lack of storage and transport infrastructure
  • 13%3
    Increased costs and volatility within food supply chain
    Lost revenues for producers
    Digital marketplaces and logistics
    Clean label packaging or coatings
    Innoterra
    Indigo
    Apeel
    Greenlight Biosciences
    Retail, food service and consumer
    Key drivers of food loss:
  • Inaccurate demand forecasts
  • Lack of consumer awareness, overbuying due to grocery promotions
  • 17%4
    Lost revenues through wastage
    Costs to consumers through food waste at home
    Lost value from food by-products
    Sensors and AI to optimise inventory
    Supply chain innovation and collaboration; engaging customers through food waste awareness
    Food retail business models that capture value of surplus food
    Direct to consumer models with ingredient sizing
    Upcycling of food by-products
    Afresh
    Tesco
    Grocery Outlet, Misfits Market
    Hello Fresh
    Continued research and collaboration across our fundamental and responsible investment teams will help us identify implications that will arise as this theme evolves and enable us to advise our portfolio companies on how they can reduce costs and capture the opportunities coming from food waste strategies.
    Icon of a balanced diet

    Food & Materials transition engagement: Food security and biodiversity

    Company: FMC Corp

    Sector and country: Food security and biodiversity

    Why we engaged

    We wanted to better understand the integration of sustainability considerations within FMC’s research and development (R&D) efforts and product portfolio, as well as the company’s plan to reduce crop loss and enhance productivity using biologicals.

     

    How we engaged

    Video call with Chief Sustainability Officer and Investor Relations, analysts, and portfolio managers.

    What we learnt

    With regards to agricultural productivity, FMC reported that physical impacts from climate change such as shifting pest populations have already become a material factor for crop health in some instances. This will increasingly influence product development and demand levels. In FMC’s next long-term plan, it will have more to share on how it is integrating this into strategy.

    The company believes it is well positioned for the shift to more precision-targeted approaches to agriculture, with products becoming less harmful as they become more targeted. All products are assessed against sustainability parameters as part of the R&D process, and development is not pursued unless a product performs better in at least one area when compared with a primary alternative product on the market.
    The company’s Arc tool provides analytics and field monitoring to assess and predict pest presence, and more precisely determine where and when treatment may be needed, helping reduce crop losses as well as the overuse of insecticides. This builds engagement and customer loyalty. So far, Arc is available to 60%-70% of customers with a focus on Latin America. Roll out will continue.
    Biologicals appear a promising route to growth, with FMC focused on products based on pheromones and peptides. Biologicals account for only $200 million of revenue but have grown at two to three times the rate of chemicals. This growth could be further heightened by EU regulatory changes in late 2022 that will reduce the regulatory requirements for biologicals, which until now have been regulated as chemicals. FMC believes it is well positioned to bring scale and access to growers and that there are opportunities for biologicals to grow and develop, even though this will take time given how fragmented the market is.
    Outcome We took a positive view of the company’s integration of sustainability factors into its R&D and mergers and acquisitions activity. We encouraged the company to continue to take steps to reduce the toxicity of its product portfolio over time, particularly in view of potential regulatory changes. We will follow up in due course on FMC’s forthcoming nature strategy and disclosure.
    17 November 2022
    olivia_watson
    Olivia Watson
    Senior Thematic Research Analyst
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    Food security challenges put spotlight on sustainable transition

    1 Columbia Threadneedle analysis, figures are estimates and cannot be summed due to denominators using different methodologies, September 2022
    2 WWF, Driven to waste: the global impact of food loss and waste on farms, 2021
    3 FAOSTAT, Food Loss Index, 2020
    4 UNEP, Food Waste Index, 2021

    Important information

    For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.
    Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Risks are enhanced for emerging market issuers.
    The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.
    Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is an advertising document. This document and its contents have not been reviewed by any regulatory authority.
    In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.
    In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.
    In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.
    In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association.
    In the USA: Investment products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC. Collectively, these entities are known as Columbia Management.
    In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
    In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.
    In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.
    In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.
    Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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    Important information

    For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.
    Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Risks are enhanced for emerging market issuers.
    The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.
    Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is an advertising document. This document and its contents have not been reviewed by any regulatory authority.
    In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.
    In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.
    In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.
    In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association.
    In the USA: Investment products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC. Collectively, these entities are known as Columbia Management.
    In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
    In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.
    In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.
    In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.
    Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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