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Sarasin - Plant Power

Veganism is now one of the fastest growing trends in the food industry. However, transitioning to a more sustainable food system has its challenges. Jeneiv Shah, co-portfolio manager for Sarasin Food & Agriculture Opportunities, discusses how investors have an important part to play in this transformation.

Veganism takes a bite out of traditional food consumption

To meet health, environmental and food production targets, a recent white paper from the EAT-Lancet commission1 recommended a halving of red meat consumption and a doubling of fish and plant-based proteins. Society needs to find a sustainable way to produce food for a growing population. But the transition to a more sustainable global food system is challenging.


One response to the challenge is the adoption of vegetarian or vegan diets. Veganism is now one of the fastest growing trends in the food industry. According to a recent survey conducted by Bernstein2, more than a third of millennials in the US value vegan or vegetarian attributes when purchasing food – a significant increase of 162% from 2015.


Why veganism?


We attribute the rise of veganism to three main factors. Firstly, the rise of intensive animal farming practices means that concerns over animal welfare have intensified. Secondly, an increasing number of academic studies have highlighted the link between certain medical conditions and excessive consumption of red meat. Both of these factors are likely to have contributed substantially to the rise of veganism or reduced-animal-protein diets.


The most significant driver in recent years is likely to be climate and environment considerations. Consumers are increasingly aware of the livestock industry’s carbon footprint, with the industry representing approximately 14% of all greenhouse gas emissions globally3. Media attention has also highlighted the wider sustainability challenges the food industry faces when it comes to its impact on soil, water and biodiversity.


Concerns around the environment are not going away. Popular shifts towards a new consciousness around the ethical and wellness impact of eating animal protein are unlikely to backtrack. We believe this is a powerful long-term trend in its infancy, rather than a temporary fad. Consumers are starting to think about how food choices have an impact on animals, humans, and the planet – a dramatic change from the many decades of mass production of food at any cost.


Mock meats and mylks


Companies that have spotted the opportunity to capitalise on this long-term trend have benefited. Initially led by alternative dairy products, the development of alternative non-animal forms of protein has received extensive private funding and venture capital for more than a decade. Soy, almond, coconut and oat milk are all widely available on supermarket shelves today. In fact, alternative milk almost doubled its category share in the US retail channel, from 7% in 2009 to about 15% today4.


The past year has also seen the rise of alternative meat substitutes. Beyond Meat, with its range of pea-extract-based alternative meats, was the first of these companies to IPO. These products are now widely available across the US and at Tesco in the UK. Another rival player is Impossible Foods, producing a soy-based burger with the taste, texture and artificial ‘bleed’ of traditional animal meat. It uses a naturally derived chemical called ‘heme’ to give its patty these characteristics.


Veganism: not just for vegans


There are signs that society’s new consciousness around eating has disrupted the market even for those who are unwilling to make the permanent switch to veganism. Both meat substitute products are aimed directly at animal-protein consumers rather than vegans. In fact, a major challenge for these companies is how to make alternative meats taste like traditional animal meat, to persuade consumers to make the switch. The three major listed flavour companies – Givaudan, IFF and Symrise – invest a rising proportion of their research and development budgets in new solutions to recreate the taste of meat. These companies are also specialists in natural flavourings which enhance the typically bland pea and soy ingredients that make up the bulk of the patty.


Transforming the food system


A reduction in consumption of meat and dairy would reduce the food industry’s carbon footprint. There are also other indirect benefits: fewer pollutants from livestock farms in rivers; more efficient land use and a reduction in the razing of forestry for grain production; improvements in health and wellness that could see a reduction in heart disease and less strain on public healthcare systems.


In order to move society towards a sustainable model of food consumption, the entire system requires transformation. Farmers, governments, regulators, and food businesses all have an important role to play – as well as investors. As corporates embark on the transition towards a sustainable food system, it is important for food equity investors to consider the wider themes around the environment and climate change. Within Sarasin Food & Agriculture Opportunities, we invest in companies such as DSM, Givaudan and IFF, which are exposed to these broader themes in line with the food sustainability transition.



1 Source: Food in the Anthropocene: the EAT-Lancet Commission on healthy diets from sustainable food systems,Eat-Lancet Commission, 2019

2 Source: Bernstein US Food Survey, 2019

3 Source: UN FAO, Rome, 2013

4 Source: Euromonitor, 2019


Please note that these are the views of Jeneiv Shah for Sarasin & Partners and should not be interpreted as the views of RL360.


Author

Photo of Jeneiv Shah, Deputy Fund Manager, Sarasin

Jeneiv Shah

Co-Fund Manager, Sarasin & Partners



November 2019


Please note that these are the views of Jeneiv Shah of Sarasin and should not be interpreted as the views of RL360.

360 fund links

A range of Sarasin funds can be accessed through our guided architecture products Regular Savings Plan, Regular Savings Plan Malaysia, LifePlan, Oracle, Paragon, Protected Lifestyle, LifePlan Lebanon, Protected Lifestyle Lebanon, Quantum, Quantum Malaysia and also through our PIMS portfolio bond.