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Thailand: The future of food is technology
It is clear the food system, which makes up 10% of the global economy, is increasingly a major driver of climate change, and at the same time is being disrupted by climate change.
This disruption will affect global investors across asset classes — in equities alone, food makes up US$4.9 trillion or approximately 4% of global market capitalisation. So it’s critical that we think about how investors respond to identify opportunities in the market and potentially avoid risk that could materially impact their portfolios. Here are three reasons why food matters for investors.
1. Food industry innovation requires innovation in financing: Whether it be funding for improving traditional farmers’ production, the move to high-efficiency indoor agriculture, startups developing alternative proteins, or helping companies build supply-chain resilience, all will require large capital inputs from equity, fixed-income and private markets.
If we’re expecting the food industry to innovate, the asset management industry must also innovate to create investment vehicles to address these large-scale changes.
This may require rethinking traditional funding models, including the duration and types of loans, direct impactful investing and aligning investments to long-term sustainability goals, such as the UN Sustainable Development Goals (SDGs).
As well, given the significant impact agriculture has on greenhouse gas emissions, it is critical that carbon trading and carbon markets develop as soon as possible.
2. Investors should consider unintended consequences: The food system is highly complex and interconnected, and deployment of capital must consider unintended consequences, in other words negative externalities. Changes in the system create ripple effects that have long-term impacts and can lead to severe disruptions.
We’ve seen these disruptions during the Covid-19 pandemic. One ripple effect I have seen firsthand is how the change in diet in China has affected the health of Chinese people and the environment globally.
When I first started travelling to China in the early 1980s, most of the diet was plant-based with just a small amount of meat — usually pork. In the early 1980s, the average per person consumption of meat was just over 13kg per year. Obesity, diabetes and other diet-related diseases were rarely reported during the 1980s in China.
With the opening of China’s economy and subsequent rise in average incomes and a growing middle class over the last few decades, meat consumption now hovers over 60kg per year. The significant increase in meat in the Chinese diet corresponds to a nearly seven-fold increase in beef consumption since 1990.
Increasing appetite for beef in China is linked to accelerating deforestation of the world’s greatest carbon sink, the Amazon rainforest, where many cattle are now being raised.
The change in diet is not limited to meat — we’re seeing increased consumption of sugar and fat, resulting in significant increases in type 2 diabetes in China’s populace. Less than 1% of China’s population suffered from type 2 diabetes in 1980; that number is now close to 12% — in raw numbers, roughly a jump from fewer than 10 million to over 170 million people. This increase has economic ramifications.
In 2015, it was estimated that type 2 diabetes generated $1.32 trillion of negative impact on the global economy, and, by 2030, it is forecast to have a negative impact of up to $2.5 trillion. With the world’s largest population, China leads the globe in financial losses from type 2 diabetes. That loss is projected to grow to consume 3-5% of China’s GDP by 2030.
As China becomes a larger segment of the emerging market index — and it really should be considered a developed market, in my opinion — this could have a significant impact on investors’ assets going forward.
3. We need better financial incentives and environmental impact measurements: As we invest in innovation to help reduce negative externalities, a market-based approach where we more effectively measure and price environmental impact will be necessary. More directly, the economic value of natural systems and risks to the further degradation of these systems must be accounted for in asset pricing.
To give context, the World Economic Forum and PricewaterhouseCoopers have estimated that more than half of global GDP is moderately to highly dependent on natural systems under threat — essentially, half of global GDP has significant risk exposure to changes in nature. That number may make you gasp.
However, for investors, there is opportunity on the other side of this equation. The opportunity is to help fund the global economy’s transition to a nature-positive economy, which the WEF has defined as “enhancing the reliance of our planet and societies to halt and reverse nature loss”.
It is estimated this transition will generate $10 trillion in additional business revenue and cost savings and over 395 million jobs by 2030 — of which $3.6 trillion and 191 million jobs are directly related to changing the food system.
Examples in the food sector include funding regenerative agriculture; creating sustainable and healthy fisheries; stopping biodiversity loss; reducing food waste; and creating efficient, transparent and sustainable supply chains.
Stephen Dover is chief market strategist and head of the Franklin Templeton Institute
Source: https://www.bangkokpost.com/business/2351616/the-future-of-food-is-technology