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How to invest in the future of food and meat-free alternatives

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Greggs was one of the first on the high street to offer vegan products with its alternative sausage roll back in 2019 and now more and more companies are clambering to offer meat alternatives. 

It comes in response to growing demand for meat alternatives in large part because of climate change concerns.

The alternative meat company Beyond Meat has been a popular option – it is used by McDonald’s in its recently launched McPlant burger – and it saw investors flock to it when it went public in 2019.

McDonald's is the latest company to offer customers a meat-free alternative with the launch of the McPlant burger

McDonald’s is the latest company to offer customers a meat-free alternative with the launch of the McPlant burger 

Similar companies like Oatly, the Swedish oat milk brand backed by the likes of Oprah Winfrey, have also gone public.

With a third of people in the UK considering veganism, it is clear that meat and dairy-free alternatives will form an increasing part of the ‘future of food’: Burger King recently said that by 2030 it aims for half of its menu to be meat-free.

While the future of food may be in its earliest stages there are some opportunities for keen sustainable investors to place their bets.

The future of food is clearly an area people are interested in, whether it be alternative meats or lab grown protein. Is it wise to make it part of your portfolio? 

What is the future of food?

Food security is a pressing issue and with climate pressures and a growing global population focus on the future of food is intensifying.

Surprisingly the topic of food was largely left out of the COP26 debates last autumn but data shows it has a significant impact on the environment. 

A 2021 study by the European Commission Joint Research Centre found that more than a third of all man-made greenhouse gas emissions are generated by food systems.

‘To feed the global population with healthy and nutritious food by 2050, the food system will need to produce more food for a population expected to reach about 10billion, improve livelihoods for the millions experiencing malnutrition and reduce environmental impacts, including ecosystem degradation, high greenhouse gas emissions and water scarcity – and it will need to do all of these simultaneously,’ says Sophie Lawrence, senior sustainable researcher at Rathbone Greenbank Investments.

‘To continue to meet the needs of a growing and changing population, the food system will also need to deliver a new wave of innovation. 

‘This could include tackling food waste, improving nutritional outcomes and restoring the natural environment.’

McDonalds, Burger King and Greggs are just a fraction of the companies working on meat-free alternatives, with some expanding plant-based protein ranges and improving the sustainability of their packaging.

Consumers have played an important role in this; a growing number are considering vegetarianism or veganism. 

More than a third of people in the UK are interested in becoming vegan, according to a recent Yougov survey. The poll, conducted on behalf of the Veganuary organisation found 8 per cent of respondents were already following a plant-based diet.

Last year the business secretary Kwasi Kwarteng said he was considering a ‘full vegan diet’ to tackle climate change. Some studies show opting for meat-free options can reduce emissions by up to 30 per cent.

The likelihood is, more people will reduce meat consumption – but not give it up entirely – and alternatives like the McPlant burger could help people do just that.

How to invest in the future of food

The Rize Sustainable Future of Food UCITS ETF is one of the few specialist funds on offer for investors.

The ETF invests in companies that ‘potentially stand to benefit from the accelerating transition to more sustainable food production systems and consumption patterns’. Its 44 holdings include Beyond Meat, Tattooed Chef, Oatly and chemical manufacturing company Balchem.

It has become synonymous with investing in the future of food largely because it hasn’t gained much traction as an investment theme. 

It has largely underperformed the market: in the past year it has returned -4.6 per cent compared to the wider agriculture equity market which has returned over 7 per cent according to Fidelity figures.

From an investment perspective, the share price of meat substitute company Beyond Meat shows how difficult and early stage some aspects of this theme are.

AJ Bell’s head of investment research, Ryan Hughes, points to some of the difficulties with investing in the future of food.

‘From an investment perspective, the share price of meat substitute company Beyond Meat shows how difficult and early stage some aspects of this theme are with the company floating in May 2019 at $66 with the price growing quickly to $250 but today is right back down to $68.’

It has also been subject to a shorting frenzy as investors worry about weaker sales and general scepticism of the meat-alternative boom. 

Short positions in the company have increased 40 per cent since late October when it issued a revenue warning. 

Since then Beyond Meat has reported lower than expected third-quarter sales and slashed revenue guidance for the fourth quarter. 

Oatly has followed a similar trajectory. Its shares have crashed nearly 62 per cent over the past year as it became beset with supply chain issues. 

Pandemic closures have not helped matters, with hospitality closures denting sales in Asia and factory production issues in the US not helping matters. 

‘Although the global plant-based meat market is still predicted to grow by 18.9 per cent a year, reaching to reach more than £13billion in four years’ time, 2021 hasn’t been a smooth ride for some of the headline acts on the vegan billboard and investors may need a lot of patience to see a significant return on their investment,’ says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. 

‘Larger more diversified food producers, muscling in on the vegan space have been more resilient, offering greater strength through diversity of product ranges, and with more advanced supply networks and pricing power.’ 

Unilever and Nestle have both entered the plant-based market and their sheer size and diversity of food lines means it could well outperform the likes of Beyond Meat. 

AJ Bell's head of investment research Ryan Hughes

AJ Bell’s head of investment research Ryan Hughes

The Blackrock Nutrition fund, led by Tom Holl and David Huggins, holds Nestle and other more established food brands like Kerry Group and Costco. 

It has, as a result, performed better with a total return of 4.75 per cent in the year to 31 December 2021. 

While not an explicitly sustainable fund, it invests at least 70 per cent of its assets in food and agriculture companies. 

Blackrock says: ‘As part of this, the Fund invests in companies which are actively combating global sustainability challenges within the nutrition theme. 

‘The three major sustainable nutrition trends in focus are: the promotion of healthy and sustainable eating choices, delivering efficiencies across global food supply chains, and enabling less resource intensive farming.’

Hughes does not seem too bullish on the future of food but adds: ‘There are more entrants coming to the meat substitute market so this is definitely an area that will develop in the coming years.’

In the meantime with so few specialist funds, how can investors gain exposure?

Investment company Agronomics invests in unlisted companies that produce meat, dairy and seafood alternatives and it is the only UK-listed vehicle targeting cellular agriculture.

The addressable markets for these products are huge, totalling an estimated $2trillion according to Mellon analysts, so there is potential for huge growth in the sector.

‘ANIC’s portfolio have significant scope to rise in value over time, but the early-stage nature of the investments makes it difficult to value the portfolio accurately, and some investors may be wary until ANIC’s portfolio holdings establish their commercial viability,’ say Edison analysts.

Hughes’ choice is the Pictet Nutrition fund, which launched in 2009 and invests in companies that ‘help secure the world’s future food supply’.

‘Importantly, the focus is on helping the future of food rather than simply trying to exploit potential food shortages in the future and this positive approach sits well with the increasing importance of ESG factors.

‘This means the broad exposure in the fund comes not just from food manufacturers but also the distribution and technological development of food, creating a much broader investment opportunity. 

‘As a result, the largest exposure is to Deere & Co, the famous manufacturer of John Deere farm machinery and while well known brands such as Nestle and Danone also feature, so do companies involved in salmon farming and flavourings.’

Invest back better: Fund ideas 

For investors who would like their money to go into funds and trusts that are seeking to make an impact on climate change more generally and improving how we interact with the environment, there are a number of options available.

Among them are a trio of investments with a long track record in this area.

Impax Environmental Markets is the UK’s largest environmental investment trust. It backs companies that focus on products or services to improve our impact on the environment. The challenges it looks at are:  clean energy and energy efficiency, water treatment and pollution control, waste technology and natural resource management, and sustainable food. 

Jupiter Green is another long-running investment trust that backs companies solving environmental problems. Some of the examples of those it backs, including Renewcell, which breaks down and recycles used textiles, and Hoffman Green Cement, which produces low carbon cement. Watch our interview with Jupiter Green manager Jon Wallace.

Regnan Global Equity Impact Solutions is a fund, which invests in companies that have a positive impact on people and the planet. It holds companies from around the world that contribute a solution to one of the UN’s Sustainable Development Goals. An example of one of its biggest holdings is Lenzing, which makes wood based and bio degradable fibres that are an alternative to textiles such as cotton, the production of much of which is highly damaging to the environment. 

> Essential reading: The top green investment trusts

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