by J.P. Morgan Private Bank
Much about what you eat is about to change dramatically. This transformation can create opportunities for you as an investor, possibly in ways you’ve yet to imagine.
Food is a growth industry. As the human population rises, the global food market has expanded to $10 trillion annually in revenue, representing close to 12 percent of the entire world’s GDP. We believe multiple catalysts will cause seismic change throughout the food system.
While the worldwide revolution in the food market is still in the early stages, change is expected to come rapidly. For investors, that can suggest opportunities — if you know where to look.
Among the many forces changing the global food market are demographics, geopolitics and climate change.
Let’s start with demographics. The world’s population is on track to increase from 8 billion today to 9.2 billion in 2040. At the same time, millions are seeing their incomes rise, allowing them to increase and diversify their food consumption.
Geopolitically, the impacts of climate change and the war in Ukraine, both of which are disrupting key food-producing areas, are causing food security to become an increasing concern.
The United Nations’ sustainable development goals are organized around the five pillars of people, prosperity, planet, peace and partnership. They include many environmental targets on subjects such as food and food supply. According to some estimates, changing the food supply chain to meet U.N. environmental goals could generate close to $3.6 trillion of additional revenue or cost savings, and create 191 million new jobs by 2030.
As awareness of environmental issues and health concerns around some aspects of traditional Western diets have permeated society, social norms are changing. Rates of veganism have risen steadily, and many companies are disrupting established food markets or creating entirely new sub-industries. Consumer patterns in major industrialized economies are shifting toward local sources, organics and plant-based food.
Some governments are providing incentives for sustainable food processes through tax breaks or subsidies. Farm to Fork (F2F), for example, is a part of a 10-year European Commission plan to create a healthy, fair and environmentally friendly E.U. food system.
What does this mean for you as an investor? Let’s look at three major areas of opportunity.
Automation: We are rapidly advancing toward an autonomous future in which artificial intelligence, robotics and autonomous vehicles create greater productivity with fewer workers and more careful use of resources.
Agriculture will not be ignored in this process. Companies are using new technology, innovating with automation and connectivity, and utilizing precision agriculture where advanced sensors and powerful software can enhance productivity and reduce environmental impact.
For example, once an autonomous tractor is placed on the field, it enters autonomous operation and allow farmers to focus on other tasks. It also allows more precise application of farming techniques, leading to lower input costs, aiming for higher margins and higher crop yields.
Smart agriculture, which involves the automation of commercial greenhouses with highly controlled environments, is one of the most exciting areas of growth in the food system. Market studies have shown a projected compound annual growth rate of 10.8 percent for the global smart agriculture market, which will potentially expand from its $14.44 billion size in 2021 to $30 billion in 2028.
Food packaging: The global sustainable packaging market, a market in which packaging can be reused, recycled or composted, putting less stress on the environment, is projected to reach $470 billion by 2027, up from an estimated $305 billion in 2020. It promises a shift away from throw-away plastics and a movement toward materials such as corrugated cardboard, packing paper, glassine, reusable plastic tubs and biodegradable, plant-based packaging.
Companies are innovating because consumers are demanding sustainability. About two-thirds of consumers say they consider it important that the products they buy come in sustainable packaging. The same percentage consider themselves environmentally aware.
Food and bioscience: The U.S. market for organic and naturally healthy foods is estimated to nearly double, to $85 billion by 2027, up from about $52 billion in 2020.
In addition, new biotechnologies and fermentation tools that help preserve food during transport to market are likely to gain popularity as firms are pressured to reduce food waste. Some studies show the market for improving food production and limiting food waste, via processes such as food contaminants and soil analysis, could grow from $30 billion in 2020 to $52 billion by 2030.
In addition, new nutrition options are gaining market share as consumers increasingly accept alternative proteins instead of meat and fish, such as:
- Plant-based proteins — including soy, tempeh, seiten, black beans and “biomimickry” foods that try to replicate the look, feel and/or taste of animal proteins
- Microbial proteins, single-cell proteins that consist of algae, fungi or bacteria
- Cultivated meat, which is grown by cultivating animal cells in a laboratory
We expect the consumption of alternatives to increase over the next 15 years, rising to 97 million metric tons by 2035.
Regulation continues to support the market for these innovative food options. For example, in November 2022, the U.S. Food and Drug Administration for the first time cleared “cultured meat” for human consumption.
As of 2022, 100 companies were involved in the supply chain of cultured meat; by 2040, a projected 60 percent of meat will be created from cells grown within bioreactors.
Public and private companies are both looking to address the myriad challenges the food ecosystem faces. For investors, there seem to be many evolving opportunities across the entire food system value chain.
This article was excerpted from a report written by J.P. Morgan Private Bank. Read the complete report here.