NEWARK, N.J., May 11, 2023--(BUSINESS WIRE)--Vulnerabilities in our global food system have surfaced recently as the invasion of Ukraine, COVID-19 pandemic and climate change have disrupted the food supply — having a profound impact on food prices, monetary and fiscal policy, even political stability. However, these disturbances have also tilled the soil for much-needed innovation, and investors can play a major role in transforming the industry for the future, according to new research from PGIM, the $1.2 trillion global investment management business of Prudential Financial, Inc. (NYSE: PRU).
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"There is no question the food system is in the early stages of a generational transformation. It will need to grow more productive as well as more sustainable to meet the myriad challenges it faces." --Shehriyar Antia, Head of Thematic Research, PGIM (Photo: Business Wire)
To understand the emerging investment opportunities and hidden risks from this ongoing transformation, PGIM’s latest Megatrends research, "Food for Thought: Investment Opportunities Across a Changing Food System," gathers insights from investment professionals across PGIM’s fixed income, equity, real estate, private credit and alternatives managers — as well as leading policymakers, academics, entrepreneurs, economists, and private equity and venture capital investors. The research urges investors to look beyond today’s headlines toward the long-term trends that are just beginning to reshape our global food system.
As populations around the world grow in affluence, preferences are shifting toward resource-intensive foods — such as meat and processed foods. PGIM’s analysis shows this trend — along with diets converging globally — is transforming the food system and reshaping how and what we eat today and for the next decade. With the negative impact of climate change on food production also accelerating, technology and innovation will be crucial in finding new ways of growing and producing food to meet these challenges.
"From farm to fork, our global food system is vast, complex, inefficient and increasingly unfit for purpose," says Shehriyar Antia, PGIM’s head of thematic research. "There is no question the food system is in the early stages of a generational transformation. It will need to grow more productive as well as more sustainable to meet the myriad challenges it faces. Investors chasing the next food trend will be better served focusing on the innovation that is happening all across the food value chain — from crop science and farm equipment to advances in packaging, logistics, even alternative agriculture."
Shifting demographics and preferences provide appetizing opportunities
These changing dynamics will drive growth in key areas across the food system:
Cold storage turning hot: As consumers demand more fresh foods as well as online grocery and food delivery, companies that provide both cold-storage warehouses and long-haul transport may be especially attractive.
Packaging offers cash flows no matter the food fad: Established food packaging players are a way of taking advantage of the growing market for prepared foods, without depending on volatile consumer behavior. Large players can fund innovations, are more resilient to recessions, and have a sticky customer base.
Meat producers offer a global contrarian investment opportunity: While plant-based and lab-grown meats dominate headlines, alternative meat demand is declining. Meanwhile, global demand for animal-based proteins is set to grow 14% by 2030.
Convenience and food safety drives emerging market opportunities: Companies in Latin America and Asia will continue to see growth from the shift to convenience and "Western" diets. Investors should seek local companies offering exposure to food and beverage staples with strong brand loyalty and extensive logistic expertise.
Innovation and technology improve productivity and sustainability
Food security, the sustainability of the global food system, as well as food price inflation, all raise important considerations for investors. Key trends include:
AgTech is driving smarter, more sustainable food production on small farms: Smart devices, sensors and mobile apps can improve the efficiency, profitability and sustainability of small farms. Meanwhile, precision agriculture — which draws on AI and proprietary data analytics — is doing the same for large-scale industrial farms.
Crop science and feed additives boost productivity and sustainability: Global leaders in crop science offer real-world, scalable solutions to boost sustainability and improve productivity. Enhancing agricultural productivity and reducing greenhouse gas emissions are critical for a stronger and more sustainable food system.
Farmland debt and equity offer unique exposure and attractive investment: Institutional ownership of farmland is growing but is still at a nascent stage, with only about 3% of U.S. farmland owned by institutional capital. Direct farming operations and leases can supply a steady source of income for investors, while productivity gains can drive capital appreciation.
Cultivated meat, more sizzle than steak: Though cultivated meat has attracted more than $1 billion in venture capital, the market is highly fragmented and not economically viable, with little visibility about which ones may emerge as winners. This segment is likely to see significant consolidation in coming years.
"The transformation of the food system right now is very similar to the energy sector 10 years ago and is in the midst of disruption," says Jakob Wilhelmus, director of thematic research for PGIM. "Investors can take advantage of this by identifying those companies that are truly enhancing productivity and sustainability along the food value chain, versus those that are not adapting and will be more vulnerable to the complex challenges ahead."
To learn more about these trends and the companies that are benefiting the most, read "Food for Thought: Investment Opportunities Across a Changing Food System," the latest in PGIM’s Megatrends research series.
PGIM is the global asset management business of Prudential Financial, Inc. (NYSE: PRU), a leading global investment manager with more than $1.2 trillion in assets under management as of March 31, 2023. With offices in 18 countries, PGIM’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including public fixed income, private fixed income, fundamental equity, quantitative equity, real estate, private credit and alternatives. For more information about PGIM, visit pgim.com.
Prudential Financial, Inc. (PFI) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. For more information please visit news.prudential.com.
This material is provided for informational purposes only. Investing involves risk, including possible loss of principal.
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