Sustainable food production provides ‘abundant opportunities’ for investors: UBS

·Assistant Editor
·4 min read

As nations get to work on their climate pledges following the conclusion of COP26, they'll need to tackle the massive carbon footprint of the food system, which accounts for a third of all human-caused greenhouse gas emissions.

The sum total of the food system's emissions from energy consumption, land-use change, and waste management — along with food spoilage and ruminant animals' potent methane burps — poses a multifaceted problem, though there have been revolutions in agriculture before. 

"With many companies providing innovative solutions to make food production more sustainable, this is an area with abundant opportunities for investors," UBS analysts wrote in a note.

The note argued that addressing the climate crisis in the food system could yield the private sector and investors chasing high-growth startups ripe opportunities for returns.

For investors looking to gain exposure to climate-related food system solutions, UBS suggested they look elsewhere than the public equity markets, where there may be less flexible investment openings and higher valuations to contend with.

"Private markets through venture capital or co-investments remain the purest way to access the sector, since many agri-food companies are at the early startup stage," the analysts stated. "Such funds are best equipped to identify promising companies and to provide the necessary capital to help them grow revenues and achieve profitability, in our view, before exiting their investments via an initial public offering or a sale at higher valuations."

Climate-focused farm tech

One approach the UBS note mentioned was to find companies that weed out inefficiencies in the food system. One of the greatest inefficiencies, for instance, is the staggering amount of food that gets wasted each year.

Barclays estimated that 1.3 billion tons of food are wasted each year, costing the global economy $1 trillion — a figure that is expected to rise to $1.5 trillion by 2030. 

Tech innovations can help cut down on waste at the farm level, such as deploying drones that assist with harvesting crops when labor shortages threaten to leave crops in the ground, the note said.

More advanced sensors can also be used to detect the optimal time to harvest, fertilize, and water crops, which could cut down on the resources used and increase production.

Additionally, the analysts suggested that engineering nitrogen-fixing grains could lessen the need for fertilizers. 

AeroFarms co-founder and chief marketing officer Marc Oshima looks at baby kale on February 19, 2019, in Newark, New Jersey. (Photo by Angela Weiss / AFP)
AeroFarms co-founder and chief marketing officer Marc Oshima looks at baby kale on February 19, 2019, in Newark, New Jersey. (Photo by Angela Weiss / AFP)

When it comes to solving the climate crisis, regenerative agriculture offers another option for sequestering carbon and reducing agriculture's impact on the environment, though it does so primarily by changing farming methods: intercropping, forgoing fertilizers, and abstaining from tilling.

At any rate, farmers will increasingly need to find ways to adapt to climate impacts like changing precipitation patterns, extreme spells of heat and cold, and soil erosion. And while U.S. farms may not be hit as hard as those in other countries, U.S. food production may need to step up to fill the gap of falling crop yields around the world where climate change impacts are more acutely felt.

Furthermore, climate impacts may drive up food prices, as has already been the case this year with weaker than expected coffee crops due to drought and early freezing in Brazil.

Developing foods 'preferred by consumers' and the planet

Higher food prices due to climate effects — as has already been the case this year with Brazil's coffee crops — and a growing desire for sustainable products among consumers may create greener pastures for startups on the demand side.

As meat prices climb higher, UBS highlighted plant-based meat alternatives, as well as lab-grown meat, as a segment with plenty of room to run.

"We expect the market for plant-based protein alternatives to meat to expand by 28% per year on average over the next decade, to become an USD 85 billion market by 2030," the analysts wrote.

This Sept. 21, 2021 photo shows Impossible Foods’ new meatless nuggets in Redwood City, Calif. (AP Photo/Terry Chea)
This Sept. 21, 2021 photo shows Impossible Foods’ new meatless nuggets in Redwood City, Calif. (AP Photo/Terry Chea)

And major players like Beyond Meat (BYND) and Impossible Foods are hard at work to deliver satisfactory products. 

“This is entirely consumer-driven,” Impossible Foods CEO Pat Brown said at Web Summit 2021. “We have to make a product that is preferred by consumers in every way that matters, and that means less expensive, healthier, more sustainable, ... and more delicious.”

“More delicious was the hard part of replacing animal agriculture, and that’s where we’ve put all of our research effort,” he added. “The chicken nuggets we just launched in a blind taste test were decisively preferred over the best-selling animal-based chicken nuggets in the U.S.”

Grace is an assistant editor for Yahoo Finance

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