Key Subsectors in Sustainable Food

The security and sustainability of our food system is one of the world’s most pressing challenges. The good news is that the food industry has begun to respond. We see expanding plant-based protein options, new technologies penetrating farming, aquaculture and supply-chains and changes in the packaging used to wrap our food, among many other things. On the consumption side, we are witnessing a groundswell in consumer consciousness around what they’re putting inside their bodies and how that impacts the planet’s natural ecosystems. To further explore how the food system is revolutionising, in this piece, we examine the nine sub-sectors that we seek to capture in our Rize Sustainable Future of Food UCITS ETF.

1. Plant Based Foods and Organic Foods
2. Ingredients, Flavors and Fragrances
3. Food Safety and Testing
4. Precision Farming
5. Agricultural Science
6. Land Based Aquaculture
7. Water Technology
8. Supply Chain Technology
9. Sustainable Packaging

Plant Based Foods and Organic Foods

Companies in this sub-sector are predominantly focussed on producing and delivering plant based foods and plant based alternatives to meat and dairy in the form of novel food and beverage formulations. Within this sub-sector, we aim to exclude companies that produce products comprised of land-reared meat (including beef, lamb, pork and poultry) and capture companies that are predominantly plant based, as evidenced by their product sets and public disclosures.

• Plant Based Foods: As consumer awareness continues to grow in relation to the negative impacts of meat production (in particular, cattle) on the environment and climate (forest/habitat loss and methane emissions, waste discharge and freshwater usage), the conditions in which animals are farmed and the growing evidence that plant based foods are healthier for humans, demand for plant based foods is anticipated to grow exponentially over the coming years.[1]
• Organic Foods: The demand for organic foods is expected to continue to grow as consumers continue to better understand the impact of intense agricultural practices which overly rely on chemical-based crop protection products and nitrogen, phosphate and/or potassium fertilizers to maximise yields at the expense of the health of the soil and the end consumer.[2]

Ingredients, Flavors and Fragrances 

Companies in this sub-sector are engaged in addressing the increasing demand for natural and organic ingredients in the production of both flavors and fragrances.[3] The advent and embracement of the organic produce trend among the population of all demographics is being met by rapid food innovation among major players in the flavors and fragrances market.[4] According to the Plant Based Foods Association, the number one driver of all food purchases is taste. The reproduction of common colors, flavor scents and increasingly, emulsifiers, has been long practiced at an industrial level in the food industry. Synthetic reproduction of certain flavors, scents and emulsifiers (like palm oil) can help alleviate not only some of the environmental impacts of growing those base inputs but also provide relief to any number of child and/or other disadvantaged workers globally. Further, as more food becomes plant based, there will be more demand for the colors, flavours and scents that consumers have grown accustomed to and these products will become a larger part of the science of food. Consumers are also increasingly seeking colors, flavors, fragrances and other ingredients that are organic, contain less sodium, are gluten-free and are non-GMO (genetically modified organisms).[5]

Food Safety and Testing

Companies in this sub-sector are engaged in providing food safety solutions such as cleaning and sanitation systems and anti-microbial products utilised in the processing of food and beverages. This sub-sector also includes companies engaged in the provision of instruments, software and/or services related to the testing of food, soil and/or water (or a combination of the above). In food applications, diagnostic solutions are typically provided to food producers and processors who utilise them to test for potential contaminants, whether chemical (e.g. pesticides), viral, bacterial or microbiological, pathogens, toxins, allergens and drug residues as well as genetic modification and species verification. In environmental applications, such solutions are used in a number of applications including the analysis of chemical pollutants in air, water and soil.

Precision Farming 

Companies in this sub-sector are engaged in agricultural innovation through new technologies which are principally aimed at increasing the quantity and quality of crops produced on the same amount of land, improving efficiencies in the use of input resources (such as crop protection products, fertilisers, water and fuel), reducing the negative impact of external / environmental risk factors (e.g. single weather events, climate change and labour shortages) and reducing the environmental footprint of agriculture. Such technologies include:

• Precision Farming Technologies: This refers to machinery such as GPS enabled self-driving tractors incorporating robotic and AI technology for precision planting, weeding, irrigation and harvesting and application of fertilisers and crop-protection products.
• Digital / Smart Farming and Internet of Things: This refers to the network of physical objects (tractors, drones, satellites) outfitted with sensors and farm-management software that enable data collection and aggregation for the purpose of field monitoring and data management. Drones take high quality images and satellites capture the bigger picture, which can be used to assess environmental conditions (such as moisture), monitor and make assessments throughout the growing cycle and predict yields in order to better inform on-farm strategy and practices.
• Indoor, Vertical, Aeroponic, Hydroponic and Aquaponic Farming: This refers to the technologies being used to grow crops without soil in nutrient-rich solutions and in increasingly closed loop systems which has the benefit of reducing run-off, reducing (and in many cases eliminating) the need for crop-protection products and saving both water and money.

Agricultural Science

Companies in this sub-sector are engaged in the maximization of crop yields and the optimization of input resources through science and technology, including seed science (gene editing and breeding technologies, but not gene modification), fertilizers and crop protection products. While companies in this sub-sector are scored against their exposure to agri-science as a whole, companies engaged in the production of nitrogen, phosphate and/or potassium fertilizers and chemical-based crop protection products are only included if they are also engaged in the transition to bio-based solutions, noting that the foregoing typically dominate revenues for the time being. Accordingly, a company’s public disclosures are assessed for clear statements confirming the company’s involvement in the research, development and commercialization of bio-based crop protection products and bio-stimulants which are considered to have more favorable environmental outcomes.

Land Based Aquaculture

Companies in this sub-sector are engaged in land based production of fish (as opposed to sea based production or commercial fishing) where the growing environment and all inputs and outputs can be controlled. As the worldwide demand for farmed salmon continues to grow alongside the growing awareness of the negative environmental impacts of sea based fish farming, it is anticipated that demand for fish raised on land based farms (as opposed to sea based farms) will continue to increase.[6] By controlling the growing environment, land based fish farming allows for the elimination of sea lice, toxic algae and other external environmental factors that can negatively impact yields. It also eliminates the negative impacts of sea based farms on the natural environment where waste, sea lice and chemicals are discharged directly into the ocean, negatively impacting wild salmon stocks. Finally, land based farming creates opportunities for the recycling of fish waste which can be utilised as fertilizer for food crops and the creation of renewable energy in the form of biogas. Recirculating Aquaculture Systems (RAS) are a growing area of innovation within the land based aquaculture industry.

Water Technology 

Companies in this sub-sector are engaged in the provision of irrigation technologies aimed at minimizing the use of water in agriculture, including the development of advanced precision irrigation systems and IOT technologies that facilitate variable rate irrigation, wireless irrigation and the use of GPS positioning and guidance, which can be controlled remotely on smart devices. This segment also includes on-farm water management technologies that enhance the efficient use of water on farms, including the reuse of non-potable/grey water.

Supply Chain Technology 

Companies in this sub-sector are engaged in the development of food processing technologies, such as cleaning, peeling, sorting and packing technologies that are supplied to food and beverage producers and grocery retailers. This sub-sector also captures companies that provide logistics technologies to the companies operating throughout the food value chain, such as automated warehouse logistics solutions.

According to the UN Food and Agricultural Organization (FAO), over a third of all food produced globally is wasted.[7] Accordingly, the continued adoption of processing and logistics technologies throughout the food value chain is vital to reducing the amount of food wasted and thus helping to reduce food prices and carbon emissions.

Sustainable Packaging

Companies in this sub-sector are engaged in the production of food packaging that is both sustainable and either reusable, recyclable or compostable. This would include companies engaged in fiber-based packaging derived from sustainable forestry, companies producing packaging materials out of aluminum and glass, which are both infinitely recyclable, and companies producing packaging materials from recycled organic matter that is compostable. As consumer demand and legislation continue to drive demand for more sustainable packaging solutions, this sub-sector is anticipated to innovate and grow substantially in the future.

Related ETF

FOOD: Rize Sustainable Future of Food UCITS ETF

References

[1] Scientect, “Plant-Based Meat Market To Observe Exponential Growth By 2020-2026”, August 2020. Available at: https://scientect.com/news/654329/plant-based-meat-market-to-observe-exponential-growth-by-2020-2026-impossible-foods-inc-goldgreen-foods-ltd-vbites-foods-limited/

[2] Talking Retail, “Demand for organic products continues to grow”, February 2020. Available at: https://www.talkingretail.com/news/industry-news/demand-organic-products-continues-grow-05-02-2020/

[3] Persistence Market Research, “Global Market Study on Natural and Organic Flavors: Application in the Food Sector to Increase Exponentially in the Coming Years”, July 2018. Available at: https://www.persistencemarketresearch.com/market-research/natural-and-organic-flavors-market.asp

[4] Takepart, “The Surprising Truth About Who’s Really Buying Organic”, April 2015. Available at: http://www.takepart.com/article/2015/04/21/who-is-buying-organic

[5] Food Navigator, “Low sugar and GMO-free foods resonate more with today’s health-conscious consumers”, October 2017. Available at: https://www.foodnavigator.com/Article/2017/10/30/Low-sugar-and-GMO-free-foods-resonate-more-with-today-s-health-conscious-consumer

[6] Gasworld, “Third boom of land-based fish farming: Accumulation of knowledge necessary to further expand gas supply business”, November 2019. Available at: https://www.gasworld.com/third-boom-of-land-based-fish-farming/2018012.article

[7] Food and Agriculture Organisation of the United Nations, “Seeking end to loss and waste of food along production chain”, December 2019. Available at: http://www.fao.org/in-action/seeking-end-to-loss-and-waste-of-food-along-production-chain/en/