The New Hunter Gatherers

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The food industry is quickly evolving, which means innovations and investment opportunities are evolving too. There are many factors at play but three major trends are steering market growth. In the face of global food shortages, resources must be channeled into sustainable alternatives, a scenario that brings about some interesting possibilities. At the same time diets in emerging markets such as Asia have become more westernised, causing a shift from staples toward processed products, meat and dairy. But there has also been considerable growth the segment of web and mobile-based food apps and platforms, a trend that’s set to continue, led by investors recognising the western hype surrounding organic food and buying local.

Faced with soaring food prices, the ability to adapt to increased demand and decreased supply of resources is vital. 2013 saw the worlds first in vitro burger, cultured from cattle stem cells, being cooked. It was the result of years of research by Dutch scientist Mark Post, a vascular biologist at the University of Maastricht, showing how meat grown in petri dishes might one day be a true alternative to meat from livestock. Could in vitro meat be the answer – a more efficient and environmentally friendly way of putting protein on our plates? Production costs currently outweigh its usefulness but as technology improves we might just find ourselves choosing between lab-cultured and conventional meat during our weekly shop. Investment in methods of improving productivity will be essential in the ongoing quest towards sustainability.

Some in the sustainable food industry have another prediction altogether: algae farming. Algae has long been a promising biomass-to-fuel candidate in the eyes of researchers, but in terms of nutrition, for the first time the importance of seaweed (like Nori and Wakame) is being recognised outside of Asia. One of the most nutritionally dense plants on the planet, seaweed grows at phenomenal rates and is high in minerals and calcium. Scientists are experimenting with the use of seaweed granules to replace salt in bread and processed foods like ready meals. They have flavour but low levels of sodium, which in high quantities is associated with high blood pressure and strokes.

Whilst investment in the agricultural sector has gone up and down violently over the past few years because of the increase in liquidity, putting money into hard assets like farmland and agriculture could be a solid way to profit from rising food prices. If you look past the near-term slump in prices of commodities then farm equipment like Deere (DE) will see more demand long-term. In February Deere reported record fiscal first-quarter earnings of $1.81 a share and net income of USD $681 million.

Water companies like Companhia de Saneamento (SBS) in Brazil are noteworthy, being low risk and giving a fair return. Also of note is Japan’s Kubota Corporation (6326:Tokyo), a leading tractor maker that provides products and environmental facilities that “improve harmony between humankind and the environment” and seed companies such as Missouri-based Monsanto (MON) which are coming up with technology to grow more food, using less acreage and less water. Monsanto is currently number 34 on Forbes’ innovative companies to watch list.

Asia Pacific countries have long been prime for functional food development as a response to the rising popularity of western diets that’s accompanied modernization and wealth. Investment funds are looking at Asian supermarket chains such as Dairy Farm (DFI), whose revenues have risen as the expanding middle classes change their dietary and shopping habits (2013 revenue was up 6% year-on-year to USD $10.36 billion). Supermarkets and fast food chains are spreading in Asia, but also western products that carry unique brands and labels hold much appeal to the Asian consumer. Incidentally the wine business is booming in Hong Kong, benefitting from no wine duty for liquor with less than 30 percent alcohol strength and has become one of the largest wine auction centres in the world.

The opportunities for food innovation, especially in the US, attracted a boom in venture capital funding in 2012 and almost USD $350 million was invested in Food Tech with the number of investment deals shooting up 37 percent from 2011. This may only be a fraction of the USD $30 billion spent by Silicon Valley investment firms annually and far less than the billions of dollars a company like Coca-Cola Co. (NYSE:KO) brings in a year but it highlights a growing sector. From finding a place to eat, sharing recommendations on favorite dishes and ordering meals online, food supply systems are adapting to changing consumer behaviours, so it makes sense that the companies that simplify these processes are the ones drawing investors’ attention. For example, with a £15 million round of venture funding in March 2013, UK-based website Livebookings, a global online marketing and reservations service for restaurants, now has 9,000 restaurants in 23 countries and their Bookatable platform saw growth of 6 percent growth last year.

Organic food, already a well established trend in countries where consumers have high purchasing power like the US, Japan and South Korea is booming due to better consumer awareness about the benefits. Whole Foods Market (WFM) and other organic restaurants are trading at multiples higher than ever and are increasing their stores at an enormous rate. Over the past two decades, Whole Foods has gone from a 12,500 sq ft organic grocery store with a staff of 19, to undisputed leader of the organic-food revolution. For Q1 of 2014, total sales increased 10 percent to a record USD $4.2 billion, and comparable store sales increased 5.4 percent on top of a 7.2 percent increase in the prior year. Company founder and CEO John Mackey is now one of the most celebrated CEOs in the US. Other key products that promote organic practices, such as Earth’s Best, Amy’s Kitchen, Green & Black’s, 365 Everyday Value/Whole Foods and Organic Valley have also achieved success and grown significantly within the organic sector.

Manufacturers are continuously seeking solutions to combining affordability, ease and abundance with better nutrition. People are making the connection between how they feel and what they eat.

In an appeal to Americans’ desire to eat healthier foods at manageable prices, Revolution Foods was founded in 2006 by two Californian mums who wanted to transform the way America eats by providing access to healthy, affordable meals to schools. It’s grown into a national operation, preparing more than 1 million meals weekly for almost 1,000 schools across the country and is finding itself head to head with Kraft Foods Group (KRFT), the maker of Lunchables. In August Revolution Foods started selling meal kits in over 400 stores, including some owned by Safeway (SWY) and Whole Foods Market (WFM) and Target (TGT).

Fuelled by consumer demand and the need to rethink food — how we produce, market, and get it onto our plates, global patterns are changing. The sector has always been a playground for investors, but without doubt as innovative and sustainable new products are created, the investment possibilities will unfold. Whether change is driven by necessity or economic market forces, it’s clear that the future of food holds even more intriguing opportunities than we once thought.

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