Is society ready to consume laboratory ‘grown’ food?
Or, as the think tank RethinkX refers to it, the product of precision fermentation (they define this as “a process that allows us to program micro-organisms to produce almost any complex organic molecule”). Imagine a genetically engineered yeast cell, or collection of cells, which under the right conditions of temperature and pressure, create an alternative (animal-free) T-bone ‘steak’. RethinkX argue this disruption to agricultural systems, in particular beef, will be up to 100 times more land efficient, 10-25 times more feedstock efficient, 20 times more time efficient, and ten times more water efficient.
Demand for alternative meat and dairy products will continue to accelerate. The industry has captured the attention of investors and incumbent food manufacturers alike. Opportunities are many and varied, but so too, are the risks. We have watched innovative companies like Oatly Group AB (oat-based alternative to dairy products) and Beyond Meat Inc (plant-based meat substitute) list via initial public offering to great fanfare and stretched valuations. Oatly has fallen by 85% since its listing and Beyond Meat has suffered a 45% decline. Our caution, if not scepticism, has been thus far justified.
Food waste alone is thought to be responsible for between 6-8% of all global greenhouse gas emissions worldwide
At the same time, highly cash generative incumbents in the food manufacturing sector trade on lower valuations. They have the deepest pockets to invest, an established route to market and arguably the most at stake in the face of innovation. This is where we have identified the most attractive opportunities.
One example is Ruffer’s investment in Danone, the global consumer goods company best known for its dairy products under brand names such as Activia and Alpro. The business is amid a pivotal transformation and has become the first listed company in France to adopt the Entreprise à Mission status. This initiative requires companies to pursue a purpose and objectives which explicitly benefit society and the environment.
Entreprise à Mission status involves a variety of initiatives, ranging from regenerative agriculture (supporting ecosystems and biodiversity), investing in, and promoting the circular economy through advanced recycling, as well as developing a more sustainable product offering. Danone has invested heavily in dairy alternatives and is now the world leader in plant-based product sales. In the realm of food manufacturing, there’s no doubting the ‘alternatives’ garner the most intrigue amongst investors – and their innovation is to be applauded. But for value sensitive investors, avoiding getting caught up in the excitement surrounding a particular product or stock is crucial to investing responsibly.