In our new piece from the Franklin Templeton Institute, we examine the challenge of feeding a growing global population in the midst of climate change, geopolitical shocks and uncertainty. Head of the Institute, Stephen Dover, looks at the future of food and the innovation and technology that will be needed to safely produce and distribute the food we need from the perspective of an investor.
The following is an excerpt from the Institute’s recent paper, “Food innovation: Investing to feed our future.”
I am not an expert on climate change. Therefore, I will leave it to those experts and environmental, social and governance (ESG) specialists to talk in detail about the impacts of climate change on our food system and which government policies are required to address or decrease impacts. I am looking at the future of food and the innovation and technology that will be needed to safely produce and distribute the food we need from the perspective of an investor. That said, it is clear the food system—which makes up 10% of the global economy1—is increasingly a major driver of climate change, and at the same time is disrupted by climate change. This disruption will impact global investors across asset classes—in equities alone, food makes up US$4.9 trillion or approximately 4% of global market capitalization.2 So, it’s critical that we think about how investors respond—whether they focus on ESG or not—to identify opportunities in the market and potentially avoid risk that could materially impact their portfolios.
I have some history in agriculture being from a fourth-generation ranching family in Montana. Anyone associated with a ranching family gains a lifelong education on the food supply chain, commodity prices, and the challenges ranchers and farmers face every day to get their product—whether it’s a cow or a bushel of wheat—to market. Despite this experience, I am somewhat surprised by the level of sophistication in today’s food business. Food is no longer a story just about land, water and weather; it is a story about technology, innovation and the future. It’s clear to me that food innovation, and the future of food production, will play a major role in markets over the coming decades.
Three reasons food matters for investors
- Food industry innovation requires innovation in financing
So, what does this mean for investors? In my view, three main points. First, innovation in the food industry must be financed. Whether it be funding for improving traditional farmers’ production, the move to high-efficiency indoor agriculture, startups developing alternative proteins, or helping companies build supply-chain resilience, all will require large capital inputs from equity, fixed income, and private markets. And, if we’re expecting the food industry to innovate, the asset management industry must also innovate to create investment vehicles to address these large-scale changes. This may require rethinking traditional funding models, including the duration and types of loans, direct impactful investing and aligning investments to long-term sustainability goals, such as the UN Sustainable Development Goals (SDGs). And, due to the significant impact agriculture has on greenhouse gas emissions, it is critical that carbon trading and carbon markets develop as soon as possible.