Why investors need to care more about veganism than they realise
Traditional food consumption is changing
Although vegan diets have existed for thousands of years, practiced by many societies for religious and health reasons, veganism is now one of the fastest growing trends in the food industry.
According to a recent survey conducted by Bernstein, more than one third of millennials in the US value vegan or vegetarian attributes when purchasing food - a whopping 162% increase from 2015.
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The rising popularity of veganism can be attributed to three primary factors. Ongoing ethical and religious concerns over animal welfare are continuing to shift individuals towards a vegan or reduced animal protein diet, while an increasing number of academic studies highlighting the link between certain medical conditions and excessive consumption of red meat have also contributed.
More recently, climate and environment considerations have driven the adoption of vegan diets, due to increased awareness of the livestock industry's carbon footprint. According to the UN, this represents roughly 14% of all greenhouse gas emissions globally.
Media attention has also highlighted the wider sustainability challenges with respect to the food system and its impact on soil, water and biodiversity.
We believe this is a powerful long-term trend in its infancy, rather than a temporary 'fad'. Consumers are starting to think about how food choices have an impact on animals, humans and the planet - a dramatic change from the many decades of mass production of food at any cost.
Evolving consumption
Initially led by alternative dairy products, the development of alternative non-animal forms of proteins has received a lot of private funding and venture capital over more than a decade.
Soy, almond, coconut and oat milk are all widely available on supermarket shelves today. In fact, alternative milk almost doubled its category share in the US retail channel, from 7% in 2009 to about 15% today.
The past year has seen the rise of alternative meat substitutes. Beyond Meat, with its range of pea-extract-based alternative meats, was the first of these companies to IPO. These products are now widely available across the US and at Tesco in the UK.
Another rival player is Impossible Foods, producing a soy-based burger with the taste, texture and artificial 'bleed' of traditional animal meat. It uses a naturally derived chemical called 'heme' to give its patty these characteristics.
Interestingly, both products are aimed directly at animal protein consumers rather than vegans. In fact, a major challenge for these companies is how to make alternative meats taste like traditional animal meat, to persuade consumers to make the switch.
The three major listed flavour companies - Givaudan, IFF and Symrise - are all investing into R&D and natural ingredients to enhance typically bland pea and soy inputs.
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For consumers who are not vegan and not planning to change diets, there are other ways to improve their food-related carbon footprint.
DSM, a Dutch-listed life science company, has developed a livestock feed enzyme able to reduce methane emissions from dairy cows by about 30%.
This innovative product is currently undergoing trials in New Zealand and the company has now received approval from the European Union regulator. There are also plans to develop a version suitable for beef cattle.
In order to move towards sustainable food consumption, the entire system requires transformation. Farmers, governments, regulators, and food businesses all have an important role to play - as well as investors.
As corporates embark on the transition towards a sustainable food system, it is important for food equity investors to consider the wider themes around the environment and climate change.
Jeneiv Shah is co-manager of the Food & Agriculture Opportunities fund at Sarasin & Partners
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