Perspective - Equities
Greed isn’t good: the climate challenges posed by feeding the planet
The world’s demand for food – particularly protein – has major implications for climate change. We look at the opportunities arising from consumers changing how they eat.
A monumental shift in how we produce and consume food - particularly protein - is needed if we are to avert dire climate consequences. This shift creates risks and opportunities for investors all the way from farm to finished product. Looking firstly at the challenges, it is clear that traditional livestock farming faces a looming sustainability crisis.
The demand for protein is increasing. The global population is expected to reach almost 10 billion people by 2050, requiring an almost doubling of food production.
Rising incomes and population growth in developing countries are driving demand for meat in particular. Global consumption of beef, veal, poultry and pork is estimated to have risen by 30% in the last 15 years and the trend is expected to continue.
Unless this trend for increased livestock production and consumption is significantly decreased, agriculture will use up the whole world’s carbon “budget” by 2050. Livestock farming currently accounts for 14.5% of global greenhouse gas (GHG) emissions and is an inherently inefficient process for creating protein. Even chicken – the most efficient source of meat – only converts about 20% of gross feed energy into animal protein. As it is unrealistic to expect every other sector to become carbon neutral, it is clear that dietary patterns must change.
Farming also faces growing physical risks driven by climate change. Whilst we continue to try to extract ever greater yields from farming to feed the growing population, farmers will increasingly face physical risks to their output:more droughts, lower water availability and the negative impact of more extreme temperatures on animal health.
Carbon produced per ton protein consumed
Production of animal based foods is generally more impactful on the planet than plant based foods
Whilst these challenges paint a bleak picture, some recent trends give us cause for hope, and suggest disruption is on the horizon for the way we currently produce and consume food.
On the supply side, innovation in food is expanding and advancing the range of animal-free proteins available. Memphis Meats is using cell culture technology to grow “real meat” in its labs. Its protein products consume 1% of the land and 1% of the water compared to traditionally-produced meat. Companies like Beyond Meat and Impossible Foods are using advanced plant-based protein technology to isolate components from the plant world which can recreate the taste and texture of meat. Whilst some of these companies are yet to commercialise, the scale of their cost reductions and the speed of their technological development suggests widespread adoption may not be far away.
On the demand side, millennial dietary habits are making a break from previous generations. There is a growing trend of millennials adopting ‘flexitarian’ and meat-free diets.
According to a 2017 survey, 30% of US millennials eat meat alternatives every day, driven partly by environmental concerns, but largely to improve health, manage weight and “eat clean” (eat unprocessed foods), according to research from Nielsen.
Last year more people signed up for ‘Veganuary’ (abstaining from consuming animal products during January) than the previous four years combined. With sales of plant-based meat alternatives growing at twice the rate of processed meat, according to research and Markets (2017), there is a huge market opportunity for companies which can capitalise on this trend.
Regulations and public advice are also changing. Governments are starting to take responsibility for persuading citizens to consume less meat. Motivated primarily by public health objectives (red meat consumption has been linked to increased risks of contracting non-communicable diseases like diabetes and cancer), several countries such as the UK and France have rewritten their dietary guidelines to recommend people reduce their meat and diary intake. With a sharper focus on the climate impacts, Denmark is even considering putting a tax on red meat. Could other countries adopt a similar approach?
In summary, sustainably feeding the growing population over the coming decades is a massive global challenge. A fundamental shift in how we produce and consume food will have to occur if we are to keep global temperature rises below 2oC as pledged in the Paris Climate Change agreement. This shift produces risks and opportunities for companies (and investors) across the food production value chain.
Schroders is a member of the FAIRR (Farm Animal Investment Risk & Return) network.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.