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Changes, small and large, help expand investment opportunities in food

Changes, small and large, help expand investment opportunities in food

11-06-2018 | Interview

The food industry is undergoing radical change that will see tech savvy newcomers disrupt incumbent business models. RobecoSAM’s Sustainable Food equity strategy is undergoing some changes of its own. We interviewed Holger Frey for more info and insight on the small changes to the strategy and the bigger changes transforming the food industry.

  • Holger Frey
    Holger
    Frey
    CAIA, Senior Portfolio Manager, RobecoSAM Sustainable Food Equities Strategy

You’ve recently changed the name of your fund from Sustainable Agribusiness Equities to the Sustainable Food Equities Strategy. What was behind the change?

Rising food demand, changing consumer preferences and expanding digitization are driving a fundamental transformation of the food industry. Investors can have exposure to these developments by investing along the entire food value chain with all its high-growth niche areas like food analytics and packaging technology.

The previous name was somewhat limited in capturing the full range of underlying business models. We felt the food concept better conveys the investment opportunities to our investors.

Does a new strategy name also mean there will be strategic changes to the investment approach? What impact will this have on investors?

No, the investment process remains intact. What has changed is the investable universe. We’ve expanded the universe by nearly 25% by adding new companies that are increasing in relevance. These offer greater exposure to niche growth markets and disruptive developments like food automation technologies.

We’ve expanded the universe by nearly 25% by adding new companies that are increasing in relevance.

We’ve also refined our clusters and sub-clusters that assign companies based on which sub-theme they represent in the overall thematic food universe. We are convinced the expanded universe will give investors access to additional pockets of growth as well as increased sector diversification throughout the business cycle.

What makes investments in food so interesting?

Food is unique—it has multiple touch points across economic sectors which behave differently throughout the business cycle. Since food is an essential consumable good, companies can benefit from predictable and consistent demand patterns even in times of economic stress.

Food is unique—it has multiple touch points across economic sectors which behave differently throughout the business cycle.

In parallel, notable consumption and cultural shifts, like conscious eating in the developed world, open up new and exciting landscapes. This is reflected in the increasing market share for natural and organic food already reaching high single digits in some developed countries.

Moreover, food security or how to sustainably feed 10 billion people in the coming decades is one of the pressing challenges of our time. We expect higher demand for related AgTech innovations that are improving efficiency, like precision farming. Precision fertilizer alone should help to increase crop yields by 15-20%, even as applied volumes decrease.

… notable consumption and cultural shifts, like conscious eating in the developed world, open up new and exciting landscapes.

The UN’s Sustainable Development Goals are gaining influence among investors eager to help contribute to solving global challenges. In what ways does the RobecoSAM food fund support these goals?

Yes, that’s right. Our conversations with investors and companies reveal that sustainability and impact topics like increasing access to nutritious food and improving resource efficiency are gaining importance.

Investments in the Sustainable Food strategy contribute positively in three ways:

First, investors are allocating capital to the companies focused on providing solutions to these challenges.

Second, the investment team behind the strategy works with proprietary, theme-specific, sustainability criteria and exclusions, supporting the transformation to a more sustainable food system.

Third, we live active ownership. Through our structured engagement projects with companies, we facilitate awareness and change on themes like food security or animal welfare. We believe this is vital in contributing to the food sector transformation.

Sounds like food qualifies as a full business-cycle investment. Are there any triggers which make it especially relevant right now?

Well, there are many, but the link between big data, technology and the future of food is the one that surprises most investors.

E-commerce and food delivery have pushed food retailers to choose between “race-to-the-bottom” cost-cutting and reinventing the in-store experience.

Since Amazon acquired Whole Foods Market in 2017, a new dynamic has struck food retail. E-commerce and food delivery have pushed food retailers to choose between “race-to-the-bottom” cost-cutting and reinventing the in-store experience. We think “Amazon Go” could embody the future of retail. For sure, more sensors and data capturing technology will enter stores in the coming years. And it won’t end with retail, but will seep and spread until automation and data integration extends throughout the entire food value chain.

These changes will carry direct benefits to end consumers by making products safer and the production process more transparent.

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