A Sustainability Perspective
“Our global food system needs to become healthier, and more sustainable…”
“The environmental impact from food and agriculture is extensive. It’s responsible for nearly 26% of all global greenhouse gasses, 78% of the ocean and freshwater pollution, and is a key contributor to losses in biodiversity. Adding to the environmental impact is the immense growth in the global population and middle-class respectively. Further, recent political developments have shown us yet again how connected the global supply chain is, and how challenges are never isolated to just one part of the world. That’s why there is a great need for a more resilient and flexible global food supply chain. Change in the food industry is critically needed to feed the planet and live our lives more sustainably.”
Lykke Westgren, Investment Manager and Head of Sustainability at Nicoya.
What is Food Tech and is all Food Tech sustainable?
- The words aren’t interchangeable. Food tech is the use of innovation, data, and technology to change the production, manufacturing, and distribution of food. Although tech can be applied in many different food areas it doesn’t necessarily make it more sustainable. For example, the consumer choice to move to a less meat-based diet is an important choice from a climate perspective, but the production of any food can be associated with greenhouse gas emissions and other environmental and social impacts. However, using tech in the right way can positively impact food innovation, and reduce its, and in the long run our, footprint. Every step we take to make our lifestyles more sustainable counts.
How important are novel technologies for making the food industry more sustainable?
- Technology and innovation will enable this change. We can do a lot with traditional methods, but it will be novel technologies that will allow us to scale quickly and reach impact faster. Vertical farming has shown us the enormous potential that exists in novel production technologies. Vertical farming also produces the same net volume of a product while lowering the required amount of land, water, chemical, and pesticide consumption. In addition, since less land is required, it can be placed closer to consumers, which lowers transportation needs and their environmental impact. Also, making traditional products in new ways, and with new ingredients, holds lots of opportunities. Focusing on R&D to develop next-generational food products will be essential to win in the market and will facilitate impactful change. Consumers won’t buy something just because it’s green. It must also have the right taste, touch, and feel. Further down the value stream, novel digital technologies are focusing consumer behaviors on curated product offers, that save them time and make product choices more accessible. These kinds of data-heavy business models were never possible until computers were powerful enough. But technology can only do so much. At the end of the day, the success of an innovation depends on the entrepreneurial spirit of the team, with the vision and courage to challenge what we imagine is possible.
Given the situation we are in, what are the most important trends ahead?
- In the last couple of years, there has been a real shift in people’s mindsets around sustainability. In Western Europe, we are seeing most consumer segments being more willing to eat sustainable plant-based food products. It used to be that just 2-3 out of 8 consumer segments would show this type of behavior. This willingness drives the creation of products and brands that are better for both the planet and consumers, with benefits such as healthy, lower emissions or locally sourced, without compromising on quality, ethics or convenience. We also see sustainability becoming a more important investment vertical, both in general, as well as in food tech specifically. In 2021 alone, over 100 billion SEK were invested in European FoodTech companies, double the amount the year prior.
How are we seeing long-term growth in the demand for sustainable food?
- Many consumers are aware of the challenges the world is facing and want to contribute. They understand what they eat is an important part to that. This creates an increased demand for plant-based products, flexitarian diets, and value transparency throughout the value chain. These trends and behaviors are here to stay. The global market of plant-based products, ranging from milk and ice cream, to meat substitutes, is worth $30 billion USD, with an estimated continued CAGR of more than 10%. It’s currently one of the fastest-growing food markets. Oat milk, a category that barely existed 10 years ago, is today a $2billion USD market and growing. What has enabled these new markets to come about, is the underlying wish and frustration among consumers to do the right thing. They want to use plant-based products but without any loss to the cooking experience, taste, or feel of using traditional products. Innovative brands are now using novel technologies to solve this demand and frustration in consumers.
- Consumers are savvier regarding value chain transparency. They are becoming more educated and conscious about what they eat – both for themselves and for the planet. Organic is no longer enough. Several studies show that consumers want to see more claims around sustainability, i.e., animal welfare, information about additives and the origin of ingredients. Fava beans and peas are increasingly being used as protein sources in vegan products and meals, due to their ability to be sourced locally. In Sweden, Fairtrade® and “from Sweden” are the most sought-after claims for consumers.
- Consumer health is in dire need to get better. Overweight and obesity is rising across all age groups globally and with that western lifestyle diseases such as diabetes, hypertension, and heart disease. In Sweden, every fifth child among 6–9-year-olds is overweight or obese. In the Middle East, diabetes is increasing at the second highest rate globally, with a prevalence of close to 20% in the UAE. People are aware that they need to change their diets, but that change is hard. There is a big need to make healthier choices easier for the consumer.
How do you work at Nicoya to ensure your investments are sustainable?
- Regardless of what investment we look at or where in the value chain it plays, we’re always looking for disruptive companies that have a profitable and sustainable business model at the core. Meaning their sustainability will be intentional, material, and measurable. Profitability is crucial as that enables their long-term viability, and their ability to drive impact. Every investment gets thoroughly assessed on its environmental and social impact, positive as well as negative, as is now and at scale. Key impact areas of opportunities and risks get identified and strategies are formulated to leverage and mitigate those opportunities and risks. Every year we perform a sustainability review of our portfolio where we discuss the companies’ developments on important ESG parameters. Nicoya is a highly active investor, and we continuously work with and support our investments and teams, to ensure they are a sustainable option and grow as such.