不断变化的食品体系中的投资机会.pdf

PGIM|FOOD FOR THOUGHT 1 MEGATRENDSFOOD FOR THOUGHTInvestment Opportunities Across a Changing Food SystemSPRING/SUMMER 2023For professional investors only.All investments involve risk,including possible loss of capital.2 FOOD FOR THOUGHT|PGIMAbout PGIMPGIM is the asset management business of Prudential Financial,Inc.(PFI).PFI has a history that dates back over 145 years and through more than 30 market cycles.With 47 offices in 18 different countries,*our more than 1,400 investment professionals are located in key financial centers around the world.As a leading global asset manager,with$1.2 trillion in assets under management,PGIM is built on a*foundation of strength,stability and disciplined risk management.Our firm is comprised of autonomous asset management businesses,each specializing in a particular asset class with a focused investment approach.This gives our clients diversified solutions with global depth and scale across public and private asset classes,including fixed income,equities,real estate,private credit and other alternatives.*30 market cycles represent PFIs asset management expertise through PGIM and its affiliates and its predecessors.For additional information related to market cycles visit:www.nber.org*PGIM is the investment management business of Prudential Financial,Inc.(PFI).PFI is the 11th largest investment manager(out of 431 firms surveyed)in terms of worldwide institutional assets under management based on Pensions&Investments Top Money Managers list published June 2022.This ranking represents institutional client assets under management by PFI as of December 31,2021.Participation in the P&I ranking is voluntary and open to managers that have any kind of U.S.institutional tax-exempt AUM.Managers self-report their data via a survey.P&I sends the survey to previously identified managers and to any new managers asking to participate in the survey/ranking.No compensation is required to participate in the ranking.PGIM|FOOD FOR THOUGHT 1 INTRODUCTION From farm to fork,our global food system is vast,complex,inefficient and increasingly unfit for purpose(Exhibit 1).But with the global food system representing just 10%of global GDP,why should institutional investors care?1 We believe understanding and navigating the rapid evolution of our fragile global food system isimportant for asset owners for four primary reasons:1.Vulnerabilities in the food supply chain drive critical macroeconomic outcomesFood can be a key driver of consumer price inflation.This,in turn,impacts a whole array of critical macroeconomic outcomes.High food inflation can influence central bank monetary policy as well as government regulatory and fiscal actions.And higher food prices from disruptions in food supply chains can have a dampening effect on overall economic activity as discretionary consumer spending may get crowded out especially in emerging markets where food can account for up to 40%of household spending.In addition,food policy is a significant part of fiscal budgets,with global support and subsidies for farmers totaling over$700 billion.22.Food security is critical in evaluating domestic political stability and geopoliticalrisksFood insecurity is a key driver of domestic political instability,especially in emerging and frontier markets.Most recently,food shortages and inflation led to the toppling of governments in Tunisia and Egypt during the Arab Spring of 2010.Equally important,the food sector employs 40%of the global workforce and has tremendous political influence.From France to Peru and from India Exhibit 1:Current tensions in the global food system Unequal distribution ofcalories Over 800 million people are affected by hunger (one of every nine humans)3 29%of global population living under moderate or severe food insecurity4 Over two billion people worldwide are obese or overweight5 G8 obesity rates over 25%with people on average eating 50%more calories than needed6 Food security aspirations vs.reality COVID and the war in Ukraine highlight the vital role of food security for national security The need to meet caloric needs and preferences of a growing and more affluent population in emerging and frontier markets Increasing reliance on food imports and long supply chains as diets converge 2.5 billion tons of food lost or wasted each year throughout the food value chain 7 Farming methods from different eras coexist 21st century precision agriculture in the Americas and Europe using AI and advanced analytics Large-scale mechanized farming in Argentina,Brazil andChina In India,more than 80%of farms are smaller than 10 acres and rely on manual labor8 1960s“Green Revolution”technology still used in South Asia and AfricaThe interaction between climate and agriculture 40%of global cropland has already been exposed to water scarcity9 Climate change will cause a 12%decline in crop yields and up to a 35%decline in fishery production10 Agriculture accounts for:30%of global greenhouse gas emissions11 80%of deforestation12 70%of freshwater consumption13 2 FOOD FOR THOUGHT|PGIMto China,this power manifests itself in electoral outcomes,vast subsidies,regulatory changes and trade barriers.Food security is also re-shaping geo-politics.Given the recent impact from COVID-19 and the fallout from the Ukraine War,food security is increasingly seen as national security.The growing bi-partisan political pressure in the US to curtail Chinese-linked ownership of agricultural land is an example of growing tension around access to food.14 Similarly,the focus on acquiring or leasing agricultural land as part of the Chinese governments Belt and Road Initiative has raised significant concern across multiple countries in Latin American,Asia and Africa.153.There are attractive investment opportunities in public and private markets as the global food system is transformed With the global food system rapidly transforming,investors will find a shifting landscape of opportunities and risks.The evolving investable opportunity set ranges from cold storage and many elements of“AgTech”to typically under-allocated sectors such as farmland debt and equity.Equally,there are real investment risks around over-hyped trends such as alternative meats and vertical farming.4.Investing in the food system provides opportunities for investors to further ESG goals and have measurable impact In some ways,todays food system,resembles the energy sector from a decade ago.It provides a vital good for human survival but does so with some important negative externalities.This creates both tensions and opportunities for ESG-driven investors.Given the complex interlinkages and feedback loops between climate change and food production,there are significant opportunities for investors to make a tangible difference as they invest behind a more inclusive,sustainable and nutritious food system.For investors,it is especially critical to identify the powerful supply and demand forces re-shaping the entire global food value chain(Exhibit 2).Exhibit 2:Overview of the food value chain Farmland Inputs&Crops Food Processing Food Manufacturing Distribution&Storage Packaging&Branding Food Service&RetailersDemand Drivers Growing affluence in emerging markets Rising population in sub-Saharan Africa and South Asia Shifting consumer preferences Covergence of global dietsSupply Drivers Impact of climate change Technology and innovationSource:PGIM Thematic Research.SUPPLY DRIVERS Impact of climate change Technology and innovationDEMAND DRIVERSFarmland Inputs&CropsFood ProcessingFood ManufacturingDistribution&StoragePackaging&BrandingFood Service&Retailers Rising population in sub-Saharan Africa and South Asia Growing affluence in emerging markets Convergence of global diets Shifting consumer preferencesPGIM|FOOD FOR THOUGHT 3 To understand the emerging investment opportunities and hidden risks from this ongoing transformation of the food system we have drawn on the insights of over 40 investment professionals across PGIMs fixed income,equity,real estate and private alternatives managers as well as leading policymakers,academics,entrepreneurs,private equity and VC investors.We unpack the critical drivers and resulting investment implications of the new global food system in the rest of this report.Starting with the demand side,Chapter 1 evaluates investment opportunities and risks emerging from rising incomes(and populations)as well as changing consumer food preferences.Shifting to the supply side,Chapter 2 focuses on investment themes linked to climate change and an array of innovation across the entire food supply chain,from AgTech through lab-grown meat.Finally,Chapter 3 examines the menu of cross-portfolio options for CIOs to consider when they consider the opportunities and risks embedded in the global food system.Given the recent impact from COVID-19 and the fallout from the Ukraine War,food security is increasingly seen as national security.4 FOOD FOR THOUGHT|PGIMTABLE OF CONTENTS01 01 RISING AFFLUENCE&SHIFTING PREFERENCES ARE RESHAPING FOOD DEMAND Page 50102 02FOOD SUPPLY:CLIMATE AND INNOVATION ARE TRANSFORMING PRODUCTION Page 130203 03PORTFOLIO-WIDE INVESTMENT IMPLICATIONS Page 23034 FOOD FOR THOUGHT|PGIMPGIM|FOOD FOR THOUGHT 5 01CHAPTER 1 RISING AFFLUENCE AND SHIFTING PREFERENCES ARE RESHAPING FOOD DEMAND“Rising incomes,convergence of global diets and a shift to convenience and healthier options are critical in shaping demand.”223316 FOOD FOR THOUGHT|PGIMCHAPTER 1 RISING AFFLUENCE AND SHIFTING PREFERENCES ARE RESHAPING FOOD DEMANDUnderstanding the drivers of global food demand is key to any investment decision across the food system.Going forward,three factors will be critical in shaping demand.First,the shift from population growth to income growth will be an increasingly important factor.Second,the convergence of global diets is altering food supply chains and agricultural production.And third,changing consumer preferences towards more convenient,healthier and safer food options factors that are inextricably linked but not always congruent.1.Alongside population growth,affluence will drive future food demand Over the past 60 years,the worlds growing population has been the main driver of food demand.Looking ahead,global population is poised to increase 25%to almost ten billion by 2050 with more than 80%of this growth coming from South Asia and sub-Saharan Africa.Population growth so narrowly concentrated in one or two regions is a deviation from the past where growth was more widely dispersed.That population growth will be highly concentrated in lower-income countries has direct implications for food demand.As countries grow in affluence,their food consumption patterns change drastically.There are multiple stages to this evolution also known as Engels law.16 For lower-income countries,food consumption increases sharply as income rises before leveling off as they approach middle-income status.This income effect will be a key driver of future food demand(Exhibit 3).In fact,some research suggests this income effect could be substantially larger over Exhibit 3:Rising income is becoming an increasingly important driver of food demandShare of incremental food demand driven by income growth10%30%50%70%90%1980-19912001-20092021-20302041-2050Low EstimateHigh Estimate(Forecast)(Forecast)Source:PGIM Thematic Research analysis,International Institute for Applied Systems Analysis,World Bank and International Food Policy Research Institute.Note:Low and high estimates based on the Shared Socioeconomic Pathways(SSP).PGIM|FOOD FOR THOUGHT 7 the next 30 years than in the past and may very well account for most of the increase in food demand over that time.17 In addition,higher income causes diets to shift towards more resource-intensive foods such as meat,fish and processed foods.To understand the implications,it is crucial to consider the energy needed to produce food compared to the calories they provide.For example,every calorie of beef consumed requires about 25 calories of energy in production.That is,it takes 25 calories of energy to produce every edible calorie of beef a 25 to 1 ratio.Other meats are rather energy inefficient as well pork has a ratio of 9 to 1 and poultry 5 to 1.18 One consequence of the shift towards more animal-based proteins is greater demand for feed grain like corn and soy.It is no coincidence that as Chinas pork consumption grew between 2010 and 2020,its soybean imports almost doubled to 102 million tons.19Consequently,as consumers become more affluent and shift their diets,the energy required to meet their daily intake increases significantly.Importantly,the regions where population growth is most concentrated over the next 30 years South Asia and sub-Saharan Africa will also increase their meat consumption sharply given their expected income growth(Exhibit 4).2.Diets are converging globallyIncome growth not only leads to more resource-intensive diets,but it has also led to a convergence of diets across regions.This is the second factor driving future food demand.Over the last 60 years,emerging and frontier markets with growing per capita income have seen not only an increase in meat consumption but a general shift to a diet heavy on animal proteins,dairy products,wheat,oils and sugar often referred to as a“western diet”(Exhibit 5).20Exhibit 4:Meat consumption increases with affluenceSub-Saharan nations versus rest of world020406080100$0$5,000$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000Kg per capita,annuallyGDP per capita,PPPMeat consumptionSub-Saharan nationsSource:World Bank and Food and Agriculture Organization of the United Nations.Note:GDP per capita in PPP,constant 2017$US.Higher incomes cause diets to shift towards more resource-intensive foods such as meat,fish and processed foods.8 FOOD FOR THOUGHT|PGIMThe convergence of global diets has three key implications.First,the distance food needs to travel from where it is grown to the end-consumer will increase.Second,the reliance on food imports and multinational supply chains will create new infrastructure and transport needs while simultaneously increasing the risk around disruptions of supply and its impact on food security.Third,the merging of global diets means we are increasingly dependent on fewer crops,making our food system less resilient to crop-specific disease or pests.3.Global consumer preferences are evolving in different waysThe third key factor shaping food demand is evolving consumer preferences.While many changes will prove to be short-lived fads,some will endure and are critical to understand.Developed-market consumers seeking out healthier food optionsAs diets have moved from legumes and vegetables towards meat and processed foods high in sugars and sodium,there has been a measurable increase in hypertension,diabetes,obesity and cardiovascular disease.In 2017,over 20%of all deaths worldwide were related to diets.21,22 Both consumers and the food industry are increasingly aware