Yesterday just over 25k people died of starvation. The causes that contribute to that tragedy are numerous, and while the problems are often intractable, possible solutions to address this calamity are being developed in disparate settings such as the laboratory, in the capital markets, in restructuring the supply chains, and with fiscal and tax policies.
Many of our pedestrian concerns have likely been eclipsed by the ongoing devastation in Ukraine and the catastrophic earthquakes in Turkey and Syria. Hunger and issues of access to adequate food supplies stare us in the face constantly now. A recent United Nations report titled “State of Food Security and Nutrition in the World” concluded that 2.3 billion people in 2021 faced moderate or severe difficulty in obtaining food, well before these two emerging crises. It is believed that nearly 830 million people struggle with hunger today.
Obviously, the Ukrainian war drove dramatic food price inflation starting a year ago. In addition to supply chain disruptions, there was the dramatic spike in fertilizer prices given that Russia and Belarus account for 35% of global potash and nitrogen production, a critical component of fertilizer. Up until this year, the global agricultural sector experienced dramatic increases in productivity over the last several decades due to the abundance of hydrocarbons used for fuels and fertilizers. That is at risk of reversing.
As impactful, the spike in food export restrictions has significantly reduced the amount of food trade, which in addition to limiting food availability, also exacerbates food price inflation in countries facing scarcity. The world’s poorest countries tend to be net importers of food products and are most directly exposed to food price inflation. This dynamic has also led to food hoarding in certain countries as a way to moderate domestic inflation and limit social unrest. Globally, the stock-to-use ratio for wheat and corn is estimated to be 29% according to the United Nations Food and Agriculture Organization. China is holding 50% of the world’s wheat stockpile, significantly increasing wheat import at the outset of the pandemic; the U.S. only holds 6%.
It is estimated that 60% of all food production is accounted for by five countries: China, the U.S., India, Brazil, and Argentina. While Ukraine is only the seventh largest wheat producer, it still represents approximately 10% of all annual production, which is not reliably available to the rest of the world. Together with Russia, both countries together account for 28% of all wheat produced, according to an analysis by McKinsey.
These issues have conspired to create an estimated wheat and corn deficit of 15 – 20 million metric tons in 2022, which may increase to 23 – 40 million in 2023 per McKinsey. The high end of this range would be enough food for 250 million people.
Setting aside the scourge of starvation, the urgency to develop alternative sources of food production is also linked to broader issues of national security and social unrest in malnourished hot spots around the world. The Defense Advanced Research Projects Agency (DARPA) has launched the “Cornucopia” initiative to develop a new framework for future food production systems that are more equitable, accessible, and lower cost. At the core of this effort is the goal of utilizing microbes which could create secondary food production systems thereby reducing geopolitical risks. It is estimated that the U.S. military is deployed in 80% of global crises, much of them related to food security.
Particularly disturbing was a recent Bank of America analysis which concluded that humans are utilizing natural resources 1.7x faster than the earth can recover; this is expected to reach 2.0x by 2030. Only 29% of the earth’s surface is land, of which 71% is considered habitable or just under 41 million square miles. It is estimated that 46% of all habitable land is used for agriculture, and 77% of that is for livestock, implying that livestock occupy 14.3 million square miles. According to the United Nations Food and Agriculture Organization, one-third of the earth’s soil has already been compromised, underscoring the urgency for innovative approaches to food production.
Further challenging the world’s ability to produce food is the burden pests impose in critical regions of the world. A recent study by the Center for Agriculture and Bioscience calculated the total financial costs in Africa due to invasive pests and plants to be $3.5 trillion. Many of these losses are due to the labor required to weed fields to ensure that appropriate crops can survive.
Shamefully, it is believed that upwards of 30% of all food production is wasted, either during the production process or “downstream” at the point of consumption, according to a McKinsey Sustainability study. This equates to 1.3 billion tons of food; some analysts conclude that amount would satisfy nearly 2 billion people annually. Over a third of this wastage is perfectly fit for consumption.
Americans alone waste 119 billion pounds of food according to Feeding America, which is 40% of all food. This is equivalent to 130 billion meals and costs $408 billion. The American Journal of Agricultural Economics concluded that each family in the U.S. spends $1,900 on wasted food each year. The non-profit ReFED, which studies food waste issues, estimates that 7% of all wasted food is simply due to confusion over expiration dates on labels.
Feeding America estimates that there are 50 million people in the U.S. who struggle with food security. To address this, the Biden Administration recently announced a goal to eliminate hunger in the country by 2030. In addition to $8 billion in private charitable contributions, the Supplemental Nutrition Assistance Program provided $119 billion in food stamps to 41 million Americans last year.
Solutions to hunger are complex, expensive, and inherently co-dependent on each other. Obviously, a more progressive tax framework on the production of foods that damage the environment or are not productive sources of protein may shift resources to more efficient sources. It is estimated that there is a 10x factor between the most and least efficient sources of protein, which accounts for much of the innovation in lessening the dependency on livestock.
Conversely, incentives and subsidies can be introduced that shift resources to novel more effective means of protein production. In mid-2022 the World Bank announced plans for $30 billion in assistance for programs linked to food and nutrition security. The Inflation Reduction Act earmarked $22 billion for Agriculture Department programs in regenerative or climate-friendly agricultural techniques.
Arguably and cruelly ironic, the U.S. food production industry has contributed to a domestic health crisis. It is estimated that 58% of all calories consumed now are from ultra-processed foods with modest nutritional value. Furthermore, nearly 100 million Americans have diabetes (11% of the population) or are pre-diabetic. Sadly, the Center for Disease Control and Prevention recently published a study of children in the U.S., highlighting that 50% consume only one vegetable each day. This is to say nothing of the knock-on environmental impacts given that 37% of all greenhouse gases emanate from the farming industry and that excess nitrogen from fertilizer is devasting to many inland waterways.
Issues surrounding food production and distribution have not gone unnoticed by the venture capital community. According to Pitchbook, $10.6 billion was invested in 988 companies in 2022, and while down 13.2% and 10.2% from 2021, respectively, last year was the second strongest year on record and represents relatively healthy activity given overall market volatility. Median pre-money valuation in the “agtech” sector was an attractive $15.3 million while median round size was a modest $3.3 million. Notably, exit activity was only $2.2 billion across 38 deals, perhaps suggesting the category is still quite immature. In light of that, $2.5 billion was committed to launch the Food, Nutrition and Health Investor Coalition in September 2022 to support private investment to address issues of hunger. Crunchbase estimated that $2.5 billion was invested in 2022 in start-ups to address just food waste issues.
These investments point to longer-term innovations that might be expected to have an impact over the next few decades. Introduced with much fanfare and investor enthusiasm, the synthetic biology sector brought to market a range of plant-based meat products. Many of the fast-food chains rolled out meals based on products from Beyond Meat and Impossible Foods, causing the stock prices to soar. This past year saw dramatic declines in share prices for companies in the alternative meat category (Beyond Meat has declined 65% over past twelve months) as supermarket sales of these products declined by ~15% in 2022, according to Information Resources Inc.
Upside Foods, formerly known as Memphis Meats, uses synthetic biology to produce chicken; it is chicken cells but just not from poultry. These lab-grown meats sidestep ethical issues around the treatment of live animals and are considered more environmentally friendly. While today’s price per pound is not yet competitive with real chicken (in 2022 the price per pound was $7.70 as compared to $4.30 for real chicken), it is expected that vat-grown meats at scale should be more in line with real chicken. Certainly hope so as we race toward 100 pounds per person consumed in the U.S.
In addition to products that provide more efficient sources of protein, there are solutions which take on the supply chain waste issues and utilize existing foods that may not be palatable or “ugly.” Misfits Market uses misshaped foods that would otherwise be disposed of. Novel technologies are being developed to make fresh foods last longer, allowing them to travel greater distances in the supply chain, which tend to be distinct and separate from general supply chains. Shorter supply chains for food tend to create less waste but that is often not practical. The producers of beef, pork and poultry are highly consolidated (and centralized and industrialized), with the top four in each category controlling 85%, 70%, and 54% market shares, respectively. It is believed that 60% of all mammals are now livestock.
Alternatives to traditional farming will require time and patient capital to develop, and quite likely substantial government support, if not outright intervention. The advisory firm Green Street calculated that average annual return for U.S. farmland to be 11.2% over the past 25-years through 3Q21 (likely only more valuable over the past year) as compared to just 9.6% return from the S&P 500 Index over the same period – and without the volatility of the public markets. In 2021, the average acre of U.S. farmland was valued at $3,380. Traditional approaches continue to be good long-term investments.
The phenomenon of vertical farming may effectively shorten supply chains as fruits and vegetables are grown in indoor controlled conditions, utilizing automation and AI to optimize production yields. Bowery Farming is an emerging leader in this category, which according to Grand View Research saw $4.3 billion in sales in 2021, growing at nearly 26% per year through 2030. Of the more than 400k plant varieties, 30k are thought to be edible, even though humans only consume roughly 200 plant types. Plenty to work with.
Interestingly, insects represent another source of plentiful protein and while most of the investment so far has focused on insects as food for livestock and pets, there is a growing appetite to feed insects to humans. Notably, Ynsect has already raised $370 million to develop food ingredients made from insects, claiming that such an approach requires 100x less land and 25% less water for equivalent meat production. Rabobank estimates that by 2030 10-20k tons of insects will be processed for human consumption.
According to the Proceedings of the National Academy of Sciences, there are 2.5 million ants for each human, implying that there are 20 quadrillion ants on the earth. Almost enough to lose your appetite…
On the Flying Bridge 