Calories, Carbon, and Capital: Investing for Impact in Food & Agriculture

Stanford GSB Impact Fund: Our 2022 Food & Agriculture Thesis

Eating may be an ordinary activity for many of us, but the food system behind it is ripe with unique problems. On the human side, one in every nine people are undernourished, while two in five adults are overweight.¹ With the prevalence of cheap, over-processed foods, it is now possible to be simultaneously overfed and undernourished. On the planet side, this industrialization of food and agriculture has degraded environmental resources and ecosystems at an alarming pace.² Overconsumption of arable land, freshwater, and harmful chemicals from farm to fork is a significant contributor to climate change, which further threatens the stability and resilience of food systems and communities of the future.

By 2050, the global population is expected to grow by 50% and land degradation is expected to increase by 90% assuming current trends hold.³ This leaves us to wonder, “How can we sustainably feed our planet without destroying it?” In this post, the GSB Impact Fund’s Food and Agriculture deal team shares three key pillars to achieving this vision across food production, consumption, and supply chain.

Pillar 1 (Food Production): Regenerative Agriculture

Regenerative agriculture is critical to sustainably serving our growing global demand for food, both in quality and yield. Current practices are carbon intensive and leave our soils depleted of critical nutrients. Conventional agriculture also accounts for a significant portion of the $8T+ global food and agriculture industry,⁴ with the greatest advancements to be made in regenerative practice adoption. By changing the way we farm and the methods in which we are able to track our impact, we can grow our food supply in a better way for the planet. We are particularly interested in the following areas:

• Agricultural hardware and software platforms are jumpstarting producers’ transition to regenerative agriculture practices and improving yields at the same time. Trends in artificial intelligence and robotics enable farmers to produce more efficiently. Beyond precision agriculture, artificial intelligence also plays a key role in agricultural SaaS platforms’ abilities to quantify carbon sequestration and further incentivize regenerative agriculture practices. In the organic protein space, hardware and software innovation is also improving animal and soil health at scale.
• Feed additives are helping to produce healthier animals and a healthier world. Improved feed additives in aquaculture are reducing waste, while producing healthier salmon and increasing profit margins. In cattle operations, seaweed additives are found to decrease methane emissions by over 75%.
• Advances in animal welfare are good for the planet, good for animals, and good for our health. Companies are focused on creating new, more resilient animal breeds — increasing genetic diversity to improve the health and resilience of animals, which have traditionally been bred for size and efficiency.
• Advances in crop development & protection aim to improve plant yield, nutrition, and health against pests and effects of climate change. The emerging mechanisms leverage mycorrhizal fungi, bio-bactericides, probiotics, to name a few. The ripple effects of such technology extend to farmer livelihood, environmental conservation, food security in developing countries, and food waste reduction.

Pillar 2 (Consumption): Alternative Protein

Alternative protein could account for 11% (~$290B) of the global protein market by 2035,⁵ according to a recent report from the Boston Consulting Group. Consumers, especially Generation Z and Millennials, have a dual mission of consuming foods that are both healthy and beneficial for the environment, and alternative proteins deliver on this dual mission. As a result, capital has poured into the space, with 2021 marking the second year in a row in which investment levels surpassed $3B.⁶ We’ve particularly focused on the following when considering investments in this space:

• Clean ingredient labels brands can differentiate themselves against first-movers in plant-based protein, which have commonly boosted their products with unhealthy artificial ingredients and preservatives. We are focused on clean and simple ingredient labels with minimal artificial ingredients and preservatives.
• Cell-based and microorganism/fermentation-based products maintain many of the healthy elements of animal proteins and offer a promising pathway to taste parity given the greater versatility of byproducts (eg. fermented mycelium meats with fibrous textures that closely mimic meat).
• International scope is important given the robust and promising innovations in alternative protein in Singapore, Israel, China, Brazil, and several other markets; we’ve loved talking with founders from all over the globe!

Pillar 3 (Supply Chain): Waste Reduction

By 2050, it is estimated that global GDP will be close to $180 trillion.⁷ This means we need to not only increase output but also use fewer resources to do so. In addition, we collectively need to be less wasteful. The US alone produces over 30% of the planet’s waste (disproportionate when you consider its size). This is a major problem. That said, this is exciting for the food & ag team. Why? “Necessity is the mother of invention”. We’re excited to see how startups can address the pressing needs of society. We’ve spent some time exploring sustainability within food & ag and have specifically focused on the following: upcycling, supply chain innovation, and sustainable packaging.

• Upcycling is one of the hottest trends in CPG — for good reason. According to research, 38 million tons of food end in landfills or, at best, is composted or fed to animals.⁸ Startups around the globe are starting to capitalize on the opportunity to prevent waste and reuse ingredients/food to produce new products that don’t sacrifice on taste or functionality
• Supply chain optimization addresses the root cause of the waste problem, though we also think helping to sell surplus/imperfect foods is promising. We’re interested in exploring how data/analytics/other systems can help reduce overproduction/waste earlier in the supply chain
• The shift to compostable plant-based packaging from single-use plastic food packaging is an important trend given the devastating impact of single-use plastic both on the climate and human health

Our team has a depth of experience in this space, from restaurant strategy, CPG operations, big ag advisory, to wellness-focused investing. Along with thought leaders and practitioners in impact investing, we are seeking to partner with businesses whose missions are aligned with our vision of a food system that sustains both people and the planet. If you’d like to chat about ways we can help your business grow, please get in touch with us here. We can’t wait to meet you.

The Food & Agriculture Team, Stanford GSB Impact Fund

Daniel Faierman, Luis Flores, Isabelle Kerr, Keunyoung Ma, Shaneez Mohinani, Maddy Shannon, Bryce Wilberding, Meghan Wood

Learn more about the GSB Impact Fund here.

Footnotes

1. https://www.who.int/en/news-room/fact-sheets/detail/obesity-and-overweight
2. https://www.thegef.org/what-we-do/topics/land-degradation
3. https://www.fao.org/fileadmin/templates/wsfs/docs/Issues_papers/HLEF2050_Global_Agriculture.pdf
4. https://techcrunch.com/2018/11/01/agrifood-the-8trn-industry-thats-worth-your-salt/
5. https://www.foodnavigator-usa.com/Article/2021/03/24/Alternative-proteins-will-account-for-11-of-global-protein-market-by-2035-predicts-report
6. https://www.foodfrontier.org/wp-content/uploads/2019/09/Meat_the_Alternative_FoodFrontier.pdf
7. https://www.visualcapitalist.com/visualizing-the-94-trillion-world-economy-in-one-chart/
8. https://www.hsph.harvard.edu/nutritionsource/sustainability/food-waste/