Allianz Global Investors - Circular Food Economy as an Investment Opportunity
It’s a waste to throw it out!
Over 2 billion tons of food is expected to be lost or wasted by 2030 [1]. According to the World Food Program, this “lost” food would be sufficient to feed over 2 billion people - more than twice the number of undernourished people across the globe [2]. Today, the Food and Agriculture Organization (FAO) estimates that there are 828 million hungry people [3], yet we produce enough food to feed 1.5x the global population [4].
How is this possible?
Our inability to feed the entirety of the world’s population is mostly due to food waste. Globally, 30–40% of all food is wasted [5], worth about 1.2 trillion USD per year. [6]
We can work to fix this by reducing the amount of waste from food production and consumption and turning it into a circular system – where valuable nutrients are recovered from waste and reinserted into the food value chain.
Reducing food waste – paying dividends in the long run
Reducing food waste has typically been described as a “triple win” – for the economy, for food security, and for the environment. But with respect to the wide-ranging implications of food waste for companies, we should consider adding a fourth “win” as investors can draw financial benefits from helping companies to curtail food spoilage, ultimately helping them to reduce costs and increasing production optimisation.
World Resources Institute (WRI) recently released a study showing that there is an overwhelming financial incentive to tackle food waste. In the 700 companies analysed, for every 1 USD invested in food-waste reduction, the median company realised a 14 USD return on investment. [7]
Policy tailwinds: Food waste moving up the political agenda
Globally, more and more governments are implementing mandatory food waste regulation around collection and disclosure. For example, the UK government is implementing a compulsory food waste collection and disclosure – meaning that food will not be allowed to be set to landfill or incineration. In the US, several states and municipalities have organic waste bans or mandatory organics recycling laws in place.
Already in 2016, France passed a law that obliges grocery stores to donate food that approaches sell-by date to charities and food banks instead of throwing it away.
These incoming or already existing regulations induce broad impacts for businesses may it be through taxes or additional capital expenditures. Companies that are prepared to meet these requirements are positioned to benefit in the long term.
Companies reimagining by-products
There has been a surge of innovation in food waste upcycling over the past 18 months. Some initiatives focus on the use of by-products to create new foods or functional ingredients or on the treatment of by-products of plant-based milk production such as soybean pulp, oat pulp and almond pulp, to make high fiber, gluten-free flours. Others look at the conversion of food waste into biodegradable and carbon neutral fabrics or into entirely new commodities such as converting animal fat into biofuel.
Be a part of the solution
There are many ways we can make a difference. By identifying innovators in the field of sustainable food production, waste prevention and upcycling, we not only offer attractive angles for investors to participate in the growth opportunities along the how value chain of this future-oriented sector but also help to address pressing challenges related to food security and waste management.
[1] https://www.bcg.com/featured-insights/closing-the-gap/food-waste
[2] https://www.wfp.org/stories/5-facts-about-food-waste-and-hunger
[3] https://www.fao.org/hunger/en/
[6] https://www.bcg.com/publications/2018/tackling-1.6-billion-ton-food-loss-and-waste-crisis
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June 2023
Please note that these are the views of Allianz Global Investors and should not be interpreted as the views of RL360.