The investment theme of food technology revolves around transforming the traditional food industry with technological innovations such as meat alternatives, smarter agriculture practices, and blockchain solutions. One key element driving food innovation is the evolution of consumer preferences. This results in greater demand for healthier, sustainable food options. The rising middle class in emerging markets is another factor spurring demand for higher quality and healthier food options.
Food is essential to life. According to the World Economic Forum, food systems account for approximately 12% of global GDP, creating 40% of all jobs. Global food consumption equates to $9 trillion, but that is not the true cost of food. There are social and environmental costs related to its environmental impact and the need for sustainable, robust, and inclusive food systems. Currently, agri-food systems are responsible for roughly one-third of global greenhouse emissions. The true cost of food is likely nearly $20 trillion when considering the human health, environmental, and economic costs.
From an ETF investment standpoint, let’s break down this expansive topic into three areas of potential growth: Plant-Based Innovation, Agricultural Technology, and Blockchain.
Plant-Based Innovation
According to the Boston Consulting Group, the market for alternative (vegan) proteins could grow to $290 billion by 2035, representing 11% of global protein consumption. Plant-based foods not only have a more favorable ecological footprint and are more animal-friendly. But, from a personal health perspective, plant-based foods have been found to prevent heart disease, diabetes, and high blood pressure.
In a study conducted by researchers at Oxford’s Martin School, results indicated a shift at the global level to diets less focused on meat and more focused on fruit and vegetables could prevent roughly 8 million deaths through 2050. Furthermore, this shift could also prevent $1.5 trillion in expenditures to address climate damages. It would also cut greenhouse gas emissions by more than 60%.
There are several ETFs to consider that are designed to provide exposure to innovation in the area of plant-based foods. The US Vegan Climate ETF (VEGN) has amassed the most in terms of assets under management, with a little over $100 million.
However, its broad-brush mandate to “avoid investment in companies whose activities directly contribute to animal suffering and the destruction of the environment” results in some odd portfolio exposures. The fund’s top five holdings are Nvidia, Apple, Broadcom, Tesla and United Healthcare. This looks more like a tech ETF than a vegan ETF.
Fortunately, there is a better pure-play choice in the category that provides exposure to companies specifically focused on plant-based innovation. The Vegtech Plant-Based Innovation & Climate ETF (EATV) invests primarily in focusing on plant-based innovation or contributing to the transition to a net-zero economy.
As a result, in addition to food companies like Dole Plc and Vita Coco, it also owns animal-friendly Crocs. I am sure that makes a lot of cows happy. The ETF is actively managed with $5.8 million in assets and an expense ratio of 76 bps. EATV is up 5.6% YTD.
Agricultural Technology
The growth of the global population – expected to reach 10 billion by 2050 – applies pressure on the agricultural sector to increase crop production and maximize yields. In the future, smart agriculture will utilize advanced technologies, data-driven approaches, and artificial intelligence to optimize crop performance and improve the sustainability of agricultural production. By incorporating AI, precision agriculture can help grow more crops with fewer resources and in harsher climates.
ETFs offering a more diversified approach to food technology that include agricultural technology are the iShares Emergent Food and AgTech Multisector ETF (IVEG) and the Global X AgTech & Food Innovation ETF (KROP). These ETFs invest in companies focused on technology and innovation in agriculture and in the field of food products and services. Both ETFs are passively managed, and each has roughly $4 million in assets. However, the YTD performance of these investment approaches has diverged sharply, with IVEG up 4.57% for the year versus KROP down 4.8%.
Using our VettaFi Fund Comparison tool, the overlap of holdings is revealed to be only 30%. This partially explains the wide divergence in performance. KROP has a higher concentration in agricultural chemicals and equipment and a higher concentration in the top market cap names.
Offering yet another approach is the VanEck Agribusiness ETF (MOO). The ETF was the first to focus on the agricultural industry when it launched in 2007. It has amassed over $700 million in assets. This has provided exposure to agribusiness and food producers like Tyson Foods and Pilgrim’s Pride. Given its holdings in meat producers, as its ticker “MOO” implies, this ETF is not very “vegan friendly.” It is also not exposed to the theme of plant-based innovation. MOO is down 3.95% on a year-to-date basis.
Blockchain
Blockchain technology has many use-cases, such as decentralized finance and Bitcoin. However, another interesting use-case of blockchain is providing transparency, traceability, and overall increased safety to the food supply chain.
Examples of companies using the blockchain in the food supply chain include Tyson Foods and Walmart. Tyson Foods is the parent company of well-known brands like Hillshire Farm, Jimmy Dean, Ball Park, and Sarah Lee. Six years ago, it started to implement the Connect blockchain platform offered by FoodLogicQ for the purpose of supplier management.
Meanwhile, Walmart uses IBM’s supply chain intelligence suite, IBM Food Trust, on the tech company’s blockchain platform. Walmart can now track its mangos on a delay of just 2.2 seconds – effectively, at “the speed of thought,” as one former Walmart executive described it.
The top Blockchain ETFs have broader use-case exposure than just the food supply chain. They still provide some of this exposure, nonetheless. The largest and oldest Blockchain ETF is the Amplify Transformational Data Sharing ETF (BLOK), with $678 million in assets under management and an impressive YTD performance of 21.4%. IBM, the innovator behind Food Trust, is a top-10 holding in the ETF.
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