The status quo is unsustainable…and ripe for disruption
The status quo bias is unhelpful when the status quo is unsustainable: a perfect example is our food system. Whether you look at it from a human health, environmental or climate perspective, our food system is currently unsustainable. Considering we are trying to feed 2 billion more people2 using the same resources by 2050, we are either going to need another planet, or something’s got to give.
Younger generations (think of millions of Greta Thunbergs) with wildly different views on life, however, have driven consumption patterns to shift as they become more significant consumers. This wave of change is being reinforced by the regulatory landscape, which is trying to stem the enormous human and economic costs of rising obesity. With this, food manufacturers have had to contend with enormous challenges and there is no sign of them abating: consumers are becoming more discerning and more demanding. They also have the luxury of choice as smaller and nimbler food producers proliferate due to lower barriers to entry, including easier and more accessible marketing. Just think how the Facebooks and YouTubes of this world have fundamentally changed the way brands communicate with their consumer base.
Specialty ingredient companies, such as Ireland-based Kerry Group, hold the solution to these problems in their hands. They provide their clients – the food manufacturers – with the tools necessary to clean up their labels, reduce fat, sugar, and salt content, while boosting nutrition and improving taste. They are becoming akin to Research & Development outsourcers, and elevating both growth and return profile by doing so. Not only that but Kerry Group is explicitly aligning its portfolio of solutions with sustainable nutrition solutions in order to grow its business. Consumers want food and beverages that are healthier and taste great while respecting the planet, and Kerry Group is able to provide the insight, world-class innovation and application expertise. They are aligning themselves with a multi-decade secular growth trend and have positioned themselves to win.
Change, however, is not only occurring at consumption level, but also at production level. As global protein production still needs to grow to meet needs in developing markets, one of the worst contributors to greenhouse gas emissions (GHG) is now coming under scrutiny. Who knew that cows cause more GHG emissions than cars? This is because methane (which cows actually primarily belch contrary to common belief!) warms the planet far more quickly than CO2. And most of this is coming from livestock – dairy and beef cows. Enter DSM – a leader in the vitamin premix space. DSM has used its expertise in nutrition technologies to develop a ‘clean cow’ enzyme that essentially suppresses the production of methane in the gut, and allows for significant reduction of methane emission. Their product makes sense not only from a GHG emissions standpoint, but also from an economic standpoint: belching enormous amounts of methane is in fact a direct cost to the farmer. The energy contained in 500 liters of methane is the equivalent of c. 10% of the energy consumed by a dairy cow each day. This energy might otherwise be used in milk or meat production. DSM has aligned itself to a growing need arising from a sustainability challenge, and has in fact applied that philosophy across its entire portfolio of solutions, thereby carving itself marketleading positions in fast-growing end markets.
Our approach is to fully recognise the risks, the disruption to the status quo and to identify the trailblazers – the companies that harness their intellectual property, technology, knowhow, scale and network in order to address the challenges head on.
There is no doubt in my mind that the status quo is unsustainable. Our multifaceted world is changing, and we can no longer afford to ignore the risks. If 2020 has taught us anything, it should be this.
Our approach is to fully recognise the risks, the disruption to the status quo and to identify the trailblazers – the companies that harness their intellectual property, technology, knowhow, scale and network in order to address these challenges head on, and become long-term compounders in the process.
At the core of the yoga practice is to let go. As individuals, we need to let go of our fear of change and allow our perception and mindset to shift to recognise the immense potential benefits of change. As investors, we recognise that we must align values and investments, and allow our clients’ capital to be put to work in a positive way that reflects the immense opportunities ahead. Ultimately, we must effect positive change in the world around us.