Future food finance key to hitting net zero

By Bruce Davis on Wednesday 13 April 2022

Future food finance key to hitting net zero
Image source: Future food finance crucial to hitting net zero

Food technologies and new modes of food production are increasingly high on the list of priorities for green investors.

The food industry accounts for over a quarter of global greenhouse gas emissions.

In addition, half of the world’s habitable land and 70 per cent of global freshwater withdrawals are used for agriculture. 78 per cent of global ocean and freshwater eutrophication (the pollution of waterways with nutrient-rich pollutants) is caused by agriculture.

Changing the way that food is produced and transported is key to tackling climate change, food security, reducing water use and pollution, restoring lands back to forests or grasslands, and protecting the world’s wildlife.

While the idea of “green investment” may be more strongly associated with issues such as renewable energy or electric vehicles, food technologies and new modes of food production are increasingly high on the list of priorities for green investors.

In particular, the UK government’s net zero target by 2050, enshrined in legislation since July 2019, has galvanised action from businesses to come up with innovative new technologies and business models that can reduce the carbon emissions producing the food we need.

And there is a growing field of UK-based investors who see not only the necessity for change, but also the opportunity for value creation and returns.

We have already seen a strong appetite for food investments focused on consumer brands or services, with many following the footsteps of Innocent to provide exits for equity investors as brands like Graze (bought by Unilever), Oatly (successful IPO) and Mindful Chef (bought by Nestlé).

Investors such as JamJar, who recently received £48m of UK taxpayer funding, are gearing up to fund the next wave of consumer brands in this area.

On the debt side, projects fall broadly into two camps, businesses that are seeking to transition to low or zero-carbon models of production and those that offer genuinely disruptive new foods which can compete on taste and nutrition but come at a significantly reduced cost in terms of carbon.   

Controlled Environment Agriculture is an investment sector that provides both these types of investments and it has been a significant theme for investors on my own Abundance Investment platform since 2020.

Worldwide, most crops are produced in open fields or in basic polytunnels. The growing season for these crops is limited, dependent on the local weather conditions and climate.

By using technologies that control light, humidity, temperature and crop growth in an enclosed controlled environment – such as advanced polytunnels, large lit glasshouses or multi-layered indoor vertical farms – the growing season can be extended and optimised. The different technologies have different environmental footprints depending on their approaches to the key areas impacting the sustainability of the produce.

The benefits, and hence the value to investors, of these approaches are common to most types of Controlled Environment Agriculture:

  • Good production yields due to the carefully managed growing conditions and therefore more efficient use of land space.
  • The ability to extend growing seasons means a reduction in imports, reducing how far food is transported often by thousands of miles.
  • Less food wastage due to the increased quality of the produce which has a longer shelf life.
  • Higher quality crops which have good nutritional value, taste and appearance.
  • Production and therefore supply and price can be more consistent as the crops are not impacted by seasonal or adverse weather and supply side disruption making it attractive to food retailers.
  • Water usage can be reduced as it can be captured and re-circulated.
  • Reduced risk of contamination and an increase in the traceability of produce. These characteristics mean that controlled environment agriculture has the potential to provide a way of producing more homegrown food more efficiently and in a more environment friendly way than other methods of production.

 There are a number of risks, however, so it is sensible that investors ask some deeper questions about the promise of these innovations in the market:

  • How distinctive is the brand offer and how defensible is its positioning (and premium)?  Competition in the consumer brand market is fierce and hard fought.
  • Pricing can be cut-throat and supermarkets often use the food category as a marker of their overall value for money proposition which can undermine the profitability of their food suppliers.
  • Always look carefully at the inputs – especially the need for energy - in a world of rising energy costs.
  • Does the company have experience and resilience to handle shocks – eg disease, production errors etc? Food is a perishable product and a large percentage of crops are lost each year to a variety of risks.
  • Is there a regulatory risk for the company in terms of food standards which may affect its ability to ship or sell its products?

The most recent offer raising finance through my own platform is ‘OneFarm’. This business combines the benefits of Controlled Environment Agriculture with the fast-growing technology of vertical farming. OneFarm is raising more than £14m to build one of the largest and most technologically advanced vertical farms in the UK.

The money is being raised jointly, through an investment from New Anglia Local Enterprise Partnership working with Suffolk County Council, alongside a crowdfunding offer via the Abundance Investment platform. The investment bond offers a nine per cent IRR for seven years to deliver a range of leafy greens, herbs and microgreens to local supermarkets, catering companies and innovative recipe delivery firms. 

 Other new food technology projects that have raised money from the public recently include two raises via the Seedrs equity crowdfunding platform. ‘Square Mile Farms’ raised over £660,000 earlier this year and ‘THIS’ (a plant-based food products business) raised £3m in 2020.