Impact Sector: Food and Nutrition

The Food & Nutrition Team

The Food & Nutrition (F&N) team includes first year Investment Associates Ada, Julia E, Julia H, Michie, Smitha, Tala and undergrad Research Fellow Aaron. The team is advised by Amy Yu, who brings experience working across several food and nutrition start-ups. Most recently, Amy helped launch grocery delivery service Instacart in Chicago and now manages their brand partnerships.

Industry Overview

The food and nutrition industry is far-reaching and investment channels run deep. Impact investors see tremendous potential in the agriculture space, an industry riddled with gross inefficiencies, daunting climate change challenges, a looming gap in agricultural production, and dire food security in vulnerable populations. The space is a major priority for everyone from the United Nation’s Food and Agriculture Association, to the USDA, to many local communities and entrepreneurs.

Major trends in the space include adapting to climate change while minimizing the impact of production on the environment, reaching and educating vulnerable communities, and increasing food safety and security. Although globalization is making continent-spanning supply and distribution chains increasingly possible, there has been a major push in the space to “localize” food and nutrition.

The business opportunities in the F&N sector can be categorized into three sub-sectors: production, distribution, and consumption. Each sub-sector can be further disaggregated into two unique categories. Our team will evaluate business opportunities within each sub-sector and its categories using the key impact goals discussed below. 

Key Impact Goals

Within the food and nutrition sector, we have determined three key drivers of impact:

  1. Access to food: Does the solution increase access to nutritious food? Equally important, does the solution decrease barriers to access for vulnerable populations (e.g., women, children, those below poverty line)? We will prioritize solutions that make food affordable, create new markets for previously unavailable foods, and remove geographic, economic, and agricultural barriers preventing people from receiving the sustenance they need.
  2. Reduction of food waste: We will prioritize solutions that seek to reduce food spoilage or responsibly dispose of or reuse food waste. These solutions increase the efficiency of the sector and overall availability of food.
  3. Reduction of carbon footprint: Does the solution decrease the negative environmental externalities of food production and distribution? Specifically, we will consider how an organization promotes sustainable practices, minimizes its carbon emissions and pollution, or encourages the use of renewable resources

Across all three impact goals, our team will explore and emphasize the potential for global scalability and integration of innovative technology within the production, distribution, or consumption of food, to ensure long-term improvements. The impact matrix below applies the key impact goals to each sub-sector and its categories.

 

Sub-Sector Deep Dives

We now dive into the trends and limitations of each sub-sector.

Production

Production involves the process of employing R&D, farming, ranching and trading of crops and livestock and captures all inputs associated with their production. Inputs include seeds, fertilizers, chemicals, technological inputs, and financing. On the other hand, processing converts crops and livestock into finished goods.

Within production & processing, we looked at two areas of the value chain to further categorize our investment recommendations:

  1. Production: The steps of the value chain that make up production include R&D, farming, ranching and trading of crops and livestock. Additionally, it accounts for the wider cluster of added services, such as financing and inputs, such as seeds, feed, fertilizers, chemicals, and technological inputs[1]
  2. Processing[2]: Primary processors are involved in the preparation of fresh foods for market. Such activities include meat slaughtering and processing and fruit and vegetable preserving. Value added processors work on the production of prepared food products. Such activities include grain and oilseed milling, confectionery, bakery, dairy, and other food product manufacturing.

Opportunities within this sector include:

1.  Improving Yield and Production Efficiency

  • Technological innovation: Remote satellite technologies are supporting better farming practices that can accommodate different agro-ecologies. In the developed world, there has been increasing emphasis on cost cutting and in providing better projections for crop production. Not only is this being addressed through big data but also in infusing technologies such as drones to support more efficient farming practices.  
  • Food innovation & biotechnology in meat alternatives and GMO: Focused on farming inputs, innovations that have received increased attention include bio-stimulants, meat alternatives, and vertical farming.

2.  Regulating Environmental Impact

  • Sustainable farming: Agricultural activity emits nearly a fifth of the world's greenhouse gas emissions. Over-harvesting can create biotic and abiotic stresses that result in soil degradation. There has been increasing investment in new innovation to mitigate the negative effects of farming. Several new seed varieties offer greater higher tolerance to drought, heat, and salinity, and early maturation to shorten the growing season, which reduces required inputs and farmers’ exposure to risk of extreme weather events.
  • Risk management: As producers face increasing volatility and risk related to climate change, there is a distinct need to diversify products or secure their livelihood despite this increased risk. As such, we have seen an increase in offerings related to micro insurance products, product diversification, etc.

3.  Access to (Agro-Specific) Capital

  • The structuring of financial products that suit the needs of farmers has seen an increasing rise, particularly in the form of small, short term loans that are tied to seasonality of agricultural output. In the developing world, innovative business models focused on leasing are giving smallholder farmers access to mechanization that help improve yield by acreage. 

4.  Decreasing Waste

  • There has been increasing investment in infrastructure that works to preserve the freshness of food including in infrastructure development (e.g., warehouses and building out a cold chain). In the developed world, social enterprises are attempting to solve the challenge of “ugly foods” by finding a new channel through which to sell these goods. 

Major challenges faced by companies in this sector include:

1.  Low access to resources (in the developing world)

  • Access to capital is low in the developing world, hindering farmers from fully exploiting the potential of their crop investment
  • Lack of infrastructure (e.g., roads, cold chain, warehouses) reduces farmers’ ability to store & trade crops
  • Lower yield rates relative to farmers in developed countries

2.  Climate change is creating new challenges for crop producers

  • The increasing frequency of droughts is impacting the livelihoods of farmers and populations who rely on their crops as their primary source of food
  • Excessive exploitation of soil and aggressive farming practices that deplete nutrients in the soil are creating emissions that harm food production

3.  Food waste

  • Reducing wastage of food processing:  Processing accounts for the largest proportion of food waste across the value chain; resulting in approximately 10% to 20% of losses[3]
  • ~40% of all food produced in the US is wasted, with 30% of consumable produce never making to retail stores due to cosmetic standards set by supermarkets

Distribution

This report defines distribution as the sub-sectors relating to moving products from food suppliers to buyers to customers. This includes transport, handling, packaging, and warehousing of the products. Major activities within these sub-sectors include developing supplier networks, coordinating between food producers, distributors, and retail sellers, building and maintaining the overall distribution infrastructure, as well as negotiating fair pricing among parties.

Within distribution, we looked at two areas of the value chain / possible pain points to further categorize our investment recommendations:

  1. Transport logistics management
  2. Infrastructure development

Opportunities within this sector include:

1. More flexibility for small suppliers

  • Using online platforms to connect local farmers and small suppliers to consumers. This removes layers of intermediaries and offers more flexibility to suppliers and buyers
  • Developing e-commerce solutions to ensure that logistical process is cost effective
  • Working with a customer subscription model, online platforms and timely home delivery

2.  Grocery alternatives to improve food access

  • Bringing ugly produce, cheaper produce to market at an affordable cost to improve food access in underserved areas/food deserts
  • Providing access to a more diverse range of products by connecting growers directly with customers

3.  Recovery infrastructure to reduce food waste

  • Reducing food waste by connecting excess unwanted food to consumers at a lower cost
  • Converting excess food into products with longer shelf lives

4.  Small-scale urban agriculture to enhance food security

5.  Shorter distance transport, reducing number of intermediaries between farms and consumers

6.  Creating greater urban food security: encouraging more inner-city indoor farmers

Major challenges faced by companies in the sector include:

1.  Thin margins for small and local farmers

  • The high level of investment needed to build and maintain infrastructure for small suppliers to reach beyond local scale
  • Need to build trust with consumers regarding food safety

2.  Lack of diverse range of food products in underserved areas/food deserts

  • $23.5 million people in the US live in food deserts where access to affordable and healthy food options is limited or nonexistent

3.  Limited scalability

  • Technological innovation remains limited or uncertain for some of the startups in the space

4.  Developed market focus

  • Many of the innovations in distribution seem to exist more in developed markets than developing markets

Consumption

For consumption along the food value chains, this report focuses on retailers and the food service sector. Within consumption, we looked at the following segments of the value chain / possible pain points:

  1. Retailers: Retailers showcase the product for the consumer. They are instrumental in connecting consumers with a variety of food and promoting innovative, nutritious and socially beneficial products because they control the allocation of limited shelf space. They include a broad range from large international supermarkets to small local corner shops to vending machines and from brick-and-mortar stores to online businesses.
  2. Food service / non-retail channels: This sector consists of food service agencies that provide a “make to order” service function to transform the food to a form that suits a consumer’s desire. The sector can be divided into consumer catering, where entities serve the public directly, and contract catering, where businesses serve a client such as a supermarket that contracts out own-label ready-to-eat meals or an airline company

Opportunities within this sector include:

1. Availability of food

  • Access to food, or specific types of food, for underserved communities and vulnerable groups. Nearly 795 million people in the world (1 in 9) do not have enough food to lead a healthy life. Many businesses have emerged to address different aspects of food shortage.
  • Bridging gap in agricultural production (biosynthetic, alternative food sources) and consumption
  • Contingency planning for emergencies and food shortage

2. Nutrition quality and education

  • Improving the variety of food options available and consumed by a community
  • Nutrition education, most frequently, but not exclusively, for school children

3.  Environment: the sector needs to balance future demand and supply sustainability and meet the challenges of a low-emission world while providing food to consumers. Businesses can do the following to regulate its environmental impact.

  • Regulating the environmental footprint
  • Minimizing waste produced by consumption, and food loss
  • Keeping locally produced food to be consumed within the community

Major challenges faced by companies in the sector include:

1.  Recruiting skilled manpower

  • The sector struggles to fill roles such as operational managers, food scientists and technologists, and sales and retail professionals.

2.  Lack of distribution systems

  • The sector is sometimes constrained by the lack of systems that move local and quality foods into mainstream market.

References

[1] While a part of production, we will not be focusing on water security & irrigation in this sector map

[2] As investments are relatively small, the focus of this paper will be on primary processors

[3] “The food value chain: a challenge for the next century.”
https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Consumer-Business/dttl_cb_Food%20Value%20Chain_Global%20POV.pdf