The investment implications of going without meat
Data suggests younger generations are already eschewing meat and dairy, motivated by health and environmental reasons. If this trend gains momentum, what will it mean for agriculture, food industries and the wider economy?
The year 2019 has been described as "the year of the vegan" according to The Economist, which sees a structural shift in our eating habits. Current polling suggests about a quarter of 18-24 year olds in the US and UK are vegan or vegetarian.
Young consumers are embracing healthy eating habits as part of their lifestyle, driving the move towards meat-free dining. These behavioural shifts are expected to persist as young consumers age, arguably propelled by two increasingly significant factors – our health and the environment. Any such shift will have economic and financial impacts, particularly for the food and beverage industry.
Obesity is on the rise – and it's costing trillions
Almost one third of the world’s population (2.1 billion people) is assessed as overweight, with 671 million classified as obese. The latter number has almost doubled since 1975. The trend is clear: a far higher 50% of the world’s population is projected to be overweight by 2030.
As the fifth-leading global cause of death, weight-related illness poses danger as well as significant financial costs to society. The global economic impact of obesity is currently estimated at US$2 trillion (£1.6 trillion) – or almost 3% of global GDP. In order to tackle this, specialists and government advisers, among others, have identified the food and drinks industry as one of the key causes of the problem. Unhealthy foods, and the businesses that produce them, are coming under the spotlight.
The World Health Organisation released a report in 2015 classifying processed meats including ham, bacon and salami, as a "Group 1 carcinogen", putting these items in the same category as asbestos and tobacco. Parallels are being drawn between the pressures faced by the tobacco industry in recent decades and the forces bearing down on the food industry today.
Increased food regulation is already in train, but further measures could include a proposed "red meat tax". This would be similar to the "sugar tax" levied on soft drinks implemented in the UK in May 2018, taxing drinks with over 5g of sugar per 100ml.
Taxing products, while remunerative for governments, has the advantage of changing consumer habits – as evident from the 2015 "soda tax" introduced in California, credited with a 9.6% reduction in sales of sugar-sweetened drinks.
Environmental concerns add to trend away from meat
Another factor driving change in our food preferences is the environment. While the narrative around reducing global greenhouse gas emissions has largely focused on those generated by the burning of fossil fuels, livestock is responsible for 9% of all human-induced emissions. This surprising figure is higher than that for emissions attributed to cars, and has led to startling headlines such as “burping cows are more damaging to the climate than all the cars on this planet”.
Cattle contribute the largest share of methane emissions, and a very close correlation has been observed between the cattle population and methane concentration in the atmosphere (see graph, below). Methane gas traps over 84 times more heat than carbon dioxide.
World's cattle herd nears 1.5 billion
Atmospheric methane rises in tandem
Source: US Dept of Commerce, National Oceanic & Atmospheric Administration
This link between consumption of meat and dairy and environmental harm is gaining traction. A much-cited Oxford University study, published last year, concluded that “avoiding meat and dairy is the single biggest way to reduce your impact on Earth”. Other messages in a similar vein include the calculation that if every family in the UK ate one meatless meal a week, it would have the same environmental impact as taking 16 million cars off the road.
Governments appear increasingly minded to implement legislation to limit greenhouse gases from livestock. The Paris Climate Agreement, adopted by 195 countries, is a commitment to limit global warming to below 2 degrees Celsius and an attempt to limit it to 1.5 degrees Celsius relative to pre-industrial levels.
In order to meet this target, the European Commission has suggested the agricultural sector will need to reduce its emissions substantially. Europe's top 20 meat and dairy companies emitted more greenhouse gases in 2016 than all of Germany, Europe’s biggest climate polluter. It is calculated that if these companies were classified as a country, they would be the world’s seventh largest greenhouse gas emitter.
Green house effect
Source: US Dept of Commerce, National Oceanic & Atmospheric Administration
Disruption within the food industry
Increasing awareness and pressure from investors has resulted in food companies and restaurant chains focusing more on the emissions arising from their entire operations.
Investor pressure is intensifying and in January this year a coalition of investors with $6.5 trillion of assets under management signed a letter asking fast food companies to reduce their carbon footprint across their meat and dairy supply chains.
Many food companies are responding to the message and are diversifying away from their traditional products. Dairy companies are producing dairy-free products, for example, and meat producers are moving towards plant-based alternatives. Dairy giant Danone, for instance, acquired WhiteWave, a US producer of alternative milks, for $12.5 billion in 2016, and is aiming to triple sales of plant-based products by 2025.
Nestle has updated its products to reflect the shift towards healthier eating and is targeting the growing vegan market, with a planned sale of its Herta meats unit and acquisition of Sweet Earth, a plant-based foods manufacturer. Unilever is looking to update its food business also, acquiring health snack business Graze in February this year.
Traditional food and beverage companies are also facing increasing competition from new and innovative players in the industry who are specifically targeting and benefiting from the vegetarian trend. Barclays estimates that the "alternative meat" market could reach $140 billion within a decade, which would account for around 10% of the $1.4 trillion spent on meat globally.
Beyond Meat and Impossible Foods are both taking advantage of this by creating and distributing meat-free alternatives in supermarkets and restaurants. There has been strong investor demand for Beyond Meat which went public on 1 May 2019 and subsequently rallied 477% in the first 30 days of trading. The alternative meat space presents plenty of opportunity for growth and very much remains in its infancy with the current market share less than 1% on a global basis.
What's for dinner? An official snapshot of UK household food consumption
Choices about food are frequently politicised and controversial. Many of the statistics presented on the topic are generated by organisations with strongly vested interests and a clear message they seek to convey.
A more detached source of data is the UK's National Statistics' Family Food report. Drawing on results of annual surveys of 5,000 households, it provides a snapshot of what British families buy and eat.
It paints a mixed picture in which animal-related products are not obviously declining in popularity.
According to the latest Family Food survey, for the 2017-18 year, consumption of milk and milk-related products has dropped 3.4% since 2014. Cheese consumption, however, has leapt by almost 13% over the period. Eggs have also had a surge in popularity (up 6.5%).
Fish consumption is down (3.6%) since 2014 but meat eating has remained almost constant, with a consumption rate of about 950g per person per week since the year 2013.
Other health messages do appear to be filtering through, however: there has been a steep decline in the consumption of sugar and preserves (down 8.5%) and a corresponding increase in the eating of vegetables, excluding potatoes, of 5%.
Assistant Portfolio Manager
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.