This is a great nation. We are good people. And over the centuries, through storm and strife, in peace and in war, we've come so far. But we still have far to go. We'll press forward with speed and urgency, for we have much to do in this winter of peril and significant possibilities, much to repair, much to restore, much to heal, much to build, and much to gain.
- President Joe Biden
This past year tested us in new and challenging ways – a global pandemic, continued acts of racial injustice, climate change, and a divisive election sent us slipping regularly between once-in-a-generation crises. It left us exhausted and at times simply overwhelmed by the weight of it all. But, as we look forward, and reflect on our new president’s powerful words calling for unity and expressing optimism for the future, we have hope. 2021 is the time for thoughtful, urgent action.
His speech reminds us that food can bring us together. Food fosters community, conversation and wellbeing. It underpins our social fabric and directly impacts the health of our communities and planet. It’s something we all have in common because, of course, everyone eats. Everyone has a vested interest in building a stable, resilient and healthy food system.
This simple fact positions the food system uniquely to solve complicated problems, and we believe that innovation in the food system can bring forth scalable solutions to some of the most complex and critical challenges bearing down on us. From bridging the urban and rural divide in the United States to providing profitable solutions to climate change and preemptively building a more resilient, healthier population.
Where the American Farmer and Consumer Sit Today
Over the last decade, shifts in consumer demographics and preferences coalesced with increasing pressures from climate change to create an agriculture environment that is ripe for innovation.
Today’s consumer is younger, healthier and more digital. Millennials make up the largest consumer class in U.S. history at 72 million giving them significant purchasing power. They also ask a complex set of questions when purchasing food, beyond just price and taste, to other considerations including animal welfare, source and authenticity, environmental impact, and even the farmer. As a result, 90% of the top 100 CPG brands are losing market share, while clean label products are growing at 6x as compared to conventional. Transparency has become critically important.
These changing consumer preferences flank conventional agriculture with economic and environmental pressure. Farmers are adopting new, sustainable technologies and solutions to meet consumer preferences and improve profitability. Transitioning to these new approaches are challenging and require risk, investment, time, long-term vision, and a change in mindset, but over time help farmers increase profitability and positively impact the environment.
Meanwhile, farm bankruptcies continue to rise. Family farmers filing bankruptcy reached an eight-year high in 2019 with 595 filings. That trend is expected to continue into 2020.
The Global Food System is at an Inflection Point
As our past research showed, several trends that were in motion pre-coronavirus have been further accelerated by the pandemic, including alternative protein, indoor agriculture, digitalization of agriculture and grocery and food as medicine. As the pandemic enters its tenth month, new consumer behaviors are becoming more permanent. Coupled with rising consumer concern about climate change, these factors are pushing the global food system to a turning point and amplifying four key trends.
Commingling Climate and Profit
In 2020, Covid-19 paired with the looming climate crisis have resulted in a surge of investor interest in impact-focused investing, with $1 trillion in ESG investor assets and Q2 2020 flows up 72% year-over-year. That’s a good thing because it will take significant long-term investment, along with the right technology, incentives and partnerships, to build and scale systems of the future that will mitigate these crises. In addition to funding solutions for some of our most pressing issues, investors are seeing significant returns on their investments. ESG energy companies, as an example, saw a 6.8x EV / revenue multiple as compared to 1.7x for the broader energy market.
Channel Digitization
It’s no secret that more people have been shopping online during COVID. As a result, online grocery penetration rose to 8% in 2020, up from 4% last year. Digitization is also happening on the farm as producers look to mitigate the effects of climate change, lower production costs and optimize yields. Agricultural IoT is expected to grow from 13 million connections at the end of 2014 to 225 million connected devices by 2024.
Global Decommodification
De-commoditization, coupled with technologies that place deflationary pressure on the industry, are catalyzing breeding for attributes beyond yield, a return to polyculture farming and a shift from a strict focus on yield to profit per acre. This may lead to a leveling off of the corn and soybean super cycles that have occurred over the last 20 years.
Although animal agriculture remains a large and growing market, Covid exposed challenges with the industry’s long production cycles, centralized production and limited processing facilities. It has allowed for faster consumer adoption of and interest in alternative proteins, including plant-based protein, fungi, algae and other biomass concepts including cellular meat. As a result, plant-based protein grew significantly during Covid with July sales reporting 90% higher year-over-year.
Convergence of Food and Health
Around 90% of COVID-19 admissions have involved at least one comorbidities, including obesity, type 2 diabetes, and others. Of these comorbidities, many are nutritionally-related and could be positively impacted from a healthier food system. Growth in healthier food choices, paired with advances in functional foods and the emerging field of food as medicine, have the potential to not only reverse our current health crisis but offer an alternative approach to improve human health and wellbeing.
It remains to be seen how the trajectory and pace of change of these trends will shift with a new administration in place and when the Covid-19 vaccine reaches broader distribution. Regardless, partnerships between the public and private sectors are critical to emerge from this pandemic stronger and more resilient.
Healing Our Country, People and Planet
This is the time to heal in America.
- President Joe Biden
President Joe Biden’s 100 day plan includes a focus on pandemic response, reopening the economy, climate change, and criminal justice and immigration reform. On his first day in office, he signed 17 executive orders aimed at combating the Covid-19 pandemic, addressing racial inequities and prioritizing climate action, including rejoining the Paris climate accord. We support the new administration’s priorities to heal our country, our people and our planet and believe food and agriculture can serve as a bridge towards a stronger and more unified future for our country.
At S2G Ventures, we believe that innovation must be a critical area of focus to meet the challenges of 2021 and beyond. Our portfolio represents trailblazing entrepreneurs working across all stages of the supply chain to build a healthier, more sustainable and more resilient future food system. Together, they represent farmers, ranchers, scientists, and technologists, who are all experts in their respective fields. We have seen them working hard every day to support their employees, customers and communities during Covid-19, partnering across the supply chain to trial new innovations, and bringing new products and services to market.
From our purview, looking at the macro system trends as well as diving deep into the nuances of food production with our entrepreneurs, we see three areas of opportunity where industry and government can work together to bring a positive impact to the food system. These three areas of focus can come together to create a future food system that supports healthy people and communities, fosters strong, sustainable farm operations and helps farmers profit by moving to the front lines of climate action.
Rural Renaissance
Farmers feed our nation, and to be best positioned to do so, we must support a system that supports farmer profitability and economic growth in rural communities. In a system that is connected through rural broadband, prioritizes and values healthy soils, and shifts from a culture of yield to one of profitability.
Nutrition as National Security
Over 70% of American adults are classified as obese and more than 100 million adults falling under a pre-diabetic classification. At the same time, 66.5% of personal bankruptcies were tied to medical issues. Our food system has the potential to treat this health crisis and improve human health and wellbeing for all people.
Resilient Supply Chains
COVID-19 exposed the fragility of our food system resulting in impacts to farmers, producers, and food businesses across the supply chain and ultimately consumers. Estimates show that 17 million people in the country could become food insecure because of the pandemic, bringing the total to more than 54 million people in the country, including 18 million children(1). We envision a food system that provides healthy and safe food to all people, reduces costs, improves the transparency of the supply chain, and supports workers fairly across all stages of the value chain.
In the coming months, we will be exploring these themes and sharing our perspectives on innovative solutions and policy considerations that can move our food system towards our shared goals. We look forward to engaging in dialog with the new administration as they shape their priorities. And we hope you will join the conversation. Follow us on LinkedIn and Twitter to hear more.
