In our recent report Sustainable Protein: Investing for Impact at the Nexus of Environment, Human Health and Animal Welfare, we pointed out that in developed countries, diet-related health concerns and less- or no-meat lifestyles have sharply reduced consumption of red meat.  Flexitarian, vegetarian and vegan preferences have been driven, in part, by animal welfare and climate change concerns.

Today, a flexitarian diet – one that doesn’t adhere to a specific eating style and may combine plant-based and meat-based dishes – is now practiced by 31% of Americans, with another 13% subscribing to a specific eating lifestyle such as veganism or vegetarianism. In the U.K., almost 13% of the population is now vegetarian or vegan, with a further 21% identifying as flexitarian, according to a 2018 survey of British consumers.  Our report also highlighted a preference by consumers for fresh and organic products.

On February 21, Kraft Heinz announced that it was writing down the value of some of its best-known brands by $15.4 billion which, according to a Bloomberg article[1] was “an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products.”  Subsequently, the stock price of Kraft Heinz plunged 21%.

Another Bloomberg article[2] observed that “all the old guards of the supermarket aisles are struggling as consumers opt for fresher, less-processed and more on-the-go food items from upstart businesses.”  In our report, we pointed to rapid growth in the organic yogurt, almond milk and protein bar categories in recent years, with many of the leading companies being relatively young start-ups.  While Kraft Heinz attempted to respond to these trends, its efforts haven’t been enough.  As Bloomberg observed, the company “has tried to spruce up a tired suite of brands — from organic Capri Sun to natural Oscar Mayer hot dogs.”

Our report concluded that, reflecting the shift to sustainable protein, opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.

[1] Kraft Heinz Falls Near Record Low on $15.4 Billion Writedown, 2019-02-22

[2] Kraft Heinz’s Financial Recipe Turns Sour, 2019-02-22

Advances in agricultural technology, changes in human diet, and rising awareness of the environmental destruction caused by factory farming are accelerating the rise of sustainable protein.

Investors can target a number of outcomes — access to a sustainable food supply, lower greenhouse gas emissions, more plentiful and cleaner water, and a reduction in animal cruelty — through sustainable protein related investments. Opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.

In this report we outline how a confluence of behavioral, technological, and regulatory changes have fueled the trend toward sustainable protein; identify emerging developments in the “alternative protein” space; and highlight ways to consider sustainable protein investment across asset classes.

Download Sustainable Protein: Investing for Impact at the Nexus of Environment, Human Health and Animal Welfare

As part of Cornerstone’s ongoing research on antibiotics and livestock production, we attended the FAIRR Initiative’s event on antibiotic resistance and investment risk in New York City on Monday, March 20, at BlackRock’s office. (FAIRR, or Farm Animal Investment Risk and Return, is an investor initiative that aims to put factory farming on the ESG agenda.)

The event was well attended by a mix of investors, industry participants, and NGOs. Dr. Lance Price of the Milken Institute School of Global Health gave the keynote presentation. Erik Olson, Director of the Health Program at the Natural Resources Defense Council (NRDC), provided a policy and market trends update. The event closed with a session with panelists from Aviva Investors, Green Century Capital Management, Chipotle, and Perdue. Attendees who were new to the topic received a useful overview, while those that have been following the issue were presented with valuable perspective.

With increasing global demand for animal protein, traditional farming methods are being replaced by a new industrial model – the factory farm. While this new method has increased food production and lowered prices for consumers, antibiotics are being utilized more in the process. One speaker said Pew Charitable Trust data shows that approximately 80% of all antibiotics used in the US are fed to farm animals. We note that the Animal Health Institute refutes this figure, saying it was deduced by comparing two data sets that are not comparable. While the number may be debatable, our research indicates that the proliferation of antibiotic resistance is primarily attributed to the misuse and overuse of the drugs in human medicine and animal agriculture. (See our October 2015 report Antibiotics and Animal Health: Value-Chain Implications in the US, as well as subsequent updates.)

One of the most concerning developments is the discovery of the mcr-1 gene on Chinese pig farms and on meat in supermarkets. This single, easily spreadable gene makes the bacteria that carry it resistant to colistin, our “antibiotic of last resort”. The scientific report that originally reported this issue also presented evidence that the mcr-1 gene has already been transferred from pigs to humans.

From a regulatory standpoint, Maryland and Oregon are considering legislation like California’s SB 27, a bill limiting the use of medically important antibiotics (MIAs) in animal agriculture. In addition to prohibiting antibiotics for growth promotion, SB 27 prohibits the use of MIAs in a “regular pattern” (i.e., for growth promotion and disease prevention), thus going beyond federal policy outlined in the FDA’s Guidance for Industry (GFI) 213. This addresses concerns that animal producers may use antibiotics for growth promotion under the guise of disease prevention. As we have discussed in prior research, the potential for more restrictive regulation (as seen with SB 27) and shifting consumer demand poses a risk to antibiotics sales for animal health companies.

A discussion of company policies on antibiotic use at various points in the value chain provided valuable insight. One speaker said that in 2012 less than 10% of chicken was raised with no routine antibiotics. In 2015, that number had grown to 45%, illustrating the speed at which industry is reacting to changing consumer preferences. Perdue began the process of removing antibiotics from production in 2002 and by 2006 had completely removed antibiotics used for growth promotion. The company finished removing antibiotics in hatcheries in 2014 and in 2016 pulled animal-only antibiotics (ionophores). Currently, Perdue only uses antibiotics when chickens are getting sick, which occurs in about 5 percent of its flocks. This means that 95% of the company’s production eligible to be sold under the label “no antibiotics ever.”

Our prior research assessed poultry producers’ antibiotics use policies and we highlighted Perdue as a leading performer and Sanderson Farms as lagging. Sanderson does not believe the antibiotic-free (ABF) movement is grounded in proper science and ethics, and believes competitors’ efforts are a marketing gimmick aimed at charging higher prices. While Sanderson’s view about strict ABF policies compromising animal welfare is worthy of examination, we question the company’s strategy to combat shifting consumer demand. In February 2017, a non-binding shareholder proposal requesting that Sanderson phase out the use of MIAs for growth promotion and disease prevention failed, though it received support from 30% of votes cast.

In the restaurant space, KFC stands out as a major laggard in the NRDC’s 2016 Antibiotics Scorecard, which grades the US’s top 25 restaurant chains on their policies and practices regarding antibiotics use and transparency in their meat and poultry supply chains.

While most companies have been focused on reducing antibiotics in poultry, pork and beef are beginning to attract attention. One speaker said pork is where chicken was a few years ago and noted that the pork industry is more vertically integrated than commonly believed (he believes it is about 80% integrated). Vertical integration should, in theory, make the process of reducing antibiotics more achievable. The beef industry is “significantly” more diffuse. Companies’ recent actions also suggest movement on phasing out antibiotics from pork and beef. Subway committed to serve antibiotic free beef and pork by 2025, Tyson and Smithfield now have “no antibiotics ever” pork product lines, and Perdue purchased Niman Ranch, which adds an array of antibiotic free beef and pork to its product portfolio.

Rounding out the conversation, speakers discussed alternatives to antibiotics. Probiotics, vaccines, and biosecurity are being viewed as promising areas for growth. This supports our prior research highlighting investment opportunities in companies producing probiotics (e.g., Novozymes) and biosecurity products (e.g., Neogen). We also believe vaccines can help offset the pressure on animal health companies (e.g., Zoetis and Phibro Animal Health) due to falling sales in medicated feed additives.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group.  He is responsible for researching industries, companies and trends in the field of sustainable finance.  Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at AllianceBernstein where he covered the energy, industrials, and materials sectors. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

 

On October 20, the Detroit Health Department announced an investigation into two cases of Hepatitis A potentially linked to Whole Foods’ stores. Whole Foods contacted the Detroit Health Department to report one of the cases, while the second case has not been definitively linked to Whole Foods. While we view the reporting of this incident to health officials as positive, we have concerns about the grocery chain’s food safety preparedness given its exposure to prepared/ready-to-eat food and its lack of food safety disclosure.

Ready-to-eat food accounts for the highest percentage of recalls in the US and Prepared Foods/Bakery accounted for 19% of Whole Foods sales in 2015. Prepared foods is a growing area for grocery stores, with consumers citing time and affordability as reasons for this choice. In June 2016, Whole Foods received a warning letter from the Food and Drug Administration citing ‘serious violations’ of federal regulations during an inspection of the company’s food preparation facility in Massachusetts. Whole Foods stated that it would respond to issues raised in the letter, but we have not observed an increase in disclosure.

Our review of previous food safety incidents revealed that grocery store sales suffer less than restaurants; however, growth in prepared foods may lead to an increased impact. In 2008, Kroger experienced a multistate outbreak of E.coli linked to ground beef but did not experience a material sales impact. Restaurant chains such as Jack in the Box, Yum Brands and Chipotle experienced multi-quarter same-store sales impact as a result of a food safety incidents. We identified a key factor being the amount of time between purchase and consumption—adulterated or unsafe food is more likely to be consumed at restaurants. However, Whole Foods’ prepared foods are consumed quickly, thus creating a possible restaurant-level food safety risk.

In our July 2016 report Food Safety: In a State of Transformation, we developed a food safety disclosure assessment tool comprising 11 elements. Elements included internal food safety systems and independent auditors/standards, board expertise and product traceability. We view disclosure as a proxy for food safety performance as it suggests the company is actively considering the relevant issues and is able to publicly discuss its approach.

Whole Foods currently provides limited disclosure related to food safety, even after the FDA warning. We could not locate disclosure on an internal safety system or external auditors for its operations including its prepared food facilities. Whole Foods requires mandated food safety plans for high-risk items (e.g. eggs and baby food) but suppliers are not required to comply with a food safety standard accredited under the Global Food Safety Initiative. There is no food safety expertise present on the board or published Key Performance Indicators related to food safety.

Whole Foods recognizes in its 10K that it is held to higher standard on food safety due to its reputation but, given lack of disclosure, we question whether Whole Foods is appropriately considering this risk should further incidents arise. Increased disclosure would provide investors with greater confidence that the appropriate processes are in place. Disclosure would also provide investors with confidence that issues will be managed quickly and efficiently to avoid significant impact to the business.

Click here to download this report.

Sebastian Vanderzeil is a Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Recent survey results indicate a move away from antibiotics in emerging market poultry production. WATT Global Media surveyed poultry feed producers and consumers globally (i.e., nutritionists, consultants, veterinarians, production managers) and 43% of respondents said that more than half of their feed production is now antibiotic-free. Based on the regional breakdown provided, we estimate that emerging markets accounted for 60-75% of survey participants.

Possible divergence from company views. In fiscal 4Q16, Phibro Animal Health (PAHC: $25.54) reported modest growth in sales of medicated feed additives (MFAs) containing antibiotics. Weakness in the US was offset by international growth from emerging markets such as Brazil and China. On the earnings call, Phibro cited emerging markets’ growing populations and need to improve productivity in food production as a long-term driver for their international MFA business. Our read of the survey results is that investors should be cautious assuming that growth in emerging market poultry production will translate into similar growth in MFAs.

Nutritional and specialty feed additive opportunities in EM. Our October 5, 2015 report Antibiotics and Animal Health: Value-Chain Implications in the US highlighted nutritional and specialty feed additives as having significant growth potential. We believe the survey implies a broader opportunity in EMs with two-thirds of survey respondents exploring, testing or using feed additives as antibiotic alternatives. Probiotics and prebiotics usage is also on the rise, supporting our previous view that growth these categories would outpace other additives.

Investment implications. For animal health companies, the survey signals possible checks to future growth in antibiotic use in EMs. Nutritional and specialty feed additives are generally produced by major chemical companies and represent a small portion of overall revenue, but opportunities in the EM appear to be growing. For companies with more concentrated exposure, probiotic and prebiotic feed additives offer the greatest growth potential.

Click here to access the full note.

Michael Shavel is a Global Thematic Research Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

The Farm Animal Investment Risk & Return (FAIRR) Initiative has issued a second booklet of case studies that showcases how leading investors and investment service providers from around the world are integrating issues relating to factory farming into their investment processes. Cornerstone’s Michael Shavel was asked to contribute to the booklet regarding his work on antibiotics and animal farming. Other featured investors include ACTIAM, Australian Ethical investment, Coller Capital, IFC, New Crop Capital and Robeco Institutional Asset Management. Below we offer an excerpt from the FAIRR report, which can be accessed in full here.  A summary of Cornerstone Capital Group’s October 2015 report can be accessed here.

Michael Shavel, Cornerstone’s Global Thematic Analyst, explained to FAIRR that clients and prospects are increasingly asking about sustainability issues related to intensive farming. He said, “It is an important issue that is moving from the niche to the mainstream. Some clients are concerned that there are serious health issues potentially connected to the factory farming model and they want to know how they can align their portfolios with their concerns, or make sure they don’t own companies that are ignoring these issues”.

Assessing Managers

On behalf of its investment management clients, Cornerstone Capital Group performs due diligence on managers, evaluating both their financial performance and the degree to which they incorporate ESG factors into investment strategies.

For clients with a focus on animal welfare and factory farming, the firm leverages its research to include questions related to these topics into the manager due diligence process. Shavel explains, “Where relevant, we ask portfolio managers questions on areas such as the food safety supply chain to get a sense of whether they take these issues seriously. It becomes clear pretty quickly whether they have considered intensive farming issues without any depth”. For example, if the manager owns a poultry producer, Cornerstone will ask how that manager thinks about the development of the antibiotic-free chicken market and what impact it might have on margins and future market share.

Antibiotics and Animal Health

One of Cornerstone’s flagship reports and work streams has been their thesis on antibiotics and animal health. In brief this argues:

Shavel elaborates on this theory, pointing to growing consumer demand for meat and poultry raised without the routine use of antibiotics. Market research firm IRI, he notes, found that in the year up to 25 Jan 2015 sales of antibiotic-free chicken increased 25% in dollar terms to 11% of overall chicken sales in the US.

This changing consumer demand, and changing regulation presents significant near-term and long-term risk to earnings for some animal-health companies. And Shavel points to US poultry producers Sanderson Farms as an example of a company that has so far resisted the industry’s moves to curb antibiotic use.

Turning Risk into Opportunity

Cornerstone’s research argues that as nutritional feed additives are generally produced by major chemical companies and sit as only a small portion of overall revenues, investors should look to companies with more concentrated exposure to prebiotic and probiotic feed additives for a chance of good returns. Shavel points to companies like Danish biotech firm Novozymes, who recently partnered with Adisseo to develop a new probiotic product for poultry that could act as an alternative to using antibiotics as a growth promoter. “It’s important to watch these companies,” says Shavel, “because if the data around some of their products is compelling it could be scaled up and really move the needle for a business of their size.” Cornerstone has also highlighted other areas of potential opportunity such as vaccines and biosecurity – i.e. alternative processes, systems or products that can help replace antibiotics and reduce the chances of an infectious disease being carried on farms.

Beyond Antibiotics

Shavel acknowledges that the overuse of antibiotics is not the only ESG issue associated with factory farming, but says that Cornerstone has yet to do in-depth research on other factors such as environmental damage. “On a personal level,” he adds, “it’s clear to me that advances like antibiotics have enabled factory farming to be one of the primary methods for feeding the world but that some rethinking of intensive farming is going to need to come into play”.

Antibiotics and Animal Welfare

Shavel also points to the complex, ongoing discussion on the relationship between antibiotics and animal welfare. He says, “We’ve observed consumers campaigning for ‘no antibiotics for animals ever.’ But when engaging with companies on this we also hear the argument that antibiotics are necessary to treat certain types of disease (even on less intensive/non-factory farms), and refusing to treat sick animals wouldn’t be consistent with animal welfare obligations. Thus there is an important nuance, says Shavel, between slogans such as ‘no antibiotics ever’ and investors’ calls for an end to the routine use of antibiotics important to human health in their global meat and poultry supply chains.

 

The FAIRR Initiative is a collaborative investor network. It aims to raise awareness of the material impacts that factory farming can have on investment portfolios and works to help investors share knowledge and form collaborative engagements on issues related to factory farming.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group.  He is responsible for researching industries, companies and trends in the field of sustainable finance.  Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at AllianceBernstein where he covered the energy, industrials, and materials sectors. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

US markets moving away from antibiotics; our thesis remains intact. In our October 5, 2015, report Antibiotics and Animal Health: Value-Chain Implications in the US, we posited that consumer demand could push food supply chain companies to phase out antibiotics beyond the level required by FDA guidelines. We are seeing this play out as a growing number of producers, restaurants, and supermarkets announce antibiotic policies that are more restrictive than US regulatory guidelines. We believe these actions are accelerating the move away from antibiotics in US markets.

Weak US antibiotic sales evident in Phibro’s earnings. We previously highlighted stand-alone animal health company Phibro Animal Health as a gauge for how this theme is progressing. In its most recent quarter (fiscal 4Q16), Phibro reported that sales of medicated feed additives (MFAs—which contain antibiotics) increased 3%. The increase came after reporting declines in three of the last four quarters. If not for modest growth in the international market, the declines in the US market would be more readily observed. The company also expects MFAs to see a stable to single-digit decline in 2017 versus the prior year. In contrast, Phibro highlighted continued double-digit growth for nutritional specialties and vaccine products that we previously identified as antibiotic alternatives.

Sanderson Farms’ antibiotic policy pushes back on consumer and industry trends. In assessing poultry producers’ antibiotics use policies, we highlighted Perdue Farms (private company) as a leading performer and Sanderson as lagging. Sanderson does not believe the antibiotic-free (ABF) movement is grounded in proper science and ethics, and believes competitors’ efforts are a marketing gimmick aimed at charging higher prices. To this end, the company designed a marketing campaign against ABF chicken at a cost of $2.5 million per month through at least the end of 2016. While Sanderson’s view about strict ABF policies compromising animal welfare is worthy of examination, we question the company’s strategy to combat shifting consumer demand. We believe CEO Joe Sanderson is also hedging his bet by suggesting that the company could transition away from antibiotics quickly. It took Perdue roughly a decade to transition about half of its chickens to “no antibiotics ever,” so we believe Sanderson’s view is overly optimistic.

Growth opportunities in nutritional feed additives and vaccines. Recent company announcements reinforce our view that specialty and nutritional feed additives as well as vaccines have significant potential for growth. Pilgrim’s Pride said that it is working closely with a large agri-bio firm to develop customized probiotics for its chickens. Citing the promising long term outlook for animal health probiotics, Chr Hansen will continue to expand its presence in this area despite near-term headwinds related to the depressed agricultural sector. In July 2016, Evonik acquired the probiotics business of private Spanish feed ingredients company Norel. Evonik believes probiotics will be critical components of a line-up of possible antibiotic alternatives. As aforementioned, Phibro believes it is well positioned to benefit from adding vaccines and nutritional specialties to its product portfolio, and expects continued double-digit growth for these product lines.

Lastly, on September 21, the United Nations confirmed its Global Action Plan on Antimicrobial Resistance. This is only the fourth time a health issue has been taken up by the UN General Assembly (the others were HIV, non-communicable diseases, such as strokes and heart attacks caused by obesity or smoking, and Ebola). The Plan cites the need for ‘effective and enforceable regulation…for antimicrobial medicines in human and animal health.’ We see this Action Plan as a potential catalyst for antibiotic regulation in other major meat-producing companies, and are watching key markets (Brazil, China, and Australia) closely.

Download our report, including important disclosures, here.

Michael Shavel is a Global Thematic Research Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

 

 

Technology has changed the world — yet our diets are behind the times, especially when it comes to efficiency. We base our diets on calories, not nutrients, and our food conversion leaves a lot of unhelpful material inside the body and a lot of waste.

But improving nutrition efficiency is possible.  We can improve the amount of nutrients we extract from our food by introducing supplementary enzymes.

Supplemental Enzymes: Proven Benefits

Our body naturally produces enzymes designed to break down the components of the foods we eat into molecules our body requires to survive, repair, and protect itself. As one ages, and as one eats a narrower variety of foods, these enzymes become less effective, preventing optimal uptake of nutrients from foods and increasing the volume of waste products produced from digestion and metabolism.  The same process occurs in livestock, and it is through research and development in the agricultural sector that the industry has discovered the effects of feed and supplemental enzymes on animal health and digestion.

The results of feed and feed combinations on cows have been exhaustively studied, documented, and applied in the agribusiness industry for years. Cattle on a grass-fed diet, the optimal calorie source for their digestive systems, have been shown to be healthier and produce better quality yields than those on corn- or soy-based feed. However, when supplemental enzymes were added to the latter diet, those cows produced around 30 percent less greenhouse gas emissions (in the form of methane through flatulence) and delivered increased protein weight versus unsupplemented corn- or soy-based feed. Because cows are not naturally disposed to consuming these feeds, their digestive systems lack the enzymes to properly extract nutrients from them. Cattle producers discovered that the innovation of enzyme supplementation allowed livestock to adapt to a diet their systems were not necessarily designed for.  Nutrient efficiency isn’t just a matter of good livestock health – it’s also good business, as animals that can better digest their food produce more milk, more meat, and less waste per kilogram of feed. They require less pasture land and water as well.

These innovations in enzyme supplementation can be applied in other sectors too. Farmed tilapia, the new darling of the aquaculture industry, suffers from a significant drop in protein quality and beneficial omega-3 fatty acids, not to mention bland flavor, as a result of switching from their natural insect- and fish-based protein sources to the commonly used soy- and grain-based feed many fish farms rely on to keep costs down and profits up. Supplemental enzymes provided along with the feed of these new “chickens of the sea” may be the key to maximizing the nutrient quality of farmed fish, which continues to be dwarfed by that of wild varieties.

Challenges to Extending Impact to People

Finally, at the top of the food chain, nutrition experts and health gurus have been exploring the possibility of supplemental enzymes to improve the quality of nutrition human beings gain from the food they eat. There are many challenges for the earnest pursuit of enzyme supplementation, however. One of the greatest is the lack of a regulatory framework to properly categorize and validate the content of supplements. The US supplements industry is notoriously unregulated, leaving a difficult environment for consumers to navigate, with little to rely on for guidance other than manufacturers’ claims and anecdotal evidence from testimonials. The Food and Drug Administration’s hands-off approach simply does not encourage the supplements industry to pursue the costly scientific research necessary to provide consumers with proof of their products’ effectiveness in the form of hard data and results.

Regardless of the well-placed doubts about the supplements industry as it operates today, we should not throw the baby out with the bathwater. Serious consideration should be given towards the study of the potential positive effects of enzyme supplementation on our own ability to optimally extract nutrients from the foods we eat. “As above, so below,” the axiom goes, and it would make little sense to assume that enzyme supplementation, which has been proven effective for years in livestock, would not yield the same or similar benefits for our species.

Nutritional Efficiency’s Role in Combating Malnourishment

Previous articles I’ve written have spoken at length on the success gap between solving the hunger crisis and the continuing problem of malnutrition. In many of the instances where famine was ended through hardy hybrid crops and improved farming practices, monoculture has led to mono-nutrition. Eating cassava root fried in palm oil, for instance, might be a

cheap supply of calories, but the quality and variety of nutrients provided by such a meal are limited by how our bodies are designed to extract nutrients from these foods. The same goes for the nutrient-poor diets of Western and emerging markets, where obesity and malnutrition are rising in tandem. Food producers invest a great deal of resources in “fortifying” their products with vitamins or minerals, but these efforts are fruitless if we cannot properly extract the added nutrients from these foods. Perhaps enzyme supplementation would be a way to bridge this divide in human diets? Medical science has already proved the positive effects of dietary probiotics to aid in digestion and metabolism in people. Enzymes may be the solution for improving nutrition across the wide spectrum of human diets across the world.

One of the primary guarantors of food security is efficiency. Making sure that resources we put towards food production are used optimally is just one part of the equation. The other part lies in increasing the efficiency of nutrient extraction by those that consume the food we produce. For every calorie consumed, we must ensure the maximum nutrient yield to ensure our resources don’t ultimately end up as waste; and this is true whether you are a cow, a fish, or a person walking down the street.

Karla Canavan is Director of Sustainable Finance for Bunge, where she develops new opportunities in the food and energy sectors to achieve triple-bottom-line returns for investors. She has been involved in trading, finance, and agribusiness for more than 20 years.

 

 

 

– Revenues for the fourth quarter of Neogen’s 2016 fiscal year (ending May 31) were $90.08 million (+15% YoY), versus a consensus estimate of $86.3 million. Revenues for fiscal 2016 increased 13.5% over fiscal 2015. Fiscal fourth quarter EPS was $0.26 (+4% YoY), in line with consensus estimates. Fiscal 2016 EPS increased 7.8% over fiscal 2015.

– Food Safety segment revenues increased 11% during fiscal 2016 versus the prior year. Growth was driven by rapid tests for food allergens and AccuPoint Advanced Sanitation Monitoring System products.

– Animal Safety segment revenues increased 16% during fiscal 2016 versus the prior year (14% organic). Growth was driven by agrigenomics testing and biosecurity products.

Please click here to read the full report.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a research analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

 

A number of highly publicized food scares have swept through the global food chain in recent years. Headlines include the outbreaks of E. coli and norovirus at Chipotle, Salmonella linked to Foster Farms poultry, melamine adulterated infant formula in China, and Salmonella-contaminated peanut butter leading to the imprisonment of the former CEO of Peanut Corporation of America. These events highlight vulnerabilities in the food safety chain that present opportunities and risks for investors.

To this end, the food industry is undergoing a transformation as it addresses food safety risks in an increasingly global, complex supply chain. Food safety encompasses the practices and conditions promoted across a food supply chain with the intention of ensuring food quality and preventing contamination and foodborne illness.

In this report, “Food Safety: In a State of Transformation,” we examine major food safety events that have affected publicly traded US companies over the last 25 years. We identify the behavioral/demographic, regulatory, and technological factors acting as catalysts for the food industry’s transition towards increasingly proactive and innovative food safety strategies. To assess the opportunities and risks associated with this transition, we evaluate the food safety practices of nearly 60 companies throughout the food supply chain. Data is aggregated at each level of the supply chain and key findings are discussed.

Converging forces impacting food safety

Converging forces impacting food safety.jpg

Source: Cornerstone Capital Group

We highlight three areas of food safety innovation for investors wishing to gain exposure to the food safety theme: 1) Food testing and analysis; 2) supply chain technology; and 3) automation and robotics. We present a list of 30+ companies that offer food safety solutions and rate their level of exposure. We also offer industry-level observations that may lead to additional avenues of inquiry.

Cornerstone Capital Group is pleased to have had the opportunity to produce this report on behalf of the Investor Responsibility Research Center (IRRC) Institute.  For more information please visit  irrcinstitute.org.

To download the full report, please click here.

 

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Andy Zheng is a Research Associate at Cornerstone Capital Group. Andy graduated from Bowdoin College with an interdisciplinary major in Mathematics and Economics and a minor in Visual Arts. He spent his junior year studying abroad at the University of Oxford and the summer prior to that at the Sorbonne in Paris.

 

Interest in alternative nutritional feed additives is growing. As we discussed in our October 5, 2015 report Antibiotics and Animal Health: Value-Chain Implications in the US, a confluence of regulatory action and heightened consumer awareness is exerting pressure on livestock producers to reassess their usage of antibiotics.

Our optimistic view on specialty and nutritional feed additives is supported by Adisseo and Novozymes’ recent launch of a probiotics product.

Rapid growth of probiotics market. Our previous research indicated that the global feed additives market, which we estimate to be valued at approximately $15 billion, could experience mid-single-digit growth annually through 2020. Adisseo and Novozymes have also adopted a favorable outlook on the market, estimating the probiotics market alone to be at “EUR 200-300 million and 8-10% annual growth.”

Figure 1: Antibiotics and feed additives

antibiotics flash figure 1

 

Source: Cornerstone Capital Group

 Figure 2:  Feed additives outlook
Probiotics are forecast to grow rapidly and face less competitive pressure

antibiotics flash figure 2

Bubble size denotes the current size of each market; market growth outlook is estimated through 2020.

Source: DSM, Novozymes, DuPont, Grandview Research, Transparency Market Research, Cornerstone Capital Group

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Andy Zheng is a Research Associate at Cornerstone Capital Group. Andy graduated from Bowdoin College with an interdisciplinary major in Mathematics and Economics and a minor in Visual Arts.  He spent his junior year studying abroad at the University of Oxford and the summer prior to that at the Sorbonne in Paris. Andy passed Level I of the CFA Program in January 2014.

Cornerstone Capital Group research intern Chanelle Qi contributed to this report.

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