Concerns about health, ethical food production and climate change are growing. Here’s how to invest in plant-based foods.
Growing consumer concerns about health, ethical food and climate change are creating opportunities to invest in the burgeoning plant-based foods market.
The global plant-based foods market is projected to expand at a compound annual growth rate of 18.6 percent between 2020 and 2030 to reach more than US$162 billion, as per Bloomberg Intelligence.
This major expansion is being fueled in large part by increasing consumer demand for plant-based alternatives to meat and dairy. Calls from buyers for transparency and ethical practices across the food supply chain are also becoming louder and buoying interest in plant-based options.
Interestingly, rising demand for plant-based foods isn't a sign that a large percentage of the population is going vegan or vegetarian. Rather, it is indicative of a shift to what’s being called a “flexitarian” diet in which consumers choose animal-based food products, but also opt for more plant-based alternatives. According to research firm Nielsen, 98 percent of consumers who purchase plant-based meat alternatives also buy animal meat.
This food trend is especially prominent among younger people who are keen on reducing the environmental impact of rearing livestock. For example, a survey from the Food Institute shows that 65 percent of Generation Z members living in the US prefer a more “plant-forward” diet, while 79 percent are choosing meatless options at least once or twice per week. Additionally, 42 percent of US households purchase plant-based milk.
Similar trends in plant-based foods are prevalent among Canadian consumers as well, and restaurants in North America are increasing their plant-based menu offerings to include alternatives to meat and dairy.
The fact that plant-based products appeal to many non-vegetarians and non-vegans is a huge bonus for plant-based foods companies, as it creates a much larger market for their products.
Another big boon to the plant-based foods industry is increasing investor interest in the sector. In the US alone, plant-based foods companies were on the receiving end of a record US$5 billion worth of investments in 2021, up by 60 percent over 2020 and a whopping 500 percent over 2019. Investors have contributed more than US$11.1 billion to alternative protein companies since 2010.
According to research from the Good Food Institute, “As global efforts ramp up to mitigate the climate crisis, address land and water issues, and prevent the next pandemic, the sustained interest in alternative proteins signals a growing appetite for planet-friendly investments with returns beyond the bottom line.”
Here the Investing News Network looks at how to invest in plant-based foods and ways to capitalize on this growing trend as more and more North Americans reduce their meat consumption.
How to invest in plant-based foods: Pure-play plant-based food stocks
As with any food industry segment, investors interested in the plant-based foods sector should look for quality publicly listed stocks that are led by strong management teams and have product portfolios that allow them to successfully compete in their given sector. In an emerging foods sector like the plant-based foods, the key ingredients for success are taste, price and convenience, and that recipe for success applies to both individual companies and the plant-based foods industry as a whole.
“As a company, the core will be whether your products replicate or improve upon the taste, cookability, cost and nutrition of the products they seek to displace,” Paresh Patel, chief executive and co-founder of publicly traded acquisition vehicle Natural Order Acquisition (NASDAQ:NOAC), told Forbes.
In 2019, Los Angeles-based Beyond Meat’s initial public offering heralded the dawn of the plant-based foods era, encouraging investors to take a stake in the meatless market. The company makes plant-based meat substitutes, including burger patties comprised primarily of pea protein. In the US and Canada, Beyond Meat’s products can be found in the meat sections of many grocery stores and on the menus of several restaurants.
Tattooed Chef is targeting frozen plant-based foods with pre-prepared organic products that are rich in protein. Founded by CEO Sam Galletti, who has more than three decades of experience in the food industry, the company grows and manufactures the food it sells. Tattooed Chef acquired private-label snack bar maker Belmont Confections in late 2021 for US$18 million, and is set to launch its own branded plant-based snack bars in 2022.
For its part, US-based multinational food manufacturer Ingredion provides plant-based ingredients to companies focused on manufacturing vegan products. Ingredion earned a spot on Ethisphere’s World’s Most Ethical Companies for the seventh year in row in 2020, and also made Fortune Magazine’s World’s Most Admired Companies list for the 13th consecutive year as of 2022.
Other plant-based food stocks of various sizes and types include:
How to invest in plant-based foods: Food and grocery giants
The shift toward more meatless options has prompted food industry giants such as Kellogg Company (NYSE:K) and major grocery store chains like Kroger (NYSE:KR) to heavily expand their plant-based food offerings.
Kellogg Company’s food portfolio, which includes cereals, snacks and its meat alternatives brand, is 86 percent plant-based. In 2019, the company’s MorningStar Farms brand introduced a line called Incogmeato featuring all-vegan burgers, bratwurst and sausages. Recently, the company inked a deal with crop genetics company Benson Hill to supply soy ingredients for the major food brand’s alternative meat product lines.
In 2020, Kroger added 50 plant-based products to its Simple Truth brand, including non-dairy cheese, oat milk ice cream and a plant-based alternative to chicken. Its product line already featured meatless burger patties and sausages, non-dairy sour cream and cookie dough ice cream. The grocery store chain also carries plant-based food brands, including Beyond Meat, Lightlife and Tofurkey. In early 2022, Kroger announced an innovation partnership with privately held Impossible Foods to develop more plant-based food products.
Canadian favorite Maple Leaf Foods (TSX:MFI), which acquired plant-based meat and cheese company Field Roast Grain in 2018, now makes a pea-protein-based line of hot dogs, plus other alternative meat products. It plans to build a US$310 million plant-based protein plant in Indiana. Hormel Foods (NYSE:HRL) also has a plant-based product segment, and recently added the Happy Little Plants brand; it includes a pepperoni-style pizza topping.
How to invest in plant-based foods: Venture capital trusts and investment funds
For a more diversified route to gaining exposure to the plant-based foods market, investors may want to consider venture capital trusts (VCTs) and investment funds.
According to online trading company IG International, “One of the biggest benefits of investing in a VCT is that it can allow you to gain exposure to private companies that are not publicly listed. The fact they hold a variety of investments in multiple sectors also reduces risk.”
However, investors should be aware that although a number of VCTs have taken positions in the plant-based foods market, many also hold investments in companies associated with meat production, which may not be palatable or desirable for vegan investors.
Those who want a fund with more of a plant-based focus can look to Eat & Beyond Global Holdings (CSE:EATS,OTC Pink:EATBF), the first investment issuer in Canada that is purely focused on the global plant-based foods market. Its equity stakes in this sector include the Very Good Food Company, Zoglo’s Incredible Food (CSE:ZOG), Plant Fuel (CSE:FUEL) and private companies Above Food, Eat JUST, Nabati Foods, SingCell and TurtleTree.
“We created Eat Beyond to make it easy to invest in the future of food and provide retail investors with access to the very best companies in the sector,” Eat & Beyond CEO Patrick Morris said. “The space has seen enormous interest from the market for brands such as Beyond Meat, but that was really just the tip of the iceberg. The diverse range of innovation taking place in this sector is staggering.”
Other investment firms solely focused on the plant-based foods industry include Stray Dog Capital, Veg Capital, Blue Horizon and Natural Order Acquisition.
How to invest in plant-based foods: Plant-based food ETFs
Taking a position in an exchange-traded fund (ETF) is a great option for investors who don’t want to go all in on one company, or aren’t interested in picking specific stocks. ETFs provide broad-based exposure to a sector while mitigating the risks of holding shares in a single company.
A few vegan ETFs available include Beyond Investing’s US Vegan Climate ETF (NYSE:VEGN), the VanEck Future of Food ETF (NYSE:YUMY) and VegTech Plant-based Innovation & Climate ETF (NYSE:EATV). VEGN excludes holdings with animal cruelty or environmental harm concerns, but it’s worth noting that the ETF’s top 15 holdings are more representative of the technology sector than the food and beverage sector. YUMY’s holdings consist of plant-based foods and agriscience stocks, while EATV’s holdings are plant-based food and tech stocks.
While not a pure vegan play, the First Trust NASDAQ Food & Beverage ETF (NASDAQ:FTXG) does carry some of the stocks mentioned in its primary holdings, including Archer-Daniels-Midland, Beyond Meat, Hormel and Kellogg's.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Boosh Plant-Based Foods, Komo Plant-Based Foods and Naturally Splendid Enterprises are clients of the Investing News Network. This article is not paid-for content.
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