At Roodhals Capital, we continuously compile opinions, research and trends on sustainability. Indeed, the body of research is vast. You would think consumers, managers and investors are delighted with all this information. Instead, we see the opposite is true: the multitude of labels and reports are rather confusing.
Everyone is trying to solve many (global) problems under one umbrella term: sustainability. For example, the United Nations has set out 17 Sustainable Development Goals. This creates many arguments and even more solutions.
Luckily, we are finding plenty of examples of niches that have found a clear direction and are moving forward at a strong pace to promote sustainability in food.
Below, we will consider organic food. But first, let’s take a look at the consumer and investor perspective.
In food, to help consumers, society came up with an abundance of labels, or claims on certain qualities. For virtually every ‘solution’, a label exists:
Animal welfare? Certified Animal Welfare AGW (US) or Beter Leven Keurmerk (NL).
Living wages? Fairtrade.
Sustainable palm oil? Roundtable on Sustainable Palm Oil.
The list goes on and on. Helpful, right … ? Unfortunately, this vast landscape of labels is causing confusion. What is the definition? Who decides the definition? Who is in charge of (independent) auditing? Unsurprisingly, consumers are confused and policy-makers flip-flop, often ending up with undesirable situations and meaningless labels. How else can we explain the Dutch nitrogen infarct, or the usage of plastics in paper bags or Gen Z ordering oatmilk and avocados over flash delivery services?
Investors and financiers seem equally confused. There is a myriad of sustainability reporting frameworks. Companies hire whole sustainability teams and base investment choices on a variety of sustainability goals. However, the M&A market does not have a proper common framework to capture any of this added value. At best, the underperformers get punished for not being sustainable by not being granted a loan or by facing lawsuits.
Here, we consider organic food, just one example of a successful niche and label. Organic has a clear benefit over other labels in that it is clearly and legally defined since 1991 (in the EU and elsewhere). This legal definition has since been a pillar of growth. It has created a clear benefit for consumers - healthy food and land - as well as building blocks for policymakers and gatekeepers.
Not coincidentally, the organic retail market in Europe has posted consistent double digit growth for over two decades. Specifically, the US and Western Europe have seen a strong increase in both the number of consumers and the average value spent on organic food. Something that surely attracts the interest of investors.
We do not argue that organic food will solve global problems. Or that the next recession will not generate any trading down behaviour by consumers. However, we do argue that the framework, based on a clear communicable benefit, is a basis for success and applicable to many more niches.
Are you interested to learn more, about organic or other niches to which the framework is applicable? Are you wondering how a clear sustainability goal and direction can drive valuation or M&A? In more numbers and other thoughts? Please contact Bart Sintenie and Bart Schrauwen, our Sustainable Food team.