New York is commonly referred to as the melting pot of America. There are over eight million residents, with an estimated sixty percent of the population being immigrants or children of immigrants, bringing together many cultures, ethnicities and nationalities. This diversity of people has led to an equally diverse culinary status, with the city having established a reputation for taking in dishes from all over the world and making them its own. One of the most famous is the New York cheesecake, which began in 1921 with Leo Lindemann, whose ‘Lindy's’ diner in Midtown first served a cake that blended cream cheese and regular cream with a splash of vanilla on a cookie crust. It soon became a sensation and today not only appears on menus all across the city, but as a benchmark dessert around the world.
Lindy’s was quite an institution in Manhattan – and not just for its cheesecake. Located near Broadway, it was where the fast-talking crowd hung out; the gum-chewing chorus girls, the gamblers and gangsters and the celebrity comedians of the day. However, above all of this, it was the backchat of its waiters for which Lindy’s became most famous. The ‘Waiter, there is a …..’ jokes are said to have originated here; to the ‘Waiter, this coffee tastes like tea’ came the flippant response ‘forgive me, madam. I must have given you the hot chocolate by mistake.' In reply to the much more commonly cited ‘Waiter, there is a fly in my soup’ came the infamous replies ‘I know, the chef used to be a tailor’ or ‘how much can a fly drink?’
Will a request for insect protein in our soup soon become the norm?
It has been well documented that the Covid-pandemic has accelerated a number of trends. One of these has been the consumer shift to being increasingly receptive to eating alternative protein sources. In the US, self-reported veganism has increased 600% in just three years and studies have revealed more than 50% of millennials are trying to incorporate plant-based proteins into their diet. Companies such as Impossible Foods and Beyond Meat are generating billions in revenues, with the latter recently announcing a deal with McDonald’s. It will become the fast-food chain’s preferred supplier for the patty in the McPlant, a plant-based burger sandwich being tested in select McDonald’s markets globally.
Notwithstanding this, there is another protein source set to challenge existing food consumption – that derived from insects. According to a report published by Barclays Research, the insect protein market could be worth up to US$8bn by 2030 and expects supply and demand factors to develop similarly to what has been seen in the plant-based space. It was the United Nations’ Food and Agriculture Organisation that formally encouraged the global consumption of insects, in a report published in 2013, advocating for the inclusion of insects in a daily diet as a nutritious alternative to meat. Without ignoring hurdles such as regulation, price and – perhaps the highest of all – cultural acceptance, insect economics could soon become mainstream in the food industry.
Insect economics
Why the focus on alternative sources of protein?
By most estimates, food production will need to increase by more than 50% to feed the 10 billion people expected to be living on the planet in 2050. The significant adverse effects of global warming are well documented – however, much less well-known is the contribution of the agricultural sector in this process. Since the 1970s, meat production has more than quadrupled, leading to a global production of 320 million tonnes each year. Today, our food contributes to over a quarter of global greenhouse gas emissions and livestock is responsible for up to 40% of these emissions. Moreover, this livestock also significantly contributes to land and water degradation, biodiversity loss, deforestation and intense energy use. Finally, to compound matters further, livestock consume 20% of global proteins, in direct competition with humans.
Feeding our growing human population a healthy diet, within the earth’s planetary boundaries, requires an urgent transition to a more sustainable model. However, returning to the topic of eating insects, the big issue is consumer resistance. A survey undertaken last year, by the European Consumer Organisation, found that just 10.3% of people would be willing to replace meat with insects, and over 75% stated they would ‘never eat bugs at all’.
So, could insect economics be less attractive than we thought? Well, not necessarily. As one of four clients recently brought to our attention, French company Ynsect has come up with an alternative solution; turning insects into natural ingredients for aquaculture, agriculture and pet nutrition. Emitting less greenhouse gases than conventional livestock and consuming up to six times less feed than cattle, they believe insects provide a sustainable way to increase protein production and help mitigate the climate risks the agriculture industry creates.
Implications for portfolios
It will come as no surprise to learn our food and its production is an investment theme expressed within our Sustainable Strategy. Opportunities across sustainable food products, circular food systems and regenerative/organic farming are present.
The point we want to make here is the issues around climate change – which agriculture and numerous other industries contribute to – is not just a consideration for those committed to sustainable investing; far from it. Climate change is having an ever-increasing impact on global capital markets. It presents a wide and complex range of risks from physical impacts such as flooded factories, to regulation risk such as the imposition of expected carbon taxes, litigation and transition risks as company’s cash flows and profits are affected by the move to a low-carbon economy.
BlackRock recently published the results of their research around this and have stated their capital market assumptions (CMAs) – which are a core input to building all their portfolios – will explicitly reflect the impact of climate change on the investment landscape. This is a permanent evolution to their approach and demonstrates how metrics around climate change and sustainability risks are becoming increasingly important in determining the future returns of investments, irrespective of whether the mandate is green or otherwise.
BlackRock capital market assumptions – Feb 2021
As consumers of protein, insects in our dish may not become the norm just yet, but we can be sure climate change has already arrived as a hazardous fly in our investment soup and it is something none of us can choose to ignore.
Please do contact us with any questions.
