July 7, 2023 • 42 mins
Global shifts in incomes and populations, geopolitics and the climate crisis are combining to drastically alter the outlook for the world’s food supply. Taimur Hyat, chief operating officer for asset manager PGIM, joined the What Goes Up podcast to discuss his research into the changing world of food and what opportunities and risks it all presents to investors.
“We think food is where the energy sector and this whole talk about energy transition was about 10 years ago,” Hyat says. “We are like 10 years behind in the thinking. And it’s going to catch up with us, because the current food system is simply not fit for purpose. It is not going to work for our planet, it’s not going to work for our consumption needs for a variety of reasons.”
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Speaker 1 (00:13):
Hello, and welcome to What Goes Up, a weekly markets podcast.
My name is Mike Reagan. I'm a senior editor at Bloomberg.
Speaker 2 (00:19):
And I'm Moldona Hier, Across asset reporter with Bloomberg.
Speaker 1 (00:22):
And this week on the show, Well, we hope you
had a good meal before you hit play on this podcast,
because we're going to be talking about food a lot
about food, but namely the opportunities and risks on the
investing table amid a swiftly changing global food supply chain.
Our guest is an executive at a major asset management
(00:44):
firm who recently helped write an in depth report on
this exact subject. But felt before we bring them in,
I have to ask the big buzz I think on
this topic lately cultivated.
Speaker 3 (00:57):
Meat, cultivated meat, grown meat.
Speaker 1 (01:00):
You're not a meat eater?
Speaker 2 (01:01):
Correct, No, I'm not, and just the idea really, but
it excites you like well, I would feel like if
I were you, it would excite me. Has anybody had
lab grown meat?
Speaker 1 (01:10):
Someone somewhere has one person? And I think so maybe
our guest knows the real answer.
Speaker 2 (01:15):
Maybe he has had it.
Speaker 1 (01:17):
We'll see.
Speaker 2 (01:18):
I want to bring him in time or hightt he's
the chief operating officer for Pigeum. Thank you so much
for joining us.
Speaker 3 (01:25):
It's a pleasure to be here.
Speaker 2 (01:26):
Have you had lab grown meat?
Speaker 4 (01:27):
I have not had lab grown meat, but very recently,
the FTA just announced that two companies are allowed to
start producing lab grown meat in the US and it's safe.
Until then, the only place you could get lab grown
meat was Singapore, where they introduced chicken nuggets a couple
of years ago. So Mike, you may be able to
(01:48):
have your wish sooner than you think.
Speaker 1 (01:50):
But timer from reading your report, I don't get the
sense that you and your team are very bullish on
the concept of cultivated cultivated meat. Talk to us a
little bit about where you see that space going.
Speaker 2 (02:02):
He said, it's more sizzle than steak.
Speaker 1 (02:05):
That's pretty good.
Speaker 2 (02:06):
Yeah, that's really good.
Speaker 4 (02:07):
That is a podcast worthy pun. Yeah, their whole variety.
I mean, there are lots of areas we excited about
investing in, but they're definitely a bit like bitcoin and
other cryptocurrencies in the crypto space, there are definitely some
bubbles in the food chain as well, and cultivated meat
is maybe not a bubble. I think our main issue
(02:29):
as an investor is it's too early to invest. There
are literally hundreds of companies around the world that are
trying to do different kinds of cultivated meat, and it's
pretty much impossible at this stage to know which one's
going to win and which one's going to lose. So
we would say even as a venture capitalist, it's too
early to go in. There will be some winners over time.
(02:50):
They're the ones who are going to solve the scale problem.
It is just so expensive to get that chicken nugget
or that beef steak cultivated at this point that it's
just not feasible for it to become a mainstream in
food item around the world.
Speaker 1 (03:01):
It actually costs some multiple of the real thing at
this point right way more.
Speaker 4 (03:06):
And the only place where we see progress at this
point is actually not in that actual finish good where
you will want those charm marks on your steak and
you'll want all that flavor, and you won't get that
in cultivated meat yet. But they are taking things like
egg whites which go into cakes and pastries or way,
which is part of how they make yogurt in Israel
and other places, and that's where cultivated versions of those
(03:28):
products could be could get cheaper, quicker. So that's why
we're keeping an eye on first. That's where the first
investment opportunities will arise. But it's too early. It's not
a bad opportunity. You just don't want to be ten
years too early to something.
Speaker 1 (03:41):
I'm already hungry with ol donna.
Speaker 2 (03:42):
I've had the eggless mayonnaise or whatever. It's pretty good,
is it. Yeah? I know that's slightly different, but you know,
I can see trends evolving from all of the you know,
different branches.
Speaker 4 (03:54):
There's a lot of changes in how consumers are behaving
around the world, and that's actually one of the big
drivers customent opportunities, including things that are more humane and
things that are more healthy. So eggless mail would definitely
fit that category.
Speaker 1 (04:07):
Well.
Speaker 2 (04:08):
Before we talk about all of this and the investment implications,
I actually want to ask you what made you look
into food as a topic, especially an investment topic.
Speaker 4 (04:17):
I mean, beyond the fact that I'm a big foodie.
The reasons we as PGM went into this were a couple.
We think, first of all, that food is not just
ten percent of GDP, but forty percent of the labor force.
So a lot of people work in this industry, and
we're defining food as from farm to fork and everything
(04:38):
in between, processing, packaging, preparing the seeds all the way
to kind of end retail. So it's a big part
of the labor force, and there's been a lot of
focus on labor and inflation and so on. So that
was one driver. But the second one to really write
this report and to think about its investment implications was
that we think food is where the energy and this
(05:00):
whole talk about energy transition was about ten years ago.
We're like ten years behind in the thinking and it's
going to catch up because the current food system is
simply not fit for purpose. It is not going to
work for our planet. It's not going to work for
our consumption needs for a variety of reasons that we
can get into, and that debate on how do we
transition this, even if it takes twenty thirty years to
(05:22):
the new food system of the future, has happened their
carbon transition funds, there's renewable energy, there are opportunities, there's
Inflation Reduction Act and lots of money going there. It
hasn't happened to food yet, but we think it's about to.
And that's why we thought it was an interesting time
to write about it.
Speaker 1 (05:37):
Yeah, absolutely fascinating topic, and I wonder if that making
that transition. It's one thing to get people to stop
driving gasoline cars if you can give them an electric
car that's just as fast, just as reliable. But food,
I feel like will be a little bit trickier. And
one pustion of this report that really caught my interest
was you talk about when a society becomes more app
(06:00):
when per capet income goes up, people's diets change, and
I've found that fascinating. Can you talk to us a
little bit about what changes in a diet as a
society sort of gains more income. Yeah.
Speaker 4 (06:12):
Historically, the main reason we needed more food for the
span it was that there were just more people on it.
Population grows, everybody needs galleries, more food has to be created.
But an important shift is happening in one you hit mic,
which is now we have as perhaps an increasing influence
is the fact that particularly Asia is developing a new
(06:33):
emerging middle class and they have the same wants and
needs and desires as people in develop markets do. And
that means a not just more calories, but more protein
and more calories that are increasingly converging with what we
call the Western diet. So there's more more meat in it,
there's more chicken in it, there's more more pork in
(06:54):
that diet. And those are galleries that need to be exported.
You can't just all get them in via Knam or
in Thailand or in China. There's much more export supply chains,
ironically where everybody's trying to simplify them. After COVID are
going to get more complicated because people want the same
food in more and more countries of the world rather
than just the local food, and be that food itself
(07:16):
has a bigger climate footprint because of all the methane
and greenhouse gas emissions that come from the farming system,
and now more people want livestock, which is the key
creator of greenhouse gases, and see it means much more
pressures on the governments in these countries to provide the resources,
to provide the infrastructure so that people can get these
new forms of Western diets that are frankly maybe a
(07:38):
little less healthy for them as well definitely more costly,
require much more importing of things from around the world
than you did before.
Speaker 3 (07:46):
So it's a pretty radical change.
Speaker 4 (07:48):
And finally it does mean the food system doesn't just
need to cope with more population, it needs to provide
many more calories even to each person on the planet.
Speaker 2 (07:58):
So you have all of these different fine one of
them is that climate change is causing a twelve percent
of climb and crop yields. So this is just I
make this point to show that there's really a lot
of geopolitical implications for this as well.
Speaker 4 (08:11):
Right, Yeah, So the climate interlinkage is actually quite interesting
and complex because it goes both ways. First of all,
the fact that climate is changing is changing our food
supply chains. You know, you have less fish in the
ocean when oceans are warming up. You have new kinds
of fungi. Even if we haven't seen the HBO TV.
Speaker 2 (08:33):
Series watching it right now, it's so scary.
Speaker 4 (08:35):
Then new kinds of fungi, the new kinds of insects,
and that require new pesticides. Because of warming climate change
and with heat, it's harder for labor to work in
conditions in many kind of parts of the world where
you do have manual labor, eighty percent of Indian farms,
for example, and crop yields have declined. So, first of all,
(08:57):
you've got this effect from a change in climate. A
more stream climate, reduces crop yields, creates more variability, adds
new threats and risks. And then second you've got the
fact that the food system as we have it today
it self changes the climate. Something like thirty percent of
greenhouse gas emissions which cause global heating come from the
food system. Seventy percent of freshwater consumption. Is not all
(09:20):
of us drinking waters to you know, have our two
to six liters a day, but it is because the
food system needs it to grow crops and so on
and so forth. So you've got a very complicated inter
relationship and frankly, it's one that's unsustainable and need some
new ways to thinking about food to create a food
system that can meet our needs for the future.
Speaker 1 (09:41):
So talk to us about some of the new ways
what's on the horizon that will alleviate some of these
issues that you're talking about.
Speaker 4 (09:48):
So one that comes to mind is how agricultures change
what we call ag tech, And there's precision agriculture, which
is about how can you really take sensors and and
data from satellites and information on what's happening in the
roots of crops and make that available to farmers around
(10:09):
the world so that they can grow crops more quickly,
more productively at a higher level. Frankly, there hasn't really
been a revolution outside of the US and Latin America.
So in the big grain baskets of Ukraine and Asia
and Africa since the Green Revolution of the nineteen sixties,
that was when a lot of new seeds were introduced.
(10:29):
As long as you had a lot of irrigation, you
could really raise your crop output.
Speaker 3 (10:33):
But in those parts of the world you.
Speaker 4 (10:34):
Still have very manual, small farm holdings, and there really
hasn't been another revolution. The mechanization hasn't happened, and this
next generation technology hasn't come there. So you now have
this sort of world where US and Latin American farms
are taking all this new precision agriculture. You have seed throwing,
you have plantation, you have knowledge about when you need
(10:55):
to water, plants available at the fingertips of farmers in
these markets. And then you've got this like massive gulf
and another universe where things are still very basic. It's
manu labor. They may be like bullock drawn guards that
are kind of harvesting fields, and there is where there's
a massive opportunity to take all this data, take all
(11:17):
this information, get in on mobile phones because people don't
have fancy computers in emerging markets, and really revolutionize agriculture
and create much more food and galleries for the world.
Speaker 2 (11:28):
Okay, so you said investing in the food system provides
opportunities for investors to further ESG goals and have a
measurable impact. So maybe can you talk about the ESG
aspect of this.
Speaker 1 (11:40):
Sure.
Speaker 4 (11:40):
So again, it's a great analogy to energy ten years ago,
where the first sort of reaction to energy was we're
going to stay away from the oil and gas sect
and we're just going to focus on solar and renewables
and hydro electrics. And then it became clear that solar
and wind and hydrop on its own wasn't going to
meet our need for the next twenty thirty forty years,
(12:02):
and so the carbon transition required investors not to just
separate and disengage from all the oil and gas producers,
but find what I like to call kind of the
the not the greenest of the green only, but stay
away from the brownest of the brown and kind of
find the in between. Khaki renewable and fuel providers, including
(12:24):
Shell and BP and the big companies, to encourage them
to make the transition. And the opportunity for the ESG
investor is not to move away from beef, not to
move away from livestock cultivation, but recognize that the livelihoods
of billions of people around the world and the calorie
needs of a rising Asia that does need its middle
(12:46):
class to be fed, requires that for a while, we
will need all these forms of production to be maximized.
But find better ways of doing that, find greener ways
of doing that. So engage rather than disage, but really
find Okay, if they're nitrogen visk fertilizers, which are not
particularly good for the environment, what's the next best option.
(13:08):
If somebody is using up too much water for their
farmland because they don't have modern technology, how do we
get modern technology there? And that requires ESG to engage
in all these sectors, not stay away. Another great example
is packaging, Like you still need packaging. People in developing
countries in emerging frontier markets want their food to be
(13:28):
as safe as we have in the US, and to
do that you need various kinds of safe modern packaging.
How do you invest in that in greener packaging, less packaging,
not withdraw from the sector. So we think there's a
huge role for the ESG sector, and I would say
even bigger data gap than exists in the energy world.
There's very little data on what's good what's bad. We
all confused as consumers. Investors are equally confused because the
(13:51):
data doesn't exist, and we really need to ask all
the food companies to start providing the same data that
the energy sector is now providing that people can make
informed decisions and investors can make informed decisions on ESG good.
Speaker 1 (14:05):
I want to get back to that notion of geopolitics
as well, and obviously, from time to time, food security
can be a major geopolitical issue, you know, I'm thinking
of the Arab Spring a decade ago, even just more
recently with the war in Ukraine. Ukraine obviously a major
grain producer and there were all sorts of questions about
supplies from Ukraine. Do you see this sort of geopolitical
(14:29):
deglobalization that's happening in a lot of industries. Is that
going to hit the food the global food industry as well,
or is this sort of hunger for meat and protein
enough to allow the world to kind of stick closer
together when it comes to food, if not semiconductors and
other industries. You know, how do you see it going
as far as geopolitics and food is Is it going
(14:52):
to be a local market more so, or is there
potential for sort of multinational dominance from some multi na corporations.
Speaker 4 (15:01):
So maybe a good chance to step back, and I'd
say we found four reasons why investors should care about
this food system, even if they're not foodies. And the
first one is if they care about ESG.
Speaker 3 (15:12):
And many, many, many do.
Speaker 4 (15:14):
There's a real connection between climate change and the food
system and their ways to help make it a better
food system. The second factor was simply the incredible investment
opportunities in the food sector, and we can talk about
a few of them that investors, regardless of their motivations,
may want to capture the risk return opportunities that are
available to them. There The third, which we haven't talked
(15:37):
about yet, is just how inextricably linked food prices and
inflation have become and therefore food supply and food demand,
what it means for food prices and therefore what it
means for inflation and all the headlines and all the
monetary policy decisions as you try and bring back inflation
in Europe, in the US and many countries around the world,
and you've got to figure out the food equation piece
(15:58):
of that. And the fourth is the one you mentioned, Mike,
which is if you want to understand geopolitics, both within
a country and between countries, you've got to understand food
because it's such a sort of primal important necessity that
everybody wants, and across borders, it's driven things. I think
it's come to like for two reasons. One, COVID and
(16:18):
everybody recognized that their food supply chains were too scattered
and too far away. And since COVID, I think food
security has become national security. And you've seen, for example,
in Congress lots of discussions around, for example, should Chinese
companies own US agricultural land, And that same debate is
(16:41):
being echoed around Latin America and Africa and Asia and
other parts where they're Chinese owners of the land system.
And then you're seeing it also playing out domestically. You
see it in Peru, you see it in India, you
see it in France, where farmers are a very important lobby,
and when you hit farms cities, which are massive in
some of these countries, you really get a massive political reaction.
(17:04):
So it's a big domestic stabilizing or destabilizing food potatoes
go up twenty percent in India, you could have a
new government at your hands, so it really makes a difference.
And then geopolitically, I think between COVID and Ukraine, there's
been a recognition that we need to figure out where
these supply chains are because we've got to get food
security for our own populations.
Speaker 2 (17:30):
What is it about the food space as an investment topic?
Is it that there are these opportunities there or is
it that it's a space that not very many investors
have been thinking about. Hence you can maybe find some
hidden companies or investment opportunities.
Speaker 3 (17:47):
It's probably a little bit of both.
Speaker 4 (17:49):
Fieldane and I think they're definitely opportunities and I think
compared to certain other sectors that probably underrecognized and underappreciated,
which is one of the reasons Pijeum wrote this report.
And the unique ability because we have a big realistic
team private credit, we do fundamental equity, we do bonds,
so we kind of approach the topic from four to
five different anglesing where's the opportunity. So, for example, one
(18:12):
opportunity is cold storage. Everybody thinks of real estate and
the first thing that comes to mind is offices, and
nobody is going to offices any longer in the US
and Europe, and there's a crisis in the office sector,
and I think the are pressure is there. But cold
storage and the logistics and distribution that you need around
cold storage is a very significant opportunity with very high
(18:33):
growth rates in the real estate sector, that entire ecosystem
of real assets and then the storage for them is
a big opportunity. And it's really linked to the fact
that forty percent of food around the world is just wasted.
In the US, in Europe, it's wasted at the end
the end consumers all of us are probably not as
efficient with food as we should be, and in emerging
(18:57):
in frontier markets, it's all happening in production. Getting it
from the farm to the retail storefront is where you
lose all the food, and cold storage can absolutely be
critical in changing that. So we see that as very
much as a global opportunity. On the other end of
the spectrum, for debt holders, for bonds. There's some really
safe spaces. The consumption of energy, drinks and alcohol in
(19:20):
Kansas going up. You've seen all those apple sauce and
baby food things, and those pouchers that are openable and sealable,
so plastic manufacturers of these fairly specialized food equipments that
you really can't get other people to make very quickly
are a very safe place to be. Another good example
of a safe place to be where there's lots of
(19:41):
long term opportunity is all the franchise holders in developing countries,
the pepsicola butlers, the people who are making well recognized
foods and big emerging markets. Everybody's gearing towards them that
don't want to take a risk with smaller, less known brands.
And then we started this discussion with meat, and it's
probably worth mentioning it again again. As a dethold, you're
(20:03):
not going to get like equity like returns. Don't look
for cryptocurrency type returns, which by the way, don't exist
in cryptocurrency.
Speaker 3 (20:10):
Don't look for them. Heyah.
Speaker 4 (20:11):
But in meat production and the more humane, the more
esg friendly end of meat production, there's definitely another opportunity
because we've seen with plant based meats. If somebodep talked
about impossible burger, we've seen with cultivated meats at the
beginning of this discussion, they're either not going to succeed
based on demand and appetite, or they're going to be
(20:34):
a long way away, and therefore these core opportunities in
those sectors exist.
Speaker 1 (20:39):
Yeah, there was so much hype about plant based meat
for a while. They're impossible burgers.
Speaker 2 (20:44):
I like them, do you? Yeah?
Speaker 1 (20:46):
I think you're in the minority, though, I don't think
they're really really touching on it. Seems like for a
while everyone was willing to try it. You know, the
whopper had an impossible whopper. What are you supposed to
happen there time? Or is it? Are they not quite
there yet where regular meat eaters will swap in an
impossible burger? What is sort of the headwind to plant
(21:08):
based meat that sort of didn't allow it to live
up to the hype.
Speaker 4 (21:12):
I'd agreeved it did not live up to the hype.
There was all the headline, all the headlines around burggging
and McDonald's and everybody introducing plant based meats on their menu,
and I think some of them have silently retired that offering,
But in any case, the market is still a minuscule
portion of the meat market. It hasn't taken off, and
(21:34):
the stock prices of these companies have not lived up
to the hopes that some people had pinned on them.
And I think it comes down to something very simple,
which is people like the taste and the flavor and
the consistency of actual products right, and plant based meat
doesn't quite do it. And frankly, there might be more
(21:57):
opportunity in cultivated meat again not a vestment opportunity now
in the long term there And I'll tell you but
another thing that I think got a little overhype, which
is vertical farming. This is farming that doesn't happen in
a big field in Kansas, but is happening in an
urban center. Could be outside New York City, could be
outside Jakarta and Indonesia. Imagine an urban center, and you're
(22:20):
farming in a building where all the kind of factors
of production, all the things that create the end and
farm produce, is being provided by mechanically or digitally. So
you've got lighting and water that's fed to a vertical
farm that's grown in a small space in a peri
urban or urban location, and there was lots of hope
that this would change both food shortages and create a
(22:43):
new way of growing that was more sustainable. And the
honest truth is, while you know, I think it's still
a worthy social endeavor, it simply means that when the
most expensive factor of production in farming, which is light,
doesn't come for free as it does on big farms
or small farms around the world, but has to be
(23:03):
created by using up energy, it's no longer cost efficient
to create it that way, and therefore impossibly hard to
scale it. And that makes vertical farming not a great
investment opportunity at scale for investors. Of course, if they're
only looking for ESG goals, it might be, but from
a risk return perspective, like plant based meat, it hasn't
(23:24):
quite lived up.
Speaker 3 (23:24):
To the hype.
Speaker 2 (23:26):
I think I read a story they were trying to
grow strawberries this way in Newark, I think in New Jersey. Yeah,
but they were super expensive, right, they were really expensive.
Speaker 3 (23:35):
Some of the stuff.
Speaker 4 (23:36):
I've had a lot, and we have some very good
vertical farms in Newark because PGUM is headquartered there in
New Jersey. Some of the produce is really really good
and fresh, and it gets to consumers much quicker than
you know, your whole foods might if it's coming from
you know, three thousand miles away. But simply the cost
per unit isn't isn't there yet?
Speaker 1 (23:56):
Yeah, you threw out a number there, and I remember
reading this and you report that is kind of mind
boggling to me. And that is forty percent of food
is wasted at some point in the supply chain between
production and getting to your refrigerator. I suppose to me,
if you believe in efficient markets, that seems like, wow,
(24:19):
there seems to be an opportunity just in reclaiming that
lost food. Am I crazy to think that? Is there
any sort of effort to say, hey, wait a minute,
where's all this food going? How do we reduce that
forty percent? Or how do we capitalize on that?
Speaker 4 (24:34):
There are the one I feel has most promises. What's
happening in countries mainly emerging markets, frontier markets, But a
lot of food has grown where the food is lost,
and that wastage happens in trying to get it to you,
the end consumer. Yeah, and somewhere in that chain, either
at the farm, or in the storage at that farm,
or in the road transportation to get it to the city,
(24:56):
to move it from the warehouse in the city to
the end retail consum A lot of food gets wasted
in the process, and a lot of work is happening,
whether it's the World Bank and the development institutions or
venture capitalists, but the big food companies are really trying
to cut down that waste. And that's about the kinds
of seeds you use. It's about cold storage and the
(25:19):
opportunities in cold storage. It's quicker transportation, better retail packaging,
and I think there is hope for all of us
that we'll cut food wastage. There and eight hundred million
people who don't have enough food to eat as their
need every day. So there's a big opportunity not just
for investors, but probably also to create a better planet
we can be.
Speaker 3 (25:39):
Proud of if you attack that absolutely.
Speaker 4 (25:41):
The second piece is in the US, in our market,
in Europe, in develop markets where most of the food
is wasted at the restaurants or in the end household,
and that I think MIC is much harder to change.
That's changing end consumer behaviors. You are seeing an attempt
to take food waste and turn it into process food.
(26:02):
And you are seeing companies with names like misfit or
imperfect in it who are trying to take all the
food that is not considered. The tomato is not well
shaped enough for somebody to buy it and actually package that,
And I think there is some opportunity there, but I
think changing consumer behaviors is much harder than introducing cold
storage and improving the transportation chains and emerging markets to
(26:25):
counter food waste.
Speaker 1 (26:26):
I'm doing my share. This is the dad in me speaking.
Speaker 2 (26:28):
L don if you eat the ugly tomatoes, well, no.
Speaker 1 (26:31):
If my kids leave forty percent of their dinner on
the table, I always end up eating it.
Speaker 2 (26:36):
Yeah, I finished all and then I.
Speaker 1 (26:38):
Add three kids. You do the math. I end up
eating that's one hundred and twenty percent of Yeah.
Speaker 2 (26:43):
Yeah, for sure. But you mentioned emerging markets, and I
am one, and this is a big question, But like,
what are the implications for emerging countries or which ones
are you thinking about.
Speaker 4 (26:55):
I think some of them are really around the fact
that emerging market consumers want fresher food and safer food,
and increasingly people both men and women in emerging market
households are not working at the home. They're working in
urban centers. Women are increasingly part of the workforce, so
they're not able to cook food from scratch, so ready
(27:16):
to make food not necessarily the ghost kitchens that we
talk about in the US, which is just for delivery,
but definitely prepackaged safe things that they know that their
kids can eat, ugly or beautiful tomatoes that they can
eat and be healthy with, has become a much bigger
part of the food industry there. They're absolutely investment opportunities
in that area. I think the second one is the
(27:39):
supply chains and making available to people the diets that
now crave, which includes for better or for worse, you know,
more sugar, more dairy products, and more meat. And how
do we get to the rising middle class in Asia
access to these foods, And how do you create a
food system which at the moment is not fit for purpose,
(28:00):
that will harm the environment, that doesn't create enough galleries,
that doesn't get it to the right people. How do
we kind of shape the supply chains in ways that
these people get the glories they need while still fighting
the obesity epidemic.
Speaker 3 (28:12):
While we do all the nutritional education and so on.
Speaker 4 (28:14):
So the big opportunities actually for international growth of foods
that are increasingly being demanded by rising middle classes in Asia.
I'm show in the next twenty years in Africa as
well as kind of the young population their rises, and
then ready an opportunity in convenience and branded packaging of
foods which at the moment are informal, unpackaged and increasingly
(28:36):
people in emerging markets a little shy about going there.
Speaker 1 (28:40):
And I assume when you're talking about a rising affluence
in emerging some emerging markets, does your focus tend to
be more on food at home or is there a
restaurant segment there that is also going to increase in
demand in those economies.
Speaker 4 (28:58):
We haven't seen a big up opportunity in the restaurant
sectors investors. It's very fragmented margins. It's a tough business
to be in. Of course, you've seen some venture capital
in ghost kitchens and so on, but we haven't seen
that identified as an investment opportunity. I should say, as
we look at the investment university at our company, at PGUM,
(29:18):
we only look at opportunities we would consider in one
of our portfolios or already investing it in one of
our portfolios. Maybe the bigger opportunity we see, which again
is I think underinvested in even by institutional investors, by
pension plans and so on, and Sertney, I think individual investors,
and we need to find better ways for them to
access it. But that's agricultural debt and equity farmland investing,
(29:41):
both in the equity side and debt side. And I
know and both of you have talked about that in
the past, but that is definitely an area which is
a good inflation heads which everybody's thinking about now. It's
pretty uncorrelated with stock markets and bond markets, particularly if
you're on the permanent end of the row crops rather
than the ones that are not. You can find some
parts of the world California as a good example, Mexico's
(30:03):
and other one parts of Australia are a third where
you can really find investment opportunities and also support sustainable
farmland techniques as well. And we still see that as
a pretty small percentage of people's allocations. I don't think
it's ever going to be ten percent, but everybody should
probably think about should there be one to three percent
in farmland.
Speaker 2 (30:38):
You read my mind because I was interested in If
somebody calls you and says I'm interested in farmland as
an investment, what you would tell them more where you
would tell them to look.
Speaker 4 (30:48):
So we have one of the big investors in farmland,
but not not even talking our own book, it's very
clear over thirty forty fifty years, through multiple market cycles
that that farmland has shown good inflation characteristics and be
What a lot of institutional investors are trying to do
is not just trying to earn that extra point of return.
They're trying to diversify their portfolio and create more stability
(31:10):
for their end beneficiaries, the people they need to pay out,
and farmland has worked really well as a way of
diversifying your holdings. So our key questions is do you
want to be on the death side, which is more
yield and it's not just the commodity returns which are
quite can be quite volatile, but actually just the farmland ownership,
or do you want to be on the equity side,
(31:31):
but both are pretty safe. We mainly invest in develop markets.
We don't take the risk of owning emerging markets farmland,
so we don't have investments, say in China and so on,
whether regulatory and ownership risks become much higher than say
the US or Australia.
Speaker 1 (31:47):
I wanted to go back to that notion you were
talking about cold storage, and that to me makes a
lot of sense as an avenue of growth, especially in
emerging markets and whatnot, but as a real estate plate
just how do the particulars of that work or their
cold storage reates that that I'm unfamiliar with, or is
it is that you buy a warehouse and rent it
(32:07):
out to What are the sort of details of how
that works in as an investment?
Speaker 4 (32:12):
So the way I investors invest in it is still
in a more diversified real estate investment.
Speaker 3 (32:17):
I haven't checked on the on the.
Speaker 4 (32:19):
Cold storage rates, but probably somebody should google that and
then reach for everything.
Speaker 3 (32:25):
Yeah, if not, we can start it.
Speaker 4 (32:28):
Might be it might be at another business opportunity spawned
by spawn spawned here. But within those portfolios absolutely their
buildings and warehouses that are designed with all the cooling
facilities and refrigeration that's needed for modern produce to be
at the optimal temperature to be in good condition when
it gets to the end houses. And that's a very
(32:48):
specialized kind of facility and we very much look to
those in terms of investment opportunities. There's a good parallel
with biotech right to actually house a biotech lab. There's
actually a big opportunity in real estate because you need
very specialized buildings to put all the machinery and equipment
and the temperatures you need for that as well. So
these kind of specialized places is where a lot of
(33:10):
the realistic opportunity is. I might put it in the
broader opportunity because online shopping is growing, right and maybe
pre COVID we all bought I don't know, stapless online,
But now more and more people were willing to buy
even their their their tomatoes and their apples and their
and their chicken online and the logistics required for that
and the distribution facilities in warehousing is massive. So that's
(33:32):
a bigger realistic opportunity as well. Linked to this food system.
Speaker 1 (33:36):
All right time are fascinating stuff on the global food
supply chain. But before we let you go, I'd love
to just get your sense of the overall markets right now.
You know, we saw this tremendous rally in US equities,
especially that growth and tech side interest rates are high.
What's the opportunity set look like to you from sort
(33:59):
of a a macro level. Are you risk on still
after that first half? Are you a little more cautious?
How are you thinking about the opportunity set in the
market right now?
Speaker 3 (34:09):
Over the short term.
Speaker 4 (34:10):
We are definitely thinking the next six months is more
risk off than a risk on environment. We feel the
markets in generally, particularly equity markets, are probably undervaluing the
amount of risk to the global economy that exists between
geopolitical conflicts, between how does the Fed and other central
banks kind of manage this very fine line between inflation
(34:32):
and recession risk. So we and many of us sophisticated
investors are still in risk off mode. Having said that,
I think somewhere in the next eighteen months, and I
know that's a broad period, it will be one of
the best investment opportunities in our lives as markets correct,
But we don't think we are there. Second, I'd say
we remain very humble. We think this is a very different,
(34:54):
difficult macroeconomic environment to navigate, and we are quite scenario
based in I think we haven't put all our bets
on one scenario, but you've got to look at what
are the range of outcomes that can happen between a
soft landing and a deeper recession, And we planned our
portfolio to kind of manage across multiples of those different
settings at this point. And third, we think that returns
(35:18):
and rates don't come down as quickly as markets assume.
Once central banks set the rate at a certain level,
they wait their pors, their see before they move again.
And markets have sort of assumed that we're at the
top of the hill and we immediately marching down again.
And I think in reality we'll stay at a steady state,
whether it's twenty five or fifty basis points from where
(35:40):
we are now, who knows, but we're going to stay
at that level for a little longer, and the signals
for a recession will have to be deeper than they
are now before central banks act, and markets and investors
are under investing against that idea.
Speaker 1 (35:55):
Well that's Timer Hyatt, he's the chief operating officer at PGM.
A pleasure to hear all your thoughts. He talks about
more than food, it turns out, Yeah, going on, I
like this, No, I love the food topic as we
do in farming. Really interesting, so wildon and I are
both secretly wished to run a farmer.
Speaker 2 (36:15):
Yeah, farmers to be one day in New Jersey.
Speaker 1 (36:19):
But can't let you go just yet. Timer. We do
have a tradition here the craziest things we saw in
markets this week? Have you seen anything crazy in markets recently?
Speaker 4 (36:29):
My crazy story is maybe not about markets now, but
it's about what markets don't look at but ultimately will
and should. And we had a colleague who just took
a flight from Singapore to London and British Airways this
was in the headlines and the British newspapers hit massive turbulence.
Five people on the plane were injured. And the University
(36:49):
of Reading in England has done research that between nineteen
seventy and twenty two, twenty twenty two, there's been a
fifty five percent increase in severe turbulence on Atlantic flights
and it's because the jet streams, because of climate change,
are fifteen percent more shear happens in the wind patterns, wow,
(37:10):
and that raises the cost of plane maintenance. It actually
means in the future because they expect a three to
six times fold increase over the next thirty years in
the amount of turbulence that pilots will have to take
new routes that might be more expensive. And to me,
it's just a classic example of the fact that much
as I love markets, and much as markets capture many things,
(37:31):
there are externalities, things one step ahead of markets, such
as these weird nonlinear tail wrists that happen from climate
change that ultimately will come into market pricing, and savvy
investors are one to sort of figure out what's going to. Yeah,
and turbulence and all its second order impacts, and probably
none of us will be able to have a class
(37:51):
of champagne if we ever get into business class without
bouncing up and down is one of them.
Speaker 1 (37:56):
That's wild, Yeah, because the Gulf streams actually got stronger,
just more turbulent. Or is it it's shifting too right,
isn't it shifting across the Atlantic a little bit? Right?
Speaker 4 (38:06):
The temperature difference between the poles and the continents has
gone down as the polls heat up, and theref for
the jet streams that were very focused and targeted and
you knew exactly how they went have gotten more erratic.
Speaker 1 (38:17):
Less predictable, and you don't know wow, And so you
would typically plan your route to sort of minimize it.
And I guess now you can't do that.
Speaker 3 (38:25):
Now you can't.
Speaker 4 (38:26):
This is known as a cleaner turbulence, where you don't
expect it when it hits, it always happens, but it's
becoming much worse as a problem.
Speaker 2 (38:32):
Wow, I'm so scared of this.
Speaker 1 (38:35):
It is scary, that is. But you're right though, something
to get ahead of as a as an investor when
you think about this stuff all right. Mine has to
do with pricing in the influencer economy. It's a story
courtesy of the New York Post. Have you ever heard
of someone named Olivia Dunn Soeldna, Never me neither. She
(38:58):
is an influencer. She is a gymnast at LSU Louisiana
State University. If you follow college athletics, there's this thing
called the nil. Now, the evaluation on hers is the
second highest among all college athletes, second only to Lebron
jameson Brownie James. So here's where it gets interesting. She
was on This is the story New York Post wrote
(39:19):
up about a podcast appearance she did, the Full Send podcast.
She revealed the highest price she's ever received, the highest
payday for a single post. Now, mind you, she has
on Instagram, four point two million followers on Instagram and
seven point six on TikTok. They didn't say which one
(39:41):
it was on. Maybe it was on both, I don't know.
But the highest fee she's ever received for a single
post from a college student who just happens to be
on the LSU gymnastics team one hundred and nine one
hundred and ninety six thousand. That's your guest. Yeah, Timer,
what do you think highest price for a single post
(40:06):
from a gymnast influencer three hundred and thirty thou closer?
Five hundred grand? Wow, five hundred grand for a single post.
Speaker 2 (40:15):
We should become influencers.
Speaker 1 (40:16):
Yeah, and I'm very I can't influence anyone.
Speaker 2 (40:20):
Influencers fake influence.
Speaker 4 (40:23):
I post my food pictures on Instagram and I have
sixty nine followers.
Speaker 1 (40:27):
I'm very. What's the highest you've ever received?
Speaker 3 (40:31):
Twenty seven likes.
Speaker 1 (40:34):
That's a good ratio out of sixty seven followers. Yeah,
so you're a foody? What cook at home yourself?
Speaker 4 (40:41):
I cook at home. We spend half the time in
the Hudson Valley. I have a grill there and then
in a tiny city apartment. Kind of less grilling because
of Gonda rules. But yeah, I cook a bunch. What's
your best dish? My best dish is probably a braised
leg of lamb, tomatoes and onions and shallotts and all that.
Speaker 1 (41:05):
I'm swooning.
Speaker 3 (41:06):
It melts in your mouth. It's spoonable. It's very very good.
Speaker 1 (41:09):
It's guilty of Aldana. If they ever make lab grown lamb,
you've got to try it, as guilty as I feel
freeing them. It's so good. Wow, I need to go
out immediately and eat something right now. This was a
very hunger inducing episode of What Goes Up. But Timer Hyatt,
chief operating Officer of Pechim, really a pleasure to catch
up with you and hear about this report that you
(41:31):
guys have out on Food for Thought. I believe it's
called the name of it aftely named about the global
supply chain and food, how it's changing and what the
opportunities are. Really fascinating stuff. Thank you for your time.
Speaker 3 (41:44):
It's a pleasure to be a great, great conversation.
Speaker 5 (41:46):
Thank you, What Goes Up. We'll be back next week.
Until then, you can find us in the Bloomberg Terminal
website and app or wherever you get your podcasts. We'd
love it if you took the time to rate and
review the show so more listeners can find us. You
(42:09):
can find us on Twitter, follow me at Wildona Hirich.
Mike Reagan is at Reaganonymous. You can also follow Boomer
Podcasts at podcasts. What Goes Up is produced by Stacy
Wong and our head of podcasts is Sage Bauman.
Speaker 2 (42:25):
Thanks for listening. We'll see you next week.
Hello, and welcome to What Goes Up, a weekly markets podcast.
My name is Mike Reagan. I'm a senior editor at Bloomberg.
Speaker 2 (00:19):
And I'm Moldona Hier, Across asset reporter with Bloomberg.
Speaker 1 (00:22):
And this week on the show, Well, we hope you
had a good meal before you hit play on this podcast,
because we're going to be talking about food a lot
about food, but namely the opportunities and risks on the
investing table amid a swiftly changing global food supply chain.
Our guest is an executive at a major asset management
(00:44):
firm who recently helped write an in depth report on
this exact subject. But felt before we bring them in,
I have to ask the big buzz I think on
this topic lately cultivated.
Speaker 3 (00:57):
Meat, cultivated meat, grown meat.
Speaker 1 (01:00):
You're not a meat eater?
Speaker 2 (01:01):
Correct, No, I'm not, and just the idea really, but
it excites you like well, I would feel like if
I were you, it would excite me. Has anybody had
lab grown meat?
Speaker 1 (01:10):
Someone somewhere has one person? And I think so maybe
our guest knows the real answer.
Speaker 2 (01:15):
Maybe he has had it.
Speaker 1 (01:17):
We'll see.
Speaker 2 (01:18):
I want to bring him in time or hightt he's
the chief operating officer for Pigeum. Thank you so much
for joining us.
Speaker 3 (01:25):
It's a pleasure to be here.
Speaker 2 (01:26):
Have you had lab grown meat?
Speaker 4 (01:27):
I have not had lab grown meat, but very recently,
the FTA just announced that two companies are allowed to
start producing lab grown meat in the US and it's safe.
Until then, the only place you could get lab grown
meat was Singapore, where they introduced chicken nuggets a couple
of years ago. So Mike, you may be able to
(01:48):
have your wish sooner than you think.
Speaker 1 (01:50):
But timer from reading your report, I don't get the
sense that you and your team are very bullish on
the concept of cultivated cultivated meat. Talk to us a
little bit about where you see that space going.
Speaker 2 (02:02):
He said, it's more sizzle than steak.
Speaker 1 (02:05):
That's pretty good.
Speaker 2 (02:06):
Yeah, that's really good.
Speaker 4 (02:07):
That is a podcast worthy pun. Yeah, their whole variety.
I mean, there are lots of areas we excited about
investing in, but they're definitely a bit like bitcoin and
other cryptocurrencies in the crypto space, there are definitely some
bubbles in the food chain as well, and cultivated meat
is maybe not a bubble. I think our main issue
(02:29):
as an investor is it's too early to invest. There
are literally hundreds of companies around the world that are
trying to do different kinds of cultivated meat, and it's
pretty much impossible at this stage to know which one's
going to win and which one's going to lose. So
we would say even as a venture capitalist, it's too
early to go in. There will be some winners over time.
(02:50):
They're the ones who are going to solve the scale problem.
It is just so expensive to get that chicken nugget
or that beef steak cultivated at this point that it's
just not feasible for it to become a mainstream in
food item around the world.
Speaker 1 (03:01):
It actually costs some multiple of the real thing at
this point right way more.
Speaker 4 (03:06):
And the only place where we see progress at this
point is actually not in that actual finish good where
you will want those charm marks on your steak and
you'll want all that flavor, and you won't get that
in cultivated meat yet. But they are taking things like
egg whites which go into cakes and pastries or way,
which is part of how they make yogurt in Israel
and other places, and that's where cultivated versions of those
(03:28):
products could be could get cheaper, quicker. So that's why
we're keeping an eye on first. That's where the first
investment opportunities will arise. But it's too early. It's not
a bad opportunity. You just don't want to be ten
years too early to something.
Speaker 1 (03:41):
I'm already hungry with ol donna.
Speaker 2 (03:42):
I've had the eggless mayonnaise or whatever. It's pretty good,
is it. Yeah? I know that's slightly different, but you know,
I can see trends evolving from all of the you know,
different branches.
Speaker 4 (03:54):
There's a lot of changes in how consumers are behaving
around the world, and that's actually one of the big
drivers customent opportunities, including things that are more humane and
things that are more healthy. So eggless mail would definitely
fit that category.
Speaker 1 (04:07):
Well.
Speaker 2 (04:08):
Before we talk about all of this and the investment implications,
I actually want to ask you what made you look
into food as a topic, especially an investment topic.
Speaker 4 (04:17):
I mean, beyond the fact that I'm a big foodie.
The reasons we as PGM went into this were a couple.
We think, first of all, that food is not just
ten percent of GDP, but forty percent of the labor force.
So a lot of people work in this industry, and
we're defining food as from farm to fork and everything
(04:38):
in between, processing, packaging, preparing the seeds all the way
to kind of end retail. So it's a big part
of the labor force, and there's been a lot of
focus on labor and inflation and so on. So that
was one driver. But the second one to really write
this report and to think about its investment implications was
that we think food is where the energy and this
(05:00):
whole talk about energy transition was about ten years ago.
We're like ten years behind in the thinking and it's
going to catch up because the current food system is
simply not fit for purpose. It is not going to
work for our planet. It's not going to work for
our consumption needs for a variety of reasons that we
can get into, and that debate on how do we
transition this, even if it takes twenty thirty years to
(05:22):
the new food system of the future, has happened their
carbon transition funds, there's renewable energy, there are opportunities, there's
Inflation Reduction Act and lots of money going there. It
hasn't happened to food yet, but we think it's about to.
And that's why we thought it was an interesting time
to write about it.
Speaker 1 (05:37):
Yeah, absolutely fascinating topic, and I wonder if that making
that transition. It's one thing to get people to stop
driving gasoline cars if you can give them an electric
car that's just as fast, just as reliable. But food,
I feel like will be a little bit trickier. And
one pustion of this report that really caught my interest
was you talk about when a society becomes more app
(06:00):
when per capet income goes up, people's diets change, and
I've found that fascinating. Can you talk to us a
little bit about what changes in a diet as a
society sort of gains more income. Yeah.
Speaker 4 (06:12):
Historically, the main reason we needed more food for the
span it was that there were just more people on it.
Population grows, everybody needs galleries, more food has to be created.
But an important shift is happening in one you hit mic,
which is now we have as perhaps an increasing influence
is the fact that particularly Asia is developing a new
(06:33):
emerging middle class and they have the same wants and
needs and desires as people in develop markets do. And
that means a not just more calories, but more protein
and more calories that are increasingly converging with what we
call the Western diet. So there's more more meat in it,
there's more chicken in it, there's more more pork in
(06:54):
that diet. And those are galleries that need to be exported.
You can't just all get them in via Knam or
in Thailand or in China. There's much more export supply chains,
ironically where everybody's trying to simplify them. After COVID are
going to get more complicated because people want the same
food in more and more countries of the world rather
than just the local food, and be that food itself
(07:16):
has a bigger climate footprint because of all the methane
and greenhouse gas emissions that come from the farming system,
and now more people want livestock, which is the key
creator of greenhouse gases, and see it means much more
pressures on the governments in these countries to provide the resources,
to provide the infrastructure so that people can get these
new forms of Western diets that are frankly maybe a
(07:38):
little less healthy for them as well definitely more costly,
require much more importing of things from around the world
than you did before.
Speaker 3 (07:46):
So it's a pretty radical change.
Speaker 4 (07:48):
And finally it does mean the food system doesn't just
need to cope with more population, it needs to provide
many more calories even to each person on the planet.
Speaker 2 (07:58):
So you have all of these different fine one of
them is that climate change is causing a twelve percent
of climb and crop yields. So this is just I
make this point to show that there's really a lot
of geopolitical implications for this as well.
Speaker 4 (08:11):
Right, Yeah, So the climate interlinkage is actually quite interesting
and complex because it goes both ways. First of all,
the fact that climate is changing is changing our food
supply chains. You know, you have less fish in the
ocean when oceans are warming up. You have new kinds
of fungi. Even if we haven't seen the HBO TV.
Speaker 2 (08:33):
Series watching it right now, it's so scary.
Speaker 4 (08:35):
Then new kinds of fungi, the new kinds of insects,
and that require new pesticides. Because of warming climate change
and with heat, it's harder for labor to work in
conditions in many kind of parts of the world where
you do have manual labor, eighty percent of Indian farms,
for example, and crop yields have declined. So, first of all,
(08:57):
you've got this effect from a change in climate. A
more stream climate, reduces crop yields, creates more variability, adds
new threats and risks. And then second you've got the
fact that the food system as we have it today
it self changes the climate. Something like thirty percent of
greenhouse gas emissions which cause global heating come from the
food system. Seventy percent of freshwater consumption. Is not all
(09:20):
of us drinking waters to you know, have our two
to six liters a day, but it is because the
food system needs it to grow crops and so on
and so forth. So you've got a very complicated inter
relationship and frankly, it's one that's unsustainable and need some
new ways to thinking about food to create a food
system that can meet our needs for the future.
Speaker 1 (09:41):
So talk to us about some of the new ways
what's on the horizon that will alleviate some of these
issues that you're talking about.
Speaker 4 (09:48):
So one that comes to mind is how agricultures change
what we call ag tech, And there's precision agriculture, which
is about how can you really take sensors and and
data from satellites and information on what's happening in the
roots of crops and make that available to farmers around
(10:09):
the world so that they can grow crops more quickly,
more productively at a higher level. Frankly, there hasn't really
been a revolution outside of the US and Latin America.
So in the big grain baskets of Ukraine and Asia
and Africa since the Green Revolution of the nineteen sixties,
that was when a lot of new seeds were introduced.
(10:29):
As long as you had a lot of irrigation, you
could really raise your crop output.
Speaker 3 (10:33):
But in those parts of the world you.
Speaker 4 (10:34):
Still have very manual, small farm holdings, and there really
hasn't been another revolution. The mechanization hasn't happened, and this
next generation technology hasn't come there. So you now have
this sort of world where US and Latin American farms
are taking all this new precision agriculture. You have seed throwing,
you have plantation, you have knowledge about when you need
(10:55):
to water, plants available at the fingertips of farmers in
these markets. And then you've got this like massive gulf
and another universe where things are still very basic. It's
manu labor. They may be like bullock drawn guards that
are kind of harvesting fields, and there is where there's
a massive opportunity to take all this data, take all
(11:17):
this information, get in on mobile phones because people don't
have fancy computers in emerging markets, and really revolutionize agriculture
and create much more food and galleries for the world.
Speaker 2 (11:28):
Okay, so you said investing in the food system provides
opportunities for investors to further ESG goals and have a
measurable impact. So maybe can you talk about the ESG
aspect of this.
Speaker 1 (11:40):
Sure.
Speaker 4 (11:40):
So again, it's a great analogy to energy ten years ago,
where the first sort of reaction to energy was we're
going to stay away from the oil and gas sect
and we're just going to focus on solar and renewables
and hydro electrics. And then it became clear that solar
and wind and hydrop on its own wasn't going to
meet our need for the next twenty thirty forty years,
(12:02):
and so the carbon transition required investors not to just
separate and disengage from all the oil and gas producers,
but find what I like to call kind of the
the not the greenest of the green only, but stay
away from the brownest of the brown and kind of
find the in between. Khaki renewable and fuel providers, including
(12:24):
Shell and BP and the big companies, to encourage them
to make the transition. And the opportunity for the ESG
investor is not to move away from beef, not to
move away from livestock cultivation, but recognize that the livelihoods
of billions of people around the world and the calorie
needs of a rising Asia that does need its middle
(12:46):
class to be fed, requires that for a while, we
will need all these forms of production to be maximized.
But find better ways of doing that, find greener ways
of doing that. So engage rather than disage, but really
find Okay, if they're nitrogen visk fertilizers, which are not
particularly good for the environment, what's the next best option.
(13:08):
If somebody is using up too much water for their
farmland because they don't have modern technology, how do we
get modern technology there? And that requires ESG to engage
in all these sectors, not stay away. Another great example
is packaging, Like you still need packaging. People in developing
countries in emerging frontier markets want their food to be
(13:28):
as safe as we have in the US, and to
do that you need various kinds of safe modern packaging.
How do you invest in that in greener packaging, less packaging,
not withdraw from the sector. So we think there's a
huge role for the ESG sector, and I would say
even bigger data gap than exists in the energy world.
There's very little data on what's good what's bad. We
all confused as consumers. Investors are equally confused because the
(13:51):
data doesn't exist, and we really need to ask all
the food companies to start providing the same data that
the energy sector is now providing that people can make
informed decisions and investors can make informed decisions on ESG good.
Speaker 1 (14:05):
I want to get back to that notion of geopolitics
as well, and obviously, from time to time, food security
can be a major geopolitical issue, you know, I'm thinking
of the Arab Spring a decade ago, even just more
recently with the war in Ukraine. Ukraine obviously a major
grain producer and there were all sorts of questions about
supplies from Ukraine. Do you see this sort of geopolitical
(14:29):
deglobalization that's happening in a lot of industries. Is that
going to hit the food the global food industry as well,
or is this sort of hunger for meat and protein
enough to allow the world to kind of stick closer
together when it comes to food, if not semiconductors and
other industries. You know, how do you see it going
as far as geopolitics and food is Is it going
(14:52):
to be a local market more so, or is there
potential for sort of multinational dominance from some multi na corporations.
Speaker 4 (15:01):
So maybe a good chance to step back, and I'd
say we found four reasons why investors should care about
this food system, even if they're not foodies. And the
first one is if they care about ESG.
Speaker 3 (15:12):
And many, many, many do.
Speaker 4 (15:14):
There's a real connection between climate change and the food
system and their ways to help make it a better
food system. The second factor was simply the incredible investment
opportunities in the food sector, and we can talk about
a few of them that investors, regardless of their motivations,
may want to capture the risk return opportunities that are
available to them. There The third, which we haven't talked
(15:37):
about yet, is just how inextricably linked food prices and
inflation have become and therefore food supply and food demand,
what it means for food prices and therefore what it
means for inflation and all the headlines and all the
monetary policy decisions as you try and bring back inflation
in Europe, in the US and many countries around the world,
and you've got to figure out the food equation piece
(15:58):
of that. And the fourth is the one you mentioned, Mike,
which is if you want to understand geopolitics, both within
a country and between countries, you've got to understand food
because it's such a sort of primal important necessity that
everybody wants, and across borders, it's driven things. I think
it's come to like for two reasons. One, COVID and
(16:18):
everybody recognized that their food supply chains were too scattered
and too far away. And since COVID, I think food
security has become national security. And you've seen, for example,
in Congress lots of discussions around, for example, should Chinese
companies own US agricultural land, And that same debate is
(16:41):
being echoed around Latin America and Africa and Asia and
other parts where they're Chinese owners of the land system.
And then you're seeing it also playing out domestically. You
see it in Peru, you see it in India, you
see it in France, where farmers are a very important lobby,
and when you hit farms cities, which are massive in
some of these countries, you really get a massive political reaction.
(17:04):
So it's a big domestic stabilizing or destabilizing food potatoes
go up twenty percent in India, you could have a
new government at your hands, so it really makes a difference.
And then geopolitically, I think between COVID and Ukraine, there's
been a recognition that we need to figure out where
these supply chains are because we've got to get food
security for our own populations.
Speaker 2 (17:30):
What is it about the food space as an investment topic?
Is it that there are these opportunities there or is
it that it's a space that not very many investors
have been thinking about. Hence you can maybe find some
hidden companies or investment opportunities.
Speaker 3 (17:47):
It's probably a little bit of both.
Speaker 4 (17:49):
Fieldane and I think they're definitely opportunities and I think
compared to certain other sectors that probably underrecognized and underappreciated,
which is one of the reasons Pijeum wrote this report.
And the unique ability because we have a big realistic
team private credit, we do fundamental equity, we do bonds,
so we kind of approach the topic from four to
five different anglesing where's the opportunity. So, for example, one
(18:12):
opportunity is cold storage. Everybody thinks of real estate and
the first thing that comes to mind is offices, and
nobody is going to offices any longer in the US
and Europe, and there's a crisis in the office sector,
and I think the are pressure is there. But cold
storage and the logistics and distribution that you need around
cold storage is a very significant opportunity with very high
(18:33):
growth rates in the real estate sector, that entire ecosystem
of real assets and then the storage for them is
a big opportunity. And it's really linked to the fact
that forty percent of food around the world is just wasted.
In the US, in Europe, it's wasted at the end
the end consumers all of us are probably not as
efficient with food as we should be, and in emerging
(18:57):
in frontier markets, it's all happening in production. Getting it
from the farm to the retail storefront is where you
lose all the food, and cold storage can absolutely be
critical in changing that. So we see that as very
much as a global opportunity. On the other end of
the spectrum, for debt holders, for bonds. There's some really
safe spaces. The consumption of energy, drinks and alcohol in
(19:20):
Kansas going up. You've seen all those apple sauce and
baby food things, and those pouchers that are openable and sealable,
so plastic manufacturers of these fairly specialized food equipments that
you really can't get other people to make very quickly
are a very safe place to be. Another good example
of a safe place to be where there's lots of
(19:41):
long term opportunity is all the franchise holders in developing countries,
the pepsicola butlers, the people who are making well recognized
foods and big emerging markets. Everybody's gearing towards them that
don't want to take a risk with smaller, less known brands.
And then we started this discussion with meat, and it's
probably worth mentioning it again again. As a dethold, you're
(20:03):
not going to get like equity like returns. Don't look
for cryptocurrency type returns, which by the way, don't exist
in cryptocurrency.
Speaker 3 (20:10):
Don't look for them. Heyah.
Speaker 4 (20:11):
But in meat production and the more humane, the more
esg friendly end of meat production, there's definitely another opportunity
because we've seen with plant based meats. If somebodep talked
about impossible burger, we've seen with cultivated meats at the
beginning of this discussion, they're either not going to succeed
based on demand and appetite, or they're going to be
(20:34):
a long way away, and therefore these core opportunities in
those sectors exist.
Speaker 1 (20:39):
Yeah, there was so much hype about plant based meat
for a while. They're impossible burgers.
Speaker 2 (20:44):
I like them, do you? Yeah?
Speaker 1 (20:46):
I think you're in the minority, though, I don't think
they're really really touching on it. Seems like for a
while everyone was willing to try it. You know, the
whopper had an impossible whopper. What are you supposed to
happen there time? Or is it? Are they not quite
there yet where regular meat eaters will swap in an
impossible burger? What is sort of the headwind to plant
(21:08):
based meat that sort of didn't allow it to live
up to the hype.
Speaker 4 (21:12):
I'd agreeved it did not live up to the hype.
There was all the headline, all the headlines around burggging
and McDonald's and everybody introducing plant based meats on their menu,
and I think some of them have silently retired that offering,
But in any case, the market is still a minuscule
portion of the meat market. It hasn't taken off, and
(21:34):
the stock prices of these companies have not lived up
to the hopes that some people had pinned on them.
And I think it comes down to something very simple,
which is people like the taste and the flavor and
the consistency of actual products right, and plant based meat
doesn't quite do it. And frankly, there might be more
(21:57):
opportunity in cultivated meat again not a vestment opportunity now
in the long term there And I'll tell you but
another thing that I think got a little overhype, which
is vertical farming. This is farming that doesn't happen in
a big field in Kansas, but is happening in an
urban center. Could be outside New York City, could be
outside Jakarta and Indonesia. Imagine an urban center, and you're
(22:20):
farming in a building where all the kind of factors
of production, all the things that create the end and
farm produce, is being provided by mechanically or digitally. So
you've got lighting and water that's fed to a vertical
farm that's grown in a small space in a peri
urban or urban location, and there was lots of hope
that this would change both food shortages and create a
(22:43):
new way of growing that was more sustainable. And the
honest truth is, while you know, I think it's still
a worthy social endeavor, it simply means that when the
most expensive factor of production in farming, which is light,
doesn't come for free as it does on big farms
or small farms around the world, but has to be
(23:03):
created by using up energy, it's no longer cost efficient
to create it that way, and therefore impossibly hard to
scale it. And that makes vertical farming not a great
investment opportunity at scale for investors. Of course, if they're
only looking for ESG goals, it might be, but from
a risk return perspective, like plant based meat, it hasn't
(23:24):
quite lived up.
Speaker 3 (23:24):
To the hype.
Speaker 2 (23:26):
I think I read a story they were trying to
grow strawberries this way in Newark, I think in New Jersey. Yeah,
but they were super expensive, right, they were really expensive.
Speaker 3 (23:35):
Some of the stuff.
Speaker 4 (23:36):
I've had a lot, and we have some very good
vertical farms in Newark because PGUM is headquartered there in
New Jersey. Some of the produce is really really good
and fresh, and it gets to consumers much quicker than
you know, your whole foods might if it's coming from
you know, three thousand miles away. But simply the cost
per unit isn't isn't there yet?
Speaker 1 (23:56):
Yeah, you threw out a number there, and I remember
reading this and you report that is kind of mind
boggling to me. And that is forty percent of food
is wasted at some point in the supply chain between
production and getting to your refrigerator. I suppose to me,
if you believe in efficient markets, that seems like, wow,
(24:19):
there seems to be an opportunity just in reclaiming that
lost food. Am I crazy to think that? Is there
any sort of effort to say, hey, wait a minute,
where's all this food going? How do we reduce that
forty percent? Or how do we capitalize on that?
Speaker 4 (24:34):
There are the one I feel has most promises. What's
happening in countries mainly emerging markets, frontier markets, But a
lot of food has grown where the food is lost,
and that wastage happens in trying to get it to you,
the end consumer. Yeah, and somewhere in that chain, either
at the farm, or in the storage at that farm,
or in the road transportation to get it to the city,
(24:56):
to move it from the warehouse in the city to
the end retail consum A lot of food gets wasted
in the process, and a lot of work is happening,
whether it's the World Bank and the development institutions or
venture capitalists, but the big food companies are really trying
to cut down that waste. And that's about the kinds
of seeds you use. It's about cold storage and the
(25:19):
opportunities in cold storage. It's quicker transportation, better retail packaging,
and I think there is hope for all of us
that we'll cut food wastage. There and eight hundred million
people who don't have enough food to eat as their
need every day. So there's a big opportunity not just
for investors, but probably also to create a better planet
we can be.
Speaker 3 (25:39):
Proud of if you attack that absolutely.
Speaker 4 (25:41):
The second piece is in the US, in our market,
in Europe, in develop markets where most of the food
is wasted at the restaurants or in the end household,
and that I think MIC is much harder to change.
That's changing end consumer behaviors. You are seeing an attempt
to take food waste and turn it into process food.
(26:02):
And you are seeing companies with names like misfit or
imperfect in it who are trying to take all the
food that is not considered. The tomato is not well
shaped enough for somebody to buy it and actually package that,
And I think there is some opportunity there, but I
think changing consumer behaviors is much harder than introducing cold
storage and improving the transportation chains and emerging markets to
(26:25):
counter food waste.
Speaker 1 (26:26):
I'm doing my share. This is the dad in me speaking.
Speaker 2 (26:28):
L don if you eat the ugly tomatoes, well, no.
Speaker 1 (26:31):
If my kids leave forty percent of their dinner on
the table, I always end up eating it.
Speaker 2 (26:36):
Yeah, I finished all and then I.
Speaker 1 (26:38):
Add three kids. You do the math. I end up
eating that's one hundred and twenty percent of Yeah.
Speaker 2 (26:43):
Yeah, for sure. But you mentioned emerging markets, and I
am one, and this is a big question, But like,
what are the implications for emerging countries or which ones
are you thinking about.
Speaker 4 (26:55):
I think some of them are really around the fact
that emerging market consumers want fresher food and safer food,
and increasingly people both men and women in emerging market
households are not working at the home. They're working in
urban centers. Women are increasingly part of the workforce, so
they're not able to cook food from scratch, so ready
(27:16):
to make food not necessarily the ghost kitchens that we
talk about in the US, which is just for delivery,
but definitely prepackaged safe things that they know that their
kids can eat, ugly or beautiful tomatoes that they can
eat and be healthy with, has become a much bigger
part of the food industry there. They're absolutely investment opportunities
in that area. I think the second one is the
(27:39):
supply chains and making available to people the diets that
now crave, which includes for better or for worse, you know,
more sugar, more dairy products, and more meat. And how
do we get to the rising middle class in Asia
access to these foods, And how do you create a
food system which at the moment is not fit for purpose,
(28:00):
that will harm the environment, that doesn't create enough galleries,
that doesn't get it to the right people. How do
we kind of shape the supply chains in ways that
these people get the glories they need while still fighting
the obesity epidemic.
Speaker 3 (28:12):
While we do all the nutritional education and so on.
Speaker 4 (28:14):
So the big opportunities actually for international growth of foods
that are increasingly being demanded by rising middle classes in Asia.
I'm show in the next twenty years in Africa as
well as kind of the young population their rises, and
then ready an opportunity in convenience and branded packaging of
foods which at the moment are informal, unpackaged and increasingly
(28:36):
people in emerging markets a little shy about going there.
Speaker 1 (28:40):
And I assume when you're talking about a rising affluence
in emerging some emerging markets, does your focus tend to
be more on food at home or is there a
restaurant segment there that is also going to increase in
demand in those economies.
Speaker 4 (28:58):
We haven't seen a big up opportunity in the restaurant
sectors investors. It's very fragmented margins. It's a tough business
to be in. Of course, you've seen some venture capital
in ghost kitchens and so on, but we haven't seen
that identified as an investment opportunity. I should say, as
we look at the investment university at our company, at PGUM,
(29:18):
we only look at opportunities we would consider in one
of our portfolios or already investing it in one of
our portfolios. Maybe the bigger opportunity we see, which again
is I think underinvested in even by institutional investors, by
pension plans and so on, and Sertney, I think individual investors,
and we need to find better ways for them to
access it. But that's agricultural debt and equity farmland investing,
(29:41):
both in the equity side and debt side. And I
know and both of you have talked about that in
the past, but that is definitely an area which is
a good inflation heads which everybody's thinking about now. It's
pretty uncorrelated with stock markets and bond markets, particularly if
you're on the permanent end of the row crops rather
than the ones that are not. You can find some
parts of the world California as a good example, Mexico's
(30:03):
and other one parts of Australia are a third where
you can really find investment opportunities and also support sustainable
farmland techniques as well. And we still see that as
a pretty small percentage of people's allocations. I don't think
it's ever going to be ten percent, but everybody should
probably think about should there be one to three percent
in farmland.
Speaker 2 (30:38):
You read my mind because I was interested in If
somebody calls you and says I'm interested in farmland as
an investment, what you would tell them more where you
would tell them to look.
Speaker 4 (30:48):
So we have one of the big investors in farmland,
but not not even talking our own book, it's very
clear over thirty forty fifty years, through multiple market cycles
that that farmland has shown good inflation characteristics and be
What a lot of institutional investors are trying to do
is not just trying to earn that extra point of return.
They're trying to diversify their portfolio and create more stability
(31:10):
for their end beneficiaries, the people they need to pay out,
and farmland has worked really well as a way of
diversifying your holdings. So our key questions is do you
want to be on the death side, which is more
yield and it's not just the commodity returns which are
quite can be quite volatile, but actually just the farmland ownership,
or do you want to be on the equity side,
(31:31):
but both are pretty safe. We mainly invest in develop markets.
We don't take the risk of owning emerging markets farmland,
so we don't have investments, say in China and so on,
whether regulatory and ownership risks become much higher than say
the US or Australia.
Speaker 1 (31:47):
I wanted to go back to that notion you were
talking about cold storage, and that to me makes a
lot of sense as an avenue of growth, especially in
emerging markets and whatnot, but as a real estate plate
just how do the particulars of that work or their
cold storage reates that that I'm unfamiliar with, or is
it is that you buy a warehouse and rent it
(32:07):
out to What are the sort of details of how
that works in as an investment?
Speaker 4 (32:12):
So the way I investors invest in it is still
in a more diversified real estate investment.
Speaker 3 (32:17):
I haven't checked on the on the.
Speaker 4 (32:19):
Cold storage rates, but probably somebody should google that and
then reach for everything.
Speaker 3 (32:25):
Yeah, if not, we can start it.
Speaker 4 (32:28):
Might be it might be at another business opportunity spawned
by spawn spawned here. But within those portfolios absolutely their
buildings and warehouses that are designed with all the cooling
facilities and refrigeration that's needed for modern produce to be
at the optimal temperature to be in good condition when
it gets to the end houses. And that's a very
(32:48):
specialized kind of facility and we very much look to
those in terms of investment opportunities. There's a good parallel
with biotech right to actually house a biotech lab. There's
actually a big opportunity in real estate because you need
very specialized buildings to put all the machinery and equipment
and the temperatures you need for that as well. So
these kind of specialized places is where a lot of
(33:10):
the realistic opportunity is. I might put it in the
broader opportunity because online shopping is growing, right and maybe
pre COVID we all bought I don't know, stapless online,
But now more and more people were willing to buy
even their their their tomatoes and their apples and their
and their chicken online and the logistics required for that
and the distribution facilities in warehousing is massive. So that's
(33:32):
a bigger realistic opportunity as well. Linked to this food system.
Speaker 1 (33:36):
All right time are fascinating stuff on the global food
supply chain. But before we let you go, I'd love
to just get your sense of the overall markets right now.
You know, we saw this tremendous rally in US equities,
especially that growth and tech side interest rates are high.
What's the opportunity set look like to you from sort
(33:59):
of a a macro level. Are you risk on still
after that first half? Are you a little more cautious?
How are you thinking about the opportunity set in the
market right now?
Speaker 3 (34:09):
Over the short term.
Speaker 4 (34:10):
We are definitely thinking the next six months is more
risk off than a risk on environment. We feel the
markets in generally, particularly equity markets, are probably undervaluing the
amount of risk to the global economy that exists between
geopolitical conflicts, between how does the Fed and other central
banks kind of manage this very fine line between inflation
(34:32):
and recession risk. So we and many of us sophisticated
investors are still in risk off mode. Having said that,
I think somewhere in the next eighteen months, and I
know that's a broad period, it will be one of
the best investment opportunities in our lives as markets correct,
But we don't think we are there. Second, I'd say
we remain very humble. We think this is a very different,
(34:54):
difficult macroeconomic environment to navigate, and we are quite scenario
based in I think we haven't put all our bets
on one scenario, but you've got to look at what
are the range of outcomes that can happen between a
soft landing and a deeper recession, And we planned our
portfolio to kind of manage across multiples of those different
settings at this point. And third, we think that returns
(35:18):
and rates don't come down as quickly as markets assume.
Once central banks set the rate at a certain level,
they wait their pors, their see before they move again.
And markets have sort of assumed that we're at the
top of the hill and we immediately marching down again.
And I think in reality we'll stay at a steady state,
whether it's twenty five or fifty basis points from where
(35:40):
we are now, who knows, but we're going to stay
at that level for a little longer, and the signals
for a recession will have to be deeper than they
are now before central banks act, and markets and investors
are under investing against that idea.
Speaker 1 (35:55):
Well that's Timer Hyatt, he's the chief operating officer at PGM.
A pleasure to hear all your thoughts. He talks about
more than food, it turns out, Yeah, going on, I
like this, No, I love the food topic as we
do in farming. Really interesting, so wildon and I are
both secretly wished to run a farmer.
Speaker 2 (36:15):
Yeah, farmers to be one day in New Jersey.
Speaker 1 (36:19):
But can't let you go just yet. Timer. We do
have a tradition here the craziest things we saw in
markets this week? Have you seen anything crazy in markets recently?
Speaker 4 (36:29):
My crazy story is maybe not about markets now, but
it's about what markets don't look at but ultimately will
and should. And we had a colleague who just took
a flight from Singapore to London and British Airways this
was in the headlines and the British newspapers hit massive turbulence.
Five people on the plane were injured. And the University
(36:49):
of Reading in England has done research that between nineteen
seventy and twenty two, twenty twenty two, there's been a
fifty five percent increase in severe turbulence on Atlantic flights
and it's because the jet streams, because of climate change,
are fifteen percent more shear happens in the wind patterns, wow,
(37:10):
and that raises the cost of plane maintenance. It actually
means in the future because they expect a three to
six times fold increase over the next thirty years in
the amount of turbulence that pilots will have to take
new routes that might be more expensive. And to me,
it's just a classic example of the fact that much
as I love markets, and much as markets capture many things,
(37:31):
there are externalities, things one step ahead of markets, such
as these weird nonlinear tail wrists that happen from climate
change that ultimately will come into market pricing, and savvy
investors are one to sort of figure out what's going to. Yeah,
and turbulence and all its second order impacts, and probably
none of us will be able to have a class
(37:51):
of champagne if we ever get into business class without
bouncing up and down is one of them.
Speaker 1 (37:56):
That's wild, Yeah, because the Gulf streams actually got stronger,
just more turbulent. Or is it it's shifting too right,
isn't it shifting across the Atlantic a little bit? Right?
Speaker 4 (38:06):
The temperature difference between the poles and the continents has
gone down as the polls heat up, and theref for
the jet streams that were very focused and targeted and
you knew exactly how they went have gotten more erratic.
Speaker 1 (38:17):
Less predictable, and you don't know wow, And so you
would typically plan your route to sort of minimize it.
And I guess now you can't do that.
Speaker 3 (38:25):
Now you can't.
Speaker 4 (38:26):
This is known as a cleaner turbulence, where you don't
expect it when it hits, it always happens, but it's
becoming much worse as a problem.
Speaker 2 (38:32):
Wow, I'm so scared of this.
Speaker 1 (38:35):
It is scary, that is. But you're right though, something
to get ahead of as a as an investor when
you think about this stuff all right. Mine has to
do with pricing in the influencer economy. It's a story
courtesy of the New York Post. Have you ever heard
of someone named Olivia Dunn Soeldna, Never me neither. She
(38:58):
is an influencer. She is a gymnast at LSU Louisiana
State University. If you follow college athletics, there's this thing
called the nil. Now, the evaluation on hers is the
second highest among all college athletes, second only to Lebron
jameson Brownie James. So here's where it gets interesting. She
was on This is the story New York Post wrote
(39:19):
up about a podcast appearance she did, the Full Send podcast.
She revealed the highest price she's ever received, the highest
payday for a single post. Now, mind you, she has
on Instagram, four point two million followers on Instagram and
seven point six on TikTok. They didn't say which one
(39:41):
it was on. Maybe it was on both, I don't know.
But the highest fee she's ever received for a single
post from a college student who just happens to be
on the LSU gymnastics team one hundred and nine one
hundred and ninety six thousand. That's your guest. Yeah, Timer,
what do you think highest price for a single post
(40:06):
from a gymnast influencer three hundred and thirty thou closer?
Five hundred grand? Wow, five hundred grand for a single post.
Speaker 2 (40:15):
We should become influencers.
Speaker 1 (40:16):
Yeah, and I'm very I can't influence anyone.
Speaker 2 (40:20):
Influencers fake influence.
Speaker 4 (40:23):
I post my food pictures on Instagram and I have
sixty nine followers.
Speaker 1 (40:27):
I'm very. What's the highest you've ever received?
Speaker 3 (40:31):
Twenty seven likes.
Speaker 1 (40:34):
That's a good ratio out of sixty seven followers. Yeah,
so you're a foody? What cook at home yourself?
Speaker 4 (40:41):
I cook at home. We spend half the time in
the Hudson Valley. I have a grill there and then
in a tiny city apartment. Kind of less grilling because
of Gonda rules. But yeah, I cook a bunch. What's
your best dish? My best dish is probably a braised
leg of lamb, tomatoes and onions and shallotts and all that.
Speaker 1 (41:05):
I'm swooning.
Speaker 3 (41:06):
It melts in your mouth. It's spoonable. It's very very good.
Speaker 1 (41:09):
It's guilty of Aldana. If they ever make lab grown lamb,
you've got to try it, as guilty as I feel
freeing them. It's so good. Wow, I need to go
out immediately and eat something right now. This was a
very hunger inducing episode of What Goes Up. But Timer Hyatt,
chief operating Officer of Pechim, really a pleasure to catch
up with you and hear about this report that you
(41:31):
guys have out on Food for Thought. I believe it's
called the name of it aftely named about the global
supply chain and food, how it's changing and what the
opportunities are. Really fascinating stuff. Thank you for your time.
Speaker 3 (41:44):
It's a pleasure to be a great, great conversation.
Speaker 5 (41:46):
Thank you, What Goes Up. We'll be back next week.
Until then, you can find us in the Bloomberg Terminal
website and app or wherever you get your podcasts. We'd
love it if you took the time to rate and
review the show so more listeners can find us. You
(42:09):
can find us on Twitter, follow me at Wildona Hirich.
Mike Reagan is at Reaganonymous. You can also follow Boomer
Podcasts at podcasts. What Goes Up is produced by Stacy
Wong and our head of podcasts is Sage Bauman.
Speaker 2 (42:25):
Thanks for listening. We'll see you next week.
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