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