Joining us for this edition of Clima is one of our Series A investors, Sanjeev Krishnan, Managing Director of S2G Ventures. We are delighted to have had the opportunity to discuss the evolution of food production supply chains with him, including exploring how technology, food production methods, scientific discovery and consumer attitudes are advancing to deliver new emerging models.
With a wealth of experience in the food and agriculture sectors, Chicago-based Sanjeev shares his thoughts on the benefits a general movement from globalised to localised food production could bring and the innovative technologies and solutions that could help us to achieve this goal.
Q) How realistic is the concept of a new look ‘farm to fork’, for example an urban crop or livestock farm straight to retail, restaurant or caterer?
It is going to be increasingly an emerging trend, I believe. We have had a siloed supply chain where every stakeholder doesn’t really know fully what happens after they participate in whatever market they do: whether they are a producer or farmer or livestock supplier, for example.
I think that supply chain is now collapsing for a couple of reasons. One, COVID-19 has accelerated the channel adoption of e-grocery. As this channel gets digitised, traditional producers and consumers will be increasingly disintermediated because everyone is getting trained on ordering food on a phone.
Another reason is traceability. Suppliers want shorter supply chains, not longer. If on average, produce changes hands eight to twelve times depending on where it is produced in the world, they want that to be three or four times. The view is that to have a more resilient system, you have to have a shorter system.
The third thing is consumers. They increasingly want to know where their food comes from and how it was produced. Data shows that if you can put the farmer or the producer on the cereal box or the butter, you increase sales and market share. This is starting to resonate with industry. They are recognising that their ability to win market share is dependent on their ability to tell the consumer where it came from.
Q) The S2G proposition is that you invest from “soil to shelf”. Where do you see gaps in the market at the moment in the ‘farm to fork’ supply chain?
Farmers that grow traditional commodities are going to see that either they have to scale their business or they need to look at other things such as more differentiated crops that add value to their profit and cash flows. That is going to create enormous opportunity for start-ups who provide new seeds or technologies that allow farmers to make more money.
Another gap is digitalisation. Agriculture is typically included in the bottom three sectors for digitalisation. Ironically, the bottom three have huge tail winds after COVID: indeed, the sectors most often cited aside agriculture were healthcare and education. We think that agriculture and food production are experiencing similar innovation and the role of digitisation is going to be enormous as we bring this industry into the 21st century.
The third thing is that we are going from globalisation to localisation. Localisation offers more supply chain resiliency, better shelf-life stability and a number of other things in addition to the ‘normal’ drivers of localisation which COVID pries at.
"Localisation offers more supply chain resiliency, better shelf-life stability."
Q) To what extent do you see this movement from globalisation to localisation happening around the world? Do you think it is greater in certain geographies or is it a more general global trend?
I think we should think about this in terms of food security and self-reliance. I think we are still in a far-gone war at this pandemic. There will be second waves, third waves, fourth waves, fifth waves – although hopefully each one is a smaller curve. By nature, humans are short term, but I do think this hopefully has awakened the need for self-reliance. That is where the localisation really helps.
When people talk about self-reliance and resilience, often there is a feeling that that comes at a cost. And that is then followed by the conversation of who will bear that cost: does government pay for that, do consumers pay for that? Our view is innovation can finance a lot of it because these innovations actually are cost-competitive with importing. There will be some new form factors that provide choice, for example in the meat sector, cell-based meat is going to be a part of the equation: it can be produced locally and has a much shorter supply chain.
"When people talk about self-reliance and resilience, often there is a feeling that that comes at a cost."
Q) Are there particular technologies, innovations or methods of production that you believe will generate a greater impact as we look to deliver localised supply chains?
In the protein sector, we have an overall strategy with animal, plant and cell-based. Of course, plant and cell-based proteins are much more agile than the traditional animal protein: you can produce ‘just in time’ or ‘just in case’.
We also believe in both vertical and indoor farming in terms of the produce sector, and obviously are big fans of the work IGS is doing. Both in terms of the protein and produce spaces, including what IGS does, it is all about affordability. It is really about the ability to produce food in a way that is labour efficient, cost efficient and produces diversity of choice for the consumer. That is going to have to be the North Star, and we will see who is able to deliver this in the medium to long-term.
We have looked at about 100 of these businesses and invested in only two in the produce space – IGS is one of them – and we’ve looked at probably 50 to 100 in the plant-based protein space and invested in less than a handful. We are trying to build a portfolio, but at the same time be discerning about which bets we make.
Q) Serious concerns about food security have been raised by the COVID-19 pandemic – how do you see these impacting supply chains in the short and longer terms?
One of the things this crisis revealed was a lack of data across the supply chain. Even some grocers in the US that had 30 days of inventory in their distribution centre saw that vanish within four days. Some of that was individuals hoarding but you saw a real fragility in the lack of data and lack of understanding of their whole supply chain. That’s one I think where our supply chains need to be scrutinised. I have a fairly sceptical view of human nature so I don’t know how long that will last, but I am hoping it lasts long enough to give firms like IGS a tail wind.
"One of the things this whole crisis revealed was a lack of data across the supply chain."
To build our own food system we are relying on global trade, and if there is some sort of global trade disruption that was more fundamental even than COVID has been thus far, that is going to hit some countries harder than others. Each country must understand the geo-political relationship and the food nationalism that can occur and establish whether they are prepared enough to support their citizens.
Q) How important is consumer understanding and demand for newer methods to deliver supply?
If you look at the last 25 years, agnostic to industry, people like me talk up disruption a lot: we define this as changes in market share. The biggest changes in market share occur when a channel has been digitised. It happened in video at Netflix, music with Spotify even items like consumer batteries with Amazon: there is a graveyard of companies that got disrupted when the channel was digitised.
When that happens, it democratises buyers and sellers, producers and consumers, brings them closer together. It gives choice, gives customisation and access in really fundamental ways. We have ten brands in our portfolio, and almost every single one – if they hadn’t done it already – have built a direct to consumer business as a result of COVID. The consumer is fundamentally going to have more choice.
"When [digitisation] happens, it democratises buyers and sellers, producers and consumers, brings them closer together."
The second critical thing is mortality rates of COVID-19. I think there will be medical journal articles or other credible articles about who died and who didn’t and I believe – in the US anyway – there will be a fair number of deaths that could have been prevented with a better food system and education around obesity or diabetes. Healthier food and produce is going to be very compelling for consumers because this is no longer some distant issue. This is about your own immunity and your ability to survive: who knows when we might get the vaccine?
A lot of our food system has been based on logistics. Vertical farming allows you to compress thousands of miles to simply miles or thousands of kilometres to simply kilometres. You can then breed and produce not for logistics purposes, but for flavour and nutrition. I think that is going to be really good for the consumer. We have a pretty boring food system in the US but we are about to have, in my opinion, a golden age where things that you historically have not been able to eat before because it just didn’t make logistic sense, suddenly make logistic sense.
Q) You talk about manipulating the way plants are being grown to make them more nutritious and healthier. Do you think that concerns around ‘Frankenstein food’ or GM produce could impact consumer perceptions of new farming technology?
It is a really important point. Part of why GM failed is that there wasn’t enough transparency. The quality of benefits didn’t accrue to the consumer directly: there may have been some indirect cost savings that occured but not directly. There were also some business models and PR headlines that could have been managed better in my opinion.
I think what is exciting about vertical farming and indoor is the opportunity to use germ plasm or seeds that have been in existence for decades, if not longer, but effectively got selected out of the system because of logistics: they couldn’t survive a trip from California to Boston, for example. We now have opportunity to take the natural diversity of the world and actually grow it closer to the demand centre and closer to population centres. What vertical farming in particular allows you to do is to literally see your food grow. It is pretty contained, and it allows for trust to be established: you even have the verifications of video, you can literally see it. It is very good to be aware of potential consumer nervousness, but I think the education process is much more achievable than in other sectors.
"We now have opportunity to take the natural diversity of the world and actually grow it closer to the demand centre and closer to population centres."
Q) Finally, where geographically do you see an ‘optimum’ food supply chain emerging that could potentially be replicated elsewhere?
I think there are a lot of models out there and each country is going to have to choose what works for them. But I think it is going to be things that are more sustainable, more decentralised, differentiated but deflationary and, in my opinion, more digitised. By differentiated I mean healthy, flavourful, new, novel choices.
In terms of what is going on, I think it is early days. Singapore is doing very exciting things, the Middle East is looking at a number of things. In the US, the consumer has been leading a food revolution here that looks perhaps different than what happened in Singapore in terms of how the millennials and Gen Z are voting with their pocketbook.
We have never had greater innovation in the biology, chemistry, physics and data science of food production than you have now, and I am hopeful that those provide both affordable and more nutritious, more sustainable, more healthy and more flavourful choices for the consumer.