In the build up to the Government Food Strategy, the Prime Minister promised bold action to address the problems in the UK’s food system. This week, health and sustainability campaigners have voiced their disappointment that not all of Henry Dimbleby’s recommendations are being adopted, including the proposed salt and sugar tax.
Seemingly ‘hollowed out’, the publication is seen by many in the agri-food sector as a holding response for a serious long-term strategy that has been conditioned by Conservative backbenchers who the Prime Minister considers key to his survival. In other words, a tactical short-term response to a set of political pressures. Published against a backdrop of the cost-of-living crisis, the effects of the war in Ukraine, and recent party politics, the Food Strategy represents a notable departure from long-term priorities such as environmental sustainability and tackling obesity. Instead, the Strategy focuses on technology and innovation, job creation, productivity. In short, the government sees growth in the UK’s agri-food sector as the remedy.
The government says it is backing British farmers to boost domestic production, increase employment and grow the economy
At the heart of this shift is a concern about food insecurity. Not necessarily as a result of climate change and other environmental concerns (although those can’t be ignored for much longer), but from the impact of the war in Ukraine on food supplies and prices. As a result, the government has pivoted away from longer standing political priorities and is now focusing on plans to strengthen the resilience of supply chains and boost domestic production to help protect against future economic shocks and crises.
While wars don’t necessarily create trends, they do tend to accelerate them. In the case of the war in Ukraine, it has rapidly accelerated the desire of Western governments for freedom from supply chain dependence on Russia and China. It has also increased the trend for food nationalism globally which has lengthened the list of countries Western governments can no longer rely on for food imports as a result, and it has sped up trends towards market intervention. The last significant spike in food prices was in 2010/2011 following a heat wave in Ukraine which impacted crop harvests and can be seen as a catalyst for riots in middle income countries and the Arab Spring, the effects of which are still being felt. The impact of today’s crisis has the potential to be far greater and will be felt particularly acutely in the UK because we have relied so heavily on global markets for cheap food imports.
Agri-food: a growing sector
While new funding programmes to drive innovation will be welcomed by the sector, the government is playing catch up with investors who have recognised the potential of agrifoodtech in recent years.
As with most modern industries, technology plays a key role in the operation of the agri-food sector. However, the pace of innovation has not kept up with other industries and, according to research conducted by McKinsey, agriculture remains the least digitized of all major industries.
The industrial agri-food sector is also much less efficient than others and more susceptible to the demands and constraints being placed on it. A growing global population, climate change, environmental degradation, changing consumer demands, limited natural resources, food waste, consumer health issues and chronic diseases all mean the need for agrifoodtech innovation is greater today than it ever has been, and creates opportunities for entrepreneurs and innovators to create new efficiencies in the value chain. Many of the agrifoodtech start-ups attracting investors are aiming to address some of these challenges, identifying innovative solutions to issues such as food waste, CO2 emissions, chemical residues and run-off, drought, labour shortages, sugar consumption, distribution inefficiencies, food safety and traceability, farm efficiency, and unsustainable meat production.
According to the 2022 Agrifoodtech Investor Report, $57.1 billion was invested in agrifoodtech companies in 2021, an increase of 85% on the previous year. 2021 also saw the UK’s highest ever deal flow with UK-based deals reaching £1.3 billion in value, the highest since data has been collected and up from £1.1 billion of investment in 2020. The UK sits 5th in the global ranking of deals by country, just behind Germany, India, China and the USA, though the UK government has set out its intention to be a world leader in this space. While investment in so-called ‘upstream’ technologies (such as on-farm tech, tools and services) remains high at around $20m, there is a shift beginning to emerge, with interest now moving towards farm management software, indoor farming, ag-biotech (such as gene editing), and e-grocery (which attracted a third of all global sector investment).
The new normal
The challenges with our food system such as supply, distribution and pricing have been propelled by the pandemic, complicated by Brexit, accelerated by the war in Ukraine, and intensified by the cost-of-living crisis. In many ways, this has created a completely different backdrop for the UK’s food system than when Henry Dimbleby published his recommendations to government almost twelve months ago. Many commentators will argue this is why the Government Food Strategy appears to have been watered down in comparison with its original intentions.
Nevertheless, many investors have already recognised the importance and opportunity the agrifoodtech sector presents in terms of investment potential, with many more likely to follow suit. The changes and challenges to the food system we are witnessing today are not temporary. Rising prices, food nationalism, and supply chain challenges are not a blip in the road, they are the new normal. This reality means the agrifoodtech sector is likely to provide an abundance of opportunity for private equity to back exciting, innovative, and high-impact ideas that deliver the ground-breaking change in our food system that campaigners are calling for. Although this Food Strategy gives the agri-food sector ideas to work with and push the government on, it is also clear that we are now unlikely to see a properly considered long-term strategic response to food insecurity this side of the election.
To discuss the government’s Food Strategy in more detail, please email Thea Southwell Reeves on theasouthwellreeves@wacomms.co.uk.