Deep Dive: Using Technology to Solve Food Insecurity
This past summer, while I was at K50 Ventures, I explored a new wave of food technology that will increase access to nutrition while reducing costs for consumers, businesses, and the environment.
Sector: Future of Food
The global food system accounts for 10% of the world’s GDP and employs 1.5 billion people. Yet, an estimated 46% of adults and 56% of children in the U.S. do not have nutritious diets. A massive market opportunity to increase access to nutritious food, improve convenience, and reduce waste can be realized by introducing technology. Investing in food technology will enhance daily life and value for nearly all consumers, with the global food market projected to reach greater than $12T over the next few years. Additionally, the pandemic revealed that food tech is not only recession-proof but also pandemic-proof.
What’s the history?
The food supply chain spans the globe. At its core, food comes from the earth and goes through a complex supply chain to make it into our refrigerators; yet, food is also an art form and representation of culture. Every day, people think about what and when they will eat, though unfortunately, most lack access to nutritious food. Access to healthy food is a global problem that was further amplified during the pandemic and will only become more challenging as the global population grows. More than 43 million people in the U.S. experienced food insecurity over the past year, an alarming 23% increase since 2019. In Latin America, numbers are stark with 236.1 million people experiencing moderate and 75.8 million people experiencing severe food insecurity in 2020. Further amplifying this problem, in 2050, the world will have 3 billion more mouths to feed than it makes today, and demand for food will rise by 70%.
Poverty impacts food purchasing decisions. Fresh food is not only more expensive but also requires more resources, time to cook, and can be preserved for fewer days. In the US, the rates of food insecurity are even higher for African American, Latinx, and Native American families because of systemic racial injustice. Undernourishment is closely linked with poverty, inequalities, and social exclusion. Access to a healthy diet is a luxury and costs the average American approximately $2,000 more per year than an unhealthy diet. In food deserts, the absence of healthy food contributes to a poor diet. Access to nutritious food should be coupled with government policy to increase access to grocery stores and education to change consumer behavior. Our food supply chain is not properly serving people globally.
Why do we care?
An opportunity exists for a new wave of food technology and infrastructure that increases access to nutrition and is socially inclusive, while reducing the environmental impact by aligning supply and demand in a way that reduces overall system costs. This is a win for consumers, businesses, and the planet. Food fermentation technology, cell-based meat, applied AI analytics, food repurposing technology, digital marketplaces, and tech-enabled D2C snacks and meals are key investment areas that will drive speed, convenience, safety, and flexibility to ultimately increase access to nutrition for consumers — at a lower cost.
The questions to consider: how can investing in early-stage startups increase access to nutrition while providing favorable returns to investors? Which parts of the food supply chain are ripe for scalable disruption?
Current status of the ecosystem:
The global food supply chain connects farmers, food scientists, storage facilities, brands, grocery stores, and consumers with food that is safe, nutritious, and reliable. Technology is utilized to develop new foods and create infrastructure to allocate food to consumers. In the U.S., approximately 2 million farms produce agricultural products for processing via more than 36,000 plants in the food and beverage industry. About 16,500 companies sell food.
So what’s the problem?
Industry challenges include nutrition access and food insecurity, as well as addressing rapid population growth, urbanization, food waste, distributed systems, physical and mental health linked to nutrition, and changing consumer preferences. The rise of megacities, for example, make food supply chains increasingly complex to manage and expensive to move food from farm to table. Additionally, while not all food loss can be avoided, misaligned supply and demand drive up prices of fresh produce for consumers. More effective management of food products can result in lower prices and better access to nutrition for consumers.
Large Food and Beverage Companies:
CEOs of food and beverage companies are focused on building more resilient value chains, eliminating food insecurity, and reducing the use of water and land resources. Surprisingly, many farmers experience food insecurity themselves. During Covid-19, 1 in 5 farmers remained unable to consume adequate diets. Some corporations are working on initiatives to improve farmers’ conditions, such as Olam and Cargil. Additionally, many large food companies work with entrepreneurs that address recycling, agricultural diversification, marginalized communities, nutrition, and social challenges related to food, which shows opportunity for M&A across food corporations and startups.
To increase access to nutrition, as well as affordable, healthy produce, food waste needs to be reduced. Access to healthy food must be socially inclusive, conveniently located, and coupled with education so consumers can make better and more informed decisions about their health. Because the food industry is so vast, the research below is focused on investment themes that will both increase access to nutrition and provide returns for investors. These areas include food engineering, supply chain management, food repurposing, and marketplaces.
Nutrition and Waste: To ensure a healthy future for both people and the planet, the growing population must be fed in a sustainable manner. Food waste results in greenhouse gasses, increased cost of fresh produce, and higher prices for produce, leading to healthy diets becoming unaffordable for Americans.
👉 Solutions: Yield forecasting agtech, AI/ML analytics forecasting, food repurposing, and supply chain management technology.
2. Nutrition Access in Food Deserts: Food deserts are areas with low availability of healthy foods, causing unhealthy eating. A result of city mapping and infrastructure planning, food deserts are linked to low-income and majority BIPOC areas, driving inequality.
👉 Solutions: Urban gardening, vertical farming, supply and demand logistics, meal and grocery delivery apps and systems.
3. Nutrition and Education: People need to be educated to make healthy food decisions. Studies show consumer habits are hard to change. Even when fresh produce was available in a food desert, consumers did not change shopping habits. Access to nutritious food needs to be coupled with nutrition education.
👉 Solutions: Nutrition education, food engineering, highly delicious snacks that are packed with healthy nutrition from fruits and vegetables.
The food startup ecosystem can be split into food engineering, waste management, and digital marketplace/consumer experiences.
Food Engineering: This is the design and development of systems for production, processing, and distributing food. Today, food science and engineering are often used to create delicious food that reduces the amount of water and energy in production while providing more nutritious foods for people. Cell-based food production, food fermentation, vertical farming, and transformative seed breeding can be utilized to make more affordable and healthier plant-based foods. Innovation is driven by increased consumer demand for environmentally-friendly food, the utilization of data science and technology in food production, and urbanization that is increasing demand for long shelf life food that can handle an increasingly complex food supply chain. Finless Foods is creating plant-based tuna in a raw-like form utilizing tuna cells, which will be safe and more affordable for consumers and less damaging to the ocean. Gotham Greens is reimagining urban landscapes and creating new ways to farm, produce local food and revitalize communities.
👉 Questions: In the future, as these companies scale, they may face regulatory challenges with the USDA and FDA. Which areas have the least amount of regulation? How can food engineering work with the USDA and FDA to reach more Americans? Can AI be integrated to handle large amounts of data? How can direct-to-consumer brands gain customer loyalty? Can these businesses operate both B2B and D2C?
Supply Chain Management: Decisions can be automated throughout the food supply chain by implementing applications of IoT and robotics to improve the consumer experience and increase access to nutrition. Across consumer categories, supply chains have changed from being primarily operational to increasingly innovative. For example, many reduce time and friction by utilizing predictive analytics for supply chain transparency. Additionally, they are experimenting with demand and supply forecasting, pricing strategy, and end-of-life product management. Increased demand for high-quality food products, coupled with more consumer data, has created an opportunity for technology to improve the food supply chain. Food regulation also increases the importance of timing and managing a complex supply chain. SaaS and data analytics has continued to be adopted across industries, making them easy to apply across the entire food supply chain and create value for consumers and businesses. Shelf Engine is a provider of an automated prediction engine that predicts the performance amount of perishable goods to order. The company works with grocers to properly align supply and demand, which results in lower prices for consumers and increased margins for grocers.
👉 Questions: Supply chain management technology startups will need to work with both small companies and large corporations. How will they work with large food supply chain companies that may be slower to adopt new technology? How can each company and technology connect across systems for suppliers and businesses? How can the technology be easily integrated into existing business models?
Food Repurposing: Using food that otherwise would have gone to human consumption to add value to another part of the food chain while creating a positive impact on the environment. 30–40% of food in the United States is wasted. Repurposing food waste is a way to solve the food urgency problem as the population grows. Upcycling food can help reduce greenhouse gasses from food waste, while reducing waste and creating jobs across the food chain. The food waste business was worth $34B in 2019. Food waste costs retailers $18B per year, and it has an expected CAGR of 5% for the next seven years. Consumers are concerned with ethical values and food waste. 62% of consumers said they would be comfortable eating “ugly produce.” K50 portfolio company Kencko has made nutrition easy and a low commitment for consumers. Their smoothie products are made with organic fruits and veggies and are easy to implement into a daily routine. Imperfect Foods delivers groceries with a mission to eliminate food waste and build a better food system for everyone. They repurpose fresh produce that would have been wasted due to aesthetic imperfection and sell it to consumers at a lower price.
👉 Questions: In the future, how will companies manage the complex upcycling supply chain? What technology needs to be built to increase the speed and adoption of recycling food? How can existing companies strategically partner to increase the amount of food that is upcycled instead of wasted? Can upcycled food be sold at a lower, more accessible price to consumers?
Marketplaces: E-commerce food solutions are online platforms that sell a selection of food products. Digital marketplaces connect buyers and sellers; sellers often pay to gain a specific customer base. They enable shoppers to have a wider selection of products from which to choose and access to nutritious food at a lower cost. Consumers have shifted to purchasing products online; food produce has followed, which has fueled growth for startups in the ecosystem. Improved shipping logistics, online payment, and security have enabled digital food marketplaces to grow. Because of perishability, food and beverage is still the least penetrated category online. In 2020, total online sales of food and beverage (including groceries and takeout food) jumped 125% from the previous year to $106 billion. Food digital marketplaces can be segmented into e-grocery stores, e-procurement solutions, wholesale platforms, digital farmer’s markets, surplus marketplaces, meal kits companies, and restaurant delivery with dark kitchens. Plant and store closures during Covid-19 highlighted that the food distribution system is ripe for disruption. The digitalization across food marketplaces increases personalization and convenience for consumers, and technology is now available to provide on-demand delivery, online payment capabilities, shipping logistics, and e-commerce enablement. Multiple white space opportunities exist since food and beverage e-commerce sales are the fastest-growing and least penetrated e-commerce category. K50 portfolio company Anycart is an online grocery shopping engine that enables people to find and shop for the perfect meal, delivered at the lowest price. The company connects users directly with local grocery stores, where they can shop thousands of items and recipes without any markups, and consumers see the lowest price option.
👉 Questions: Looking forward, how can consumer-facing marketplaces implement strategies to increase consumer loyalty and reduce CAC? Keep in mind that B2C marketplaces and food delivery services have low switching costs for consumers.
With increased consumer data and technology, we can provide better access to nutrition that will reduce food insecurity and solve obesity while reducing food waste. The best investment opportunities will be consumer-friendly, asset-light, margin-rich, largely unregulated, and scalable. By implementing technology across production and distribution of food, people will have access to more delicious and convenient food at a lower cost.
If you’re building or thinking about building a company that uses technology for the future of food, I’d love to connect! My email is email@example.com.