General

High CO2 emissions turn our vegetables into junk food (Newsletter #7)

(Estimated reading time: 5 Minutes)

Introduction

In our quest to find the most innovative and promising ideas along the value chain of food, we are reading many scientific articles to get a better understanding of the underlying issues and requisite disruptions.

A recent article from Politico detailing the stark declines in crop quality over the last century caught our attention.

In this week’s newsletter, we learn the story of Irakli Loladze, who has slowly unearthed a pressing question under-researched and infrequently discussed.  Furthermore, we discuss opportunities for how new technologies can address Loladze’s findings.


Loladze’s Discovery: A Summary

The spark occurred in 1998, when Loladze and researchers at Arizona State University observed what appeared to be a strange contradiction.  Zooplankton – microscopic animals that feed on algae – struggled more to survive when they encountered an increased food supply that had been manipulated through exposure to light (algae use light to grow).

An obvious question thus ensued: how could an organism exposed to a greater food supply reach a point at which survival becomes more difficult?  After a considerable amount of time pondering this paradox, Loladze connected the dots to ask a vitally relevant question virtually no one had an answer to: how does this understanding translate to plants consumed by humans that have been exponentially exposed to more carbon dioxide on a daily basis?  Is it possible that some of our most essential foods – wheat, rice, barley, potatoes, to name a few – are steadily becoming less nutritious?

As it turns out, the short answer is yes.

Though one might expect higher quantities of carbon dioxide – a key input for plant growth – to cause an increase in quantity and quality, the inverse relationship discovered serves as the primary reason zooplankton suffered from a larger algae supply.  Similarly, Loladze found, as carbon dioxide levels increase in the atmosphere, the nutritional value of staple food declines.  His initial research has resulted in nearly 130 varieties of plants and more than 15,000 samples being studied and analysed.  These tests reveal the overall concentration of minerals like calcium, magnesium, potassium, zinc and iron has dropped by 8 percent on average (ca. 1970-2002), while the ratio of carbohydrates to minerals rose.

On the surface that may feel like an inconsequential percentage, but research from earlier this summer tells a different story.  Zinc deficiencies could put more than 138 million people at risk of exacerbated health conditions, and the results showed that more than 1 billion mothers and 354 million children live in areas where dietary iron is projected to drop, which further worsens anaemia, an already rampant issue.

The article’s title hints at a worldwide nutrient collapse.  Though an obvious hyperbole, this is not only an issue concerning due to its widespread implications, but also as a result of the relative lack of discussion going on amongst nutrition and agriculture experts.

With that little attention, opportunity is ripe for companies to develop products that address this issue and become an enticing investment opportunity.


Indoor Farming: A Solution?

Lowering carbon emissions would be the most ideal solution.  However, precedent illustrates that it is necessary to look for other options.

One potential solution is indoor farming. Indoor farming has grown immensely in popularity over the last few years for a variety of reasons.  In its simplest form, indoor farming enables producers to customize and control their desired environment, optimizing growing conditions for maximum nutrition and output.  Particularly in urban areas, where access to fresh produce can be extremely limited, it has been repeatedly shown to have positive practical and economic implications.  Below are some of the most common arguments for indoor farming’s viability:

Screen Shot 2017-11-14 at 09.18.07

Now, thanks to the efforts of Loladze, indoor farmers possess their most powerful argument to date: a more nutritious product than what is traditionally produced.


A Word of Caution

Investors have found an interest in the space, creating a lot of excitement as of late:

  • Plenty collected over $200 million for its aggressive expansion in North America and
  • AeroFarms raised a $40 million Series D round.

Despite the abundance of advantages, difficult questions need to be asked in order to secure consistent and sustainable growth.

After discussions with founders of other indoor farming companies, we believe that the business models of Plenty and AeroFarms may be insufficient.  No proof exists yet that indoor farming can be accomplished profitably at scale, and there are also a host of other potential drawbacks, including:

Screen Shot 2017-11-14 at 09.19.21

But with so much potential there must be space for innovation.  Can current companies offset all of those disadvantages and economic challenges? Great companies are not necessarily the best-funded, but instead have stable cash flows and scalable competitive advantages.  We found a few companies with unique business models, outstanding expertise in their field, and impressive foundations for future growth.

In order to overcome the drawbacks, one needs to find a way to either decrease rents expenses (1), find ways to produce staples (2), cut down high electricity costs (3) or, at best, a combination of the three.  We don’t see any of the popular and well-funded companies – Plenty, Aerofarms, Freightfarms – becoming the lowest cost producer.


If you want to be signed up to our F&A-Tech newsletter please do so here or contact me directly: fabian@pendulumadvisors.com

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