This article was originally published on ETFTrends.com.
By Andrew Musgraves
Senior Product Manager
Concerns over the long-term sustainability of global food systems are leading to questions about the future of food. In this Q&A, we address these concerns as well as VanEck’s Future of Food ETF (YUMY).
Agriculture and food markets have faced considerable headwinds over the last year amid heightened geopolitical turmoil and record prices in fertilizers and grains, sparking concerns over the long-term sustainability of our current food systems, globally. Likewise, consumers and investors have become increasingly aware of agriculture’s outsized contributions to greenhouse gas emissions and the collective need to combat climate change head-on. VanEck Future of Food ETF (YUMY) is an actively-managed ETF investing in companies that are leading, enabling, supplying, disrupting and benefiting from new environmentally sustainable agriculture and food products and services. In this Q&A, we answer frequently asked questions related to the core concepts, thematics and fund offerings of VanEck’s Future of Food ETF.
Q: What is the “Future of Food”?
A: Food systems – that is, the ways our food is grown, harvested, processed and distributed – are undergoing a structural transformation in order to meet the demands of an ever-growing global population, the need for more efficient resource utilization, and the universal push to improve environmental sustainability and reduce agriculture’s emissions footprint.
The “Future of Food” thus represents the market segment of participants central to this transformation. These market participants include emerging leaders in areas such as food technology, precision agriculture and agricultural sustainability, which are often overlooked and underrepresented in terms of overall market capitalization relative to the more traditional fertilizer and farm equipment manufacturers, grain and meat producers, food suppliers and packagers.
Q: What is food technology, precision agriculture and agricultural sustainability?
A: Also referred to by the Investment Team as the “Three Pillars of the Agriculture Transition”, food technology, precision agriculture and agricultural sustainability are emerging elements of a dynamic global food system that provide significant improvements upon conventional farming and food production practices. For example, some of the most significant benefits come in the form of more effective nutritional delivery, down-the-value-chain cost savings, health and human safety enhancements and overall waste reduction.
Three Pillars of the Agriculture Transition
Broadly speaking, food technology covers areas such as the development and manufacturing of alternative proteins (such as plant-based foods), food additives or flavor enhancers, as well as areas addressing health and nutritional needs for livestock. Food technology also includes the nascent industry (here in the U.S.) of sustainable aquiculture, which is the commercial cultivation of fish species aimed at minimizing impact to local ecosystems.
Precision agriculture can generally be thought of as any type of applied technology or process enhancement that may improve crop yields and maximize farm resource use. GPS-enabled planting, efficient watering and harvesting systems, in combination with drone-assisted monitoring and soil sensors, are examples of technologies being applied in this space. Indoor vertical farming – where crops are grown in tight, vertical formation to reduce land use and ensure stable, consistent growing conditions – is also included here.
Agricultural sustainability can be viewed as an area addressing all of the by-products of the processes involved in getting food from pre-growth to end-use (in most cases, human consumption). This can include things such as the manufacturing of organic or non-toxic crop chemicals and fertilizers to the development of biodegradable or recycled food packaging.
Q: Are food technology, precision agriculture and agricultural sustainability new to the agriculture and food sectors?
A: Yes and no. While a number of the core concepts of the “Future of Food”, such as plant-based foods or sustainable crop chemicals, have existed for more than a decade, the accelerated pace of innovation and heightened focus on environmental sustainability in the last few years has vastly altered the investment landscape. Companies today are emerging with stronger business models and more disruptive technologies in an environment with significantly stronger demand growth. In our view, this paves the way for a number of exciting new investment opportunities.
Q: How does Future of Food differ from a typical agribusiness ETF?
A: Conventional agribusiness ETFs typically focus on the traditional segments of the agriculture industry, such as fertilizers, crop protection chemicals, grain processing, livestock and animal meat production. Often times, there is little value added beyond the agricultural commodity itself, and thus these companies tend to be more sensitive to the prices of the underlying commodities relative to companies operating in the food technology, precision agriculture or agricultural sustainability segments.
Q: What are the benefits and risks of investing in this space?
A: YUMY seeks to achieve capital appreciation by successfully identifying businesses in the agri-food tech space with the potential to grow at an above-average rate compared to their peers and the market as a whole. As the agriculture and food sectors undergo structural transformation, industry dynamics are likely to evolve between the more traditional segments of the market and the emerging leaders of areas such as food technology, precision agriculture and agricultural sustainability. In some cases, this may also lead to entirely new growth opportunities through accretive joint ventures or, as is often the case, integration via merger and acquisition activity.
However, risks still remain. The evolving nature of these emerging segments of the agriculture and food sectors could leave companies ripe for failure—be it through a lack of scalability or project financing, product obsolescence or changes in government policy (among other potential factors). Investors are encouraged to read the Fund’s prospectus prior to investing to educate themselves on these and other risks.
Q: Why is the Future of Food being offered as an actively-managed ETF?
A: Food technology, precision agriculture and agricultural sustainability remain nascent industries despite the investment landscape significantly improving over the past several years. With the advent of more disruptive technologies, stronger business models and supportive demand growth, these industries appear to be in the earliest stages of what will likely become a multi-decade transformation that will include winning and losing business models. Active management allows the Investment Team the requisite flexibility to adapt and be proactive as new growth opportunities emerge.
Originally published by VanEck on June 3, 2022.
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The Fund will be sensitive to, and its performance will depend to a greater extent on, the overall condition of companies operating in the food technology, precision agriculture, and agricultural sustainability markets. These companies may have limited product lines, markets, financial resources or personnel and may face intense competition or potentially rapid product obsolescence which may adversely affect the Fund.
An investment in the Fund may be subject to risks which include, among others, risk of investing in agri-food technology and innovation food companies, equity securities, investing in small- and medium-capitalization companies, basic materials, industrials and consumer staples sectors, investing in European issuers, foreign securities, foreign currency, active management, market, operational, authorized participant concentration, no guarantee of active trading market, trading issues, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, initial public offerings, special purpose acquisition companies, and concentration risks, which may make these investments volatile in price or difficult to trade. Small- and medium capitalization companies may be subject to elevated risks.
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