S2G logs uptick in LP interest as it maps coronavirus impact on ag

Covid-19 has helped demonstrate the benefits of agricultural exposure to institutional investors while raising fundamental questions about existing strategies, said S2G Ventures’ chief investment officer.

Sanjeev Krishnan told Agri Investor that global pension funds have been among LPs he has heard express increased interest in ag following wider market turmoil, which has highlighted the asset class’s defensive and uncorrelated characteristics.

“Institutional investors, family offices – a number of the market participants – have increased their appetite for the sector, because of [covid-19]. We’ve been pleasantly surprised about that,” he said.

Agtech-focused S2G published a white paper in late April – Everyone Eats: The Future of Food in the Age of Covid-19 – that drew on research into pandemics dating as far back as the Justinian Plague of 541 to make the case that such disruptions have often increased the pace of innovation.

It highlights key uncertainties regarding how permanently the current pandemic will shape consumer behavior and predicts the post-covid-19 landscape is likely to be informed by innovations in four key areas: digitalization, decentralized food systems, de-commoditization and an increased focus on foods that support immunity.

Krishnan said the majority of brands in S2G’s portfolio have benefited from accelerated demand over recent months as online grocery ordering surged amid coronavirus-related shutdowns and social distancing. In addition to providing an opportunity to cement relationships with consumers, he said, the rapid shift to online channels allowed small and medium-sized brands to demonstrate the dependability of their supply chains to grocery buyers.

“Real asset/processed asset with brands; this is a time when they can potentially thrive, because they can control their destiny a bit more,” said Krishnan, who highlighted online grocery provider Good Eggs as a portfolio company offering S2G key visibility on recent consumer behavior. “Buying local was always a theme, but now it has a resiliency context to it as opposed to a circular economy theme to it.”

Resiliency is also an important focus within an active debate about how food systems should respond to shortcomings highlighted by the pandemic. As that debate continues the key tension is likely to be between a business vision of centralized integrators and a competing vision of a more diffused network of agile farmer-enterprise businesses, Krishnan noted.

Though there is widespread agreement among corporates active in agriculture that shorter supply chains would reduce interdependency risks, he added, there is not yet consensus around who should pay for such changes.

“If you want resiliency and more localization – there is a cost to that. Who finances that cost? Do consumers finance that cost? Do public institutions finance that cost?” he said. “Our view is that technology innovation entrepreneurs can finance that cost with technologies that deflate the marketplace. Technology can be deflationary and can finance some of this regionalization and localization and finance some of that resiliency.”

An increasing focus on national, as opposed to global, food security is another pandemic-related change S2G flags in its report, which highlights indoor ag as a subsector well-placed to benefit from increased demand for localization.

Krishnan said he expects covid-19 will only accelerate what has been an already strengthening focus on self-sufficiency in food among pension and sovereign wealth funds, as well as family offices, from outside of the US.

S2G’s report highlights grain stockpiling and export restrictions as further signs of a move towards “food nationalism” that Krishnan said is already shaping the agricultural investment environment in important ways.

“If your business is anchored around globalization, what’s the fragility risk if this continues for 18 months? Two years? Five years?” asked Krishnan. “It’s a little bit early to make a call on that, but it’s something that will be re-evaluated.”