S2G’s Krishnan ponders how food systems could ‘colonize healthcare’

Chief investment officer says following covid-19, increased attention to preventative food investments aimed at deflating healthcare costs will create opportunities for LPs.

Convergence of food and health is the most exciting of five structural food system trends accelerated by covid-19, said S2G Ventures‘ chief investment officer.

In an August paper entitled What Past Pandemics Teach Us About the Future of Food and Agriculture, S2G describes how an increased focus on preventative health following the pandemic could help create investment opportunities in supplements, traditional medicine and other markets.

The paper notes Americans gained an average of 29 pounds in 2020 and suggests that a rapidly aging population in the years through 2040 will draw policy and investment attention toward partnerships among healthcare, technology and food providers focused on managed and preventative care.

“The TAM [total addressable market] of the US food system is $1.2 trillion to $1.5 trillion. The greater TAM, I think, is: how does the food system colonize the healthcare system, which is $3 trillion?” Sanjeev Krishnan told Agri Investor. “We see that happening at the niche level, but eventually there are some interesting ways to get scale.”

An increased focus on health within food systems could come to shape primary agriculture, he said, by promoting the use of new genetics providing for increased biodiversity and health impacts.

“We should re-think the nature of nutrition and disease and how does food deflate healthcare costs,” he summarized.

Krishnan said S2G’s research effort came after observing many attempts to project the economic consequences of covid-19 were drawing on events like 9/11 and the global financial crisis, which overlooked dynamics specific to pandemics. It builds on an earlier paper published in April 2020 and identifies four key accelerated trends in addition to the convergence of food and health: controlled-environment agriculture, the decommodification of protein and digitalization of sales channels and the broader supply chain.

What unites the analyses, according to Krishnan, is an observation that the major innovation cycles that typically follow pandemics can shape ag markets in important ways.

“The three least digitized sectors going into covid were healthcare, education and the food system. Clearly, healthcare and education have been much more digitized with telemedicine and tele-education,” Krishnan said. “We are seeing a lot more both rhetoric and reality in the movement to digitize our food supply chains.”

The report compares the Biden administration‘s plans to spend $100 billion to expand rural broadband over the next eight years to the construction of highway infrastructure in the 1920s. It also highlights the possibility the administration’s Build Back Better plan could create “significant opportunities” in ag.

Focus on import substitution and a more localized conception of food security following covid-19 are among the factors that have helped create unprecedented levels of institutional investor interest in food and agriculture, Krishnan said.

Although many pension funds have allocations to climate transition investments they hope will eventually include agriculture, he added, many currently lack internal expertise to evaluate opportunities in the sector. The coming decade, Krishnan predicted, will see the formation of more ag-focused firms and strategies to connect this capital with companies seeking to further define the mechanics and aims of agriculture’s role within a broader climate transition.

‘There is a lot of money on the sidelines,” he said. “You are going to see a lot more [investment] product coming out, I suspect, in the next three to five years, around this new food system. Other infrastructure products, infrastructure credit products and obviously, private equity. It’s happening. It’s slow, per usual in food and ag.”