Food safety as a growth market for equity investments

Quality control is playing an increasingly important role in the food industry in our view. The global market for food safety is continuously growing and we believe it offers interesting investment opportunities.

Salmonella-tainted chocolate, rotten meat in gelatin, fat burners containing DNP and apples sprayed with pesticides labeled as organic. One recently disclosed food scandal has received particularly widespread public attention: In the middle of the lucrative Easter period, a well-known chocolate manufacturer recalled and destroyed over 3,000 tons of its products. These products were infected with salmonella.

Growing need for safety among consumers

In developing countries where regulation can be minimal and hygienic conditions may be inadequate at times, food poisoning can be common. Developed countries typically see lower numbers of people affected by food poisoning, as more food is processed industrially and food manufacturers are subject to stricter production conditions than those imposed on producers in developing countries. Nonetheless, skepticism toward industrially processed food is rising in Western countries because the public need for safety is generally growing in our view. Against this backdrop, government authorities in various Western countries are introducing increasingly strict directives and liability provisions for food products. We believe this gives quality control and food testing ever-greater importance in the value chain.

Consequently, on the food product market, in our view, all these factors combined are the biggest drivers of a growing public need for safety, increased liability risks for manufacturers, more stringent regulations, and stricter quality and monitoring requirements. This, we believe, contributes to the growth of the food safety market and thus of the offering from companies providing services in this sector.

The provider market is becoming more important

According to estimates, the global market for food safety generated a turnover volume of roughly USD 19.2 billion in 2021. Experts estimate that this market will grow to USD 33.4 billion by 2027, with a compound annual growth rate of 9.7% (see figure 1).

The leaders in the field of food quality control are companies in North America, driven by efforts to meet growing demand from consumers and ensure compliance with government regulations like the FDA Food Safety Modernization Act. Europe is also another leader in this field. Here, the market and its biggest participants, Germany, the United Kingdom, and France, are steered by a growing number of food regulations continuously adopted by the various governments and the EU. Many food and beverage companies now make very active use of food testing in order to comply with regional safety regulations and thus protect their reputations.

Investing in safe foods

The strong public focus on safe food opens many business opportunities in our view, particularly for quality control service providers. This growing market is attractive for investors and, in our opinion, will benefit from a long-term growth trend. In the future and in addition to regulatory measures to prevent microbacterial or chemical contamination, we believe there will be further regulatory requirements that will cause technologies for the inspection of food provenance and trace-and-track methods to become more important throughout the entire production chain. This will open up additional areas of business for quality control providers in our view.

Increased uncertainty can be observed on the market at present due to the COVID-19 pandemic, rising inflation rates, and Russia’s invasion of Ukraine. Despite this environment, the food safety market remains attractive in our opinion; the long-term growth drivers are still intact. For this reason and in our view, equities from leading companies in the fields of life sciences, sensor technology, diagnostics, testing, inspection, and certification remain very promising for investors, as do those from the manufacturers of scientific instruments and consumables.