Creating greater resiliency across the food value chain

Ijeoma Madueke: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Ijeoma Madueke. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.

Jonathan Belair: Well, first of all, I’ll simply reiterate that our focus from an investment strategy is to deploy capital right across the food value chain. So we are very much focused on understanding and working with food companies and creating greater resilience throughout the food system.

Ijeoma Madueke: Today, we welcome Jonathan Belair, who is the Managing Partner at Power Sustainable Lios. Jonathan has 20 years of investing and operating experience with a deep focus in food, agriculture and sustainability. Prior to joining Power Sustainable Lios, Jonathan was a Senior Executive at McCain Foods and before that a Senior Member at OMERS Private Equity. On today’s episode, we’ll be discussing climate change’s impact on the food system. Specifically, we’ll look at how this is influencing food supply strategies and the role of controlled environment agriculture in supporting the issues of food security. Good afternoon, Jonathan. Welcome and thank you for joining us on today’s episode of The Sustainability Agenda.

Jonathan Belair: Thank you very much.

Ijeoma Madueke: Perhaps it’s helpful to begin with some context and set the stage on why today’s discussion is very important. Jonathan, can you talk us through the impact of climate change on our global food system? And given these impacts, what are the opportunities for a firm like yours in agri-food?

Jonathan Belair: Climate change has real significant impacts on our food system, right across production availability and overall food security. Some of the key impacts that we focus on is very much around changing weather patterns, crop production and yields, water availability, the shift of growing seasons, the loss of biodiversity, food safety quality and unfortunately, the list keeps going. At Lios, our investment strategy is very much focused on supporting mid-market companies that are well positioned against what we believe are very important and challenging sustainability realities that are impacting our food system. We founded Lios almost exactly two years ago with a vision to become a transformation agent in the food transition, generating positive environmental and social impact, as well as attractive investment returns. In the last two years we built a very strong food first team. We raised an inaugural fund of $300 million from very strategic set of institutional investors, and we’ve deployed capital in direct alignment with that strategy. Given our very deep experience and track record in operating and investing and growing mid-market food companies in North America, we are very excited about the opportunity to work in direct partnership with some great mid-market food companies and their management teams in tackling what we believe is an unfortunate food challenge, but a very exciting food dynamic.

Ijeoma Madueke: That’s really exciting to hear, Jonathan, especially how you’re solving some of these problems. I definitely like the idea of a food first because we know how important food security is for, I’m going to say, for the world as our population continues to increase. And just to touch a bit more on what you’re speaking through, when we hear about agri-food supply chain, there’s a whole range of umbrella terms that we hear from regenerative practices to nature based solutions. One of those terms that we’re hearing come to the fore is controlled environment agriculture. Can you expand on what this refers to and how should we think about its role in addressing food security?

Jonathan Belair: Controlled environment agriculture, or CEA really refers to the method of agricultural production in which we’re utilizing a growing environment that is precisely controlled to optimize yield and plant growth. So it involves creating an environment indoors mostly through vertical farms or greenhouses where various environmental factors can be regulated and monitored, such as temperature, humidity, light, CO2 levels, nutrient concentration. The benefits of controlled environment agriculture is truly that it allows for year round cultivation of crops. So 365 days a year completely independent of external climate conditions, including snow and cold, which we’re very familiar with in Canada. Therefore, we can grow local produce for local consumption right across Canada and beyond. CEA or controlled environment agriculture can really contribute in addressing food security or the food challenges in a few different ways. I talked about year round production, increasing crop yield and productivity, local and urban production, resource efficiency as you think of water and land and reduced environmental impact. As a very tangible example, the vast majority of leafy greens, salads, microgreens, spinach, romaine, all the great lettuces and leafy greens that we consume, 80% of that supply which serves Canadians, is sourced from California and Arizona, two states which are dealing with tremendous water scarcity challenges, a reality which has impacted Canadians just a few short months ago with supply shortages and price spikes. And we all remember and experience the $15 romaine prices that we were seeing and sort of forced to pay at the grocery store in late 2022. Last September, Lios and McCain Foods invested in controlled environment agriculture together backing GoodLeaf Farms, which is the largest vertical farming company in Canada with farms in Ontario, Montreal, Calgary and the Maritimes. GoodLeaf produces nutrient dense, pesticide free, baby greens microgreens that are sold in more than 600 locations, including national grocers and into restaurants. The only other piece I’ll add to this CEA equation is that it’s important to note that controlled environment agriculture can contribute to food security, but we see that as a compliment rather than a complete replacement for traditional agricultural methods. The way that we think of the future of agriculture is very much employing a portfolio approach, which includes CEA, so vertical farms, greenhouses, include sustainable farming practices in open air ecosystems, regulatory support, all of which truly helps to support and drive to a more global food security position.

Ijeoma Madueke: That was very helpful for our audience and myself to get an appreciation for the breadth of controlled environment agriculture. When you talk about year round production and the supplementary nature of CEA to conventional agriculture, you see there’s a lot of control in there and there’s also a lot of leveraging what’s already existing, which I would say as responsible stewards of the environment is one of the things that we always think about in sustainability. There are so many nodes that you touched on that intersect and it’s probably a bit of a challenge getting different stakeholders to be on the same page at the same time. So I have a question for you here around food companies, what are they doing to create greater resilience in the food system?

Jonathan Belair: Well, first of all, I’ll simply reiterate that our focus from an investment strategy is to deploy capital right across the food value chain. So we are very much focused on understanding and working with food companies and creating greater resilience throughout the food system. We strongly believe that food companies play a very important role, a vital role in creating that resilience within this system. The objective is truly to become and to build a more resilient, sustainable, equitable food system that can withstand the climate shocks and challenges, while also ensuring food security for everyone. From our perspective, the key priorities that we are focused on as we work with food companies is very much about looking at how can we diversify sourcing and supply chains. Coming back a little bit to the example I provided earlier around the concentration of sourcing from a state to states that are dealing with water scarcity, such as California and Arizona, supporting sustainable agricultural practices. That includes vertical farming, for example. Collaborating with various stakeholders right across the food system, including the growers and perhaps most importantly, the growers. We firmly believe that there’s an opportunity and there are companies that are doing great work in implementing traceability and greater transparency in the food system. It’s about embracing technology and sort of continuous innovation and also promoting circular economy principles around reducing waste and optimizing resource use and promoting recycling and upcycling of by-products. And perhaps lastly and often perhaps most challenging, but engaging in advocacy and policy efforts and really working with governments and various associations to promote sustainable agriculture, climate mitigation, adaptation measures, fair trade practices and sort of the list continues. At GoodLeaf, specifically, we are seeing superior sustainability performance versus traditional open field agriculture, which is always the comparative that we have. Again, you have 85% plus of leafy greens sourced from two, three, 4000 miles away, being California and Arizona. When we look at the ability to produce pesticide free, sustainable, local leafy greens for consumption, locally, we see that the vertical farming model that GoodLeaf employs drives a superior outcome in water usage and land productivity, in yield, nutrient density, food waste avoidance and obviously transportation avoidance.

Ijeoma Madueke: It’s great to hear all those initiatives that are underway. Some of the key pieces that come together for this puzzle to, you know, paint a good picture of the future. Thinking through the focus on collaboration across the supply chain, focus on growers and of course, circular economy, which is very key for responsible consumption. So perhaps as you’ve spent this time working with different stakeholders across the food system, what are some of those key takeaways that you’ve found channeling investments? What has surprised you along the way?

Jonathan Belair: We’ve seen for multiple decades a significant underinvestment in mid-market food companies and more generally across the food value chain. As a key takeaway, we do believe there is significant appetite from very strong Canadian and US based food companies, mid-market food companies, to partner with groups like us that are bringing institutional capabilities, but also very deep operating expertise. The sector itself is extremely engaged in understanding what the consumer wants and serving the consumer in the best way possible. And sustainability is becoming more and more prevalent throughout the food value chain, and we are excited and actively engaged with companies that are trying to identify ways to, one, improve their sustainability footprint, but more importantly, engage commercially on sustainability with institutional buyers of food products, consumers, employees and the broader stakeholder universe. When we develop this platform, we had a very clear hypothesis around the ability to engage on sustainability with mid-market food companies. We have been pleasantly surprised at how successful that engagement has been and the appetite to engage with family owned businesses, founder operated companies or long tenured management teams. It’s been a really pleasant experience.

Ijeoma Madueke: That’s really good to hear, Jonathan. Let’s pull on the thread of the excitement for a second here. What is your take on the outlook for the sustainable agri-food space perhaps over the next 12 to 24 months? Are there any regulatory or consumer drivers that come to your mind which may play a role?

Jonathan Belair: If I were to look at the next 24 months, we have a tremendous amount of conviction in the opportunity ahead and the value of clear specialized capabilities and capital led by food first investors, working with food operators in really supporting great companies. So as a starting point, we have tremendous conviction that there is a universe of very attractive, growth oriented, mid-market food companies for us to support. We’ve developed a very strong and mostly proprietary pipeline of investable companies where we can drive the right level of partnership and working with the management teams, in our view, supporting and driving economic growth and real true positive social environmental impact. So as a starting point, there is a wonderful base of actionable opportunities. As we look at the universe of sectors and subsectors, we do believe that next 24 months will be an attractive and interesting time to be partnering with companies. Consumers are becoming more aware and desiring more transparency with regards to the products they’re consuming as it relates to the ingredients make up and sourcing of those products. We do believe that consumer preferences are evolving significantly and the awareness or the bias towards sustainability is skewed significantly. At the end of the day, we need to ensure that we’re backing companies that are engaging in sustainability, not with the outcome of delivering a premium product or a sustainability only position product, but rather a true comparable, strong, high quality product that is a strong alternative to what is currently being sold. As I positioned earlier, we’ve raised a $300 million fund and we’re actively looking to work with profitable, mid-market companies right across the food value chain. We’ve deployed capital. We continue to be focused on deploying capital. So the next 24 months for us is very much focused on finding the next five, six, seven companies to deploy capital into.

Ijeoma Madueke: You heard it here first. Jonathan’s looking, so lots to digest there and lots to unpack. And we’re hearing quality, we’re hearing consumer preference and we’re hearing a lot of opportunities in the agri-food system. What an interesting conversation today. Thank you again, Jonathan, for taking the time to join the show today. And thank you to all our listeners for tuning in.

Jonathan Belair: Thank you very much.

Ijeoma Madueke: Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Ijeoma Madueke, and this is The Sustainability Agenda.

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