Talking Heads – What has been happening in the food and agriculture sector?

Talking Heads Podcast with Agne Rackauskaite

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing investing in the food and agricultural value chain. I’m Daniel Morris, Chief Market Strategist, and I’m joined again today by Agne Rackauskaite, Portfolio Manager. Welcome Agne, and thanks for joining me.

Agne Rackauskaite: Really good to be back.

DM: So much has happened over the last six months, it’s hard to keep track of everything alongside the many changes in the US, not just in terms of the administration, but all the policies that have followed. A big part have been new initiatives affecting food and agriculture. Many of our listeners will have heard about MAHA – Make America Healthy Again, in parallel to MAGA. One thing we can start with are the weight loss drugs. One of the big debates in consumer markets today is around these GLP1 weight loss drugs. How do you see these drugs changing eating habits? And what does it mean for companies across the food and agriculture value chain?

AR: We’ve spoken on a previous podcast about GLP1s as a potential solution to obesity. I often get asked by investors what could be the most meaningful long-term driver of change across the sector. GLP1s genuinely have that potential. What’s striking is just how quickly this has all happened. The first drug was only approved for obesity in 2021. By 2022 and 2023, adoption had already accelerated, especially in the US.

It’s fair to say that these drugs are now mainstream, not just in terms of patient use, but also in terms of how the food industry is having to think about them. It’s worth mentioning that so far, the story has been about the US, but it’s not going to stay that way.

Patents are due to expire in around 80 markets next year, which will make these drugs far more accessible globally, especially in the emerging markets, and with a pill, adoptions is likely to broaden into more mainstream lifestyle users. That’s when the global impact could really accelerate.

We’re beginning to get interesting real-world data from a behaviour perspective. The evidence is clear. GLP1 users cut their daily calorie intake by 500 to 700 calories, and their choices tend to shift towards healthier, less processed foods. The categories that we see most at risk are snacks, both sweet and salty, frozen meals, soft drinks, as well as alcohol.

On the flip side, we’re seeing nice growth in yogurt, fresh produce, protein bars, as well as supplements. Protein in particular is an interesting theme. When people lose weight on GLP1s, they don’t just lose fat, they lose muscle as well. That makes protein intake especially important. Yogurt in particular has become a big standout. It’s seen as a convenient and natural solution. At the same time, people are asking the question, are we now reaching peak protein? When every single product on the shelf suddenly has a high protein claim, whether it’s bread, pasta, or even soft drinks, it does risk looking gimmicky. And that scepticism can lead to consumer fatigue. For now, protein is clearly a positive driver. Overall, GLP1s are still in the early stages, but that pace of adoption, the reduction in calorie intake, as well as the category shifts all would suggest that this is one of the most powerful megatrends that are shaping the food and agriculture sector today.

DM: Agne, the Make America Healthy Again agenda seems to be starting to shape the debate on food policy in the US. From an investor’s perspective, do you see MAHA as more of a risk for the food and agriculture sector, or are there opportunities across the value chain?

AR: We wrote about this in a blog recently called Moving Beyond Artificial Ingredients, and the message there was that the US is finally starting to tighten rules on food additives, and that clearly creates risks, but it also opens up opportunities.

The risks are straightforward. Historically, the US has lagged Europe when it comes to regulating food composition, but that’s now changing quickly. Red number three was banned at the federal level earlier this year, and states like California have already gone further and banned a whole range of dyes in school meals.

The problem is reformulation is not that straightforward. It’s not just the case of swapping one ingredient for another because they can change the taste, the colour, and texture of food. And if the consumer doesn’t like the new version, demand can collapse.

There is also a clear opportunity. Natural ingredient companies are providing solutions. They work with packaged food companies to take out artificial ingredients and replace them with natural ones while keeping everything else intact. Kraft Heinz and ANOVA have both pledged to eliminate synthetic dyes by 2027, and PepsiCo has said that it will shift its entire portfolio to natural colours.

What’s new is that the Make America Healthy Again Commission has just published its strategy report and that broadens the whole agenda. Instead of one-off additive bans, it’s talking about systematic oversight of all petroleum-based dyes, as well as a review of the GRAS process, which stands for Generally Recognised As Safe, a process that has allowed thousands of additives into the market.

They’re also talking about introducing a federal definition of ultra-processed food. That’s going to be a big shift. They also want tighter rules on how unhealthy products are marketed to kids, as well as more front-of-pack nutrition labelling. That puts pressure on products that are high in sugar, salt, and additives, and pushes companies towards cleaner portfolios.

Then there’s the Supplemental Nutrition Assistance Program. The strategy is talking about piloting these so-called Make America Healthy Again boxes, which are basically pre-packed boxes of healthier foods, and restricting benefits from being spent on junk food. If that goes through, it could change purchasing patterns, especially among lower-income households.

On the farming side, the strategy is pushing for more precision agriculture and regenerative practices looking to help farmers cut pesticide use and improve soil health. That’s a positive for agriculture technology companies.

DM: Sticking with the US, tariffs are being adjusted. Labor supply is being affected by immigration policy. Global trade relationships are very much in flux. What are the implications for supply chains across agriculture and food?

AR: On tariffs, the impact depends on where you sit in the value chain. Players like food producers, distributors, retailers and restaurants are generally less exposed because most of their food is sourced locally. But fertilisers, crop protection chemicals, agricultural machinery are globally traded and highly exposed. When tariffs increase costs in those areas, it filters straight through to the farmers and that can affect their profitability and investment decisions.

Then immigration. If immigration policy continues to tighten, you quickly get labour shortages, lower yields and pressure on farm profitability. The same applies in meat packing and restaurants as well as food service, which all lean heavily on immigrant labour.

And then, trade relationships. This is where retaliation risk comes, and farmers end up in the crossfire.

You could see supply chains get reshaped: more domestic sourcing and more emphasis on friendly partners that can build resilience in some areas, but it can also cut off traditional trading partners and cause new disruptions.

DM: If I could summarize some of the key points. We talked about how the GLP1 weight loss drugs are now mainstream. With many patents expiring and oral versions becoming available, the adoption will go even higher. If we think about the implications, you talked about pressure on snack foods, junk food, soft drinks and an increase in demand for things like yogurt or protein. We touched on Make America Healthy again and some of the implications you saw there were restrictions on food additives. And then finally, in terms of the major policy shifts, you highlighted potential for labour shortages in the agricultural sector due to changes in immigration policy. Agne, thank you very much for joining me.

AR: Thank you, Daniel.

DM: That’s it for this week’s episode of Talking Heads. If you would like more information about investing in the food and agriculture value chain, please reach out to your BNP Paribas Asset Management contact or check out Viewpoint, our website for investment insights at Viewpoint dot BNP Paribas am.com. Viewpoint brings commentary and analysis in a variety of formats, from investment outlooks to asset allocation videos and podcasts, to help investors make better informed decisions. You’ve been listening to the BNP Paribas Asset Management Talking Heads podcast with me, Daniel Morris, and Agne Rackauskaite, Portfolio Manager. Please do join me next week. Until then, take care.