Why Sustainable Food is Key to Impact Investing in China
I first came across the concept of impact investing when I was studying at the Harvard Kennedy School about ten years ago. It immediately captured my imagination, as I was seeking something that could professionally leverage both my experience in the business field and my public service background. This explains why not long afterwards I had the opportunity to lead New Ventures, an impact accelerator housed at the World Resources Institute (WRI) in Washington that supported environmental small and medium-sized enterprises (SMEs) in Brazil, China, Colombia, India, Indonesia and Mexico.
In 2012, New Ventures successfully transitioned out of WRI with the objective of giving all local and regional centers independence to move into their next phase of development. Around the same time, with initial support from a Hong Kong-based family foundation and a few high-net-worth individuals in mainland China, I co-founded the China Impact Fund (CIF) as China’s first impact investing vehicle for environmental SMEs. A couple years later, Dao Ventures was formed as a China-U.S. consortium of various entities, including CIF, to encompass both China-based and cross-border impact investing.
So far, the Dao Ventures consortium of impact entities and affiliates have worked with over 1,000 social and/or environmental SMEs in and outside China, made and facilitated investments of more than $200 million, and provided seed grants of $500 to $20,000 to nearly 40 impact ventures across the U.S., Canada, Israel and China.
In the course of conducting and exploring all these impact investing opportunities, I have always been wary of the fact that most of the environmental SMEs we have supported hail from the industrial sector. For this reason, while these SMEs certainly are having a meaningful impact within their respective sectors, the impact is not necessarily going beyond their domains to reach the vast Chinese consumer base.
Animal-Free Approaches to Environment and Health
In February 2017, Albert Tseng, my classmate from the Harvard Kennedy School and founder of Moonspire Social Ventures, came to Washington D.C. for a meeting with Bruce Friedrich, co-founder of Good Food Institute. The institute is a U.S.-based non-profit organization that promotes plant-based meat, dairy and eggs as well as clean meat (also known as cultured meat and cell-based meat), as alternatives to the products of conventional animal agriculture. Since Albert and I had stayed in touch and have both been focused on impact investing work, he asked me to join him for the meeting with Bruce.
The meeting turned out to be my epiphany moment, when I fully understood the huge environmental impact alternative meat products could make. According to the Food and Agriculture Organization of the United Nations, animal agriculture is responsible for at least 14.5 percent of global greenhouse gas emissions, more than all transportation combined. Fueled by rising incomes, meat consumption in China grew sevenfold over the last three and a half decades. On the whole, China consumes 28 percent of the world’s meat—twice as much as the United States. And the figure is only set to increase.
I recall thinking to myself at the moment: “This should be China’s answer. This is how Chinese consumers can be made part of the environmental solution.” Born and growing up in a country that values food as an integrated part of its culture, I know from the bottom of my heart that food could be the entry point from which to naturally change the behavior of China’s mainstream consumers – if leveraged correctly and intelligently.
Long story short, Bruce later hooked us up with Chris Kerr, Chief Investment Officer at New Crop Capital, a U.S.-based specialized private venture capital fund that invests in talented, focused entrepreneurs whose products or services replace foods derived from conventional animal agriculture. Seeing China’s impact and business potential in the alternative protein space, in February 2018, Dao Foods International, a cross-border impact venture, was officially launched to meet China’s rising demand for meat and other protein food products with animal-free alternatives. We established it as a collaborative effort between Dao Ventures, Moonspire Social Ventures and New Crop Capital.
Aside from the huge environmental impact from the food sector, the social impact is not in any way less significant as far as China is concerned. First of all, food safety in China is a growing concern relating to agriculture, and Chinese officials have been under increasing public and international pressure to solve food safety problems. No doubt, the livestock industry, with its widespread use of antibiotics and sub-optimal living conditions for animals, has been a big part of the food safety problem. Alternative meat production will help minimize or even eliminate most of the food safety risks inherent in the traditional livestock production model.
Secondly, with the increasing wealth gap between China’s haves and have-nots, there starts to emerge a corresponding health gap between these two groups of people. In a recent interview, Michal Klar, a plant-based investor focused on improving Asia’s sustainability, shared his observation of two forces at play in China nowadays: 1) The urban, more affluent population is showing behavior similar to Western societies, with more focus on health, environment and even animal welfare, which drives a shift in protein consumption; 2) people moving out of poverty in rural areas, who traditionally could not afford meat products, are increasing their animal protein consumption. Obviously, Dao Foods hopes to reduce the health gap resulting from these two forces moving forward.
An Appetite for Sustainability
Following the launch, on top of our year-long feasibility study and many meetings with both local and international food entrepreneurs to build up the deal pipeline, the Dao Foods team has been active on the ground. In September 2018, Dao Foods co-organized a plant-based food festival for 10,000 people in Beijing, and in collaboration with its strategic partner Dongsheng Science and Technology Park in Zhongguancun (China’s Silicon Valley), it held the first Next-Gen Good Food International Forum in November 2018. At the Forum, Dao Foods and Dongsheng unveiled the Dongsheng-Dao Foods International Next-Gen Food Accelerator to support, accelerate and invest in plant-based ventures.
Additionally, Dao Foods and New Crop Capital are taking their partnership to the next level. Dao Foods has recently been appointed by New Crop Capital as its exclusive financial advisor for sourcing and investing in China-focused plant-based and clean meat ventures.
Chinese people tend to believe that real change ought to start from a person’s heart. Dao Foods hopes to get the hang of it with the peripheral stomach and the closely connected mouth, and hence our firm belief that sustainable food is key to impact investing in China.
Tao Zhang is founder and managing director of Dao Ventures.
Image courtesy of Toa Heftiba.
- Environment, Investing