SRI English

Swine flu: Longer-term perspective required by investors

By Florian Sommer

Tens of millions of people are getting ready for their vaccination against swine flu. We are in the midst of a new pandemic, as officially announced by the WHO back in June.

What does this mean for sustainable investors? First of all, pandemics have historically only occurred every 30 to 40 years. However, we have recently experienced an increasing number of epidemics that nearly reached pandemic status. Remember SARS and Avian flu.

The risk of pandemic outbreaks is increasing. In our modern world, people live closer together in urbanised centres, travel more, and eat more meat. Farmed animal populations have grown exponentially. For example, China’s poultry population has grown from 12 million in 1968 to 13 billion in 2005, while its human population only increased from 790 million to 1.3 billion. Increased proximity between animals and humans is a key risk factor, as most emerging infectious diseases originated from a species jump of a virus from animals to humans.  

What little investment research on the topic exists is dominated by a short-term focus on sectors of under- or outperformance during epidemic / pandemic events. For example, airlines were hit hard during SARS but then recovered quickly. Betting on one-off pandemic/epidemic events that are by nature quite unpredictable is not a very attractive strategy for investors. A longer-term perspective is more rewarding, such as the growing markets for disease prevention and pandemic preparation.  For example, bio-surveillance of animals is viewed as key to prevent the “species jump” from animals to humans. There are new diagnostics and testing technologies that offer more rapid and reliable disease detection. The market for molecular diagnostics has been growing between 10 and 20 percent in the last 5 years and is expected to reach USD 7 billion by 2011. Finally, governments have begun to dedicate longer-term funding to the development of more effective vaccine production infrastructure and new technologies (e.g. cell-based production methods), in order to overcome earlier problems in producing sufficient vaccines during epidemic / pandemic events.

We do not know yet how severe the swine flu will turn out to be. However, we do know that the drivers of pandemic risk are increasing and that this is fuelling a growing demand for solutions that help to prevent the emergence and spread of infectious diseases. These technologies offer attractive longer-term investment opportunities.

Sugar price hike: a reminder of what looms around the corner

By Dirk Seel

'Breakfast’ commodities currently capture headlines as their prices hit multi-decade highs. Although sugar, coffee, tea and orange juice do not qualify as vital crops, their price hike should still be seen as a warning sign of a potential food crisis repeat.

Let’s recap: driven by drought-impacted poor global harvests, growing consumer demand, rising energy costs and financial speculation, the prices of agricultural commodities dramatically increased in 2007-08, causing food riots and political instability worldwide.

Given that the prices of rice, corn, wheat and soy have fallen amid the recession to today’s relatively depressed levels, can we assume that the threat of another food crisis is history? Clearly not. Instead, the driving forces behind the current production shortfall in breakfast commodities seem to be very familiar.

Take sugar. Following a global production deficit, its price has so far risen to a 28-year high. Government authorities around the world blame poor weather conditions for the severe shortage. But there are fundamental problems too. One is regulation. Sugar is among the most heavily manipulated agricultural commodities. From import levies to production quotas and statutory minimum prices, governments worldwide use interventionist mechanisms to maintain certain price levels. The real price of this policy can be seen in India. Millers, angry about imposed higher minimum prices, made their payments late, which led farmers in 2007-08 to abandon sugar for more profitable crops such as rice. With production down 40%, the country this season switches from being a net exporter of sugar to a net importer.

A lack of arable land dedicated to cane cultivation is not the only problem. Consider the world’s ever-increasing demand for energy. Already today, about 60% of Brazilian sugar cane is used to produce ethanol, a petrol substitute. With a rising oil price, this percentage looks set to increase further. Add developing countries’ growing appetite for sweet food, and you get an idea of the heavily imbalanced supply-demand curve.

As such, the current price hike of breakfast commodities should be seen as a reminder that another food crisis is looming. After all, the fundamental drivers that contributed to last year’s crisis have not disappeared.

The dawn of E-Paper

By Alvaro Ruiz-Navajas

The nascent market for e-readers has put e-paper into the spotlight, but the potential applications for e-paper are much wider.

The technology for e-paper has been developing since the late 1960s, but its potential applications have become apparent only since the advent of the e-readers. In theory, e-paper could replace ink and paper, but given the current state of technology, e-paper is better suited to display data rather than input data. Thus, rather than being useful only in consumer electronics, e-paper could find its core markets in disposable electronics and electronic signage. E-paper could expand rapidly to a USD 3 billion market by 2015.

Disposable electronics is likely to be an area where e-paper creates a new market. Potential uses include making packaging more appealing to consumers and advertisers – as shown by the Esquire magazine cover in 2008 - the change in pre-paid cards and, most interestingly, medical instructions. Doses and instructions could be changed so that they target a specific patient, and even the time to take the next dose could be displayed.

Electronic signage is where e-paper does have an advantage over current incumbents. Currently, TFT-LCD, LED and paper dominate this segment. However, with e-paper's ability to change rapidly and its low energy consumption, it is ideal for mobile message boards in airports and train stations. For billboards, e-paper could still provide an expensive alternative to paper, but the robustness of e-paper and the possibility to update it remotely presents a compelling case. E-paper price tags that can be updated centrally have proved successful in Japan.

A frequently cited benefit of electronic paper, however, stems from its direct effect on the environment. With an estimated 4 billion trees cut down each year and most of them going to paper, e-paper could not just open new markets, but also help preserve biodiversity.