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Breonics’ Disruptive Organ Repair Technology: Potential Solution To Transplant Organ Shortage

Are chart showing the number of donors, transplants, and people on the transplant waiting list in the United States, 1991-2018. The number of organ donors in the United States increase from 6,953 in 1991 to 17,554 in 2018. The number of transplants performed in the United States increased from 15,756 in 1991 to 36,529 in 2018. The number of people on the US transplant waiting list increased nearly five-fold from 23,198 in 1991 to 113,759 in 2018. Data from the US Health Resources and Services Administration (HRSA)

Of the few options available to End Stage Renal Disease (ESRD) patients, transplantation is the most cost effective and offers a relatively better quality of life. Yet, the supply of transplant organs falls far short of demand and as a result the transplant waiting list has continued to increase over the past few decades. American bio-science company Breonics’ Exsanguinous Metabolic Support (EMS) technology, which is a medical device that could repair donor organs and test their viability, aims to address the global transplant organ shortage, starting with kidneys (more than 80% of patients on the U.S. transplant waiting list were waiting for kidneys). The company is currently raising its Series A capital to fund clinical trials.

The demand for organ transplantation has increased worldwide over the past few decades due to increased incidence of organ failure. However the supply of organs for transplantation has remained relatively stagnant resulting in an escalating shortage of organs for transplantation over the past few decades. In the U.S. alone there were about 113,000+ patients on the national transplant waiting list as of July 2019, up from 23,198 in 1991 (representing a nearly five-fold increase), and every 10 minutes another person is added to the list. This is despite the number of donors increasing from 6,953 to 17,554, and the number transplants more than doubling from 15,756 to 36,529 during the same period.

Are chart showing the number of donors, transplants, and people on the transplant waiting list in the United States, 1991-2018. The number of organ donors in the United States increase from 6,953 in 1991 to 17,554 in 2018. The number of transplants performed in the United States increased from 15,756 in 1991 to 36,529 in 2018. The number of people on the US transplant waiting list increased nearly five-fold from 23,198 in 1991 to 113,759 in 2018. Data from the US Health Resources and Services Administration (HRSA)

Part of the reason for the stagnant transplant organ supply is due to the fact that under current medical standards of care, donors have to be free of certain illnesses, have to be below the age of 75, and donor organs have to be harvested within 30 minutes of death. However, of the more than 2.5 million annual deaths in the United States, just 2% occur under circumstances that meet this criteria; for instance the death takes place outside the hospital where the deceased’s organs could be preserved, or they suffer from conditions such as most cancers or certain incurable infections that make the organ unfit for donation. As a result, most organ donors in the U.S. are from living donors or from donation after brain death and this means that more than 95% of potential organs are not being considered for transplantation given the limitations of the current standards of medical care.

Pie chart showing the number of deceased and living transplant organ donors in the United States in 2018. In 2018, the U.S. had 10,722 deceased transplant organ donors and 6,831 living organ donors.

The desperate situation has spurred a search for solutions ranging from offering incentives for organ donation to development of technologies and methods to increase organ preservation. There is also a growing interest in using suboptimal organs from donors which are currently not considered for transplantation.

American bioscience company Breonics’ EMS platform offers a potentially ground-breaking solution towards addressing the global transplant organ shortage by expanding the window of opportunity for harvesting the donor organ. According to Breonics, under the 30-minute window, less than 4% of all mortalities in the U.S. are potential organ donors, but with their technology, the addressable market expands to at least 15%. Although the technology can be used for the repair and regeneration of lungs and livers, Breonics is initially targeting kidneys which has the biggest waiting list and is the most transplanted organ. 83.7% of patients on the U.S. transplant waiting list are waiting for kidneys.

Pie chart showing the transplant waiting list by organ type in the U.S. As of July 2019. 83.7% of patients on the U.S. transplant waiting list were waiting for kidneys, 11.6% for livers, 3.3% for hearts, 1.2% for lungs, and 1.5% for other organs (pancreas, intestines, and combinations).

And at 21,167 transplants performed in 2018, kidney transplants were the most performed transplants in the U.S. last year, far exceeding the 8,250 liver transplants performed the same year.

Bar chart showing the transplants performed in the United States by organ type in 2018. Of the transplants performed in the United States in 2018, 21,167 were kidney transplants, 8,250 were liver transplants, 3,408 were heart transplants, 2,530 were lung transplants, 835 were kidney/pancreas transplants, 192 were pancreas transplants, 104 were intestine transplants, and 32 were heart/lung transplants.

The opportunity is not limited to transplant patients but also to the dialysis population in the United States which is estimated at over 600,000 people as of 2016, as well as those newly diagnosed with End Stage Renal Disease (ESRD) which is estimated at over 120,000 according to the National Kidney Foundation; 30 million or 15% of the U.S. adult population was suffering from Chronic Kidney Disease (CKD) in 2017 according to National Center for Chronic Disease Prevention and Health Promotion, and of the 30 million U.S. CKD patients, about 0.4% or 120,000 patients are in Stage 4 which will likely pave the way for ESRD or total kidney failure which means they will likely need a transplant or dialysis in the near future. CKD is an under-recognized public health crises that causes more deaths than breast cancer or prostate cancer.

Line chart showing the prevalence of Chronic Kidney Disease (CKD) stages 1-4 in the United States by year during the period 1988-2016 (% of prevalence). Between 1988-1994, U.S. CKD patients made up 11.8% of the population, of which 4.1% of CKD patients were in Stage 1; 3% were in Stage 2; 4.5% were in Stage 3; and 0.2% were in Stage 4. In 2015-2016, CKD patients made up 14.2% of the population of which 4.7% were in Stage 1; 3.4% in Stage 2; 5.8% in Stage 3; and 0.4% in Stage 4.

The incidence of ESRD has been on an upward trend in the United States which is the result of rising rates of diabetes and hypertension which are the two most common causes of kidney disease, according to data from the U.S. government’s Renal Data System.  The prevalence of ESRD more than doubled between 1990 and 2015, from 727 ESRD patients per million U.S. residents in 1990 to 2,087 ESRD patients per million U.S. residents in 2015 according to the United States Centers for Disease Control and Prevention – Chronic Kidney Disease Surveillance System, United States.

Column chart showing the incidence of end-stage renal disease in the United States from 1990 to 2015. In 1990 there were 727.4 end stage renal disease patients per million United States residents. By 2015 the figure had ballooned to 2087 point for end-stage renal disease patients per million U.S. residents.

There is no cure for ESRD and patients have three options: (i) no treatment which results in death; (ii) dialysis which generally has a negative impact on quality of life; and (iii) transplant which offers a relatively average longer life expectancy and better quality of life.

Dialysis is also more costly; the ESRD population in the U.S. represents 1% of the U.S. Medicare population, but they account for 7% of the Medicare budget. Medicare spending for ESRD patients stood at US$ 35 billion in 2016. 80% of this, equal to US$ 28 billion, was spent on hemodialysis care costs (approximately US$ 90,000 per patient annually). Spending for transplant patient care on the other hand stood at US 3.4 billion, equal to less than 10% of Medicare spend on ESRD patients. The U.S. government is reportedly exploring avenues to trim the relatively high cost associated with dialysis through measures such as improving care in the early stages of kidney disease, increasing access to kidney transplants and favor home dialysis over clinic-based dialysis treatment.  

Transplantation is generally accepted to be superior not just in terms of cost effectiveness but also in terms of life for the patient. However, the biggest barrier limiting greater access to transplants is the supply of suitable donor kidneys. 12 people die every day (roughly 5,000 annually) waiting for a kidney transplant according to the National Kidney Foundation.

Breonics is addressing this pressing problem by broadening the criteria for organ donation by expanding the window of opportunity for harvesting the organ from the current 30 minutes, to two hours post mortem. Under current medical standards of care (SOC) transplant surgeons cannot transplant kidneys that have been exposed to warm ischemia for more than 30 minutes as the damage caused to the kidney due the lack of blood supply for more than 30 minutes could potentially harm the patient. This is why the organ donor pool in the U.S. is currently largely dependent on living donors or donation after brain death (DBD) which represents just a small fraction of deaths from traumatic injuries each year, approximately 4%, while organs from deceased by cardiac arrest are not considered because the damage caused to the organs as a result of prolonged lack of blood flow make them unusable. In contrast, brain dead patients are usually in an ICU on life support until they are declared brain dead by brain criteria, and thus their organs do not experience significant warm ischemic damage because the restriction of blood flow to the organs is only for a relatively shorter period of time, often in terms of minutes.

Breonics’ EMS technology can repair damage to organs that have been damaged from warm ischemia for up to two hours. Thus, with Breonics’ technology, the donor pool can be expanded to include the currently huge yet untapped pool of potential donors who died from cardiac arrest and uncontrolled brain deaths (such as from a stroke) because the transplant team can be called to hospital immediately after the time of death, obtain family consent as needed and still harvest the organs within the expanded window afforded by Breonics’ technology. The company’s EMS platform is the first technology that can be used to intervene after cardiac arrest and repair ischemically damaged kidneys and other organs for transplantation. Brenonics’ perfusate medical device can also assess the viability of the kidney prior to transplantation, thereby reducing discard rates due to false negatives. The U.S. reportedly discards 3,500 kidneys annually, and 17% of donated kidneys were discarded during the 10 year period between 2004 and 2014. The reason for the waste was because doctors in the U.S. were less inclined to using lower quality kidneys, however a panel of transplanted experts found that as many as 50% of the kidneys that were discarded could have been transplanted according to the National Kidney Foundation. The discard rate has only been increasing according to the study; in 2016, the discard rate reached 20%. Breonics has successfully resuscitated and repaired over 100 human kidneys that were discarded for being too damaged for transplant. The company estimates its technology has the potential to increase the number of kidneys available for transplant in the United States from the current 19,000+ to an additional 150,000 per year by 2021. Breonics will be reimbursed by the Organ Procurement Organization for every kidney Breonics successfully repairs, and provides for transplant which is guaranteed under the Renal Care Act of 1982.    

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Untapped Opportunities In Green Chemistry Market

Pie chart showing primary oil and natural gas demand by sector, 2017 (%). Transport was the biggest oil consuming sector, accounting for 56% of oil demand in 2017. Transport was followed by Petrochemicals (14%), Buildings (8%), Other industry (5%), Power (5%) and Other (12%). Power was the biggest natural gas consuming sector in 2017 accounting for 40% of natural gas demand in 2017. Power was followed by Buildings (21%), Other industry (15%), Petrochemicals (8%), Transport (4%) and Other (12%). Data from the International Energy Agency.

Chemicals are used to produce almost everything in the world today. The chemical and petrochemical industry represents the largest contributor to industrial energy demand worldwide accounting for about 10% of global total final energy consumption and about 7% of greenhouse gas emissions associated with industry according to the International Energy Agency. Yet, as the world becomes increasingly decarbonized, the decarbonization of the chemical industry which is one of the biggest fossil fuel consuming sectors suggests ample opportunity for growth in the global green chemistry market opening potentially lucrative business and investment opportunities.

The global market for green chemistry, which includes bio-based chemicals (also known as green chemicals), renewable feedstocks, green polymers and less-toxic chemical formulations is projected to grow from US$ 11 billion in 2015 to nearly US$ 100 billion by 2020, representing a CAGR of 55.5% according to figures from Pike Research.

The growth is underscored by several drivers including greater awareness of the negative environmental impact of petrochemicals, increasing legislative pressure to reduce emissions, and increasing end consumer demand for sustainable and “green” products, which in turn is prompting large retailers and other institutions to adopt policies to source bio-based products and raw materials.

Currently, the chemical industry relies heavily on fossil fuels with petrochemicals (which convert fossil fuels such as oil and gas into products such as plastics, fertilizers, packaging, clothing, paints and coatings such as varnishes, cosmetics, medical equipment, detergents, tires etc) accounting for 90% of the total feedstock demand for the manufacture of chemical commodities. Driven by rising economic growth among other reasons, global demand for petrochemicals has nearly doubled since 2000 (much of it due to increased plastic consumption worldwide) according to data from the International Energy Agency (IEA). The petrochemical sector which currently accounts for about 14% of global oil demand and about 8% of global gas demand is expected to see its share of oil and gas consumption increase driven by greater plastics consumption in developing economies (outweighing the drag to demand from recycling efforts in developed economies) and the difficulty in finding suitable alternatives.

Pie chart showing primary oil and natural gas demand by sector, 2017 (%). Transport was the biggest oil consuming sector, accounting for 56% of oil demand in 2017. Transport was followed by Petrochemicals (14%), Buildings (8%), Other industry (5%), Power (5%) and Other (12%). Power was the biggest natural gas consuming sector in 2017 accounting for 40% of natural gas demand in 2017. Power was followed by Buildings (21%), Other industry (15%), Petrochemicals (8%), Transport (4%) and Other (12%). Data from the International Energy Agency.

Of the nearly 10million barrels of oil per day growth in total oil demand in 2030, the chemical sector is expected to account for more than a third. Furthermore, of the 850 billion cubic meters increase in global gas consumption, the IEA expects the chemical sector to account for 7%.

There a few key possibilities for the decarbonization of the chemical industry, notable options include greater electrification of production processes, and replacing petroleum feedstock (which produces fossil fuel based chemicals), with alternatives such as bio-based feedstock such as plants and organic waste (to produce what is known as “green chemicals”). This suggests that as the world adopts measures to combat climate change, the traditional chemicals industry is ripe for disruption and the green chemistry market is in prime position to meet the global need for a decarbonized chemical sector.

Notable startups in the green chemicals game include Texas-based Solugen, a developer and manufacturer of plant-based alternatives for petroleum based products. In May this year, the startup raised US$ 32 million in its Series B round. Y Combinator, Refactor Capital, Western Technology Investment and others participated in the round.

Sub-sectors within the green chemistry market to watch include:

Bio-plastic 

Much of the growth in petrochemical demand over the past decade has largely been driven by greater demand for plastics which has outpaced demand for other bulk materials such as steel, cement or aluminum. According to figures from the International Energy Agency, plastic production has nearly doubled since 2000 and looks set to continue growing driven by rising per capita plastic demand from emerging economies where plastic consumption per capita is just a fraction of developed economies. For instance, in South Korea, one of the world’s largest consumers of plastic,  per capita plastic consumption stands at 98.9 kilograms per person as of 2015, compared with just 5.5 kilograms per person in Africa, 9.3 kilograms per person in India, and 27.8 kilograms per person in Brazil.

Bar chart showing the per capita consumption of major plastics (plastic resin) in 2015, (kilograms per capita), for selected countries and regions. At 98.9 kg per person, South Korea is one of the world’s biggest consumers of plastic products. Per capita plastic consumption for other countries in the chart are as follows: Canada (98.6 kg/person), Saudi Arabia (86.8 kg/person), United States (81.3 kg/person), Western Europe (62.2 kg/person), Japan (54.4 kg/person), China (45.1 kg/person), Mexico (32.9 kg/person), Brazil (27.8 kg/person), India (9.3 kg/person), and Africa (5.5 kg/person). Data from the International Energy Agency.

However, with countries around the world facing a growing problem of plastic pollution, there is a pressing need for environmentally-friendly alternatives. While recycled plastic could be a growth feedstock in the future (according to an article published in National Geographic, of the 8.3 billion tons of plastic produced over the past six decades, only 9% has been recycled) opening growth opportunities for companies such as UK-based Recycling Technologies, there is considerable potential for bio-plastics to also emerge as a growth market; European plastics trade association PlasticsEurope estimates that of the roughly 335 million tons of plastic produced every year, just about 1% are bio-plastics and demand is on an upward trend and according to trade association European Bioplastics, global bio-plastic production capacities are set to increase in the years ahead which suggests growth opportunities for bio-plastics manufacturers such as NatureWorks and Green Dot Plastics.

Bar chart showing global production capacities of bio-plastics (in 1,000 tons). Global bio-plastic production capacity is expected to increase from around 2.1 million tons in 2018 to 2.6 million tons by 2023. Data from European Bioplastics.

Bio-fertilizers

Fertilizers are an integral component in agriculture. As the world moves towards sustainable agriculture practices and organic food, bio-fertilizer is primed to be a beneficiary as synthetic fertilizers, which have harmful effects on the environment such as groundwater contamination, are replaced with bio-fertilizers which are environmentally friendly. Unlike synthetic fertilizers which are mostly fossil fuel based, bio-fertilizers are mostly derived from plants, and other organic residues such as animal waste.

The global bio-fertilizer market was valued at US$ 946.6 million in 2015 and the market is projected to grow at a CAGR of 14.08% between 2016 and 2022, according to forecasts from research firm MarketsAndMarkets.

The demand is underpinned by growing demand for organic food (which comprises just about 2% of total agriculture produced globally), and a growing need for sustainable agriculture (about 30% of land globally is considered degraded according to analysis by research firm Boston Consulting Group and 28% of cropland (including 56% of irrigated cropland) is in water stressed regions).

London-based bio-fertilizer startup Bio-F Solutions is an exciting startup to watch in this promising sector. Founded by a team of staff and students from the Department of Life Sciences at Imperial, the startup is pioneering a bio-fertilizer made of algae which contains microorganisms that remove naturally occurring nitrogen in the atmosphere and ‘fix’ it in the soil thereby enriching the soil enabling it to be used for new crops.

Nitrogen, phosphorus and potassium, also known as NPK, are the “Big 3” primary nutrients in commercial fertilizers, of which nitrogen is considered to be most important nutrient as plants absorb more nitrogen than any other nutrient. This is because nitrogen is essential to the formation of protein which is a key building block of the tissues of most livings things.

Bar chart showing world demand for fertilizer nutrient use, 2015-2020 (in thousand tons). Demand for nitrogen is expected to grow from 110 million tons in 2015 to 118 million tons by 2020, representing a CAGR of 1.5%. Demand for Phosphate is expected to grow from 41 million tons in 2015 to 46 million tons by 2020, representing a CAGR of 2.2%. Demand for Potash is expected to grow from 33 million tons in 2015 to 37 million tons in 2020, representing a CAGR of 2.4%. Data from the Food and Agriculture Organization (FAO).

Although nitrogen makes up 80% of the earth’s atmosphere, it is in a form that is unavailable to plants. For plants to absorb this key nutrient, atmospheric nitrogen must be ‘fixed’ through methods such as crop rotation, green manure or compost. Bio-F Solutions’ algae-based fertilizer takes advantage of microorganisms present in algae (free-living bacteria which includes the cyanobacteria, also known as blue-green algea), which are naturally capable of transforming atmospheric nitrogen into fixed nitrogen which are usable by plants.

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Blockchain Startups Disrupting The Real Estate Industry

Bar chart showing Asia Pacific cross border commercial real estate investments, capital outflows by source (in US$ billions), in 2017. China was the biggest source of outbound capital into commercial real estate, with US$ 31.5 billion of cross border commercial real estate investments originating from China. China was followed by Hong Kong (US$ 20.5 billion), Singapore (US$ 19.9 billion), South Korea (US$ 8.6 billion), Japan (US$ 3.1 billion), Taiwan (US$ 1.7 billion)< Australia (US$ 1.7 billion), Thailand (US$ 1.1 billion), Malaysia (US$ 0.5 billion), and India (US$ 0.3 billion).

Having revolutionized banking, blockchain, the underlying technology behind Bitcoin, is set to bring change to the multi-trillion dollar real estate industry.

The global real estate industry, estimated to be worth trillions of dollars, could prove to be a lucrative industry to disrupt considering the current systems related to land titling which involves mountains of documents into which data and information on land transactions are manually inputted, is a time-consuming process that is susceptible to fraud and clerical errors. The inefficiencies and inadequacies in the current land titling system is the driving force behind the multi-billion dollar title insurance industry; IBIS World estimates the US title insurance industry is worth about US$ 17 billion while data from the American Land Title Association (ALTA) reveal that nearly US$ 4 billion in title insurance premiums were generated in the US during the third quarter of 2017 alone.

Propy

Country: United States of America

California-based real estate marketplace startup Propy uses blockchain to maintain a decentralized title registry in an effort to enable people to buy and sell real estate in any location, from anywhere without the problems associated with international real estate transactions such as fraud.

Properties listed on Propy can be purchased using regular fiat currency or cryptocurrency; using the latter enables the usage of smart contracts and a blockchain-powered decentralized, immutable registry which ensures that all aspects of the transaction, as well as title deeds and property rights, are stored forever, in a tamper-proof database. In 2017, Propy made headlines when it announced it had completed the world’s first real estate purchase on Ethereum blockchain, when TechCrunch founder Michael Arrington purchased an apartment in Ukraine using smart contracts, in Ethereum cryptocurrency and PRO (Propy) tokens.

Cross border real estate has been on an upward trend and is likely to continue doing so. According to a report by Knight Frank, cross border real estate transactions accounted for 32% of all real estate transactions by volume, up from 25% during 2009-2011.

In Asia, cross border real estate transactions are at a 10 year high according to Real Capital Analytics and according to Knight Frank, 2017 marked the first time since tracking the markets in 2007 where Asia-Pacific has overtaken Europe and North America as the top source of cross border capital outflow. Real estate buyers from China were the biggest source of cross border capital, followed by Hong Kong and Singapore according to Knight Frank while the US, UK and Germany were the top destinations for inbound capital.

Bar chart showing Asia Pacific cross border commercial real estate investments, capital outflows by source (in US$ billions), in 2017. China was the biggest source of outbound capital into commercial real estate, with US$ 31.5 billion of cross border commercial real estate investments originating from China. China was followed by Hong Kong (US$ 20.5 billion), Singapore (US$ 19.9 billion), South Korea (US$ 8.6 billion), Japan (US$ 3.1 billion), Taiwan (US$ 1.7 billion)< Australia (US$ 1.7 billion), Thailand (US$ 1.1 billion), Malaysia (US$ 0.5 billion), and India (US$ 0.3 billion).

Propy is positioned to capitalize on this lucrative trend; of Propy’s approximately 50,000 monthly website views, about half come from China, from prospects looking to invest in real estate outside their home country.

Furthermore, according to Propy’s whitepaper, initially, the Propy Registry will mirror the records in local land registries in which land transfers are recorded. Going forward however, the startup aims to have the Propy Registry as the official ledger of record for the relevant land registry department. Propy earns a percentage of the final purchase price of every transaction completed using Propy’s platform.

If Propy does succeed in its ambition of getting jurisdictions to adopt the Propy Registry, then Propy’s PRO tokens could potentially hold more value since the Propy platform will be required (as opposed to being merely an option) to conduct real estate transactions. Whether this ambition actually materializes however, remains to be seen.

Zebi

Country: India

Having been selected by Andhra Pradesh to deploy its blockhain-based solution to digitize the state’s land registry, Indian blockchain-based big data solutions startup Zebi is now reportedly in talks with several other state governments to introduce its blockchain-based big data solution to digitize their land records easing buyer concerns over real estate fraud such as fake land certificates, a very real problem considering India has a 69% bribery rate (the highest in Asia Pacific) according to a survey by Transparency International and was ranked the most corrupt nation in Asia in 2017.

According to Indian government official J.A. Chowdary, an estimated US$ 700 million is paid in bribes to land registrars across India and about two-thirds of all civil cases in India are disputes related to land and property.

With transactions rising in India’s real estate sector and projected to continue rising over the next decade driven by the country’s young population reaching home buying age and rising disposable incomes (Morgan Stanley forecasts India’s property market sales to grow at a 14% CAGR during 2016-2020 and 18% during 2020-2025), Zebi’s Ethereum-based technology solution as well as its token (ZCO) could grow more important as it increases the reliability and transparency of India’s land registry, thereby reducing potential problems such as property related fraud.

ChromaWay

Country: Sweden

Swedish blockchain startup ChromaWay has tied up with the Swedish Land Authority (Lantmäteriet), consultancy group Kairso Future, real estate search portal Svensk Fastighetsförmedling, telecom Telai Sverige, IT firm Evry. and a group of participating banks namely SBAB and Landshypotek Bank to conduct a pilot program to demonstrate how a private blockchain network could carry out real estate transactions. Each step in the transaction process is verified, and stored securely and immutably on the blockchain, and all participants in the real estate transaction – the banks, the government, buyers, sellers – will be able to securely track and trace the state of the transaction as it progresses from start to completion.

Consultancy firm Jairso Future estimates the blockchain solution could save Swedish taxpayers US$ 106 million a year by eliminating paperwork, cutting transaction times and reducing fraud.

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Multi-Billion Dollar Water Sector Offers Business Opportunities

Bar chart showing the top 15 countries with the largest estimated groundwater extractions in 2010, breakdown by sector (%): agriculture, domestic use and industrial use . The top 15 countries are (in order), India, China, United States, Pakistan, Iran, Bangladesh, Mexico, Saudi Arabia, Indonesia, Turkey, Russia, Syria, Japan, Thailand, and Italy. Data from the National Groundwater Association.

The gap between global water demand and global water supply is widening. Already more than half of the people in the MENA region (Middle East and North Africa), live under conditions of “water stress” (i.e., the demand for water exceeds supply) according to the World Bank and a report by the United Nations reveals that the world could face a 40% water shortfall by 2030. Demand for water is expected to grow by nearly one-third by 2050 according to a 2018 World Water Development Report by the United Nations.

Yet while water demand is projected to grow, earth’s water supply is limited. Just 1% of all earth’s water is fit for human use according to the National Groundwater Association, and 99% of this is derived from groundwater, 0.86% from lakes and 0.02% from rivers.

Earth’s total groundwater supply is estimated at 5.5 million cubic miles (equal to about 23 million cubic kilometers). However, groundwater is being depleted faster than it is being replenished due to a rapidly increasing population and increasing urbanization. Data from NASA’s Gravity Recovery and Climate Experiment (GRACE) satellites indicate that 13 of the world’s 37 biggest aquifers are being depleted due to irrigation, industrial usage and human consumption (groundwater supplies about 50% of all drinking water worldwide) faster than they are being replenished by rainfall. Climate change has affected rainfall patterns and as a consequence, the availability of groundwater resources will be impacted in the decades to come.

Of the 13 aquifers, eight aquifer systems are “overstressed” which means water is being withdrawn faster than it is being naturally recharged. The most overstressed aquifer is the Arabian aquifer system which lies underneath Saudi Arabia and Yemen. Other overstressed aquifers are the Indus Basin in Pakistan and India, and the Murzu-Djado Basin in Africa. The other five aquifer systems are “extremely” or “highly” stressed, which means they are being recharged by some rainfall but not enough to enough to offset withdrawals. California’s Central Valley is one of the five aquifer systems under this category.

The result has been a steady decline in the volume of renewable water resources per capita from 28,377 m3 per person per year in 1992 to 19,804 m3 per person per year in 2014, which corresponds to a roughly 30% decline over the last 22 years according to data from Aquastat.

Addressing the world’s impending water crisis demands better water management practices such as through the adoption of water recycling as is done in Singapore and Israel and to make water intensive sectors more efficient. This opens considerable opportunities for entrepreneurs and investors in the global water sector. A report by investment firm RobecoSAM expects market opportunities related to the water sector to reach US$ 1 trillion by 2025.

Smart irrigation

Global annual ground water withdrawals are estimated at 982 cubic kilometers a year according to estimates by the National Groundwater Association. By sector, agriculture is the largest user of groundwater, accounting for about 70% of groundwater withdrawals. Household use accounts for about 10% of groundwater withdrawals.

By country, India is the largest user of groundwater in the world, China is the second largest and the United States is third.

Bar chart showing the top 15 countries with the largest estimated groundwater extractions in 2010, breakdown by sector (%): agriculture, domestic use and industrial use . The top 15 countries are (in order), India, China, United States, Pakistan, Iran, Bangladesh, Mexico, Saudi Arabia, Indonesia, Turkey, Russia, Syria, Japan, Thailand, and Italy. Data from the National Groundwater Association.

The world’s growing population will lead to growing water usage while rising urbanization will increase per capita water and food consumption, particularly meat consumption. Food production is water intensive and meat-based products are among the most water-intensive sectors in the food industry. About 15,400 liters of water is required to produce one kilogram of beef and 5,988 liters to produce one kilogram of pork. By comparison just about 2,500 liters of water is required to produce one kilogram of rice.

As incomes rise and meat consumption sees a corresponding increase for the one billion plus population in India and China, which are already the world’s largest groundwater using nations, the water demand-supply mismatch will widen. This suggests the global demand for water will increase exponentially in the decades to come. Without improved water-use efficiency measures, agricultural water consumption is expected to grow by about 20% globally by 2050.

Smart irrigation solutions for agriculture are expected to help increase efficiency in water intensive sectors such as agriculture. Driven by expanding farming operations, an increasing need to increase farm profit, and government initiatives to promote water conservation, smart irrigation, which is a branch of the broader agtech sector, holds considerable growth potential particularly in India, China and the United States where over 50% of extracted groundwater is used by the agriculture sector.

92% of groundwater extraction from India’s overstressed Indus Basin is from the agriculture sector according to analysis by Earth Security Group.

Israeli agtech startup CropX offers a cloud-based smart irrigation solution for agriculture. The integrated software and hardware platform helps farmers increase yields by saving water and energy. On-field purpose-made sensors monitor soil moisture and gather data which is sent to CropX’s cloud platform where it is analyzed by CropX software which then updates the farmer through a mobile app on the farmer’s smartphone.  The farmer is then able to control the amount of water to each plant eliminating the need to water the whole field at one time thereby preventing water wastage through over watering and improving crop yields by maintaining optimal soil moisture levels.

Smart water solutions

Household consumption accounts for 10% of global groundwater withdrawals, the volume of which is likely to increase in the years ahead drive by population growth and urbanization. Smart water solutions for domestic use are expected to help optimize household water consumption such as by reducing wastage of water.

About 30% of global water supply is lost through leakage costing water utilities US$ 14 billion annually according to the World Bank. Wasted water, which is called non-revenue water (NRW), is a problem not just in developing countries but in developed ones too. London loses 25% of water through leakage, Hong Kong wastes 32.5%, Norway loses 32%, and the United States loses 14%-18%.

Such losses are avoidable. Countries that have comparatively better rates of water loss include Tokyo which loses about 2%, and Singapore which loses about 5%.

Consequently, the market for smart water solutions which monitor, detect and reduce leakage is a potential growth opportunity.

Research firm MarketsandMarkets projects the global smart water management market will grow from US$ 8.46 billion in 2016 to US$ 20.10 billion in 2021, representing a CAGR of 18.9% driven by a growing need to reduce NRW losses, sustainable use of energy, regulatory compliance and smart city projects.

Boston-based Inkwood Research projects the global smart water management market will expand at a CGAR of approximately 20.6% during the period 2017 – 2026 driven by smart city projects, aging water infrastructure and increasing need to reduce water loss. North America is expected to be the largest market. However Asia Pacific is expected to be the fastest growing market driven by countries such as China, India and Japan.

China and India, already the top two groundwater extracting nations in the world as illustrated in the chart above are likely to see greater water demand and water stress in the years ahead due to rising per capita income, increasing urbanization and industrialization. This is particularly true in China where water demand has been rapidly increasing and water supply has been rapidly dwindling, a situation that has been getting worse over the years; about one-fifth of China’s groundwater extraction is used for domestic purposes and according to research from the World Resources Institute, the percentage of land area in China facing high and extremely high water stress increased from 28% in 2001 to 20% in 2010.

The over-extraction of groundwater is impacting China not just through growing water scarcity risk but also increasing ground subsidence, i.e., sinking of land caused by the excessive removal of oil, natural gas or in China’s case, groundwater. According to a report released in 2012, more than 50 Chinese cities suffer ground subsidence issues.

Israeli startup TakaDu offers a cloud-based water management software-as-a-service (SaaS) solution that uses IoT, big data analytics and algorithms to help utility companies cut NRW losses by reducing leakage and supply interruptions, and anomaly detection  and automatic early warning anomalies.

TakaDu has deployed Water Network Monitoring solutions for a number of water utility companies including Portuguese water utility Águas de Cascais (AdC), Australian water company Hunter Water Corporation, and Chilean to water supplier Aguas de Antofagasta.

Industrial water treatment and recycling

About 20% of global water consumption is for industrial use and roughly 75% of industrial water withdrawals are used for energy production according to the United Nations World Water Development Report 2014.

Certain types of fuels require more water to produce than others. For instance, coal is among the most water-intensive fuels while natural gas is among the least water intensive. Coal production requires 10 times more water per ton of oil equivalent than natural gas production. Shale gas production requires 10 times more water per ton of oil equivalent than conventional natural gas production.

Coal extraction and refining is a very water intensive process and in China the world’s largest coal producer, the impact of coal production on the country’s water resources is already evident. China’s overstressed North China Aquifer serves 11% of the country’s population, 13% of the country’s agricultural production and a whopping 70% of the country’s coal production.

Yet, with coal accounting for about 40% of the world’s generated energy, it is likely to continue playing a role in the world’s energy mix going forward, particularly in China, India, the United States and Australia which are the world’s largest, second-largest, third-largest and fourth-largest coal producing nations respectively, and all four of which face water shortage issues; the Indus Basin in northwestern India and Pakistan is the second-most overstressed in the world while California’s Central Valley aquifer has been labeled as “highly stressed” according to studies led by the University of California using data from NASA’s GRACE satellites.

According to the U.S. Government Accountability Office, water managers in 40 out of 50 U.S. states expect water shortages in some portions of their states in the next decade.

This opens opportunities for industrial water treatment solutions. The industrial water treatment and recycling market is projected to grow by over 50% from around US$ 7billion in 2015 to US$ 11 billion in 2020 according to a report by Global Water Intelligence.

Much of today’s wastewater treatment involves treating wastewater, or effluent, and returning the treated effluent to groundwater or aquifers. Water reuse or water recycling however, sees the treated water being reused rather than being returned to the environment. Water reuse tends to be practiced in water-stressed countries such as Israel and Australia. Israel, the world’s leader in water recycling, over 70% of treated wastewater is reused.

Bar chart showing the percentage of treated wastewater reused, in 2015. Israel reuses 70% of all its treated wastewater. Australia reuses 19%, North America 4% and Brazil 1%.

It is likely that as water shortage issues grow, the market increasingly moves from water treatment to water reuse.

Much of reused water is currently used for agricultural purposes according to data from Global Water Intelligence and with agriculture accounting for 70% of global water withdrawals, the opportunity for water reuse technologies is evident particularly in countries such as India, China and the United States which are the world’s top three largest groundwater extracting nations and agriculture accounts for over half of water withdrawals in all three countries.

Pie chart showing global treated wastewater reuse, market share by application. 32% of the world's treated wastewater was reused for agricultural irrigation, 20% for landscape irrigation, 19.3% for industrial use, 8.3% for non-potable urban uses, 8% for environmental enhancements, 6.4% for recreational purposes, 2.3% for indirect potable reuse, 2.1% for groundwater recharge and 1.5% for other purposes.

Water desalination

Historically, desalination plants were concentrated in Gulf regions which have little alternatives for water supply. However, depleting water supplies and increasing water demand has forced countries outside the Gulf such as Australia, China, Japan, and the United States to build desalination plants to address impending water shortages. Desalination is in practice in more than 150 countries.

Yet, with increasing pollution, climate change, population growth and rising urbanization expected to drive water demand amid stagnant or falling water supplies, the demand for desalination technologies are expected to increase in the coming years. According to Hexa Research, the water desalination market is expected to grow to US$ 26.81 billion by 2025 driven by reverse osmosis.

There are two primary water desalination technologies; multi-stage flash distillation and reverse osmosis.  Flash distillation involves boiling seawater at low pressures (which requires less heat) and then condensing the resulting steam into salt-free water. This technology has been the most commonly used method for desalination over the past few decades and still remains so. According to Hexa Research, the market for multi-stage flash distillation is expected to grow at an 8,4% CAGR between 2014-2025.

Reverse osmosis, on the other hand, uses a membrane to filter salts from seawater to produce salt-free water. The technology was commercialized in the 1970s but was considerably costlier compared to multi-stage flash distillation; the membranes were not as effective in filtering salts and the membranes tended to wear out quickly.

However, over the past few years, there have been significant improvements that have helped increase its competitiveness and the fact that reverse osmosis consumes less energy than flash distillation (which has helped drive down desalination costs over the past few years) makes the technology more attractive. Consequently, new desalination plants are increasingly being built with membrane technology; according to the International Desalination Association (IDA), as much as 90% of new desalination capacity worldwide uses RO as opposed to distillation technologies. For instance in 2017, membrane technology accounted for 2.2 million m3/d of annual contracted desalination capacity while distillation technologies accounted for just 0.1 million m3/d.

The momentum is expected to continue; reverse osmosis is expected to be the fastest growing desalination technology going forward with Hexa Research predicting the market will be valued at US$ 15.43 billion in 2025. This could be a growth opportunity for companies such as Tetra Tech (NASDAQ:TTEK) and Veolia Environnement (EPA:VIE). Tetra Tech provides consulting, engineering, and technical services for the water sector while Paris-based Veolia Environment has been in the water business for over a century, designing and operating desalination plants for municipalities and industry around the world.

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These Are The Companies Profiting From China’s Belt And Road Initiative

"One Belt, One Road" map showing the Silk Road Economic Belt and the Maritime Silk Road under China's One Belt, One Road (aka Belt and Road) Initiative.

China’s Belt and Road Initiative (BRI) also known as the One Belt and One Road Initiative (OBOR), is an ambitious, trillion-dollar infrastructure project that aims to connect countries along two primary trade routes known as the “Silk Road Economic Belt” and the “Maritime Silk Road” in an effort to enhance connectivity, investment, international trade, and economic development.

The “Silk Road Economic Belt” represents the land-based route, and is named after the ancient trading route known as “Silk Road” which went through China, Central Asia, West Asia, the Middle East and Europe. The “Maritime Silk Road” represents the sea route which, like the original maritime trade route, linked Chinese ports with ports located in Southeast Asia, the Indian subcontinent, the Mediterranean, Europe and Africa.

"One Belt, One Road" map showing the Silk Road Economic Belt and the Maritime Silk Road under China's One Belt, One Road (aka Belt and Road) Initiative.

By various measures, BRI is one of the largest infrastructure and investment projects in history. About 70 countries representing about two-thirds of the world’s population and accounting for about one-third of the global economy are participating in Belt and Road projects. Under the initiative, some US$ 900 billion worth of projects are currently either under way or in detailed planning stages according to data from China Development Bank.

While some projects have encountered roadblocks and delays, numerous others are ongoing. Ongoing projects under the initiative include the Eurasian Railway Program (an 81,000 km railway linking China with Europe), the Colombo Port City (CPC) development project in Sri Lanka, the Khorgos Gateway project in Kazakhstan (a railway linking China with Kazakhstan), the Hungary-Serbia high speed railway (a 350km railway line from Budapest to Belgrade), the Gwadar deep sea port project in Pakistan, the China-Laos Railway (a 414km railway linking Laos with China), the Karot Hydropwer project in Pakistan, the Sino-Oman Industrial City in Oman’s port of Duqm, the Malaysia-China Kuantan Industrial Park in Malaysia, the Kohala hydropower project in Pakistan, the Melaka Gateway in Malaysia, the Yanbu Refinery in Saudi Arabia, and the Kunming-Singapore High Speed Railway (a 3,000 km railway line connecting China to Southeast Asia) to name a few.

Projects under the BRI initiative fall into one of six economic corridors, namely:

  1. The China-Indochina Peninsula Economic Corridor (CICPEC)
  2. The China-Mongolia-Russia Economic Corridor (CMREC)
  3. The New Eurasian Land Bridge (NELB)
  4. The China-Central Asia-West Asia Economic Corridor (CCWAEC)
  5. The China-Pakistan Economic Corridor (CPEC)
  6. The Bangladesh-China-India-Myanmar Economic Corridor (BCIM)

BRI projects that have been successfully completed include the Ethiopia-Djibouti High Speed Rail Link (a 752km railway linking Ethiopia’s capital to the Port of Djibouti), the Amsterdam-Yiwu railway (an 11,000km railway linking  Amsterdam in Netherlands with  Yiwu in China’s Zhejiang province), the Baku-Tbilisi-Kars Railway (an 846km railway linking Baku in Azerbaijan, Tbilisi in Georgia and Kars in Turkey), the Nairobi-Mombasa railway (a US$ 3 billion railway project linking Kenya’s capital Nairobi,  with Kenya’s port city of Mombasa), and the Rudbar Lorestan hydropower station in Iran to name a few.

The initiative is expected to unlock substantial commercial opportunities in the decades to come. With the initiative already having a positive impact on the bottom lines of some companies, many other companies around the world are keen to participate and are positioning themselves for a share of the pie.

Caterpillar (NYSE:CAT)

American heavy-machinery manufacturer Caterpillar which has been investing heavily in China the world’s largest construction and mining equipment market in the world, expects strong sales growth in 2018 boosted by robust business from China’s Belt and Road Initiative. The company said Asia-Pacific sales grew 22% in the fourth quarter of 2017, with half of the increase coming from China alone where contractors buy much of the machinery for BRI projects to take advantage of the initiative’s tax rebates and export them to the relevant countries where the BRI project is being carried out.

The company has also been flexing its finance arm to boost sales, lending to Chinese companies including state-owned enterprises.

Caterpillar is involved in BRI projects in 20 countries such as Kazakhstan, Sri Lanka, and Pakistan supplying heavy machinery such as drills, excavators, and hydraulic mining shovels for BRI projects such as roads, ports, mines, and oil fields.

Although Chinese rivals such as Sany Heavy Industries (SHA:600031) and Zoomlion Heavy Industry Sci & Tch Co Ltd (SHE:000157) dominate the local market and are expanding their international presence, Caterpillar’s advanced technology, superior reputation for quality and reliability, and extensive global dealer network in over 180 countries, (compared with Caterpillar’s key rival Sany Heavy Industries which has dealers in 100 countries) are solid competitive advantages that have put the company in a better position to capture orders for BRI-related projects. Caterpillar’s wider international dealership network is particularly advantageous considering the fact that while both companies maintain active dealerships in developed markets such as the United States and Europe, Caterpillar has a relatively wider footprint in developing markets where much of the Belt and Road projects are being carried out.

For instance, thanks to Caterpillar’s strong brand name and its active, experienced dealer network in Sri Lanka (unlike Sany Heavy Industries which is relatively unknown and has a relatively limited presence in the country), Caterpillar captured a number of equipment orders for the Colombo Port development project in Sri Lanka which required machinery such as hydraulic excavators.

COSCO Group (SHA:601919) (HKG:1919)

 Chinese shipping giant COSCO has been riding on China’s Belt and Road Initiative to aggressively expand and strengthen its global presence helped by a supportive government and access to low-interest loans which enable the company to make more aggressive bids for port assets compared to competitors; loans from Chinese state banks to fund BRI-related initiatives are as low as 2.5%.

In 2017, COSCO acquired APM Terminals Zeebrugge in Belgium, and acquired a 51% equity interest in Spanish port company Noatum Port Holdings which operates terminals at ports such as the Valencia port and railroad terminals in Madrid.

In 2016, the company acquired a 51% stake in Piraeus Port, which is the largest port in Greece, and has launched of a number of projects to upgrade the port to help make it a transshipment hub for expanding trade between Asia and Eastern Europe.

COSCO has signed a 35-year concession agreement with Abu Dhabi Ports (which operates Khalifa Port) that sees COSCO building and operating a new container terminal at Khalifa Port in Abu Dhabi, in an ambitious plan that aims to almost double the container handling capacity at Khalifa Port over the next several years by adding 2.4 million TEUs to  the existing 2.5 million TEUs.

COSCO acquired a stake in the Khorgos Gateway in Kazakhstan, an ambitious BRI project that aims to develop the biggest dry port in the world. The project, which Chinese president Xi Jinping called “the project of the century” connects Kazakhstan to China by rail.

Kazakhstan, the world’s largest landlocked country, sits right in the middle of China’s Silk Road Economic Belt. The country’s strategic location makes it a key link in transport routes between markets in Asia and Europe. Overland freight routes pass through Kazakhstan from all directions and with trade expected to grow along the Belt and Road, freight volumes are expected to accelerate in the decades to come making the China-led transportation projects significantly important to landlocked Kazakhstan and other countries in Central Asia such as Azerbaijan.

Volumes of rail freight moving between China and Europe are on the rise; during 2013 and 2016, rail freight volumes grew more than three-fold in just two years to over 300,000 tons in 2016 according to data from aviation consulting firm Seabury Consulting (owned by Accenture).

Bar chart showing China-Europe rail freight volumes ('000 tons) in 2013 and 2016. - LD Investments

China-Europe rail freight volumes registered a CAGR of 65% between 2013 and 2016, far surpassing growth rates in other trade types.

Bar chart showing CAGR of ocean trade, air trade, international express, parcels by mail and the China-Europe rail pre financial crisis and post crisis - LD Investments

Yet, much of China-Europe cargo is still carried by sea and to a lesser extent by air; more than 90% of trade between China and Europe occurs via ocean, while rail accounts for less than 5% of goods moved between China and Europe (most of which is carried through the Trans-Siberian railway).  However, rail is considerably cheaper than air and faster than sea and rail is particularly competitive to transport goods between points located deep inland.

Thus, there is a case for rail freight transport as Chinese manufacturing bases relocate from coastal areas where wages and realty prices are rising, to areas further inland where wages and property prices are more competitive.

China-EU transit volumes transported via Kazakhstan amounted to just about 32,000 TEU in 2015, which is just about 1% of total China-EU container traffic according to data from The Brookings Institution. However, driven by the relocation of manufacturing bases in Western China, and greater trade among Belt and Road countries, there is potential for Kazakhstan to increase the volume of transit container traffic to 240,000 TEU by 2030.

Thus, COSCO is well positioned to profit from expanding trade among Belt and Road countries. According to its 2017 annual results, 62% of the company’s total container shipping capacity was deployed along Belt and Road routes, comprising 180 container vessels with a total capacity of 1.15 million TEU.

China Merchants Port Holdings (HKG:0144)

China’s leading port operator China Merchants Port Holdings (CMPort) is actively involved in China’s Belt and Road initiative which has helped the state-owned conglomerate expand its international presence.

At the end of 2017, the company owns 31 ports in across 16 countries and five continents and the number is likely to grow in the coming years as the company aggressively snaps up terminals worldwide, helped by an encouraging regulatory environment for BRI-related projects and easy access to cheap BRI-financing from state banks (typically funding comes as a loan from the state-owned Export Import Bank of China, which usually have long maturity periods of about 20 years, and low interest rates of about 2%).

The company built and owns a stake in the new Doraleh Multipurpose Port, a US$ 600 million “flagship” project in Djibouti which recently began operations.

The company participated in upgrading the port facilities and the planning and construction of the Djibouti Free Trade Zone.

CMPort owns and operates the Colombo International Container Terminal (CICT) which saw an 18.5% YoY increase in container throughput to 2.39 million TEUs last year, making it one of CMPort’s top performing overseas port facilities in terms of volume growth last year. The boost helped CMPort handle a total container throughput of 102.9 million TEU in 2017 surpassing the 100 million TEU container throughput milestone for the first time.

As of 2017, Colombo was ranked among the top 30 busiest ports in the world in terms of container traffic. Colombo sits at the heart of China’s 21st Century Maritime Silk Road making it a strategically important location on the East-West shipping route.  As trade grows between China and other BRI countries, Colombo is poised to capture some of the increase in container traffic.

CMPort has also acquired an 85% stake in Sri Lanka’s Hambantota International Port Group Ltd which is involved in the Hambantota port development project in Sri Lanka.

Hambantota, located about 200km south of Colombo, holds immense potential to develop into a top container port in its own right. Hambantota’s strategic location coupled with its owner China Merchants Port Holdings’ global clout and commercial relationships with its network of Chinese shippers could help Hambantota emerge as a major port.

In the longer term, CMPort is poised to profit as container throughput grows along with growing trade among Belt and Road countries. The total value of China’s imports and exports to Belt and Road countries reached 7.37 trillion yuan (about US$ 1.14 trillion), a 17.8% increase YoY in 2017 according to Huang Songping, spokesperson for the General Administration of Customs. The value of imports and exports to Belt and Road countries accounted for 26.5% of China’s total imports and exports in 2017.

Alibaba (NYSE:BABA)

China’s new Silk Road is going digital and China’s largest e-commerce platform, Alibaba, is positioning itself to profit from the anticipated increase in trade among Belt and Road countries in the decades to come.

Alibaba’s finance affiliate Ant Financial which owns China’s most popular mobile payment app, Alipay, has been expanding its global reach by rolling out the payment app in countries along the Belt and Road such as Malaysia, Indonesia, Pakistan, Cambodia, Laos, Myanmar, and Vietnam. Ant Financial has also signed a partnership with London-based Standard Chartered Bank to collaborate on enhancing financial inclusion in Belt and Road countries.

Alibaba is also positioning itself as the platform of choice for SMEs in Belt and Road countries looking to capitalize on cross-border trade opportunities as a result of greater trade connectivity the BRI initiative is expected to bring.

Alibaba is leading the charge, together with the Malaysia Digital Economy Cooperation (MDEC) to develop a ‘Digital Free Trade Zone’ in Malaysia, a BRI-project expected to facilitate trade between Chinese and Southeast Asian SMEs. The effort includes a regional e-commerce and logistics “hub” near the Kuala Lumpur International Airport and an electronic World Trade Platform (eWTP) which offers Malaysian SMEs the necessary infrastructure for cross border ecommerce such as order fulfillment, logistics, and centralized customs clearance services. Already more than 1,900 Malaysian businesses have signed up to use the eWTP hub. The e-commerce and logistics “hub”, which is expected to be developed by the end of 2019, will be jointly developed by Malaysia Airports Holdings Berhad (KLSE:AIRPORT) and Cainiao Network (Alibaba’s logistics arm).

Siemens (ETR:SIE)

German industrial giant Siemens has been actively positioning itself to capitalize on business opportunities in China’s Belt and Road projects. The company has set up a Belt and Road office in Beijing and has signed ten cooperation agreements with Chinese companies such as China National Chemical Engineering Group Corp, China Railway Construction Corp (International) Ltd and China Civil Engineering Construction Corp. The agreement covers a wide range of business sectors such as power generation, energy management, building technology and intelligent manufacturing among others for BRI projects in countries such as Indonesia, the Philippines, Nigeria, Mozambique and South America.

 

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5+ Startups Using Blockchain To Transform Our Food Chain

Bar chart showing blockchain investment by industry according to a 2017 survey by PwC

The complexity of today’s food chains has resulted in problems such as food fraud (which is estimated to cost US$ 30 – US$ 40 billion a year according to PwC), food waste (which is estimated to cost US$ 750 billion annually to local food producers according to the United Nations), and food safety problems such as food contamination (which is estimated to result in an estimated 600 million people falling ill and 420,000 deaths every year, resulting in the loss of 33 million healthy life years according to the World Health Organization).

Blockchain, the underlying technology behind Bitcoin is increasingly being considered as a solution to address the above food chain problems. Although the technology is still at its infancy and has several challenges to overcome such as high computing and energy needs, major food corporations such as to name a few, Walmart (NYSE:WMT), Chinese e-commerce giants Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD), French retailer Carrefour (EPA:CA) and UK retailer Sainsbury’s (LON:SBRY) are all testing or have incorporated blockchain technology into their supply chains.

According to a 2017 survey conducted by global consulting firm PwC, just about 1% of companies in the retail and consumer sector are making substantial investments in blockchain today. However, in three years’ time, the number of companies in the sector making substantial investments in blockchain technology rises to 6%.

Bar chart showing blockchain investment by industry according to a 2017 survey by PwC

Food safety concerns and increasing demand for food supply chain transparency are key growth drivers in the food traceability market which uses technologies such as RFID tags, sensors and blockchain to track food products from farm to fork. Market research firm MarketsandMarkets projects the global food traceability market to grow to US$ 14 billion by 2019 and Research and Markets expects the market to reach US$ 16 billion by 2021.

Tech giants including Microsoft, Accenture and notably IBM (NYSE:IBM) have rolled out blockchain solutions. IBM has formed a blockchain collaboration with food companies including Walmart, Dole, Driscoll’s, Golden State Foods, Kroger (NYSE:KR), McCormick and Company, McLane Company, Nestle (NESN:VTX), Tyson Foods (NYSE:TSN), and Unilever (NYSE:UN) (LON:ULVR).

IBM has also partnered with Walmart, China’s Tsinghua University and Chinese e-commerce giant JD.com to form the Blockchain Food Safety Alliance which aims to use blockchain technology to achieve greater food safety, tracking and traceability in China

A Blockchain Enterprise Survey conducted last year by Juniper Research revealed that IBM had the strongest blockchain credentials, while Microsoft (NASDAQ:MSFT) came in second and Accenture (NYSE:ACN) was placed third; amongst enterprises either actively considering, or in the process of deploying blockchain technology, nearly half (43%) ranked IBM first while 20% selected Microsoft (20%).

While major tech companies grab headlines with their blockchain solutions, a number of startups are also vying for a share of the food blockchain market. Here is a list of noteworthy startups to watch.

bext360

Colorado-based startup bext360 is on a mission to re-invent today’s coffee supply chain using technology such as artificial intelligence, the Internet of Things (IoT) and blockchain to introduce greater transparency, improve coffee quality and better compensate coffee farmers.

bext360 has partnered with Great Lakes Coffee (a Uganda-based coffee sourcing, milling and exporting company) and Coda Coffee (a Denver-based to conduct a pilot program using bext360’s “bextmachine”, a mobile kiosk that uses machine learning and artificial intelligence to evaluate coffee cherries and beans from farmers, and grade them based on quality. Coffee farmers can view the grading results using a mobile app, accept payment offers and receive payment electronically immediately. This a revolutionary change from the current status quo in which coffee farmers would deliver their coffee crop to buyers that would manually inspect and grade the beans, and pay farmers days or sometimes months later.

The system then follows the coffee’s journey to the end consumer, tracking relevant data along the way. The bext360 platform uses blockchain to store an immutable record of transactions in real time, which all actors in the supply chain such as coffee farmers, coffee roasters and consumers can view.

bext360 has also partnered with Moyee Coffee, the world’s first FairChain coffee brand to launch a full-scale revenue generating program to trace coffee from Ethiopia to Amsterdam as well as payments made to coffee farmers in Ethiopia using the startup’s bext-to-brew platform which is built on Stellar.org’s blockchain technology.

The partnership makes Moyee Coffee Europe’s first blockchain-traceable coffee brand. Moyee Coffee fans will gain an unprecedented level of transparency, gaining access to verified data such as the origin of the coffee, while Moyee Coffee gains by being able to reduce overheads as the bext360 system eliminates the requirement for time-consuming, error-prone documentation etc.

The opportunity is substantial. The global coffee market is worth US$ 81 billion and growing. However, while global coffee revenues jumped from US$ 30 billion in 1991 to US$ 81 billion in 2016, small-scale coffee farmers who make up the majority of the world’s coffee producers, saw their incomes drop from 40% to under 10% during the same period, according to Fairtrade International. Most of the farmers’ families live on less than US$ 2 a day.

The winds are changing. Millenials and other coffee drinkers are increasingly seeking greater transparency fueling growth in the fair trade coffee market. According to the Tropical Commodity Coalition, ethically certified coffees accounted for 6% of worldwide coffee production in 2008, up from just 1% in 2002. And retail sales of Fairtrade coffee beans have soared 250% in the decade from 2004 to 2014.

Ripe.io

Californian startup Ripe.io says it is building the “Blockchain of Food”, a food supply chain solution that uses the Internet of Things (IoT) and blockchain to provide real time monitoring and collection of crop data such as location, environmental conditions and quality factors such as ripeness and taste.

The solution aims to solve food supply chain problems such as transparency, wastage and food quality by providing food supply chain participants a historical record of validated crop data which could be used for analytical purposes; farmers for instance could use the data to decide when a plant is ready to be harvested and once the plant has been harvested based when it reached optimal ripeness, this information can be communicated to participants along the supply chain.

The startup conducted a pilot project with Ward’s Berry Farm in Massachusetts, placing tomatoes on the blockchain to track their ripeness, color, PH levels, sugar content which is used to assess the quality of the tomatoes in an effort to reduce spoilage and deliver verified higher quality and more flavorful produce for the farm’s customers such as fast-casual salad chain Sweetgreen which participated in the pilot program.

ZhongAn Technology

Innovative Chinese startup ZhongAn Technology, which is the technology unit of Alibaba-and-Tencent-backed Chinese insurtech giant ZhongAn Online Property & Casualty Insurance (HKG: 6060), which made headlines as the world’s first insurtech IPO when it filed for a listing in Hong Kong last year, has developed a blockchain-based technology to track chickens, recording important information such as the age of the individual bird, its location, the food it eats and how much exercise it gets daily. Each chicken wears an anklet since the day of its birth which connects wirelessly to a blockhain-based network that records and stores data on a blockchain ledger in real time about the chicken. Customers can download a smartphone app that enables them to track the chicken’s journey along the supply chain.

Known as Gogochicken, the technology offers a solution for customers to validate chicken producers’ claims such as “hormone free chicken”, “free-range chicken” and “cage-free chicken”. For chicken farmers, the technology allows them to sell free-range, hormone free chicken at higher prices which consumers are able to pay a premium for but are hesitant due to a general lack of trust in locally produced food and the inability to validate claims on product labels.

As of September last year, ZhongAn has worked with 200 farms. By 2020, the company expects to increase the number over ten-fold to 2,500. The startup believes its technology could be expanded to pigs, cows and other livestock. The opportunity for the startup’s solution is substantial. Food safety is a key concern for consumers in China which is the world’s second largest poultry market, and the world’s largest pork consumer, importer and producer.

Advanced Research Cryptography Ltd (Arc-net)

Founded in 2014, Northern Irish startup Advanced Research Cryptography Ltd (Arc-net) offers a cloud-based traceability solution through its arc-net platform which uses blockchain technology to enable food corporations to validate the authenticity and provenance of food products as it moves along the supply chain thereby empowering the food industry to tackle food fraud.

The startup has teamed up with Scottish distillery Adelphi Ardnamurchan Distillery to place their new Ardnamurchan 2017AD spirit on Arc-net’s platform which would securely store information on the product’s production process from seed to bottle thereby allowing the brand as well as the brand’s customers to trace the product’s journey across the food chain; each bottle of limited edition Ardnamurchan Spirit 2017 AD features a unique QR code which, using blockchain technology, links to a digital, validated record of the bottle’s history, providing information such as the origin of the barley used to produce the spirit, the bottler and when the contents were bottled. This would help the distillery prevent or at least mitigate counterfeit products from stealing sales and diluting the brand’s reputation.

The tie-up could be just the tip of the iceberg for Arc-net. Counterfeit alcohol is a serious global problem; according to a news report by Interpol, in a joint Interpol-Europol operation conducted between 1 December 2016 and 31 March 2017 targeting counterfeit food and drink around the world, counterfeit alcohol was the most seized product, followed by meat and seafood.

Arc-net has also been selected as a technology partner in a £10 million pound EU-China food safety program. As part of the program, Arc-net is working with UK food producer Cranswick PLC (LON:SWK) to track pigs being exported to China. This could be a major revenue stream for the startup given that China is the world’s largest pork importer. The country’s pork imports are expected to grow 6% this year, according to Rabobank’s Pork Quarterly Q1 Report, and with China considering a 25% tariff on US pork imports, imports of European pork could potentially increase. In 2017, America exported US$ 1.1 billion of pork products to China and Hong Kong, making it the third biggest market by value. Arc-net has also partnered with global consulting firm PwC to help fight food fraud.

 

EZ Lab

Italian startup EZ Lab has partnered with management consulting firm EY to create a “Wine Blockchain”, a blockchain-based traceability system for Italy’s wine supply chain. Data on the entire wine making process such as the location of the vineyards and cultivation of the grapes, the process of producing wine and its distribution, and information related to the final product such as organoleptic characteristics are recorded on the system which can be viewed by all actors along the supply chain from the wine producer to the customer. Using their smartphones, customers scan a QR code on the wine bottle to retrieve the data.

The first wine to be tracked using “Wine Blockchain” is Falanghina Wine, which is produced by Cantina Volpone.

The solution is timely for Italy’s wine industry; according to a 2016 report by the European Union Intellectual Property Office (EUIPO) Italy’s wine and spirits manufacturers lose an estimated €162 million annually (equal to approximately 2.7% of the Italian wine and spirits market) as a result of counterfeiting and an additional €18 million is lost each year in excise duties.

Most of Italy’s prized culinary specialties such as Parmigiano-Reggiano cheese, traditional Italian balsamic vinegar, and Italian wine are certified by the Italian government for authenticity and quality. In the case of wines, certifications such as “D.O.C.G.” – Denominazione di Origine Controllata e Garantita (controlled and guaranteed designation of origin) and “D.O.C.” – Denominazione di Origine Controllata (controlled designation of origin) are awarded by Italian government-licensed committees and these wines tend to command extremely high prices. However, their high prices make them an attractive target for counterfeiters. EZ Lab’s “Wine Blockchain” solution is expected to help Italian wine producers (particularly those with such certifications), protect their brands and fight counterfeit products. 

The solution is also a boon for Italy’s wine connoisseurs; reportedly nine out of 10 consumers said they would like to have more information about Italian wine, their certification criteria and origin and more than 70% are willing to pay a premium for a guarantee of certification and origin. 

Italy is the world’s leading wine producer and with the country’s wine industry on an upward trend, EZ Lab looks positioned to ride on this growth too with its “Wine Blockchain” solution. Italian wine exports have increased 74% between 2006 and 2016 and the momentum shows no sign of slowing down; Italian wine exports grew by 7% in 2017, reaching a record high of around €6 billion, according to Italian agricultural organization Coldiretti. 

 

Everledger

London-based blockchain technology startup Everledger rose to prominence with its blockchain solution which tracks the provenance of diamonds to fight counterfeits in the diamond industry. Since 2015, Everledger has placed more than 1.6 million diamonds on its blockchain solution and the company is adding other luxury goods to its platform such as fine art and fine wine.

The startup has partnered with renowned wine expert Maureen Downey to jointly create Chai Wine Vault, a blockchain-based solution that uses Maureen Downey’s TCM (The Chai Method) wine authentication method to track the authenticity and provenance of fine wines. Downey’s method of wine authentication involves collecting more than 90 data points on a bottle in addition to high-resolution photographs and records of the bottle’s ownership and storage which are permanently and securely recorded in Everledger’s blockchain platform to create a permanent, verified digital record of the wine bottle which can be accessed throughout the bottle’s lifetime to verify its legitimacy, thereby securing the investment value of the wine asset for centuries. The first bottle to be certified on the Chai Wine Vault is a bottle of 2001 Margaux. 

The solution is aimed at combating counterfeit wine which Downey estimates accounts for much as 20% of wine sold globally.

FoodLogiQ

American food traceability startup FoodLogiQ offers a Software-as-a-Service (SaaS) solution which uses blockchain to provide services such as food traceability, food safety, and supply chain transparency solutions on a single platform to participants in the food industry such as food distributors, food importers, growers, restaurant operators, grocers and food retailers.

The startup is reportedly among the leading vendors of food safety, traceability, and supply chain transparency software, having racked up an enviable customer list which includes names such as Amazon.com Inc, Whole Foods, Buffalo Wild Wings, Chipotle Mexican Grill Inc, CKE Restaurants, Jac Vandenberg and Nature’s Finest to name a few, and the company has launched a blockhain pilot program in partnership with AgBiome Innovations, Subway/Independent Purchasing Cooperative, Tyson Foods, and Testo (the last two of which are also investors in FoodLogiQ) to conduct a pilot program FoodLogiQ operates in a market that is ripe for disruption; consumers are increasingly demanding greater transparency and visibility into the origin and processing of their food and FDA regulations are becoming increasingly stringent, compelling players in the food supply chain to seek and  invest in technologies that facilitate compliance and satisfy consumer demand while protecting their bottom lines.

An effective traceability system could help reduce liability costs, reduce product waste, improve food recall efficiencies, and improve consumer confidence.

According to forecasts from BIS Research, the global food traceability market is expected to grow from US$ 11.63 billion in 2016 to reach US$ 16.09 billion by 2022, representing a CAGR of 5.56% from 2016 and 2022 driven by increasing concern about food safety and quality, thereby triggering greater demand for food traceability solutions.

IndustryARC projects the global food traceability market to grow at 8.1% CAGR between 2017-2023, reaching US$ 17.05 billion by 2023. Although Asia-Pacific is expected to be the fastest growing market, North America is expected to remain as the biggest market for food traceability solutions. While barcodes are the dominant technology in the global food traceability market, blockchain-based solutions such as those offered by FoodLogicQ could emerge as an alternative option given its merits such as its ability to produce and store a chain of immutable records.

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Organic Food Market Could Be A Delicious Investment Play

Bar and line graph showing the increase in world organic farmland in millions of hectares between 1999-2015 and the percentage share of organic farmland worldwide.

The global organic food market is growing at a rapid clip and offers significant potential for growth. Currently valued at around US$90 billion according to London-based consultancy firm Ecovia Intelligence (formerly Organic Monitor) the market is poised to expand to over US$ 200 billion by 2020 (representing a CAGR of 15.7% between 2015 and 2020) according to projections by Market Research Globe.

The forecast figures are similar to those from a report by market research firm Technavio which projects the global organic food and beverage market to grow at a rate of 14% from 2017 until 2021.

Organic is the fastest growing sector of the U.S. food industry. Organic food sales in the United States, the world’s largest organic food market, jumped 8.4% in 2016 to reach US$ 43 billion according to the Organic Trade Association.  That compares with a 0.6% increase in overall food market sales in the United States. Much of the demand for organic food is driven by millenials generating about half of U.S. organic food sales.

In Germany which is the world’s second -largest organic food market, organic food sales grew by nearly 10% in 2016, according to the German Federation of the Organic Food Industry (BÖLW).

France’s organic food market grew a whopping 20% in 2016 according to Agence Bio, and Spain’s organic food market grew 12.5% in 2016 (compared to 0.7% growth in conventional food) according to data from Spain’s Ministry of Agriculture and Fisheries, Food and Environment. UK organic food sales expanded by 7% in 2016 according to Soil Association a UK-based organic food and farming charity and certification body.

There is ample potential for the stellar growth numbers to maintain momentum going forward. In the United States, the world’s largest organic food market, organic food sales account for just 5.3% of U.S. food sales.

The situation is the same in Germany, the world’s second biggest organic food market after the United States (the United States, Germany and France together account for about 70% of global organic sales value as of 2017); organic food sales make up just about 5% of Germany’s total food sales.

In Britain, organic food sales make up about 1.5% of the country’s total food sales. In Spain, organic food sales make up just 1.7% of the country’s total food market. This compares with Sweden and Denmark where organic food sales comprise about 8.7% and 10% of the country’s total food sales respectively.

In Asia, organic food sales account for less than 1% of total food sales across Asia offering ample scope for growth. The organic food sector is poised to grow in leaps in bounds in the region, particularly in China and India, two countries which market research firm Ecovia Intelligence reveals are two of the fastest growing Asian markets for organic food products, driven by an expanding and educated middle class who are increasingly willing to pay a premium for organic products which are perceived to be healthier and safer than conventional food products.

In China, Asia’s largest organic food market and the world’s fourth largest, 72% of consumers worry about the safety of their food according to a 2016 survey by McKinsey. This presents an opportunity for the country’s organic food sector which, similar to the United States, is largely driven by a growing number of increasingly health-conscious millenials.

Meanwhile in India which created its first organic state, Sikkim, in 2016 (in Sikkim farmers are 100% organic), market research firm TechSci projects the country’s organic food market to grow at a CAGR of 25% between 2016-2021.

On a country level, Denmark and Bhutan have ambitious plans to be 100% organic by 2020, a positive trend for the global organic food market.

The underlying driving force behind the global organic food revolution is the millennial generation (those born between 1980 to 2000). In the United States, for instance, the world’s biggest organic food market, over 52% of organic food shoppers are millenials according to a survey by the Organic Trade Association. An estimated 25% of American millenials are parents and this figure is expected to increase to 80% over the next 10-15 years. As the percentage of millenials with children grows in the coming years, organic food sales are projected to rise as well.

To meet rising organic food demand, the number of organic food producers and the amount of organic acreage continue to increase globally.

Worldwide, the number of organic food producers increased twelve-fold in sixteen years from 200,000 producers in 1999 to 2.4 million producers in 2015 according to a report by the Research Institute of Organic Agriculture (Forschungsinstitut für biologischen Landbau or FiBL). During the same period, land used for organic farming expanded fivefold from 11 million hectares in 1999 to 50.9 million hectares in 2015. Despite this increase, organic farmland represented just 1.1% of the world’s farmland in 2015 indicating ample room for expansion.

Bar graphic showing the increase in world organic farmland in millions of hectares between 1999-2015 and the percentage share of organic farmland worldwide.

Nearly 45% of the world’s organic farmland is located in Australia, where with 22.7 million hectares makes it the country with the world’s largest area of organic agricultural land by hectare in 2015, way ahead of second-placed Argentina which has just 3.07 million hectares of organic acreage. In third-placed United States which is the world’s biggest organic food market, just 2.03 hectares of land is used for organic farming.

Bar graph shows the top 10 countries in the world with the largest organic farmland in millions of hectares, as of 2015. Pie chart showing percentage distribution of organic farmland around the world.

The global organic food trend has been a boon for Australian food producers. Despite having the largest area of certified organic land in the world, organic food sales account for just 1% of Australia’s total food and beverage sales. Part of this may be due to the fact that most of Australia’s organic farmland is used for cattle farming (which explains why organic beef is Australia’s top organic food export by tonnage) and hence the country’s overall organic food output is relatively low.

However, it may also be due to a growing hunger for Australian organic products from export markets such as the East Asia (which accounted for 38% of Australian organic food exports by tonnage in 2017), North America (29%) and Europe (12%).

China, in particular is a major growth opportunity. Australian organic food exports by tonnage to China jumped 55% between 2016 and 2017 and China’s share of Australian organic food exports by tonnage nearly doubled from 9% in 2016 to 15% in 2017 according to data from the 2018 Australian Organic Market Report.

Much of growth in China’s organic food demand stems from the baby food category, particularly organic infant formula. China is the biggest export market for Australian organic baby food and formulas and Australian organic dairy products.

Bar chart showing the top export markets (by % of tonnage) for selected Australian organic food sectors 2017. The biggest market for organic Australian eggs is Hong Kong (accounting for 100% of Australia’s organic egg exports by tonnage). The United States is the biggest market for Australian organic lamb/sheep meat (accounting for 91% of exports), Australian organic beef (accounting for 90% of exports) and Australian organic fruits and vegetables (accounting for 46% of exports). South Korea is the biggest market for Australian organic soya products (accounting for 90% of exports) and bread and bakery product (accounting for 58% of exports). China is the biggest market for Australian organic baby foods and formula (accounting for 81% of exports) and dairy (accounting for 57% of exports). Netherlands is the biggest market for Australian organic nuts (accounting for 80% of exports). Sweden is the biggest market for Australian organic wine (accounting for 49% of exports).

In China which is the largest market in the world for organic infant formula, it is estimated that 75% of mothers feed their babies with organic infant formula according to London-based market research firm Mintel. Younger mothers i.e., those aged 25-34 are the major driving force with 79% of them using organic infant formula. The abolition of China’s ‘one-child policy’ potentially opens opportunities for expansion in this sector.

Bubs Australia (ASX:BUB) and Bellamy’s Australia (ASX:BAL) are two Australian organic baby food and organic infant formula producers both of which have operations in China and are poised to capitalize on the opportunity. Bellamy’s Australia has seen its share price jump by over 900% since August 2014 while Bubs Australia’s share price has soared over 400% since January 2013.

With Australia boasting nearly half of the world’s certified organic farmland and enjoying strong export demand for its organic food products, Australian producers are well placed to take a big bite out of the world’s growing organic food pie going forward.

A number of organic food companies elsewhere around the world have also benefited from the trend and good prospects have attracted investment into the sector. Organic food grocer Whole Foods (NASDAQ:WFM) was acquired by Amazon (NASDAQ:AMZN) in June last year at a 27% premium to Whole Foods’ stock closing price the day the deal was announced.

French food company Danone (EPA:BN) acquired American organic food company Whitewave Foods Co (NYSE:WWAV) in April last year.

Consumer goods company Unilever (NYSE:UL) acquired UK-based organic herbal tea company Pukka Herbs and Brazilian organic food business Mae Terra last year.

American grocery company Albertsons reported that its line of private-label organic items, O Organics, saw sales grow 15% last year, reaching US$ 1 billion.

Albertsons plans on introducing 500 or more new products to the line which already encompasses a wide array of organic food items including fresh fruits and vegetables, eggs, milk, yogurt, ice cream, meats, bread, coffee, snacks, pasta sauce, and baby food.

Over in Europe, Dutch organic food company Koninklijke Wessanen NV (AMS:WES) which recently acquired Spanish organic food company Biogran, has benefited handsomely from the growing organic food market with its share price appreciating by over 600% from five years ago (in 2013). During the same period,

In Asia, Japanese organic vegetable producer Ariake Japan Co Ltd (TYO:2815) has seen its share price jump over 500% since 2013.

The organic food trend has also been a positive for e-commerce behemoth Amazon which is a relatively new entrant to the US grocery market. A report by data analytics firm Click Retail found that in 2017, organic products fared very well accounting for nearly 25% of all Amazon Fresh sales.

Nestle (VTX:NESN) has been actively re-orienting its business as it struggles with weak sales as a result of changing consumer preferences toward organic, natural food and away from prepared, mass-produced meals which make up bulk of the company’s product portfolio. Last year, Nestle acquired Chameleon Cold Brew – America’s oldest and largest purveyor of organic coffee. This year, Nestle sold its US candy business to Italian confectionery company Ferrero SpA.