Business

Winnipeg Free Press - PRINT EDITION

Enwave riding the wave to rein in food costs

By: Fabrice Taylor

Posted: 05/7/2011 1:00 AM | Comments: 0 (including replies)

Tim Durance (left) and John McNicol hold some of their dried food. (CNS VANCOUVER SUN)

It's hard to believe, especially when you live in one of the great breadbaskets of the world, but food inflation has become a serious problem.

Food prices are surging for two reasons: First, commodity prices are going up. Oil, for instance, is a major input cost in food prices because agricultural products have to be shipped, sometimes great distances. Corn prices have rallied in part because a lot of supply is being diverted to ethanol production. Potash, which is used in fertilizer, is also getting expensive.

But demand for food is also ballooning as people get wealthier, because as they get wealthier they want more meat. Problem: producing meat is not an efficient use of farmland. It takes eight kilograms of wheat to produce one kilogram of meat.

Other problems include more and more severe droughts or floods and geopolitical strife.

The good news is technology will help control food costs and savvy investors can profit from the trend.

Scott Tays is a wealth adviser at ScotiaMcLeod in Winnipeg. He runs fairly conservative portfolios -- Canadian banks are and will always be among his favourite investments, he says. But he's not averse to making intelligent bets on riskier but potentially far more rewarding stocks. He and I spoke this week about food inflation and technologies that might help rein it in. One company he follows and likes is Enwave Corp., a Vancouver firm that's developing a way of drying food that's substantially cheaper and more efficient than the way we've been doing it for 50 years: freeze-drying.

Enwave, which was spun out of the University of British Columbia, uses microwaves and a vacuum to take the moisture out of food. Both the upfront investment and the operating costs of its system are vastly lower than freeze-drying (and so is the footprint: freeze dryers are big; Enwave units are much smaller).

The same technology can be used to dry probiotics (bacteria that go into yogurt, cheese and other foods), vaccines and other matter, which opens up a multibillion-dollar market if it all works out.

To start with, the company is trying to commercialize its food machines, which dry fruit, vegetables and fish and by and large retain about the same nutritional value as freeze-dried, although taste and texture vary: In some cases it's better, in others it's not as good.

Enwave, which is led by two CEOs -- John McNicol, a veteran executive with a strong track record of success, and Dr. Tim Durance, who with his team invented and is developing the technology.

Enwave has been trying to perfect its machines for a few years, but Tays sees it as a "disruptive technology with phenomenal upside," although he points out it's not for conservative investors.

One source of his confidence is that the company has signed deals with Danisco, a very big European food company that was recently bought by Dupont and Nestlé. Most small technology companies dream of an alliance with one big, reputable company. Enwave has several.

Tays also likes management's approach: "They under-promise and over-deliver, which is rare."

The big risk is that the company's alliances with Nestlé etc. don't go beyond the testing stage. However, it appears management believes something good is going to happen: When UBC spun the technology out to investors, it retained a big royalty on future revenues. Enwave recently paid the university a few million to buy that royalty back. It wouldn't do that unless it thought it would be earning revenues soon, is the thinking.

As Tays puts it: "It tells you management is overwhelmingly confident about the future."

Fabrice Taylor is an award-winning financial journalist and analyst. Email him at fabrice.taylor@gmail.com.

Republished from the Winnipeg Free Press print edition May 7, 2011 B6

(You must be logged in to post your reaction)

Your reaction?

More Business

Undock

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is register and/or login and you can join the conversation and give your feedback.

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010; View the changes. New to commenting? Check out our Frequently Asked Questions.