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VEGETARIAN FRIENDLY INVESTING

By Wayne Smeltz, Ph.D.

You have just tasted a vegan burger you think is wonderful. The packaging on the cruelty-free soap is beautiful and environmentally friendly, as well. You receive complements from fellow employees on the shoes you wear to work on their stylishness and look of comfort. You wonder what their reaction would be if they knew the shoes were vegan containing no leather.

As we attempt to buy products that satisfy both our consumer and philosophical needs, we come across some products we think are amazing and some we think should never have been produced. For those products that provide us satisfaction must come a desire to reward the companies responsible for these products. We need to support their efforts and assist them in the daunting challenge of being ethically and materially successful. This article will explore various ways you can support these businesses.

One can eat only so many vegetarian burgers. So beyond direct consumption you may ask how you can provide meaningful support to these businesses. A simple approach but one that is appreciated by the owner is to communicate your satisfaction by phone or mail. You should also communicate your satisfaction to the retailer and distributor of the product You will be surprised at the impact this has on retailers and it may persuade them to continue carrying a product that has only modest sales. You can promote the product to friends, family, co-workers, and through any organizations where you are a member. Provide samples and explain to them why you think it is a great product.

This experience may convince you that you would like to play a larger role in promoting the product. Depending on your sophistication in business affairs, the first step will be to determine who owns the product that you like. This is often not as clear cut as it may seem. The lowfat bean burrito that you enjoyed at Taco Bell is a product of Pepsi Inc. and is probably being sold to you by one of their franchisees. The Healthy Choice cereal you eat in the morning is produced by Kellogg who has licensed the Healthy Choice trademark from Con Agra Corporation.

Often times finding the owner of a known product is relatively easy. By examining the packaging of the product there is usually information on the owner and there may be an "800" number to call for comments and information. To find out basic information about the company and its finances you can go to most local libraries and almost all college libraries and request the librarian refer you to Value Line and/or Standard and Poor Investment Guides.

For smaller firms, it may be a bit more difficult to locate information. Since most of these firms are privately held (ownership is retained by the founders) your best source is probably Dun and Bradstreet or the Thomas Register. Ask you librarian who can probably suggest other sources such as state business directories, etc. For small businesses such as restaurants and neighborhood health food stores, there may be little published information available and you will have to do your own observation and enter into conversations with the owner and employees. You will often be surprised how willing they will be to discuss the business and its prospects.

Vegetarian Friendly Investing

Once you learn more about the business, then you will need to determine whether it compliments your ethical standards. If there is a fit, then you need to consider what type of relationship you wish to forge with the firm.

One option would be to act as a sales representative for the business. This arrangement would be mutually beneficial for both parties as you try to convince area distributors and stores to carry the product. By doing food tastings or giving out samples at stores and local fairs, you would increase customer awareness about the product, which should lead to direct customer sales and/or have them request that their local stores carry the product.

If a direct relationship turns out not to be feasible, then you may consider investing in the business. A sound principle of investing is to go with businesses that you are familiar with, believe in, and understand. A vegetarian friendly business may well satisfy these criteria but they must also satisfy sound investment criteria, as well.

This type of investing can be considered a more focused approach to socially responsible investing (acronym SRI). The Social Investment Forum, a national professional association for Socially Responsible investing, defines SRI as "the channeling of personal, community, or workplace capital toward just, peaceful, healthy, environmentally sound purposes and away from destructive uses." (1) SRI has existed since the early 1900s and in recent years has experienced significant expansion in the number of investment opportunities and providers.(2) It has been estimated that in 1989 more than $450 billion of investing was done with SRI criteria in mind.

The expansion of opportunities has made vegetarian friendly investment both easier and somewhat more complex. It is easier because, just like the Vegetarian movement, the number of businesses providing vegetarian and vegetarian friendly products has grown significantly and provides a panorama of investment choices. The complexity is due to the often complicated process of identifying which business you want to invest in and what is the best approach for making this investment. This identification of desirable investments requires both an understanding of your own ethical priorities and of the investment world.

In developing a vegetarian friendly investment strategy, you must determine the types of businesses and products you want to support and which ones you want to avoid. Often times you will find that a firm may produce some wonderful products or have an enlightened approach to the environment yet tests on animals and/or not practice fair employment. There are resources like The Better World Investment Guide that evaluate companies' policies toward typical social responsibility concerns such as testing on animals, employment policies, environmental practice, etc.

While guides are useful, they are only a starting point in identifying a good vegetarian friendly investment. The same can be said of mutual funds based on SRI criteria. To the best of my knowledge, there does not exist any references specifically geared to vegetarian friendly investments. If any reader knows of references on investment managers offering vegetarian friendly investments, please contact Vegetarian Journal.

This does not mean that there are not vegetarian friendly investments available but they will require some effort on your part to identify them. Once identified, you then need to analyze their investment merits. There needs to be balance between ethical and investment criteria. Not all firms that are vegetarian friendly will make sound investments. Many times firms on the cutting edge may be ahead of the competition but if they are too far ahead of consumer tastes they may not generate enough market interest to be financially viable. The next step in the process is to understand some of the basics of investment.

Investment Basics

You now have some ideas on a few companies that may be worthy of investment but you need to know more about how to invest. The first step is to ascertain the ownership form of the business. If the firm is publicly held, you can invest directly by buying stock or indirectly through investment in a mutual fund. A publicly held company is one where part or all of the ownership has been sold to public investors and is traded on one of the stock exchanges. While there are thousands of publicly owned businesses there are millions of businesses totally owned by the entrepreneurs running them and are known as privately held. So a firm must reach a certain size before it is feasible for it to go public and it usually goes public so it can obtain capital to grow further.

When a firm does go public, it does through an "initial" public offering that is managed by an investment banker. Advantages of buying stock at the initial public offering include not paying a commission and getting in early. However, it is sometimes difficult to participate if the company is felt to be a winner because all stock will go to a stock broker's best customers. Another caveat on initial public offerings is the need to check on the integrity and prior successes and failures of the investment banker underwriting the offering. Some investment bankers operate on the fringes and their offerings should be avoided.

Once a firm's stock is in public hands, it is traded between different investors and trades do not directly affect the firm The firm does not directly gain when you purchase their stock from another investor. Yet, executives are concerned because often times their compensation is tied into the performance of the stock. A firm's management is also interested for several reasons in who owns the stock of their business. One reason is that when one buys stock in a firm they receive voting rights on certain issues affecting the firm. You receive one vote for each share owned. Be informed that large firms will have many millions of shares outstanding. Shareholders vote on who will sit on the Board of Directors, on who will be hired as the outside auditors of the firm's finances, and other general policy issues. In normal times, this vote has little impact on a firm's management. Typically management hand picks board candidates who agree with their policies and those candidates will be elected. General policy issues may be stockholder motivated and usually take an activist perspective or be presented by management and deal with such policy issues as stock option incentives for employees compensation, etc. In almost all cases, the management side wins.

On the rare occasion when the management agenda encounters defeat, it is usually when the major stockholders are dissatisfied with the business's performance. If the firm has been performing poorly and the Board of Directors have not responded sufficiently then there may be a move to name a new Board that will pressure or remove management. Another, often overlapping situation, is when an investor(s) gain a sizable share of ownership and want their investment more fully represented. These investors may push for board representation and may even attempt a corporate takeover. In this situation, your vote will carry more weight than normal.

Overall, your reason for owning stock is that you believe that the business provides a needed product/service that minimizes or eliminates the use of animal/environmental resources and do business in ways that match your values. The business should also be run efficiently (maximize use of their resources) and effectively (providing the market place with what they want). This is quite a challenge and any business that comes close to satisfying these criteria deserves investment support as well as being a good investment opportunity for you.

A Few Examples

It may be useful to examine some publicly-held businesses that may qualify as vegetarian friendly investments. These examples show the risk and opportunity inherent in investing. They also show that you will have to determine whether or not they fit your ethical and investment criteria.

Tofutti Brands-TOF Symbol on American Stock Exchange

Tofutti Brands is one of the pioneers of the Vegetarian Friendly Movement. While purists may argue over the healthfulness of some of Tofutti's products, it nonetheless led the way as a developer of soy based products. The company was founded by David Mintz who started in his kitchen experimenting with dairy free frozen desserts. In time, Mintz was able to develop a tasty product similar in taste and consistency to ice cream but without butterfat, cholesterol, or lactose.

The company tried to parlay the Tofutti frozen dessert into a full product line and opened several cafe outlets in New York City. Revenues rose from 2.4 million in 1984 to 17.4 million in 1985 but then steadily dropped to the $4 million level where it has settled. This is due to retrenchment back to Tofutti Plus, a dairy free cream cheese and an egg substitute product.

The stock price movement reflects the reversal of fortune. The company went public in 1983 at an adjusted price of 1.92 and hit a high of 18 in 1985. The stock dropped from that point and in the last 7 years has traded between 50 cents and $4. The movement in Tofutti's stock shows how quickly the stock price can go up and down. Those participating in the initial public offering and cashing in within the next few years did extremely well. Those investing during the growth years fared poorly. Tofutti's stock price movement is not that unusual and should be considered relevant as you make investment decisions.

Wholesome & Hearty Foods-WHFI Symbol on NASDAQ

Wholesome & Hearty Foods has been a publicly held company since June 1992 and financial data is available from 1990. It is best known for its Gardenburger which has been served at TGI Friday's for several years. In addition, the firm produces variations of the Gardenburger, sausage, dairy-free beverages and cheeses. Products are sold in the U.S., Canada, and certain European markets through 100 brokers and 500 distributors. Its products differ from ADM and several others because it does not use soy as an ingredient.

Revenues and income almost doubled each year from 1990 to 1993. Due to changes in outstanding shares, earnings per share have not quite doubled. The company's stock has split twice, a 2-1 split in 1993 and a 3-2 split in 1994. A stock split is done to make the shares more affordable for investors. Splits do not change the worth of the investment for each investor.

The movement of the stock price has been rather volatile. The initial public offering consisted of 40,000 units with each unit providing investors four common shares and two redeemable warrants each convertible into a share of stock. The range of each share of stock in 1992 ranged from 1 21/32 to 4 3/32. The stock experienced a steady rise and in 1994 shot up to 30 3/4. It then almost immediately dropped to the 15 level.

Archer Daniels Midland (ADM) NYSE

Archer Daniels Midland (ADM) has been making news even without their ubiquitous sponsorship and commercials on all the Sunday news commentaries. Media has reported that one of their executives has turned out to be an FBI informant who alleges that the company is involved in the illegal price fixing of certain food additives.

Given this scenario you may be wondering how this company could qualify as a vegetarian friendly investment. As a matter of fact, several years ago, ADM developed a vegeburger called the Harvest Burger that was one of the first good-tasting, meat-like burgers on the mass market. This burger seems to appeal to both vegetarians and non- vegetarians and created quite a stir in the vegetarian community.

What ADM is good at is processing and merchandising agricultural commodities such as oilseeds, wheat, and corn to food manufacturers and farmers. It is a $12 billion company and has generated increasing earnings for a long period of time. Its stock price also followed this trend until their problems with the FBI. It was as low as 3 5/8 in 1985 and was over 19 in 1991.

Assessing Risk and Reward

As our review indicates, there can be a great deal of risk in investing in stocks. On the other hand, a well timed investment can bring large rewards. As you consider investing in vegetarian friendly businesses, you have to gauge your tolerance for risk and your ability to lose some of your investment. As you begin, it makes sense to make investments in an amount that you can afford to lose. Your initial trades will also provide practice in developing investment strategies and learning more about how the market behaves.

In general, larger more established firms will experience less volatility in their stock price than smaller firms. However, smaller firms offer the potential for greatest reward. Also, most vegetarian businesses will be rather small and quite likely volatile. You may decide it best to invest across several businesses which will lessen your exposure to any one company's fortune.

Mutual Funds

The idea for Socially Responsible Investing began with mutual funds and most SRI related investment is still focused on this investment type. A mutual fund is formed by pooling money of many investors and purchasing stock and bonds (debt issued by businesses and government agencies) according to the objectives of that fund. The fund is managed by investment professionals and is usually part of a family of funds managed by that investment group. Most small investors use mutual funds as their primary investment vehicle and the number of funds have increased dramatically in the last few years.

Mutual funds provide several benefits over the purchase of individual stocks.

Unfortunately, from my research I could not identify a fund that is specifically geared to vegetarian friendly investment. If any reader knows of one, please let Vegetarian Journal know. Since there are no funds focused on vegetarian friendly investment, it is quite possible that no existing funds will satisfy your value priorities.

Yet, SRI based funds may be helpful in identifying individual companies that do satisfy your priorities. SRI funds employ what is known as screens in evaluating potential investments. A positive screen is used to identify businesses engaged in activities that make a positive contribution to society. Examples of activities often considered positive are "the ethical treatment of animals," organic growing methods, and strong environmental standards. A negative screen is designed to eliminate businesses that produce unhealthy products and/or engage in undesirable practices.

My advice is to write to several SRI funds and tell them you are interesting in investing in vegetarian friendly businesses and inform them what is required to be vegetarian friendly. Request investor information which should detail their investment philosophy, the criteria they use to construct positive and negative screens, and their current portfolio of holdings. From this information, you can scan their portfolio that is usually categorized by industry type and you will be able to identify potential vegetarian friendly businesses worthy of further research.

Summary

It is important if you want to spread the influence of vegetarianism that your investment strategy be included in your overall activities. This article is admittedly an elementary treatment of available investment options and their characteristics. It will hopefully increase awareness about the relationship between vegetarian activism and individual investment strategies. To do this will provide assistance to businesses trying to market vegetarian friendly products. The success of these businesses have a direct impact on the ultimate influence that vegetarianism can have. If these businesses can attract mainstream customers with their products then these people may begin to adopt the broader beliefs of vegetarianism.

The next time you buy a high quality vegetarian friendly product, take the time to find out who produced it and see if you can become a part of their business. This can profit you, the business and the vegetarian movement.

References

1. Jack A. Brill and Alan Reder: Invsting From the Heart. New York: Crown Publishers, 1992, P.10.

2. The Council of Economic Priorities. The Better World Investment Guide. New York: Prentice Hall. 1991, P. 1.


This article originally appeared in the March/April, 1996 issue of the Vegetarian Journal, published by:
The Vegetarian Resource Group
P.O. Box 1463
Baltimore, MD 21203
Phone: (410) 366-8343
E-mail: vrg@vrg.org

What is The Vegetarian Resource Group?

Our health professionals, activists, and educators work with businesses and individuals to bring about healthy changes in your school, workplace, and community. Registered dietitians and physicians aid in the development of nutrition-related publications and answer member and media questions about vegetarian diets.

The Vegetarian Resource Group is a non-profit organization. Financial support comes primarily from memberships, contributions, and book sales.

The contents of this article, as with all The Vegetarian Resource Group publications, is not intended to provide personal medical advice. Medical advice should be obtained from a qualified health professional.

This article may be reproduced for non-commercial use intact and with credit given to The Vegetarian Resource Group.

Copyright 1996 by The Vegetarian Resource Group.


HTML by Bobbi Pasternak. Bobbi volunteers for the VRG and hosts Vegetarians Online, the vegetarian forum on America Online. AOL members can find the forum by using keyword vegan.



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