Alternative sources of protein are an area where the interests of investors and environmentalists would seem to align. Let’s start with the conservationist case, or the ‘push’ factors.
There’s no getting around it: stopping eating meat is the single most impactful thing an individual can do to help the environment. Drastically reducing meat intake is the second most impactful.
People have a tough time visualising carbon dioxide emissions - they are literally invisible. The loss of biodiversity, however, is something you can see on the evening news, whether it’s deforestation in the Amazon or melting ice in the Arctic. It’s intuitive for people in a way that carbon emissions may not be, and the chief threat to biodiversity is intensive agriculture.
Most of us who live in cities have this idealised view of food production where there are small farms in idyllic rolling hills sending their produce to market, but the reality of industrialised agriculture is quite different. We must also bear in mind that this is a truly vast industry – food production is about a tenth of the world’s approximate global GDP of $88 trillion USD1. In 2018, a billion people worldwide worked in agriculture2.
That’s why it’s important to grasp the scale of the impact of the industry – a recent study found that if everyone alive ate meat at the rate of the average American consumer, we would need to use 138% of the habitable area of the planet for agriculture alone3. It’s just physically impossible.
Meat production is responsible for 35-40% of global methane emissions4, and 13-18% of total global greenhouse gas emissions5. Also, water is set to be an increasingly scarce resource this century - it requires more than 15,000 cubic litres of fresh water to produce one kilogram of beef6. Animal cultivation is a significant contributor to global water pollution - in particular nitrification, where fertiliser runoff encourages toxic algal blooms that cause enormous damage to marine ecosystems7.
Finally, 90% of our food energy and protein is derived from only 15 plant and eight animal species8. The implications of this for biodiversity, given about 40% of the planet’s land surface is used for agriculture9, are clear.
The agricultural industry has embarked what has been an enormous de facto geo-engineering experiment whose negative outcomes are becoming increasingly clear. Consumer awareness of this picture is growing, and in response they are modifying their behaviour more and more. This, we believe, presents investors with a significant opportunity.
This opportunity can be broken down into two broad categories: the growing industry offering plant-based alternatives to meat, and – taking a longer view – lab-grown or ‘cultured’ meat.
These opportunities could be described as the ‘pull’ factors. Turning first to alternative sources of protein, can you break down where they are presently, and where the category may be headed?
As I mentioned, the food industry is one of the biggest constituent parts of the global economy, so any serious shift in consumer behaviour has enormous impact. Even a 0.5% market share is huge, let alone one or two per cent.
Let’s define what we’re talking about – instead of specifically vegetarian products, we are talking about ‘burgers’, ‘sausages’, ‘steaks’ or ‘roast chicken’ made from soy or other plant proteins, then treated to create a meat-like taste and texture. We can’t exactly express it in data, but it’s clear that the quality of these foods has come on in leaps and bounds in recent years, meeting a demand for better meat substitutes than were previously available.
We can, however, express the growth in the market in data: in the US, sales leapt 200% year-on-year for a given week in April last year, when many consumers were stocking up due to uncertainty around the pandemic10. This surge was sustained: sales doubled every month for all of 202011, an astonishing rate of growth for non-tech products that do not benefit from network effects.
The key players are now big companies in their own rights: Impossible Foods is worth more than $4 billion12, with competitor Beyond Meat more than quadrupling in value to over $8 billion last year13. Both have recently struck deals to serve their products in mainstream outlets like McDonald’s, Burger King and KFC – not exactly bastions of vegan diets. These valuations make sense given the industry’s projected annual growth of 15.8% between now and 202714, and there are few reasons to believe this will slow down in the long run.
The people reading this will probably have noticed products from these or similar companies in the meat section of supermarkets – this is not some long-run forecast, or obscure guesswork. They are attracting large investors, and while they will of course need to prove they can be profitable, I think I can confidently say they have asserted themselves as a viable alternative.
So this is a case where commerce and environmentalism are happily aligned?
Well, the picture is always complicated – the increased demand for soy, for example, could increase destructive farming practices in the global south.
Overall, however, it is of course a net benefit for the environment. Say a large retailer wants to demonstrate they are doing something for the climate or the environment – it’s an easy win for them to be able to say that by a certain point in the future half their meat will be replaced with plant substitutes. They can foreground its impact on their carbon footprint in their marketing to a public that is increasingly mindful of environmental concerns.
One thing that will be fascinating to follow is how the global food industry adjusts to shifting demand. How many people around the world work in this industry? How many links are there in the supply chains that bring food to people’s plates? And how will they shift in the future? It’s not overselling it to say this could have geopolitical implications.
Also, we in the west have a habit of assuming that people who live in what some still call the ‘developing world’ are happily on a trajectory toward a current American or European middle-class lifestyle.
There are other narratives of development. For example, a lot of consumer computing in China and elsewhere went straight to mobile and ‘skipped’ the desktop generation we lived through. Food is likely to be similar – the whole world is not on linear paths that are just duplicated as this or that economy grows. There is nothing dictating that the world outside the west must pass through a stage where they consume meat at the rate we do now.
If we turn now to lab-grown/cultured meat, this is an industry that’s still in its infancy.
To get conceptual for a moment, what we have seen in recent years is the breakout of digital technology from what can be reduced to ‘communications’ into other areas of psychologist Abraham Maslow’s famous hierarchy of needs, from transportation to education. Food is at the base of this pyramid, so the idea of lab-grown meat really is about addressing our most fundamental needs in a radically new way.
It’s important to not conflate meat substitutes with lab-grown meat in our heads. We don’t need to invent a method of deriving protein from plants, people have done that for thousands of years, but so-called ‘test-tube’ meat is something entirely new.
This is borne out by the cost profile. The world’s first lab-grown burger was created in 2013 by the precursor to the start-up Mosa Meat – it cost more than $300,000 to produce15. Costs are now down to $10 or so16, which is a remarkable achievement but still at a premium price point.
Last December, a company called Eat Just was approved by Singapore’s regulator to sell cultured chicken for human consumption17. It’s still expensive, but operates as a useful proof of concept that, at the very least, cultured meat can be marketed as a premium product to consumers looking for something unusual. We expect the American and European regulators to follow suit.
What stage of development is the technology?
As well as Mosa Meat, there are clusters of start-ups around the world that have attracted significant investment as they try to meet this growing demand. The initial technical difficulties have largely been solved, so now the questions become around scaling and how prices can come down in tandem.
We should bear in mind that this narrative is extremely common with new technologies. There was a time when solar and wind energy were extremely expensive, and they are now cheaper than most coal-fired plants. So long as the prospects of growth are solid, there will be investors. San Francisco’s Memphis Meat, for example, announced an investment of $161 million in January 202118.
What chances do these companies have of truly disrupting the ‘traditional’ meat industry?
Realistically, this is not going to be a true disruption in the sense of, say, the internet firms totally claiming classified advertising from print media.
Some research suggests that 60% of the meat people eat will be either plant substitutes or cultured meat by 204019.
This sounds impressive, but there is the caveat that there will of course be more people in 2040, and more people around the world living what we would now consider a ‘western’ lifestyle. Also, ‘blended’ products are highly likely to be become increasingly prominent, where cultured meat and plant-based substitutes are combined in creative ways.
The future therefore lies very much in how new products complement each other, and it remains to be seen exactly how the economics of this interacts with reality on the ground. Substitutes will capture some of the growth of global meat consumption, but it is still set to grow on a global level for years to come – and we’ve covered in some detail the sustainability implications of this.
We should also bear in mind that some of most interesting research and investment has been in creating material not for human consumption – animal feed, for example, or new, tech-empowered ways of growing or harvesting conventional crops.
If cultured meat is todays cutting edge, where is tomorrow’s cutting edge? Where does the future of alternative proteins lie?
There is exciting early-stage research on mycoproteins – or fungi, as you and I know them. Everybody knows fungi are pretty good at reproducing, so there is an increasing amount of effort going into finding ways to produce synthetic proteins with the same speed and efficiency. Then, down the line, there is the potential application of gene editing techniques like CRISPR to protein production.
We’ve talked about various ways of substituting for traditional meat sources, looking at it from the points of view of sustainability, climate, and so on. The key element to think about, however, is efficiency.
We’ve used cows for ten thousand years, and a first-year economics student could tell you they’re just not efficient processors of proteins. Only about 15% of the protein the animal eats makes it into its own meat – that’s a very low conversion rate20.
There are better ways of getting the protein our bodies need and given the demonstrable environmental impact of this incredibly inefficient method of production, the incentives to change are clear. It’s unlikely that a day will come when nobody will eat a steak in a restaurant, but it’s fair to say that the global food industry will look very different in the coming years.