The Protein Gap

Do food-tech solutions offer long-term investment opportunity or are we in a Beyond Meat bubble?

By David Gowenlock, Fund Advisory · August 19, 2020

On the 13th August Impossible Foods announced that it had raised $200m in a Series G funding round just months after the company’s March 2020 $500m Series F. This latest investment brings total funding for the company to $1.5B. Impossible Foods is one of many companies in an emerging food-tech sector attracting investor attention. Other recent notable fundraising rounds include:

  • March 2020, Sustainable Bioproducts rebranded as Nature’s Fynd and raised $80m in Series B funding co-led by Generation Investment Management LLP and Breakthrough Energy Ventures. The company produces meat alternatives using microbes found in the hydrothermal vents of Yellowstone National Park during a collaboration with NASA.
  • July 2020, Geltor closed a $91.3m Series B round led by CPT Capital with significant commitment from WTT Investment Ltd. The company produces collagen proteins via microbial fermentation for the food and cosmetics industries and says it plans to launch its first ingestible products next year.
  • July 2020, Perfect Day expanded its Series C round from a previously-announced $140m up to $300m through a new tranche led by CPP Investments. The company produces milk proteins for dairy food products via microbial fermentation.

Image Credit: Nature’s Fynd

At a similar time to Impossible Food’s announcement, the Chinese government released plans to decrease the country’s meat consumption by 50% by 2030 to reduce carbon emissions and prevent obesity.

Recent focus on high-tech headlines such as growing alt-meat in space might make China’s ambitious 10-year plan seem far-fetched, but growth rates of this emerging sector point to real changes in our food system. Only recently in late 2019 consumers changing to plant-based milks for their coffee and morning cereal helped push the two largest US dairy producers into bankruptcy. Newly released data shows broader consumer habits are shifting – the U.S. plant-based retail market is growing at a rate five times that of total food sales.

Potential disruption of the food industry (the largest in the world) has seen venture investments in plant-based meat and dairy alternatives soar to $1.1B so far this year, up from $457m in all of 2019, while investments in companies focused on cellular agriculture more than triple to $290m from $75m.

As the capital pours in and valuations swell, investors and analysts are pondering if this trend will continue. Has COVID-19 catalysed a lasting change in consumer habits, or is this a bubble fuelled in part by the pandemic caused meat shortages? Figures abound which support both viewpoints.

Backing the plant-based trend FMCG Gurus reported in June that 24% of consumers across the globe state they will include more plant-based food within their diets due to COVID-19.

Other market commentary suggests the opposite – despite early traction plant-based leaders are struggling in important food service channels. Impossible Foods has seen Burger King slash the price of Impossible Whopper following tapering sales and Beyond Meats has had its products pulled from popular Canadian fast food restaurant chain Tim Horton’s after a launch at 4,000 locations last year.

Adding an interesting datapoint to the discussion Bloomberg recently reported that global meat consumption is down for the first time in nine years, dropping 3% from last year – making some question if we are approaching ‘peak meat’. In trying to understand what the future holds for food-tech I would like to pose two scenarios:

Scenario 1: ‘Business as normal’

Meat currently constitutes approximately 66% of the global protein market, fish and aquaculture 34% with a very small portion made up by plant-based or similar alternative sources.

If total protein consumption continues to grow at a CAGR of 1.6% (correlating to the 60% additional demand by 2050 projected by The FAO), meat at 1% and fish at 2%, they largely meet the growing protein demands with only 2.5% of global protein sourced from non-animal sources by 2030 (despite an impressive 30% CAGR).

Source: 3F Bio

In this scenario, investors in alt-meat innovations may benefit from the strong 30% segment growth but the protein landscape is largely unchanged.

Scenario 2: ‘The new normal’

The 3% drop in per-capita meat consumption from last year represents the biggest decline since at least 2000 according to UN data.

Whilst 3% may not at first sound like a substantial reduction in annual meat consumption, compounded over a period of time, and given the fact that meat constitutes the majority share of the protein market, a significant change in protein sources results.

A global -3% CAGR would see meat and livestock reduce from 330M tonnes in 2020 to 243M tonnes in 2030. By this date meat and livestock would still constitute 41% of the protein market.

Even with the projected 30% growth of plant-based and novel proteins, these sources only reach a volume of 12.5M tonnes by 2030 (as in the scenario above).

Source: 3F Bio

The result is a gap of over 122M tonnes of protein from a yet unidentified source. In fact by 2030 the growing gap between protein needs and sources results in an accumulated >700M tonnes of shortfall.

Source: 3F Bio

Confronting this gap requires an adjustment in one of the model’s few assumptions:

  1. We will be eating substantially less protein in the future
  2. Current trends are short-lived and meat demand will continue to rise
  3. The growth of plant-based and alternative proteins will far outstrip the forecast 30% currently projected by market analysts

Some thoughts on the above:

1. We will be eating substantially less protein in the future

In developed countries, this is possible. However, much of the modelled increase in protein demand originates from global population growth and increasing size and wealth of emerging market middle classes. Therefore, overall protein consumption reduction seems unlikely.

2. Current trends are short-lived and meat demand will continue to rise

This seems unlikely:

    1. Think tank RethinkX forecasts that by 2035, the number of cows in the US will have fallen by 75% (US protein production accounts for roughly 30% of the global total market value)
    2. China has committed to reduce the country’s meat consumption by 50% by 2030
    3. Recent research states that to limit global warming to 2 degrees (greater than The Paris Agreement’s target of 1.5 degrees) the average world citizen needs to eat 75% less beef, 90% less pork and half the number of eggs

3. The growth of plant-based and alternative proteins will far outstrip forecasts

This scenario is possible but presents challenges on the feedstock required by alternative protein sources (pea, soya, cellular meat culture mediums etc). We have already seen increased demand for plant-based protein impact the supply chain of yellow spit peas – this pressure can be expected to continue if forecasts become realised.

Whilst the future remains to be seen – one overriding fact in support of the alt-meat and food-tech sector is that to meet climate change targets something simply has to change. If consumers want to maintain their levels of meat consumption (including meat analogues), and the world population follows projected growth rates, perhaps rapid adoption of these innovations is the most credible solution currently presented.