Is it the time for beef to take a bow? Why alternative proteins should be in the spotlight

Livestock, COP26 and the lack of investment to date

According to several studies, approximately a quarter of greenhouse gas (GHG) emissions that result from human activity come from food systems. A rise in these emissions alone could generate severe warming and lead the planet towards a temperature above 1,5°C. Livestock is by far the most important contributor with more than half of food’s GHG emissions attributed to it. There are two major reasons for this. Firstly, lots of the land that could otherwise store carbon dioxide is used for grazing. Secondly, these animals also produce methane when digesting, which as we know, is a major greenhouse gas.

All meat-based products have higher carbon footprints than plant-based alternatives. Less carbon-intensive meats produce higher emissions than the biggest emitters among plant-based alternatives that are rich in protein. For example, when comparing GHG emissions from protein-rich foods (per 100 grams of protein), we observe that pork’s median GHG emissions are roughly ten times higher than that of beans. At the COP26 climate summit, hundreds of world leaders made long-term commitments with respect to GHG emission reductions. Notably a 30% reduction for methane by 2030, as well as a pledge to end deforestation. However, no concrete targets were made about lowering meat consumption in a way that explicitly acknowledges the heavy carbon footprint of animal-protein.

While the appropriateness of the commitments in tackling global warming deserves separate discussion, the fact that no objectives were set about meat eating reveals a paradox. It is apparent that meat production constitutes a major climate issue, yet it is not getting the attention it deserves. As a matter of fact most investment in plant-based solutions has been driven by Venture Capital. As institutional investors and regulators begin to catch up, we believe that more investment will be released causing the alternative protein market to peak. In this article, we begin by examining the growth of VC activity in AgriFoodTech before delving deeper into the reasons why plant-based solutions will become an ever-so common investment.

  1. Growing VC activity in AgriFoodTech and market overview

Despite the constraints imposed by Covid-19, 2020 was a particularly successful year for AgrifoodTech as venture investments reached new highs amounting to $22.3 billion in aggregate. Agtech (which includes categories such as ‘precision agriculture’, ‘plant science’ and ‘smart equipment’) reached $5 billion in 2020 which were generated across 416 financing rounds. Venture investments doubled between 2019 and 2020 fuelled by the adverse effects of climate change such as extreme weather events which negatively impacted yields. Covid-19 also revealed the longstanding deficiencies of global supply chains and the need to find ways to address labour shortages on-farm and processing facilities. As such, it is not surprising that ‘crop protection and inputs management’ emerged as the category receiving the most funds.

The AgrifoodTech ecosystem.
Source: Finistere Ventures

On the other hand, Foodtech investments amounted to $17.3 billion in total which were raised through 631 funding rounds. This represented a spectacular YoY growth of 73% compared to the 2019 results (i.e. $10 billion in aggregate funding). The uptick is largely attributable to the ‘meal kits & delivery’ and ‘e-commerce’ categories which are collectively responsible for 68% of the fundraising in foodtech. These categories experienced significant growth in consumer demand due to people around the world being constrained to stay at home during lockdowns. Indeed, 2020 was the first year since 1994 where restaurant food consumption surpassed at-home consumption of food. Covid-19 also opened up doors for startups with entirely digitally native business models, as demand for online grocery shopping platforms surged.

Evolution of Agrifoodtech investments (in USD).
Source: Finistere Ventures

The unprecedented dislocation of food demand and supply exposed the vulnerabilities of food supply chains and motivated stronger scrutiny of meat and dairy production. Private investments flowed into alternative protein technologies despite most companies being in early development. In 2020 alternative proteins accounted for nearly 1 in 5 deals raising $3.1bn dollars, representing a two-fold increase from the year below. Alternative proteins were the fastest growing category in the foodtech sector and this comes to little surprise as the market is expected to reach a trillion dollars. Indeed, there are several key trends that point to a favourable decade ahead for alternative proteins, as we will explain below. Other factors further aiding this sector’s growth are falling retail prices, with category leaders such as Impossible Foods and Beyond Meat now matching the prices of animal products, and heightened public awareness for planet-positive foods.

2. Trends in AgrifoodTech: Alternative Proteins

Investing in alternative proteins has not been easy. However, regulatory changes are being introduced easing the way for investment. In the area of cell-cultured meat, where products used to be reviewed on a case-by-case basis, governments are making moves to streamline their entry into market. For example, after establishing a cell-cultured framework in 2020, Singapore has approved the sale of three lab grown proteins: Eat Just Inc. ‘s chicken bites, Shiok Meats’ shrimp and Ants Innovator’s meat. In the US, the Food and Drug Administration (FDA) and the United States Department of Agriculture (USDA) recently announced that they are sharing oversight responsibility of livestock and poultry cultured meat. These moves will facilitate the development of the alternative protein market, by lowering barriers to entry and opening up opportunities for investment.

Another regulatory barrier to alternative proteins which is beginning to wane, is labelling. Disagreements on whether plant-based meat should be referred to as ‘burgers’ or ‘sausages’ has put governments in a tight spot between traditional meat producers and food innovators, with many attempting to ban the term ‘veggie burgers’ to the detriment of the latter. Labels are controversial because consumers are likely to base their shopping decisions on products which sound familiar to them. However, there is some evidence to suggest that public attitudes and scientific evidence of the benefits of plant-based eating are limiting the success of restrictive labels. Governments are in a gridlock over what the right terms for alternative proteins are, but many have updated national dietary guidelines reducing the amount of recommended meat consumption. This shift is likely to benefit alternative proteins and boost market expectations.

Alternative proteinDefinitionExampleMarket size (2020)
Plant-basedProducts that mimic animal proteins on a molecular levels but are sourced from plantsQuorn Meatless Buffalo dippers$2.1b
Fermentation-basedWith the help of yeast organisms and other hosts, fermentation of brewing can create specific animal proteins without the animalThe Impossible Burger$590m
Cell-culturedTissue engineering techniques that allow whole pieces of meat to be derived from lab-grown meat cellsJust Eat Inc’ chicken bites$360m
Edible insectsCultivating high protein insect-based products in labsProtein shakes$623m*
Alternative protein categories and market size.
Sources: FAIRR and MeatAtlas

*This figure is a general estimate of the market for insects and not just insect protein innovations.

Investing into alternative proteins will also be aided by higher compliance standards. The recognition of alternative protein as a strategic investment has brought added scrutiny onto the sector despite representing just 1% of the total protein market. Guidelines have been published to better advise alternative protein companies on complying with risks and increase transparency towards investors. According to FAIRR the early adoption of rules will help companies “avoid the pitfalls of the conventional protein industry” and see them evolve into “the growth engine of 21st century food”.

Finally, the third biggest push to investments in alternative protein, will come from retailers and manufacturers themselves. Many big companies have been injecting cash into their businesses to respond to consumer expectations and shift their reliance away from the heavily-polluting meat industry. The recent acquisition of Vivera, one of Europe’s largest plant-protein producers, for 341€ million by Brazilian meat giant JBS demonstrates this. Companies are displaying a strong willingness to be part of the alternative protein boom irrespective of what their true environmental intentions are. While plant-based businesses are extremely underinvested in, analysts estimate that alternative proteins can capture 62-64% share of the total protein market by 2050. Much of this will depend on regulators not taking counter-intuitive steps e.g. offering carbon offsets to the trillion dollar meat industry.

Conclusion

The alternative protein market is on the rise and what remains to be seen is how quickly and to what degree the market will expand. Public regulators are key as their conservatism to date has forced them on the sidelines, especially as they grapple with questions that pit the livestock industry against plant-based companies. Their risk-aversion, albeit not surprising, is deeply worrisome as emissions from our food systems continue to increase and warm our planet, threatening devastating consequences. Greater support of alternative protein companies, whether through the removal of regulatory barriers or greater funding, is crucial to continue the food revolution that Venture Capital has seeded the first investments into.

Fortunately, as this article has shown, there are signs already that such a shift is happening. Producers, governments and agencies are beginning to understand the importance of the alternative protein market. Their interference will shape the competitive landscape and propel the normalisation of alternative foods. This may carry positive externalities: better diets and public health, more robust food systems and the loss of deforestation. The reduction of the world’s reliance on livestock will bring the world closer to meeting environmental targets and the United Nation SDG’s, minimising financial risk overall.

The livestock industry and meat eating have been absent from global environmental ambitions despite constituting major sources of GHG emissions. Tougher restrictions are necessary to reduce the environmental footprint. What is indispensable, however, is the introduction of measures that enable a quick and radical transition to planet-positive foods. Indeed, it is time for meat to take a step to the side and leave the stage to a more remarkable 21st century act: alternative proteins.

Authors: Charlotte Mimran, Elisabetta Sakiotis

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