This post is part of a collaboration with F&A Next, an AgFunder Network Partner, ahead of its fifth annual conference in Wageningen, Netherlands, 13-14 May 2020. F&A Next 2020 will focus on the impact of food and agriculture innovation in improving sustainable farming, maximizing yields, saving natural resources, and mitigating climate change. F&A Next was founded by Anterra Capital, StartLife, Rabobank and Wageningen University & Research. Read about F&A Next 2019 here.
Alternative protein startups had a big year in 2019. The sector had its first IPO, its first unicorns, and a raft of new products hitting and expanding into the market through numerous channels, including grocery stores, food producers, and fast food giants. One could be forgiven for thinking that the global meat industry was in real jeopardy.
But it isn’t. Global meat consumption is growing, thanks to a swelling global middle class that can afford to put more meat on its plates. That trend also pans out in North America and Europe.
“With the meat consumption rates in the E.U. and U.S. we see that they’re more or less stable. They’re not decreasing,” observes Beyhan de Jong, an animal protein specialist at Rabobank, one of the founding organizations of F&A Next. “Some types, like poultry and seafood are forecast to grow.”
Globally, meat production is expected to continue increasing, in fact.
That doesn’t mean we’re all inflating the significance of the meat-alternative consumption trend, however. The number of conscious meat consumers, “flexitarians” and “reducetarians” is also rising, and with them, demand for ethical and environmentally sustainable alternatives to factory-farmed animal products.
“The question is, are they alternative proteins or are they additional,” adds de Jong.
More than $16 billion in venture capital funding backed alternative protein companies between 2009 and 2018; 80% of that has been invested since 2017. A number of new funds launched this year, pledging to support the growth (and drive a profit) from the alternative protein buzz, including AgFunder’s own New Carnivore fund. Private equity firm Paine Schwartz is eyeing the plant-based revolution with $1.5 billion fifth fund. Corporate food and agriculture giant Cargill, meat heavyweight Tysons and others have been investing in the sector directly and through corporate venture funds.
This eruption of activity didn’t come out of nowhere; it’s been simmering for years. US-based meat-free burger giants Impossible Foods and Beyond Meat launched their products in grocery stores and restaurants back in 2016, when alt-protein companies comprised only $160 million of the $4.6 billion global agtech market. Switzerland’s Planted, which makes chicken and pork alternatives for restaurant chains, launched out of ETH Zurich that same year. Others, like Netherlands-based Vegetarian Butcher, which was acquired by Unilever last year, and another Dutch company Vivera have been at it for a decade or more.
But 2016 marked an important moment, when a coalition of investors representing $1.3 trillion in investment power joined forces to large food companies to introduce more meat alternatives into their supply chains.
“Plant-based meat is a solution to the climate crisis and the wastefulness of meat production, and a widespread shift toward plant-based meat would result in plummeting food-borne illnesses and improved health outcomes generally,” Bruce Friedrich of New Crop Capital, an alt-protein-focused investor and member of the coalition, told AFN at the time. “Investors see the writing on the wall, which is why there has never been a better time to either be running or starting a plant-based food company.”
De Jong points out additional drivers of adoption: “What’s often not mentioned as much is the novelty of these products. They’re convenient, they create excitement, and they’re adaptable. There are no religious barriers, for example—they’re suitable for any diet.”
The less-splashy masses
What’s happened in the past few years is a remarkable diversification of the meat alternatives market. Two alt-burger giants, Impossible Foods and Beyond Meat, may dominate headlines, but a notch down from them and their visibility and financial largesse are scores of other companies addressing consumer demand for animal-free products from a multitude of angles. For example, UK-based The Meatless Farm Company also makes burgers from soy, beets, and peas, for sale at domestic restaurant chains and, possibly soon, in US grocery stores.
Others in the meat alternative side of the market include US-based Rebellyous Foods, which makes chicken alternatives, and Spain’s Foods of Tomorrow, which makes packaged alt-chicken strips and nuggets. Dutch startup Seamore and UK-based THIS both make alternative bacon products. New Wave Foods in the US is making alternative seafood products, like shrimp. Most alt-meat companies are available to consumers through restaurants and grocery stores, but others, like Ginkgo Bioworks-spinout Motif Ingredients and Dutch company Meatless, make the base ingredients for constructing other meat-free products and white label brands. (Motif’s audacious $90 million Series A funding round earlier this year will be an obvious outlier when the 2019 early agrifood tech funding sums are totaled.)
Then there are companies developing alternatives to other animal-based products, like Chile’s NotCo, which uses artificial intelligence to replicate the flavor of mayonnaise for an animal-free version. Israel’s ChickP is making, well, chickpea-based dairy products. In the US, JUST Inc is developing plant-based eggs. Also in the US, Perfect Day scored $140 million earlier this year, Culture Fresh Foods raised $11 million, and Miyokos won backing from celebrity couple Ellen DeGeneres and Portia de Rossi. All three companies will use the funding to grow their lines of dairy alternatives.
A noteworthy emerging trend: alternatives companies are using funds raised to convert existing animal-based farming and processing facilities into manufacturing units for plant-based alternatives. Culture Fresh Foods and Miyokos are both helping dairy farms convert to plant-based facilities. Read more here.
And there are companies developing animal alternative products that consumers will never buy off the shelf, but may consume in a whole variety of other foods. Alternative ingredients companies like US-based Shiru and Clara Foods, which design and sell products like egg and milk replacements to other food companies, are tapping into a huge and “underserved” segment of the alternatives market overall.
“There has been a huge proliferation of veggie burgers, but there aren’t one-for-one vegan replacements for animal proteins within other foods. So many of those proteins are not consumerized,” Deena Shakir of Shiru investor Lux Capital told AFN. “Those ingredients are a critical part of the alternative protein equation.” Our partners at StartLife think that FUMI Ingredients might, in fact, have a solution to this.
And not all companies are in the protein-development space to make animal-alternatives. In Israel, Amai Proteins is trying to curb unhealthy sugar consumption by making super-sweet plant-based proteins. “Sugar kills more people than gunpowder,” founder Ilan Samish warned, in a discussion with AFN. Amai is partnering with food giants like Danone and Pepsico.
The alt- alternatives
None of the products the raft of alternative protein startups are making grow out of the ground, even if their base ingredients are plants. They’re processed and engineered to a significant extent in many cases. But cultivated meats take food engineering to an entirely new level. Companies like Memphis Meats in the US, Mosa Meat and Meatable in the Netherlands and Future Meat, Aleph Farms and SuperMeat in Israel are using animal cells to grow actual beef, pork and chicken products that don’t require any animals to be slaughtered. (Aleph is making the undertaking extra weird: it’s taking its cultured meat lab to space.)
In the US, Finless Foods and Wild Type are making lab-grown tuna and salmon.
None of these companies’ products have yet made it to market because they’re still cost-prohibitive, costing hundreds of dollars per pound to produce. But some believe that with more investor support, they can get pricing down to below $10 per pound. Consumers and investors alike will find out soon enough: many of these companies have been at work for years and are eyeing launch within another two to three.
In the meantime, there are startups hoping to shift the alternative protein discussion to sustainable proteins, including sustainable animal species. Portugal’s Oceano Fresco’s messaging for its clam farming operation is based on the fact that bivalves (clams, oysters, mussels) are simple, low-energy species that require minimal resources to grow and reproduce and which even have positive environmental benefits, like helping to filter seawater. They also technically don’t have brains. The Netherlands-based Protifarm and Malaysia-based Ento are among a small but growing cohort of companies rearing insects for human consumption. The argument is similar: supporting consumer demand for sustainable sources of protein.
“The number of vegetarians and vegans isn’t growing that much. What is growing is the number of people with that lifestyle,” ProtiFarm’s Tom Mohrmann told AFN. “There’s a high correlation between vegan [product sales] and expensive meat. That’s to do with choosing healthy and sustainable foods. People want to change their lifestyles.”
Within this vein, startups like UK-based Moving Mountains, Austria’s Rebel Meat and Scotland’s 3F BIO are keying in on the growing number of “reducetarians” with hybrid meat products. Hybrid meat is exactly what it sounds like: part meat, part plant-based foods. Tyson Foods is getting into that game as well with a half-pea, half-beef burger.
“We want to see a reduction in the quantity of meat from livestock consumed,” said 3F BIO’s Jim Laird, whose company is part of a large European consortium that is ramping up alternative-protein production for uses in anything from food to eco-packaging. “The easiest way is to use a meat hybrid where a percentage of meat in any product is replaced by sustainable protein.”
And then there’s Bond Pet Foods: a meat-free pet food producer.
If the momentum for the alternative protein market is there, there are still significant obstacles standing in the way of mainstream-ism.
For one, there is a disconnect between consumers’ demand for organic, “whole foods” and for more plant-based options. Most of the new products hitting the markets are lab-designed and highly-processed.
“It’s great that consumers are being presented with more alternatives for animal products, although we do expect public scrutiny in the alternatives space to increase because of the highly-processed nature of these products and the inherent limits to their nutritional profile,” says Maarten Goossens, principal at agrifood investor Anterra Capital.
Some startups are trying to address the issue. Switzerland’s alternative meat producer Planted says it uses only four ingredients in all of its products.
Two, it’s questionable whether alternative foods will be able to draw mass appeal. Impossible Foods’ burger has reportedly done well at Burger King, where it’s marketed as the Impossible Whopper. Beyond Meat’s meatless breakfast sausage patties didn’t make the cut as a long-term product at Canadian fast-food chain Tim Horton’s but are seemingly doing better at Dunkin’ Donuts, with some help from celebrity investor Snoop Dogg.
“Going to market through fast food has been really successful in the US,” observes Nicholas Fereday, executive director of Rabobank’s food and consumer trends research group. Of Tim Horton’s he adds, “It’s a case of how these things are rolled out, and that it’s not guaranteed [these products] will be as popular as everyone hopes they will be.”
And a third issue is cost: most plant-based meat products cost at least twice the amount of other real meat products, at least the conventional, factory-farmed varieties that the majority of consumers eat. That’s largely because they’re still not being produced efficiently and at the scale required to drive the price down for end consumers.
Most founders of alternative protein startups concede that their products aren’t price competitive for average consumers. But they also don’t see today’s prices as a long-term market growth barrier, particularly in light of consumer trends.
“Solving this problem is far from an inevitability,” wrote Christie Lagally of alternative poultry startup Rebellyous Foods. “It is, however, a massive opportunity for those willing to make the concerted engineering effort required to support the rapid scaling of plant-based meat.”
Adds Rabobank’s de Jong: “Barriers to growth can actually be turned into success factors if the alternative protein companies play their cards right.”