Ingredients giant ADM has “re-scoped” its protein modernization investment project in Decatur, Illinois, amid sluggish demand for meat alternatives.
Speaking on the firm’s third-quarter earnings call on Monday, chairman and CEO Juan Luciano said that “weak market demand, particularly in the alternate meat category, inventory adjustments and unplanned downtime resulting from the recent Decatur incident [an explosion at its West plant] led to significantly lower year-over-year results” in its specialty ingredients division.
He added: “The plant-based protein market has been experiencing destocking and consumer demand softness over the course of the year that will likely persist into next year. Given these recent market dynamics, we have re-scoped our Decatur protein modernization investment project to better match the expected lower growth demand environment.”
ADM’s nutrition unit (housing alt proteins) experienced a 22% year-over-year decline in operating profit in the third quarter, offset by strong performances in ethanol, starches and sweeteners, flavors, and probiotics, prompting it to raise its earnings forecasts for the full year.
An ADM spokesperson told AgFunderNews: “We are rescoping the project to maximize capital spend and right size the capacity expansion to meet estimated market demand. We are also shifting focus to include modernization of our asset through automation. This will optimize production and improve efficiency, without having to expand production lines.”
Aggressive capacity expansion for alt proteins
On a mission to be “a leader in this vast and exciting [alternative proteins] space,” ADM has invested in multiple players in plant-based, cell-cultured, and fermentation-based categories in recent years, including Air Protein, Nature’s Fynd, Perfect Day, Geltor, and Believer Meats.
It has also been aggressively ramping up its plant protein processing capacity, opening a pea-protein plant in Enderlin, North Dakota, and announcing a $300 million plan to expand its soy protein concentrate plant in Decatur, “nearly doubling extrusion capacity,” according to a press release issued by the firm in April 2022.
The expansion at Decatur—which included a ‘state-of-the-art’ protein innovation center—was expected to be completed in the first quarter of 2025, said ADM, which acquired Serbian soy ingredients specialist Sojaprotein in 2021. “Between the two investments, ADM will increase its global alternative protein production capacity by more than 30%.”
ADM has not commented on how weaker demand for North American pea protein amid a flood of cheap imports from China has impacted its operations at Enderlin.
Meat alternatives by numbers
While US retail sales of alt meat were declining when the Decatur expansion was announced in spring 2022, Allyson Fish, president, global plant and alternatives proteins, told FoodNavigator-USA in June 2022 that ADM was “not really seeing any downturn in the market… and we don’t expect there to be a significant change in the trajectory or our expectation of growth in this industry in the next 10 years.”
Since then, however, US retail sales of meat alternatives have declined precipitously, falling 12.2% year-over-year (YoY) to $76.7 million in September 2023, in conventional multi-outlet channels (grocery, mass/supercenter and club), with volumes down 16.5%, according to Circana data crunched by 210 Analytics.
For the year to October 1, dollar sales fell 9.8% to $1.1 billion, while volumes were down 16.5% year over year.
To place this in context, total fresh and processed meat department dollar sales were down 1.4% YoY to $6.5 billion in September with volumes down 1.8%. For the year to Oct 1, dollar sales were up 0.1% while volumes were down 1.5%. Frozen processed meat sales were down 3.5% YoY in September to $424 million, while unit sales were up 5.6%.
Layoffs, and ‘sizing the shoe to fit a new foot’
Meat giant JBS abruptly shuttered its Planterra Foods plant-based meat division last fall, while fellow meat processor Maple Leaf (which owns the Lightlife and Field Roast plant-based brands) has been reallocating capacity to conventional meat in an exercise “of sizing the shoe to fit a new foot.”
Pork processor Smithfield, meanwhile, told reporters it was “scaling back,” its Farmland plant-based portfolio last year.
So what is holding the market back? Price? Taste and texture? Questions about protein content, quality, or ‘naturalness’? Cultural barriers? A fundamental lack of interest from many meat-eaters?
Achieving price parity alone isn’t enough; meat alternatives must have strong consumer appeal to gain share, noted Impossible Foods’ CEO Peter McGuinness in a recent interview with AgFunderNews. “People got it wrong when I first started, everyone was like price, price, price. We took price, Beyond Meat took price [and] didn’t see [an increase in] volume. It’s about value, it’s about the value proposition, which has to start with delicious food, no compromise.”
However, recent research from Acosta Group, a collective of retail, marketing and foodservice agencies, shared with AgFunderNews suggests that price is still a problem for the category at a time when household budgets are stretched, said Kathy Risch, SVP of Consumer Insights and Trends.
According to Acosta Group, which surveyed 1,314 US shoppers in June 2023:
- “Half of shoppers tell us affordability is the key barrier to purchase.”
- “Current users [of plant-based foods] would like to see more plant based soups and snacks.”
- “55% of plant-based users cite physical health and specifically heart health as a deciding factor in dietary choices.”