Algae is Poised to Become a Mainstream Food Ingredient if Supply Can Keep Up With Demand

Editor’s Note: Andrew A. Dahl is President and CEO of ZIVO Bioscience, a ag biotech R&D company engaged in the commercialization of nutritional and medicinal products derived from proprietary algal strains.

The competition among large US food manufacturers is growing ever more intense, even as the economy improves. In an era when consumers have a greater array of food choices than ever before—and are more health-conscious than ever before—giants such as General Mills, Kellogg Company, Target Corporation and The Hershey Company are taking a more careful look at the potential nutritional and health applications of products in development or already on the shelf.

For example, General Mills’ venture capital arm,301 Inc., has made investments in several food startups focused on improved nutrition—including Beyond Meat, a plant-based “meat” company whose hallmark veggie burger is made from pea protein and other ingredients. Another startup, Kuli Kuli, which is backed by Kellogg’s venture capital arm Eighteen94 Capital, has introduced moringa, a protein-rich green, to U.S. customers.

Building on a reputation of selling healthy and sustainable foods is a must, not only to ensure steady growth but also to strengthen brand image and brand loyalty.

The benefits of algae-based foods and supplements continue to generate headlines and consumer interest. Algal biomass in various forms can be integrated into a wide array of foods and beverages, ranging from veggie shakes and smoothies to meal replacements, vegan offerings, and even matcha tea formulations. Animal feed and supplements represent yet another opportunity.

The growth potential is limited only by investment in production and processing capacity to establish a robust, ever-expanding supply chain. According to a report by Credence Research, Inc., the global algae products market was valued at approximately $30 million in 2015 and is projected to reach approximately $45 billion by 2023. Although no one can state with certainty the extent to which demand might outstrip supply in the coming years, shortages have already occurred; for example, as reported last year by All About Feed, France is importing algae to offset manufacturers’ domestic shortages.

Algae’s Remarkably Adaptable Attributes

What is it that makes algae a worthwhile proposition for large-scale food businesses? The demand for natural products and healthful ingredients will only intensify as consumers continue to educate themselves with freely available information on healthy eating habits. Initially, this may seem to be an upmarket trend, but demand for high-quality nutrition is likely to permeate most price and product strata. For example, 70% of global respondents in Nielsen’s Global Health and Ingredient-Sentiment Survey, published in the August 2016 Global Ingredient and Out-of-Home Dining Trends Report, say they actively make dietary choices to help prevent health conditions such as obesity, diabetes, high cholesterol, and hypertension. Further, nearly three-quarters agree that they feel more positively about companies that are transparent about where and how products were made, raised or grown. Finally, 58% of all global respondents said they want more all-natural products.

The focus on alternative proteins and antibiotic-free proteins, ranging from lab-grown meats to insect biomass production, has already been attracting investment dollars from around the globe. As it turns out, industry analysts foresee a global protein production shortfall beginning in 2020 and reaching critical proportions by 2030. As a result, food manufacturers that focus on innovation in alternate sources of protein would be richly rewarded.

Historically, algae developers have met with only partial success in communicating to large food manufacturers the value proposition of their work. Indeed, the focus over the past two decades has instead been primarily on biofuel production. This has ignored the potential of algae as a sustainable, low-carbon, pesticide-free, herbicide-free, antibiotic-free, non-animal, non-soy source of protein and micronutrients that is 100% edible. (In this regard, algae are unlike corn or wheat, where the edible biomass is less than 20% of the entire plant.) Algal biomass can also be consumed at each and every link of the food chain, from larval shrimp in aquaculture facilities to poultry feed to gourmet offerings at fine restaurants and everything in between.

New Cultivation Technologies Make Algae Commercially Viable

There have been recent, positive developments in the field of algae, production of which anyone with an interest in food manufacturing and ag biotech should be aware. Specifically, some algae R&D companies—such as Corbion Biotech’s TerraVia, Cyanotech Corp., and Algatek—as well as ZIVO Bioscience, where I serve as CEO—are developing new technologies.

For example, the cultivation model developed by ZIVO and its partners eschews complex and costly fermentation systems, photo-bioreactors, panels and tubes associated with microalgae production in favor of the most basic and cost-efficient models: a covered, shallow pond constructed of inexpensive, readily available materials obtainable in many parts of the world. In this way, it becomes possible to develop an optimized, proprietary strain of algae that contains a unique blend of protein, micronutrients, and non-starch polysaccharides. Along with this type of innovation comes new algae-based products, promising to drive down the cost of production and processing in feed, food and supplement market verticals, and creating new product categories, as well.

There is significant demand for high-quality nutrition in dozens of market verticals that will likely keep per-ton prices at a premium for a decade or more—spurring innovation in every aspect of production—from capital equipment to farming practices to post-harvest processing. Investment in growers, processors, marketers and even equipment-makers supporting the algal biomass industry holds significant upside potential.

What the Future Holds

In light of the demand and the opportunities across many different sectors, a potential return generated by algae commercialization and production companies might be measured in months and not years. New open-pond algal biomass production can expect revenues within a year of startup where climate is optimal, such as the American southwest. It should be noted that China is expanding its pond production capabilities on non-arable land and is well-supported by its government.

At the same time, it is important to consider some of the realities in this specialized field. Algal biomass production is farming, and this means growing algae with the lowest possible capital expense, lowest possible operating costs and minimal production losses. Capital efficiency and biomass yield per liter of water are paramount, regardless of the algal species being cultivated. Initially, these companies should be looking at low-volume/high-value market verticals such as supplements, vegan food ingredients, health drink ingredients and the like as production volume builds and economies of scale begin to impact cost per ton. This means investing in producers and brands that are focusing on algae species or algal by-products such as Omega-3 lipids, astaxanthin or non-starch polysaccharides that can command premium prices.

Innovators that are growing, processing and marketing algae as a high-value nutritional source—the first to break new ground—will be creating significant value, and in the process, improving the quality of life around the world. Whether it’s a niche product ingredient or a daily staple, this unique food source holds great promise for an entire industry, as well as the global economy and environment as a whole.