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High-Growth Investing in Alternative Proteins

By Ines Ajimi & Jaishree SinghAgriculture, Blog, Environment

From growing fodder to cow husbandry, animal agriculture is one of the most polluting sectors of our economy, contributing over 47% of the total greenhouse gas produced by American’s food consumption. It is also a mature industry. Over the past few years, “alternative proteins” have emerged as a high-growth, low-carbon alternative to meats—and a glowing investment opportunity for investors interested in mitigating climate change and simultaneously pursuing a hot new market trend.

The environmental case for alternative proteins is clear. According to the University of Michigan’s Center for Sustainable Systems, Beyond Meat’s signature burger produces 90% fewer GHG greenhouse gas emissions, needs 46% less non-renewable energy, has 99% less impact on water scarcity, and 93% less impact on land use than a typical one-quarter pound of beef. Given that animal agriculture is the second main source of CO2 emissions after fossil fuels, even a partial shift towards meat substitutes would greatly alleviate our global carbon footprint. Moreover, shifting the massive resources currently allocated to growing animal fodder towards human consumption could help feed an additional 7 billion people.

Beyond their positive environmental impact, alternative meats have become an extremely attractive value proposition, projected by Barclays to grow ten-fold over the next ten years. Giants of the food industry, such as Tyson Foods and Nestlé, have already jumped on the bandwagon, either by creating their own labs or partnering with existing innovative alternative meat companies. Burger King, for instance, has collaborated with Impossible Foods, a start-up best known for its “bleeding” plant-based patties, to create a vegetarian whopper: test locations in St. Louis saw an increase in foot traffic of over 18% this April, compared to a national decrease of 1.75%.

The success of Impossible Foods and Beyond Meat can be explained by the fact that their product directly addresses the main hurdles faced by alternative proteins: taste and public perception. Rather than directly appeal to vegan and vegetarian consumers, these firms market to meat-eaters, emphasizing the beef-like qualities of its product. Behind the scenes, their scientists have worked hard to emulate the flavor of beef, retro-engineering its components at a molecular level and replicating them using plant-based compounds. Successful firms like Daiya Foods, Ripple Foods, Califia Farms, and Follow Your Heart provide plant-based alternatives to other animal-based foods, namely dairy.

Another hot trend is “clean” or lab-grown proteins—using animal stem cells, which are multiplied and “shaped” into muscle tissue. Employing this method, a small cow sample could be used to make as many as 80,000 quarter pounders. The possibilities of lab-grown proteins are endless: chicken nuggets, fish, eggs, and more are currently being developed by JUST, Inc, Mosa Meat, Memphis Meats, Finless Foods, Fork & Goode, and Aleph Farms.

But the commercial success of many of these food tech companies has been impeded by a number of obstacles, the most notable of which are prohibitively high production costs. Lab-grown beef is currently made at $50 per pound, against $3.70 for grass-fed beef. This particular hurdle will eventually fall as the technology improves but regulatory obstacles and consumer skepticism will, too, have to be overcome. And the environmental impact of lab-grown meat once the technology is scaled-up is unclear: producers claim their carbon-footprint will be lower than that of beef but independent analysts’ reports have been mixed.

The final approach is to create new foods altogether. The challenge facing these companies is to convince consumers to incorporate their often unfamiliar products into their diets. This is a particularly acute problem for firms like Exo Protein and Chapul offering insect-based proteins, which face a significant “ick factor” in the American market.

The good news is that the alternative proteins market is nearing a tipping point. Millennials are decisively driving the trend towards more sustainable foods, and well-publicized partnerships between established fast-food companies and start-ups have made inroads in consumers’ consciousness. Notable investors like Bill Gates and Richard Branson are now even claiming a stake in this crowded field, backing companies like Beyond Meat and Memphis Meats, respectively. Though alternative proteins companies firms are still navigating technology, risk, and marketing impediments, they continue to emerge as a clear and compelling opportunity for investors to make a decisive impact on our global carbon footprint.

To learn more, download our “Sustainable Food Systems Market Overview.” Contact Jaishree Singh at jsingh@boundlessimpact.net for more information.