In 2018 an estimated 69 billion chickens were slaughtered to feed the world’s population. This does not include the 1.5 billion pigs, 656 million turkeys, 574 million sheep and 302 million cows all killed to (still inadequately) provide protein for the 7.8 billion people alive today – see chart below. During the gluttonous excesses of the holiday season between Thanksgiving and New Year there were a number of fascinating announcements of new “agtech” start-ups, juxtaposed with allegations of industry price fixing, broken supply chains, and rampant Covid-19 outbreaks across food processing plants.
Of course, all of this is complicated by the pandemic. According to analysis reported in the journal, Obesity, 27.5% of study participants gained weight since the onset of the pandemic, while 17.0% actually lost weight.
The “protein production” industry has been posed for disruption for generations. With all the direct and indirect costs (feed, land, irrigation, pollution, transportation, wastage), raising livestock can be a highly inefficient approach to providing each of us the 50-70 grams necessary to satisfy daily protein requirements. The United Nations Food and Agriculture Organization estimates that 26% of the earth’s surface is used for the grazing of livestock.
The pandemic has also exposed the inadequacies and vulnerabilities of the food supply chain. Product pricing is quite volatile and often whipsawed by sudden unforeseen changes in weather, international trade disputes, and animal diseases which can quickly decimate flocks and herds. Last month, the U.S. Census Bureau calculated that 12.7% of all Americans regularly suffer from food insecurity, and this in a country where it is believed that 42% are obese and another 30% are deemed overweight. A number of entrepreneurs look at all of these issues and see the potential to profoundly re-architect this sector to ensure consistent, high-quality supply of protein for human consumption.
Entrepreneurs salivate when looking at all of this. According to AgFunder, in 2019 approximately $19.8 billion was invested in 1,858 foodtech and agtech companies globally, of which $1.0 billion was invested in alternative protein start-ups. In general, innovation in this sector cuts across a few dimensions: (i) utilizing plant-based proteins to manufacture meat-like products or (ii) novel biology to manufacture sources of protein, predominantly using cell cultures or other biological approaches or (ii) altered production processes to make existing methods more efficient, higher yielding. These approaches are in response to the existing enormously burdensome “protein production” methods on the climate per calorie produced. Yet, entrepreneurs appreciate that there are meaningful scientific, regulatory, and consumer preference obstacles ahead. Incumbent producers have aggressively litigated use of “meat” or “poultry” description for cell-based products. This does not even account for the consumer fears of GMO (genetically modified organisms) labels.
Label Insights, Inc. estimates that there are 323 plant-based meat alternative products under development now. Lux Research has identified over 60 cell-based meat producers globally which have raised $314 million in 2020. In the past quarter a number of interesting announcements crossed the tape: Meat Tech 3D, an Israeli-based public company utilizing 3D printing platforms to cultivate cells from animals, indicated plans to start trading in the U.S. this year. Eat Just (formerly Hampton Creek Foods), based in San Francisco, received approval in Singapore to sell cultured meat products suitable for human consumption. BlueNalu has raised nearly $25 million to develop cell-based seafood products. Unfortunately, initial costs are between $900 – $4,500 per pound of cell-based meat on pilot production lines versus about $4 for ground beef.
Eggs are entirely different beast altogether. The U.S. Department of Agriculture estimate that Americans on average consume 293 eggs each year; Californians alone eat over one billion eggs each month. Eggs saw dramatic price swings over the course of the pandemic, increasing 3x this past spring in response, in part, to a spike in consumer demand – and this in the face of numerous other food products dropping in price with all of the restaurant closures. In the fall of 2019, the price of eggs dropped 18% due to glut of laying hens which was due to soybean trade tensions with China which led to large grain stocks much of which was to fed chickens, expanding flocks…crazy.
All of these dramatic egg price swings have naturally led to litigation. Various state attorneys general filed lawsuits, alleging price gouging and “excessive, unfair, illegal profits” during the pandemic. Egg producers (i.e., chickens) also were the source of litigation over the last few months. Pilgrim Pride, a large chicken producer, paid a $110 million fine for price fixing which then prompted Chick-fil-A to file a sweeping lawsuit against all chicken producers alleging that for years they have paid too much for its chicken. Given chickens live approximately eight months before slaughter, it is unlikely any of them will see the resolution of this legal action.
All of this activity has emboldened a number of companies to re-invent the egg industry. Eat Just, mentioned earlier, started as a plant-based egg protein producer, and now is estimated to be valued at $2.0 billion. Other egg producers are focused on improved agricultural processes. Vital Farms, which recently went public and trades at over $1.0 billion market valuation, has developed high-end gourmet eggs as does Cooks Venture, which recently raised a $10.0 million Series A round. Confronting all of these innovative egg producers is the industrial scale of the incumbents and that the industry has meaningfully lowered the cost of eggs over time, likely making initial egg substitutes not cost competitive. Case in point: over the last five years, Tyson Foods has invested $215 million in production automation and computer vision to just track their chickens, counting them only after they have hatched.
One other quite unexpected source of protein may well be the elements found in air. Air Protein, which just raised a $32.0 million Series A led by Archer Daniels Midland, is also developing consumable protein products without requiring arable land. Evidently, when combining certain basic elements (oxygen, nitrogen, etc) with a proprietary probiotic mix, Air Protein is able to make a meat-like material.
Over the last few months there has been a cavalcade of large company (Unilever, General Mills, Kellogg, Danone) announcements of exciting development programs for meat and dairy substitute products. According to Euromonitor, the global market for meat substitute products will grow 28% through 2023 to be $23.8 billion. Unilever is quite excited about the potential of a microalgae called “chlorella vulgaris” which is apparently rich in nutrients – and likely a marketing executive’s biggest headache.
There is even a plant-based only meal delivery company called Sprinly – with over 31k followers on Instagram so you know it is a thing.
It is estimated that 8% of the world’s population is vegetarian, while only 5% are in the U.S. Given the claims that consuming plant-based foods lowers risk of death by 30% or that it reduces risk of death by heart disease by 40%, and that there are plenty of plants available, analysts suggest simply increasing the number of vegetarians may have a more dramatic and immediate impact on the goal of moving away from animal-based proteins. Certainly worth considering, especially when an estimated 13.9 million American children now suffer with food insecurity given the pandemic, per U.S. Census Bureau data.
Interestingly, there will always be meat products that simply cannot be replaced, some of which also received some scrutiny recently. Most pork products are not offered by fast food restaurants other than for the popular McRib sandwich from McDonald’s. An analysis by Axios determined that the McRib is usually offered when pork prices are low – and yet it is now back after an eight year hiatus. In 2019, 200 million hogs were slaughtered in China due to African Swine Fever, leading to dramatic increases in pork prices that year. China is scrambling to re-stock its hog populations, now at 370 million, which may put significant upward pressure on the price of pork. Unless of course we can make some in a lab.
Data: FactSet, Axios research; Chart: Danielle Alberti/Axios