August 8, 2019

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By Matilda Ho of Bits x Bites

Sixty years ago, at the start of industrial farming, the idea that mainstream American consumers could choose burgers made out of peas and potatoes might have been more far-fetched than sending a man to the moon.

Fast forward to 2019 where Beyond Meat’s popular veggie burgers, oozing beetroot-based “blood”, are on backorder in the U.S^.1 The company has been expanding Asia Pacific (APAC) distributions throughout Singapore, South Korea, Taiwan, and Hong Kong.

And when Beyond Meat successfully completed its IPO this May and its value grew more than fivefold over the next month², more and more investors began to wake up to the value of emerging protein alternatives and the larger agrifood tech opportunities.

So what has been driving investor interest in meat alternative innovations? Is it just hype created by this IPO, or is there any fundamental basis to sustain this interest in the protein investment sector? And what opportunities does a massive market like China offer to protein startups and investors?

From our seat as a China-focused food tech VC, protein food tech investments are far from a passing fad. In fact, we have made four startup investments to help bring these innovations to the Chinese market. The reason is simple: As the world’s population grows and China’s middle class expands, the demand for more efficient, sustainable, and healthier protein is sure to accelerate. Plant-based consumer products like Beyond Meat are a mere sliver of this multilayered opportunity.

What follows is our perspective on the investing opportunity in livestock production and protein alternatives—the innovation category to reduce our reliance on animal agriculture. We also discuss the macro forces and unmet market needs that food tech disruptors are fighting to fill.

A Sector Ripe for Meat Alternatives

Meat consumption in China soared by 300 percent between 1990 and 2013.³ Since then the pace of growth has slowed. But with 20 percent of the world’s population, its meat demand remains massive in absolute terms.

Farming industrialization has improved access to meat. Yet it has simultaneously introduced environmental and health risks. The production gain from intensive farming has only partially satisfied the market. China is the main focus for meat exporters globally; its total meat imports are expected to reach over 6 million tons in 2020.⁴ But the U.S. – China trade war has made it clear that it is not sustainable to rely on imported food, feedstock, and meat. In 2018, the Chinese Feed Industry Association declared its goal to limit the use of crude protein in feed to reduce its dependence on soybean imports.⁵

While such import measures are helpful for food security, they cannot defend China against domestic issues such as the recent outbreak of African swine flu. While the viral disease doesn’t infect humans, it threatens the animal protein supply, which is central to national stability and economics. China’s Ministry of Agriculture and Rural Affairs is projecting a 70 percent increase in pork prices in the second half of 2019.⁶

These macro reasons lay the groundwork for animal protein investment opportunities — innovations that enable safer, more efficient, and sustainable ways to supply animal protein.

New Solutions for a New Supply Chain 

A vibrant flow of agtech startups are bringing new solutions to market to challenge how substitutions for animal meat will be produced. One small class of startups does so by adapting advances from the biomedical field.

In 2013, Dutch scientist Mark Post produced the first lab-grown burger at a cost of $325,000. This was the first clean meat produced by culturing animal cells without an animal.⁷

This event unveiled cellular agriculture to the world, and showed how this disruptive biotech solution could transform the ways animal protein is produced and harvested. Because the protein is produced in a sanitized bioreactor environment, it can provide a viable defense against growing epidemics fueled by intensive animal farming.

Cost is inevitably a hurdle to investors, and scientist-led startups are engineering the inputs and processes to make cellular agriculture cost-competitive.

Israeli startup Future Meat Technologies applies a distributed manufacturing platform to produce non-GMO meat products. Since its founding, the company has significantly brought down its costs. It does so by advancing a closed-loop system that allows for media recycling, and by using a distributed manufacturing model with smaller cost-efficient bioreactors.

Before lab-grown meat will appear on restaurant menus, other agritech innovations are taking shape to boost animal farming efficiency today.

Some startups are adapting automation, data sciences, and artificial intelligence to optimize animal farming management. These technologies also help address the shrinking rural labor force caused by aging and urbanization.

Feed startups are working to improve the feed-to-food conversion ratio, animal health, and sustainability. Companies are developing alternative feeds made by processing insects or by fermenting natural gas and bacteria.

A growing class of agritech startups are helping address future epidemics by developing disease detection and prevention measures. Beijing Compass Biotechnology is a company that helps breeders detect animals with desirable traits such as growth and disease resistance, using genes and markers to identify animals with the best breeding values.

Opportunities Lie in Creating Healthier Alternatives

Investments in animal protein today are largely driven to fill the missing links on the supply side. In animal-free protein—including plants, fungi, and algae—consumers hold the reins.

The general population is increasingly aware of the health impact of their food choices. Those in China have long enjoyed a wide range of plant-based food and beverage products, from soy-bean milk to Buddhist vegetarian alternative meat. The options are still expanding. In the past few years, the largest dairy and soda companies have all added at least one plant-based product line.

But upon closer examination, many plant foods and beverages are not necessarily healthier. Take a popular walnut protein beverage in China as an example: one 240 milliliter serving contains 8.5 grams of sugar—close to a third of the recommended daily sugar intake—and only 1.4 grams of protein, which is only one-sixth of the protein found in centuries-old soybean milk.

A large food tech opportunity is in upgrading the health value of animal-free protein offerings. Through new ingredient sourcing and processing, they can help hold healthy food and beverage products to higher standards on their nutritional value.

A small group of companies are applying machine learning, systems biology, genomics, and other technologies to unlock the nourishing powers of botanicals in the form of bioactive peptides and other health-benefiting natural compounds. These platforms will allow more under-explored nutritious plant sources to be incorporated into food, beverages, and supplements.

Synthetic biology startups are creating animal-free substitutes for existing products, from eggs to meat replacements. Impossible Burger is a plant-based company that has genetically engineered soy to produce leghemoglobin, its recipe to deliver the flavors that mimic meat. Biotech company Wild Earth is developing clean protein pet food by fermenting koji.

Other companies are advancing novel plant-based ingredients to diversify the palette for food and beverage companies. Israeli company InnovoPro is developing a neutral-tasting chickpea protein ingredient for this growing category.

IPO Brings Turning Point for Protein Food Tech

This year has been a bumper year for protein innovations. It has seen a wave of plant-based launches from multinational conglomerates, from Nestle to Tyson. Beyond Meat tops it off with what is possibly this year’s best performing IPO, hitting a market cap larger than many S&P 500 companies.⁸ And yes, we have yet to see whether this enthusiastic support from the public market can sustain. What is certain is that investors can no longer look away from the food tech opportunity that was under their radar until recently.

With more startups growing to scale, it is safe to say the protein space will grow increasingly diverse from here on. Chinese consumers are likely to see protein alternatives not just in burgers but in dumplings, meatballs, and sushi. And these proteins may be produced anywhere — from algae and mushroom farms, to fermentation tanks.

Our protein aisle will be anything but boring.

ABOUT THE AUTHOR

Matilda Ho is a serial entrepreneur and investor with a passion to create more sustainable food systems. She founded and manages Bits x Bites, a food tech VC investing in startups tackling food system challenges in China. In addition, Ho founded Yimishiji, one of China’s first online farmers markets, to bring organic and local produce to families.

With a mission to shape the future of good food, Bits x Bites has invested in companies advancing nanoscale contaminant detection, gene editing for high-performing crops, as well as a company advancing non-GMO meat production directly from animal cells without an actual animal. Learn more at www.bitsxbites.com.

SOURCES

¹ Weiner-Bronner, Danielle. “Impossible Made Fake Meat a Hot Commodity. Now it Could be a Victim of Its Own Success”. CNN Business. June 27, 2019. https://www.cnn.com/2019/06/27/business/impossible-burgers-beyond-meat/index.html

² Wu, Jasmine. “Beyond Meat’s Stock Surges to All-Time High”. CNBC. June 23, 2019. https://www.cnbc.com/2019/07/23/beyond-meats-stock-surges-to-new-all-time-high.html

³ Food and Agriculture Organization of the United Nations. http://www.fao.org/faostat/en/#data/FBS

⁴ Polansek, Thomas. “China Eyes U.S. Poultry, Pork Imports in Trade Talks: Sources”. Reuters. April 16, 2019. https://www.reuters.com/article/us-usa-trade-china-livestock/china-eyes-u-s-poultry-pork-imports-in-trade-talks-sources-idUSKCN1RS1PT

⁵ Daly, Tom and Gu, Hallie. “China Mulls Cutting Protein in Animal Feed as Soybean Supply Tightens”. Reuters. October 11, 2018. https://www.reuters.com/article/us-usa-trade-china-soybeans/china-mulls-cutting-protein-in-animal-feed-as-soybean-supply-tightens-idUSKCN1ML1CU

⁶ Gu, Hallie and Patton, Dominique.“China Pork Prices to Jump 70 PCT/Y/Y in Second Half 2019”. Reuters. April 16, 2019. https://www.reuters.com/article/china-pork-prices/china-pork-prices-to-jump-70-pct-y-y-in-second-half-2019-agmin-official-idUSB9N21905F

⁷ Fountain, Henry. “A Lab Grown Burger Gets a Taste Test”. The New York Times. August 5, 2013. https://www.nytimes.com/2013/08/06/science/a-lab-grown-burger-gets-a-taste-test.html

⁸ Gurdus, Lizzy. “Beyond Meat’s Market Cap is Bigger than 25% of the S&P 500 – and That’s ‘Beyond Ridiculous,’ says Investor”. CNBC. July 26, 2019. https://www.cnbc.com/2019/07/26/beyond-meats-13point4-billion-market-cap-is-beyond-ridiculous-investor.html