Are plant-based foods the new food revolution?

The food industry is poised for disruption. As with other disruptive trends, technology is a key driver of this potential change thanks to rapid developments in alternative proteins or plant-based foods. However, changing consumer preferences are also accelerating demand for alternative food options, thanks to growing concerns about the health consequences of eating too much meat, its impact on climate change and the environment, and the long-term sustainability of consuming meat.

These twin drivers suggest profound change for the food industry over the next decade is almost inevitable. And any areas of disruption naturally lead to investment opportunities. We explore the forces behind this new food revolution and investigate whether plant-based foods are finally becoming mainstream.

What’s the alternative?
Alternative protein products that imitate conventional meat are nothing new, but until recently have occupied a very niche space in both supermarkets and restaurants. Yet technological advances are improving the ability of plant-based foods to match animal protein in taste, texture and price, triggering a wave of growth and propelling this fairly nascent market into the mainstream.

Consumers can now obtain a similar experience to eating meat, eggs and diary through produce based on plants, animal cells, enzymes and other organisms. These products are often produced using clean, anti-biotic-free methods and can often have a reduced environment footprint over traditional animal rearing practices.

While grains and vegetables are the primary source of plant-based proteins, developments in biomedical engineering are exploring other sources such as cultured meat – where meat products are grown in laboratories from cells sourced from animal tissue; cultured or cellular fish, which can accelerate the time needed for fish to grow to an edible size and offers a very real solution to over-fishing; as well as developments in insect proteins and algae.

Flexitarianism – the new normal
The expansion and improvement of meat alternatives has coincided with a time when many consumers, especially among younger generations, are seeking to reduce the amount of animal protein in their diets. As of January 2021, from a world population of 7.9 billion, around 14% of people class themselves as either vegan or vegetarian1. While this number is relatively small, it is growing rapidly – for example the number of vegans in the US grew by 600% between 2017 and 20182. Widening the scope, there is a growing flexitarian movement where consumers are primarily vegetarian but occasionally eat meat or fish.

The rising demand for alternative foods has also driven up the number of products available, in 2018 the number of vegan products across Europe rose by 52% from the previous year3. Even McDonald’s now sells a McVegan burger suggesting the transition from niche to mainstream is well underway.

Conscious consumption
The trend of greater plant-based eating is being seen throughout the world, including emerging markets. So what has prompted this shift? Concerns over the treatment of animals has always been the traditional reason for not eating meat. But growing awareness of the substantial health benefits associated with a mostly plant-based diet, including reduced LDL cholesterol and reduced likelihood of coronary heart disease, has become a key factor. As has concern about the considerable environmental impact – or ‘hoofprint’ – of eating meat. Meat production contributes to climate change, pollution, deforestation, methane emissions (livestock accounts for 15% of greenhouse gas (GHG) emissions), and a loss of biodiversity4. The pandemic also highlighted the poor working conditions in slaughterhouses and meat processing plants, when the Covid-19 virus swept through such facilities, disrupting production and causing some meat shortages.

A change in diet to pulses, beans and lab-grown / vegan meat substitutes can help to reduce the global warming effect of GHGs and reshape an inefficient and harmful food system. Producers of burgers made from alternative proteins claim that the carbon footprint of their burgers is 90% smaller than that of a burger made from beef, uses 87% less water and 96% less land. Indeed, a flexitarian diet is perhaps one we all need to embrace. Scientists have warned that to keep global temperature rises under control, we need to eat less meat, consume less sugar, drink less milk, and eat more greens, nuts and seeds.

Transforming the food industry
Despite the recent expansion of the alternative protein industry, experts suggest there is further growth to come as conscious food consumption becomes more widespread. Boston Consulting Group forecast the industry will be seven times bigger by 20355 and would make up 11% of the overall protein market.

Such growth potential is expected to transform the global meat market, which is currently worth around USD 1 trillion, according to the United Nations and the World Bank. And change is urgently needed. It has been calculated that current levels of food will only feed half the world’s population by 2050. Initiatives to reduce carbon emissions and limit climate change are also expected to accelerate this trend with the introduction of new regulations to support farmers’ transition from animal agriculture to alternative proteins.

Disruptive new entrants
This shift in dietary habits will inevitably create opportunities throughout the food industry value chain. Incumbent food producers and processors are having to adapt their business models and food retailers are providing better access and visibility for these products. New entrants are also applying disruptive technologies, such as synthetic biology, big data, AI, machine learning and robotics, to spur on this transformation.

Examples of these new technologies include engineering microbes to produce animal proteins via synthetic biology, CRISPR technology (editing genes within organisms) to improve the taste of fruits and vegetables, and producing meat by cellular agriculture. Plant-based protein sources are also being developed, and plants can be metabolically engineered to produce specific nutrients.

Furthermore, technology is now available to refine and scale up these new and current initiatives which should ultimately unlock parity with traditional meat production – ie the taste, texture and price of alternative proteins will closely match those of animal proteins.

A sustainable investment opportunity
The risks for businesses of failing to act on diversity are not only financial but could also be reputational. In this social-media-savvy world, reports of companies with poor D&I policies can face significant backlash from consumers.

If the prospect of revenues from alternative protein being estimated to reach USD 290 billion by 20356 was not enough to attract the interest of the investment industry, the fact that the sector ticks so many ESG boxes in terms of its sustainability credentials provides another incentive for investor interest.

Currently, the plant-based food market is fragmented and comprised of many small businesses. However, these businesses are already attracting venture capital and could also present attractive acquisition targets for old-economy incumbents seeking to reposition themselves by incorporating meat substitute brands within their business models. According to US alternative protein research and lobby group the Good Food Institute, funding for alternative protein start-ups in 2020 totalled USD 3.1 billion, up from USD 1 billion the previous year7.

Encouragingly, the growth of the sector is not only making the food supply chain more sustainable, but it is also becoming more resilient to health and economic shocks, as these stocks are expected to have very low exposure to recession and cyclicality – attractive investment attributes against the economic backdrop of the Great Instability.

A solution to tackle a number of the world’s problems
Plant-based foods and alternative proteins offer a solution to a number of the world’s most pressing problems: how to feed a growing global population sustainably; how to drive down the carbon emissions produced by the food supply chain; how to tackle health concerns such as rising obesity; and how to address the ethical issues of factory farming and animal welfare. If this was not enough to establish the sector’s growth potential, the growth of conscious consumption and its ESG credentials underscore its position as an exciting investment option.

The transformation of the food industry will be disruptive, but disruption creates opportunities for those with an investigative mindset. At BNP Paribas Asset Management, our sustainable food strategy seeks to uncover those food-related companies providing concrete solutions to specific environment challenges. We believe such a strategy is well suited to socially and environmentally minded long-term investors looking to benefit from businesses developing solutions such as reducing pollution, tackling climate change or providing better quality food.

The above-mentioned company is for illustrative purpose only, is not intended as solicitation of the purchase of such securities, and does not constitute any investment advice or recommendation.


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