Are plant-based foods the new food revolution?
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.
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.
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.
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.
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.
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.
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.
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.
3Share of new vegan products launched, Statista 2020.
5Food for Thought: The Protein Transformation, 2021
6Food for Thought: The Protein Transformation, 2021