Plant-based production is not the only advancing technology; cellular cultivation is advancing rapidly. A lab-grown meat restaurant, “The Chicken,” opened in Israel in November 2020, allowing the firm SuperMeat to serve diners free meals from their next-door production facility in return for feedback on their products.21 Also in November 2020, Singapore approved cultivated chicken by Eat Just, a San Francisco-based startup, for commercial sale.22 Singapore’s science-forward regulatory approval process is frequently regarded as a leading indicator for broader approvals by other countries. This milestone may have large ripple effects across countries in APAC, as well as others that are currently constructing regulatory frameworks for cultivated products. Cultivated products promise substantial disruption to the conventional protein industry, particularly as production costs decline.
Another rapidly advancing technology is fermentation. The costs of biomass fermentation and precision fermentation are dropping as their use-cases are growing. As the technologies scale, cultivated proteins and protein via fermentation could be substantially less expensive than conventional proteins between 2030 and 2035.23 Fermentation-based alternative protein companies raised US$274m in 2019 and US$435m in just the first seven months of 2020.24 We expect that the velocity of investment, technology advancement and cost reduction will continue for fermentation-based ingredient and finished goods manufacturing technologies.
Alternative proteins: challenges and opportunities
The alternative protein industry is dynamic. Advancing technologies, decreasing cost curves, changing regulations and increasing consumer adoption will lead to substantial gains in market share for alternative protein over the coming decade. The implications to conventional protein production could be significant.
Conventional protein production is fundamental to today’s food system. A reduction in animal protein demand would reduce demand for feed crops like corn and soybeans, altering the economics of production. In 2019, 5.5 billion bushels of corn were used as feed and 1.2 billion bushels of corn were used as dried distiller’s grains, which was approximately 48% of total corn production in the US.25 Over a long horizon, demand for animal feed will likely stagnate and corn prices may continue to fall in real terms, putting producers under increasing pressure to diversify production.
Additionally, as particular “cuts” of alternative protein grow at different rates, the economics of conventional protein production become more difficult to manage. For example, as alternative “ground beef” increases its market share, other conventional beef products, such as steaks or roasts, may need to generate increasing margins, making carcass balancing increasingly difficult for producers and processors.
The increasing market share of alternative proteins also pressures numerous other products derived from conventional animal production, such as leathers, cosmetics, pet foods and fertilizers.26 Non-meat animal products comprise between 25% and 37% of an animal by weight depending on the species.27 Additionally, upstream input providers, such as machinery, animal nutrition and feed manufacturers, will feel the effects of changing animal economics.
Alternative proteins can also create opportunities for the food and agriculture system to meet environmental and social needs in new ways. A transition to alternative proteins would decrease agriculture’s environmental footprint, particularly its greenhouse gas (GHG) footprint. Total livestock emissions are estimated at 7.1 gigatonnes of CO2-equivelant per year, approximately 14.5% of all anthropogenic GHG emissions, of which beef cattle comprise 65%. Shifts toward plant-based and cultivated proteins will shift crop patterns, require less land due to higher conversion ratios than conventional proteins and reduce the environmental impact of conventional protein production.
Plant-based, fermentation and cell-based products will also improve food traceability and transparency, making food chains more robust to disruption. Food manufacturers can change production more rapidly than conventional protein producers to meet rapid shifts in consumer demand or changes in channel preferences, such as the disruptions caused by the COVID-19 pandemic.
Conventional producers can begin considering a more diversified portfolio. Conventional animal production is not disappearing, but new and potentially more profitable opportunities are emerging. A consumer-led shift to alternative proteins may create opportunities for growers to diversify their production. The food and agriculture ecosystems are deeply interconnected, and many producers, processors and manufacturers are assessing their roles in a reimagined food system and their opportunities to innovate and add value to their customers and to end consumers.
Ernst & Young LLP is closely monitoring several key market signals and technologies that illustrate that the alternative protein market is advancing rapidly and its disruption potential is growing. Recent disruptive market signals include:
- Major supply chains releasing and scaling alternative protein products
- Cultivated protein startups acquiring other cultivated protein startups for key technologies
- Regulatory approvals on novel ingredients, production processes and products, such as the approved sale of cultivated products in Singapore in November 2020
- Cost reductions in cultivated production inputs such as scaffolding and growth media
- Plant genetics startups focusing on ultra-high protein crops for use in plant-based consumer foods
- Governments becoming increasingly invested in alternative protein research and funding, most recently in biomass and precision fermentation technologies
Startups, crop growers, conventional protein producers, grain processors and retailers all can profitably capitalize on emerging, consumer-driven alternative protein trends.
All food value chain players can consider their product strategy and participation in alternative proteins markets. The velocity of cost reduction and quality improvements are increasing rapidly along with consumer awareness and adoption. Industry stakeholders may need to understand the future consumer and invest now to reap future rewards as the protein system reconfigures. Firms that participate boldly will likely cement themselves as leaders in this high-growth market and may generate enormous returns as consumer adoption and technologies advance.