Investor interest in meat alternatives isn’t a COVID-19 flash-in-the-pan

Photo by James Sutton on Unsplash

Supply-chain disruptions caused by the COVID-19 viral outbreak may have spurred an increased interest in alternative proteins, such as plant-based meat alternatives and cultivated meats. But the industry’s bigger drivers, including concerns over climate change, human health and animal welfare, are longer-term.

Lim Jin Yin, chief operating officer at Phuture Foods, the Malaysia-based maker of a plant-based pork alternative, told DealStreetAsia, “the line between plants and meat has been blurred.”

“The shortage [of meat] that we are experiencing right now is just a chip off the block of the harsh reality that we will face in the long run if you continue at this rate of producing and consuming meat,” Phuture Foods’ Lim said. “The rising meat prices will also be a concern, but shortening the food supply process will not only quicken the process but also make food production more sustainable.”

Growing investor interest

Over the past decade, an estimated $2.3 billion in venture capital has been invested in US-based plant-based food companies – including plant-based dairy alternatives, according to a recent industry report from the Good Food Institute (GFI), a non-profit group that advocates for alternatives to conventional animal agriculture. Per the report, around $457 million was estimated to have been invested in 2019 alone.

The global meat industry is still huge – around $1.7 trillion annually, compared with around $2.2 billion for alternative protein, according to the Food and Agriculture Organization of the United Nations 2019 data. Nevertheless, being able to claim even a sliver of the meat industry’s revenue can bring a large return for investors in alternative proteins.

In the US, wholesale revenue from plant-based meat shipments from foodservice distributors to operators rose 37 percent in 2019 to $224 million, the GFI report said, citing data from market research company NPD Group/SupplyTrack. Flextarians and omnivores – or consumers who also order meat products – have been driving sales of plant-based burgers in restaurants, the report said.

The report cited data from investment bank Cowen as showing that after fast-food chain Burger King launched the Impossible Whopper, sales per customer including the plant-based burger were higher, generally $10 or more, compared with the average 2018 order size of $7.36. California-headquartered Impossible’s investors include Singapore’s Temasek Holdings, South Korea’s Mirae Asset Global Investments, as well as Hong Kong’s richest man Li Ka-shing (via Horizon Ventures).

Beyond Meat, the Los Angeles-based producer of plant-based meat substitutes, went public a year ago at a $1.5 billion valuation. Its shares, which were priced at $25, quickly surged to a high of $234.90. Investors may have lost some appetite for its shares, which fell to a low in March. But recent news of meat supply disruption in the US drove the Nasdaq-listed shares up to trade at over $120, or about 19 times its revenues, according to Bloomberg data.

Widening market

Phuture Foods’ product, which had a “soft launch” at two Singapore restaurants in April, is aimed at the Chinese market, particularly pork eaters, Lim said. The product is made from non-genetically modified soy, chickpea and pea and was created to have a very meat-like texture, he said.

While the company – based in Muslim-majority Malaysia — could face some headwinds after some Islamic religious authorities determined plant-based and cell-based pork were not halal, Phuture Foods may be able to tap into another market: Ethnic Chinese who are “episodic” vegetarians, such as during the Hungry Ghost Month.

Lim said Phuture Foods was in the middle of scaling up production, pointing to interest from chefs as more customers request meatless options. The company has raised seed rounds from investors including Big Idea Ventures and Brinc, according to data from Crunchbase. Lim added that the company was planning to raise further funds in the second half of this year, with investors “generally still quite interested,” and conversations with “quite a few investors” are ongoing.

Older producers of plant-based proteins targeting vegetarians are also eyeing the flextarian market.

Growthwell, which has been selling its seafood alternatives in Southeast Asia since 1989, is targeting consumers who are not fussy about whether the source of their protein was meat or plant-based, Justin Chou, CEO of the company, told DealStreetAsia.

“In the past, we noticed that the early adopters of plant-based diet or a meat alternative were the vegetarians,” Chou said. “But in the past three to five years, there’s this growing group of flexitarians. And they don’t label themselves as vegans or they don’t label themselves as carnivore, but they genuinely prefer a more plant-based alternative to their day-to-day diet. That is where we have seen this shift in consumer behaviour that is driving the whole plant-based movement in Asia and the rest of the world.”

Chou said the company was shifting its focus from a business-to-business sales approach targeting restaurants, toward retail offerings, including a mock-seafood collection of shrimp, squid and crab patties using chickpea protein. He added that Growthwell is improving the nutritional value of its offerings and finding more novel proteins from other legumes.

In April, Growthwell raised $8 million in a funding round led by Singapore state-owned investment company Temasek. Other investors in the round included DSG Consumer Partners, Insignia Ventures, Genesis Ventures, Brandify, and Singapore investor Koh Boon Hwee.

Chou said Temasek’s decision to invest in the company came in mid-2019, before the COVID outbreak, amid concerns over food security and safety. He could not comment on future fundraising plans.

Cultured food

Concerns over food safety, climate change and potential supply-chain disruptions have also spurred investments into “cultured,” or cell-based meats. These are meat products grown from animal cells in a nutrient medium, rather than raising the full animal. No cultured meat products have been commercialised yet.

Alex Capri, trade scholar, government advisor and visiting senior fellow at the National University of Singapore Business School, told DealStreetAsia that traditional supply chains for meat have “huge carbon footprints and are highly destructive.”

Producing the meat in a lab, in the geographic area where it will be consumed, has a “substantial” positive impact on climate change. “You’re eliminating that whole destructive supply chain,” Capri said. “The other thing is, lab-grown meat is much cleaner and has far less bacteria and germs.”

In a separate recent industry report, GFI said cultivated beef reduces land use by more than 95 percent and climate change emissions more as much as 87 percent, compared with conventional beef. Cultivated meats also don’t require antibiotics, reducing threats from antibiotic resistance, the report said.

GFI said cultivated meat companies raised more than $75 million in 2019, more than the three previous years combined, with governments also stepping up support.

For example, the EU’s European Commission has given Dutch startup Meatable $3 million to develop cultivated pork. Belgium has built a consortium to create cultivated foie gras, with a 3.6 million euro grant. Foie gras, made from goose or duck liver, has long been targeted over animal cruelty concerns as the animals must be force-fed large amounts of food.

Michael Dean, a founding partner at agritech and food tech investor Agfunder, which has an alternative protein fund, said there’s “no way” people would stop eating animal protein.

“But the form that protein comes in and the way in which it’s managed and processed is something that is going to be a key focus for, I think, investors and consumers over the coming decade,” Dean said. “People really want to understand how their food is prepared, that it’s done humanely.”

Agfunder’s alternative protein fund is expected to raise $20 million, and close in the next few months, Dean added.

One of Agfunder’s investments is in Future Fields, which is developing a lower-cost nutrient medium for growing cell-based meats, Dean said. The cost of the growth medium has been a major hurdle in bringing cultivated meats to market at a consumer-friendly price.

Dean pointed to Singapore-based Shiok Meats, which is developing a cultivated shrimp protein, among other crustacean products, as having a “good strategy” of producing smaller amounts and smaller pieces. Shiok’s promotional materials point to using their product in traditional Asian dishes, such as dumplings.

In Singapore and Malaysia, the word “shiok” is slang both for delicious food and for saying something is enjoyable.

Sandhya Sriram, founder and CEO at Shiok Meats, said the company picked crustaceans as its product because no one else was working on it.

“Looking at the Asia Pacific market, the most consumed protein in this part of the world is seafood. And among seafood, it’s crustaceans in every form, shape and size. So it’s a big market share, a big business for us to disrupt,” Sriram told DealStreetAsia recently. “At the same time, it is one of the most disgusting businesses as well in terms of animal cruelty as well as environmental impact [and] health impact due to overuse of antibiotics.”

Sriram said Shiok expects to have a product in the market by the end of next year, with the company targeting meat-eaters, though vegetarians have also been expressing interest.

Shiok has raised $4.8 million from three seed rounds, with Y Combinator the lead investor, according to data from Crunchbase.

The company is working on a series A round, aiming for $15 million, Sriram said. She added interest has been from two types of investors: Those interested, but unwilling to deploy new capital to new companies, and those who are “extremely aggressive” and want to deploy a lot of capital. The latter is looking at healthcare and sustainable solutions, she said.

Building a resilient food supply

Sriram, who is a vegetarian, also pointed to an ongoing virus outbreak at some shrimp farms in China’s Guangdong province.

The virus has infected around a quarter of the region’s shrimp farms and quickly results in the shellfish’s deaths, according to an April report in the South China Morning Post. The report noted the virus hasn’t been shown to infect humans nor that it can be spread to other shrimp farms by people.

But in the wake of the spread of the COVID-19 viral outbreak, believed to have begun in a Wuhan wildlife market, livestock viruses are becoming a larger concern.

Indeed, African swine fever has swept across the globe over the past year. The contagious viral disease has led to the culling of millions of pigs – nearly 7 million pigs this year alone, according to FAO data. The Asian Development Bank has estimated the direct costs of African swine fever, which as a fatality rate of as high as 95 percent and no effective vaccine, at as much as $130 billion in Asia over the past year, including lost revenue.

Didier Toubia, co-founder and CEO of Israel-based Aleph Farms, told DealStreetAsia that cultivated meat was likely becoming a necessity in order to ensure resilient food supply.

“We need to reduce on one hand the need for transportation and the reliance on global trade and second, we need to disconnect the meat production from contact with humans,” to limit potential contamination,” Toubia said.

Aleph Farms, also targeting consumers in Asia, is developing a whole muscle meat product, rather than the mince produced by other cell-based-meat companies. Toubia said Aleph Farms expected to have a pilot production facility next year, with a limited market launch by the beginning of 2023. The first product is expected to be a thin-cut beef steak, similar to the shabu-shabu cut commonly found in Asia’s hotpot dishes.

Last year, the company raised $12 million in a Series A round led by Singapore-based venture fund VisVires New Protein. Cargill, M-Industry (the industrial group of Swiss retailer Migros), Strauss Group, Peregrine Ventures, CPT Capital, Jays Third Eight and New Crop Capital also participated in the round. Toubia said Aleph Farms isn’t actively fund-raising at the moment.

Still, while meat supply-chain disruptions – such as packing-plant shutdowns and farmers forced to cull their animals in the US – have made global headlines, some industry watchers have noted this hasn’t yet caused real shortages.

Earlier this month, Arun Sundaram, an equities analyst at CFRA Research, downgraded shares of Beyond Meat to a ‘Sell’, saying any meat-shortage would likely be short-lived, as plants were reopening with federal government help, production was shifting to retail from food service, and cold-storage reserves were at near-record levels.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.