China’s sunrise mock meat industry whets investor appetite

Beyond Beef meatballs. Source: Beyond Meat

The burgeoning plant-based mock meat industry in China, which is increasingly attracting investor interest, is likely to nurture unicorns that could take on Beyond Meat and Impossible Foods over the next decade, said experts tracking the sector.

This is even as startups operating in the sector are still years away from commercialising their products at a consumer-friendly price, not to mention the absence of a regulatory framework for lab-grown meat in China.

“I think we’re going to see unicorns coming through in the next three to four years in China that will rival Beyond and Impossible in terms of [sales] volume and innovation,” said Andrew Ive, founder and managing general partner of food-tech investment firm Big Idea Ventures.

In a duration of five to 10 years, he said, there will be unicorns “beyond Beyond” in China.

His confidence in Chinese startups developing alternative meat products comes as the global meat substitute market, which was worth $18.8 billion in 2019, is expected to grow 21 per cent to $22.8 billion by 2024, according to Euromonitor International. Last year, the market in the Asia-Pacific region was valued at $15.3 billion, up 4.75 per cent from the year before.

China alone accounted for 53 per cent of the global market by value in 2019, compared to America’s 5.5 per cent, says the London-based market researcher. The figures include chilled, frozen and shelf meat substitutes from vegetarian burgers to tofu, soy and texturized vegetable protein.

“In the last six months, I’ve seen the Chinese government starting to take a good strong look at plant-based and cell-based protein as an innovation that could be really helpful to increase the availability of good-quality protein to Chinese consumers,” said Ive. “There will be a significant amount of investment and emphasis on the field moving forward.”

Sunrise sector

Demand for meat substitutes is witnessing significant growth in the backdrop of increasing ailments such as the African swine fever – which led to the mass slaughter of pigs – and the COVID-19 pandemic that is likely to have originated from the consumption of wild animals.

Statistics from Euromonitor International indicate that the coronavirus pandemic has accelerated the growth of the meat substitute market in the Asia Pacific region, which is estimated to expand 11.6 per cent to $17.1 billion in 2020.

Given the growth potential, investors are lining up funds to clock investments in the sector.

Consider this: Big Idea Ventures, backed by Singapore’s Temasek and meat-processing giant Tyson Foods’ venture capital arm Tyson Ventures, is in the process of raising a $50-million New Protein Fund to invest in companies that develop plant-based foods and ingredients, and cell-based meats. It has invested in startups such as China’s Zhen Meats, which develops plant-based local cuisines, and Phuture Foods, a Malaysia-based maker of plant-based pork alternatives.

Ive said the firm saw “a strong interest” from limited partners, or LPs, including family offices, funds and large-scale global food corporates in China’s meat alternative sector. Big Idea Ventures also secured investment from Bühler, a Swiss plant equipment manufacturer which, in Ive’s words, believes that China and the overall Asian market are among some of “the greatest areas of opportunity for plant-based [enterprises].”

Globally, more investors are moving towards the sector for wealth creation. The Good Food Institute (GFI), a US-based non-profit organization that promotes the development of plant-based alternatives and cultivated meat, reported a venture capital fundraising record of $930 million in global alternative protein companies in the first quarter of 2020, compared to the whole of 2019 when a combined $824 million was injected into the sector.

The United States, currently the bellwether of the world’s alternative protein market, has experienced a significant milestone over the past two years.

While Impossible Foods garnered a $500-million funding this March, Beyond Meat’s initial public offering (IPO) on the Nasdaq in May 2019 has also spruced up investor interest in the sector. The latter, headquartered in Los Angeles, saw its stock price skyrocket 163 per cent on the debut day of trading.

Source: The Good Food Institute (released in May 2020)

But the historic shift to alternative proteins is just getting started in China – the world’s largest market for meat consumption.

Domestic startup Starfield Food & Science Technology, which produces plant-based proteins, recently completed an angel round this March. Investors in the round included Beyond Meat’s early investor New Crop Capital (NCC), impact investment firm Dao Foods International, Matrix Partners China, and China’s Joy Capital, which backed the scandal-ridden Luckin Coffee.

Meanwhile, larger-scale local food companies, such as Hong Kong-listed Chinese meat and food processor WH Group, cheese-infused tea brand HeyTea, and Baicaowei, one of China’s biggest online snacks retailers owned by Pepsi, earlier this year introduced their debut plant-based products in an attempt to cash in on the opportunity.

Iconic international brands are also making a beeline to strengthen their presence in China. Beyond Meat recently started delivering products to Chinese supermarkets and grocers, after the publicly-listed company forayed into the country in April by supplying Starbucks’ plant-based menu. Within weeks, it started catering to select KFC, Taco Bell and Pizza Hut outlets – all under the Yum China, a Shanghai-based spin-off from Yum! Brands.

In May, food giant Nestle announced its plan to spend 100 million Swiss francs ($106 million) on expanding its manufacturing footprint in China to include a new plant-based food facility.

“One of the most exciting things we’ve seen is smaller companies in Asia are developing very culturally-relevant, local-style food products, which are much more closely aligned with consumers’ desires and consumption habits,” said Ive.

This “consumer-responsive” quality, he said, will leave nascent players an opportunity to compete with bigger domestic and foreign food enterprises in a market where meat is more aspirational for people than in the western world.

For the uninitiated, alternative protein covers not only plant-based food but also higher technology-enabled alternatives such as fermented proteins and cultivated meat products that are grown from cells being sourced from animal muscle and tissue in a laboratory.

Tech behind alternative protein

Expand Table

CategoryExamplesCore TechnologyRegulation in Greater China
Plant-BasedBeyond Meat, JUSTPlant material propertiesLargely fit into existing standards
Cellular Cultivation (Also known as cultured, lab-grown, or cell-based)Avant Meats, Memphis Meats Manufacturing of cells in entirety (multiple proteins);
Scaffolding (as in tissue engineering)
No legislation or standard as of now
Recombinant FermentationImpossible FoodsGenetically modified soy molecule;
Low-cost, large-scale manufacturing of individual protein
An additional "new ingredient" petition is required

Beyond Meat is more of a food company that uses its secret recipe-like intellectual property to imitate the taste and texture of animal meat with pea protein. Like most plant-based companies in China nowadays, its recipes comply with the country’s existing standards.

A primitive version of plant-based meat alternatives has been prevalent in China, especially in the country’s central and southern regions. The soy-based product, known as “suji” or “sujee,” is a braised Chinese vegan chicken meal made by pressing and bundling soft tofu sheets together, and then braising them in soy sauce or steaming in clear soup.

China’s soy-based vegan chicken meal “suji.” Source: The Woks of Life, a family food blog focused on Chinese recipes

“For the plant-based brands in China, I think they’re going to have much more pressure on their branding and marketing to prove that they’re different from what’s [already] available in the market,” said Chibo Tang, partner at Gobi Partners China. “But the whole idea of healthy eating and sustainability is picking up some traction as young people in China these days are more conscious about that.”

Tang is the head of Gobi’s Hong Kong office and manages the Alibaba Hong Kong Entrepreneurs Fund, a HK$1 billion ($140 million) sole limited partner fund backed by Chinese e-commerce giant Alibaba and managed by Gobi Partners. The venture capitalist is currently scouting for opportunities in the Chinese alternative meat industry.

“Alternative protein should be around science, nutrition … if there’s not as much science in it, you can’t ensure that there’s the same level of nutrition in all those plant-based proteins as regular meat products would have,” he added.

Impossible Foods, however, takes a different approach. The company relies on a genetically modified soy molecule called “heme” to give plant-based products a meaty flavour. This makes its products fall into the genetic engineering field that is required by the Chinese food regulator to file an additional “new ingredient” petition.

Impossible Foods showcased the Impossible Burger at the China International Import Exposition in Shanghai last November. But the company is yet to disclose a timeline for entry into the country.

And there is the third type of newer companies that develop cultivated meat, also known as cultured, lab-grown or cell-based meat. This is a science-fiction-like technology, whereby animal flesh or byproducts are produced inside bioreactors using cellular agriculture and tissue engineering instead of traditional animal livestock farming methods.

Unlike companies in the plant-based area, startups in the sector are navigating uncharted territory. They will have to wait for a few more years – if not longer – before their products can hit shelves. But before that happens, they have to solve one of the greatest challenges, which is to reduce the production cost to compete against the commodity price of real meat products.

“For the industry as a whole, we’re talking about a production cost [to] as low as $10 to $20 per kilogram for cultivated chicken, pork and beef in order to make a margin and to make the product competitive to meat grown in conventional ways,” said Carrie Chen, co-founder and CEO of cell-based seafood startup Avant Meats.

“That is a really big cost reduction from the level where we started… which could range from multiple hundreds of US dollars to a few thousand US dollars for one kilogram [of cultivated meat],” said Chen.

This is not easy, especially under the background that current players in the space are predominantly early-stage companies at seed or Series A round, such as cell-based seafood developer BlueNalu, Singapore-based TurtleTree Labs, and Biomilq. The largest participant Memphis Meats raised a $186-million Series B round this January, more than doubling global investment in the cultivated meat segment.

Avant Meats also closed its initial funding round led by Lever VC, with participation from UK-based alternative protein investor CPT Capital in May 2019.

To get into the market earlier at a price competitive to proteins grown conventionally, the Hong Kong-based startup set its sight on the luxury seafood field, developing cell-based products like fish maw and fish fillets, of which the commodity prices are particularly high.

“Avant is essentially guaranteed to have a lower price [entry] point than many competitors, while still having a more customizable and purer product,” said Nick Cooney, managing partner of Lever VC, during a webinar earlier this month.

The startup developed its first pilot prototype, a cultivated fish maw product, in October 2019 and is scheduled to launch a new product prototype of cell-based fish fillets towards the end of this year. It had shipped out a beta product to a potential corporate client. But the first batch of the company’s beta products will not be ready until 2021 after it realizes the pilot-scale production using a bioreactor of under 100 litres.

“A lot of companies including us, who have completed the major cost cut from a few thousand US dollars to a couple of hundreds of US dollars per kilogram, realized it by removing [replacing] fetal bovine serum. Like in any R&D, there is a plateau. Gradually, you will reach a point where there is the diminishing rate of outcomes to your cost reduction [efforts],” said Chen.

Fetal bovine serum (FBS), which once played a crucial role in culturing meat in vitro, is the blood of a cow foetus that is extracted from the womb of a dairy cow when she is being slaughtered. This unethical process is an undesired and the most expensive animal-based ingredient that takes up over 90 per cent of the production cost of cultivated meat products.

She continued: “[The cost reduction will not come very soon unless there is] … either a major scientific breakthrough, or the realisation of the economy of scale when a lot of demands from the consumer market will push forward bulk buying ingredients.”

At the same time, the difficulty in slashing production cost is not the only hurdle that Avant Meats and its domestic counterparts have to overcome. In their home market of Greater China, discussions around introducing a set of regulations and standards for the cultivated meat industry are still unfolding.

Currently, there is no legislation in China governing the marketing and selling of cultivated meat to consumers. Partially because of that, Avant Meats has positioned itself as a so-called “B2B2C” business, aiming to start by providing branded cultivated meat materials to food manufacturers, instead of directly offering products to individual consumers in the market.

The United States is one step ahead in terms of the regulatory framework. The Food and Drug Administration (FDA) and the United States Department of Agriculture (USDA) announced in March 2019 that they had established a framework for regulating cell-based meat and poultry. Under a formal agreement, the FDA will oversee cell collection, cell banks, and cell growth and differentiation, while the USDA will supervise food processing, labelling, and distribution.

“We expect the legislation to be in place in the next two to three years so we could make our products available in the market by around 2023,” said Chen, who plans to continue to target China’s higher-end cell-based seafood market.

“But of course, the caveat is that the food regulation needs to be there at least about a year before that… We have to go through the food licensing application, which could easily take six months, the minimal, to a year or longer.”

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.

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.