February 25, 2020
BIL Switzerland Research | Februrary 2020
In this article, we focus on the rise of artificial meat. We anticipate that technological developments are likely to create huge disruptions in the meat industry over the next decade, simultaneously creating a conducive context for artificial meat companies.
- We argue that the world will change its food consumption habits, primarily due to economic and trade concerns. The technological developments will facilitate the rise of the artificial meat thanks to its economic advantages. Moreover, this will have significant environmental benefits.
- We find that artificial meat is a long-term theme that is here to stay (rather than short-term hype). One important testimony to its long-term nature is the current actions taken by some important companies in the fields of plant-based meat and cell-based meat production. Not only is there a plethora of start-ups active in these fields, even the traditional multinationals like Nestlé are embracing artificial meat.
- Taking a long-term perspective, we expect that in the future, humanity will transform traditional cattle production, taking a new direction in terms of meat production. This realignment will create a suitable context for plant-based meat and cell-based meat, founded upon economic and environmental reasons.
- Artificial meat and the prospect of a meatless food industry is a serious challenge to the global meat industry. Moving forward, the future will be one where protein provision will be less dominated by conventional meat sources. Technology-driven cost advantages will help artificial meat players, while transforming traditional meat production. Perhaps, the term “transformation” rather than the often-used term “disruption” should be used to describe this innovation and change. Farmers all around the world are lauded for their skill in adapting production processes to the the ever-changing reality.
The topic of artificial meat has been receiving rightful attention in recent years. This research report underlines the main drivers behind this important development. While on the surface, this focus seems to be driven by ecological and social concerns, we believe that it is rather economic factors that will be the long-term driver for artificial meat. We have no intention of dismissing the important role that the environmentalist movement has played. The meat/ protein industry has long been criticized for being cruel and too industrial since the 1960s, however this criticism has not yet catalyzed any meaningful changes. We argue that the world will now need to change its food consumption habits primarily due to economic and trade concerns.
In order to have a balanced view in the report, we will cover both socio-political and economic aspects. However, we argue that it will rather be the economic factors facilitated by scientific advancements that will bring about the major transformation. Our conviction is not purely conjectural nor futuristic, however it is supported by the current observations with more corporates taking concrete decisions now to be more active in the domain of artificial meat. Below, we share some examples of these corporate actions.
We first cover the technological developments that could bring about a new paradigm. Secondly, we focus on the drivers of this transformation. Thirdly, we present some examples from the corporate world. Last but not least, we make some future projections concerning the long-term impacts of this transformation on the food supply chain.
B. What is different now? Technological developments and the New Paradigm
In the biological sense, food is simply packages of nutrients, such as proteins, fats, carbohydrates, vitamins and minerals. Needless to say, proteins are the building blocks of life and of every food item. We have produced macro-organisms such as plants and animals to obtain these packages in a top-down manner ever since the first domestication of plants and animals some ten thousand years ago (Appendix I). This production process is resource-intensive and time-consuming. This is about to change. The new revolution would be a bottom-up one which involves manipulating and exploiting micro-organisms to directly produce efficient units of nutrients. This bottom-up process draws its efficiency from many different scientific procedures ranging from synthetic biology to chemical synthesis, from precision biology to precision agriculture, from fermentation to systems-biology. From a cost perspective, the bottom-up process, boosted by science and technology, will create a competitive advantage over the top-down one. Acknowledging that the technicalities of this are vast, we would like to provide descriptions for the two concepts which are relevant for our paper:
Concept 1: Cell-based meat (Appendix II) – Often referred to as clean meat or cultured meat, cell-based meat is genuine animal meat that can replicate the sensory and nutritional profile of conventionally produced meat because it’s comprised of the same cell types and arranged in the same three-dimensional structure as animal tissue. It isn’t imitation or synthetic meat; it’s actual meat that is grown from cells outside of an animal in a lab context. The production process is more rapid and more efficient than traditional meat farming (macro-organisms).
Concept 2: Plant-based meat (Appendix III) is made entirely from plant ingredients but is produced in such a way that it resembles traditional, animal-derived meat products such as burgers, steaks, hot dogs or jerky. In their production, ingredients such as soya, wheat, yellow pea and coconut are formed into meat-like alternatives. Technological advances allow for meat-like flavour profiles, textures and appearances.
C. Transformation Drivers: Why does the current protein production system need to transform itself?
Driver 1: Economics is the real driving force behind artificial meat
- Resource Efficiency and Technological Development
Currently, the cattle industry is very resource intensive with enormous quantities of feed crops, land, water and time dedicated to the production of animal based products. The application of technology and scientific methods will transform this expensive top-down approach into a low cost bottom-up one (Appendix IV): “Modern foods will be about 10 times more efficient than a cow at converting feed into end products because a cow needs energy via feed to maintain and build its body over time. Less feed consumed means less land required to grow it, which means less water is used and less waste is produced. The savings in the context of cell-based production are dramatic-more than 10-25 times less feedstock, 10 times less water, five times less energy and 100 times less land.”
- The potential hike in Ecotax
The world is coming to terms with the environmental issues that humanity has created. Examples of environmental damage include deforestation, greenhouse gases, climate change, destruction of wildlife etc. With the rise of the green agenda in politics, politicians are likely to look for ways to discourage harmful activities. While it is too early to predict the concrete actions they are likely to take, we can only speculate on possible measures. One such measure could be the possible future imposition of carbon tax also on cattle production, thereby further increasing the cost of traditional meat production. In its current semblance, carbon tax is a form of pollution tax. It levies a fee on the production, distribution or use of fossil fuels based on how much carbon their combustion emits. Although not widely-known by the general public, cows and similar cattle are also significant sources of greenhouse gas emissions (methane). Just as the transportation vehicles face the risk of more carbon tax due to its carbon emissions, cattle production, as a major greenhouse offender, might face a similar risk.
- Over-pricing and Money-Grabbing American Meat Industry
Over the past decades, consumer interests have been hurt by the all-powerful meat lobby, particularly in North America. Meat prices in the US have been increasing significantly since the 1990s. As one can see from the graph in Appendix V, beef prices increased from 2.59 USD to 5.75 USD (more than two-fold), although GDP per capita at constant prices only increased by 52.48% (Appendix VI). Put differently, the meat industry was able to drive up the price of the meat more than average economic growth during the last decades. At current prices, revenues of the US beef and dairy industry and their suppliers, together exceed $400bn (Appendix VII). The size of the industry means that it has huge lobbying power and political clout in Washington. This has meant that relevant legislation coming out of Capitol Hill is more likely to reflect the interests of the industry than of the consumer and the current supply/demand dynamics have negative consequences for the economic well-being of the average consumer. This point is particularly relevant for the US. It is said that the European agricultural sector is more socially-responsible than its American counterpart.
- Production Cycle: Trade Dependence on foreign countries
Global trade is highly interconnected. While trade across many categories has intensified, the commerce of agricultural goods has been among the key trade priorities particularly of the US administration. During the course of the past decades, several agricultural trade paths emerged. That between the US and China is one of the most important. This strong trade link benefitted both sides, however, Trump’s recent trade war created an environment where mutual trust has deteriorated. Both sides are likely to seek more independent and more local food production processes in that neither is at the mercy of the other in this very strategic segment.
- Health consequences and the increasing cost of heart diseases
The high levels of saturated fat in red meat have long been known to contribute to heart disease, the leading cause of death in the United States. A study by the National Institute of Health (Appendix VIII) found that those eating a diet rich in red meat, had triple the levels of a chemical linked to heart disease, than those with diets rich in white meat or plant-based protein. There is no question that heart diseases represents a huge burden for health care systems in many countries. In fact, heart diseases alone cost the United States about $219 billion per year from 2014 to 2015. This includes the cost of health care services, medicines, and lost productivity due to death (Appendix IX). As governments need to tackle increasing healthcare costs, they are likely to focus on the root causes. In this sense, they might consider discouraging traditional red meat production and consumption.
Driver 2: Social and Ecological Concerns
The rise of Millennials and post-Millennials (Appendix X) will bring about a change in value systems with environmentalist ideas having an important socio-political place. Younger generations seem to pay less attention to traditional politics of the left and the right, and instead emphasize ideas that link individuals with nature at large. This trend is perhaps best seen in 16-year-old climate activist Greta Thunberg whose 2019 UN speech sent some clear messages to world leaders. Greta Thunberg is a post-millennial who grew up in the age of the internet and who has been well-informed about global problems. Without making any judgement about her political line, her actions prove the fact that an ecologically-conscious mindset is here to remain, especially among the youth. One line of her argument, which garnered broad support, is the call that politicians should listen to the consensus of the scientific community on climate change. She emphasizes that we all need to do more than what the Paris Agreement asks in order to curb global warming. As briefly mentioned above, there is a clear need to decrease the level of greenhouse emissions. The action plan to achieve this requires that we also put limits on cattle production. On average, a cow releases between 70 and 120kg of Methane per year. Methane is a greenhouse gas like carbon dioxide (CO2), but its negative effect on the climate is 23 times higher than that of CO2. Therefore, the release of about 100 kg of Methane per year for each cow is equivalent to about 2,300 kg of CO2 per year. According to the Food and Agriculture Organization of the United Nations (FAO), agriculture is responsible for 18% of total greenhouse gas emissions worldwide (this is more than the whole transportation sector). Cattle-breeding is noted as a major contributor. Taking a long-term perspective, we could expect some form of taxation (similar to carbon tax) to be imposed on cattle production because of the large quantities of methane it produces. While it now seems like a remote possibility, it is one of the cards that the governments could play to tackle the serious environmental issue. It is also reasonable to expect that in the future, humanity transforms traditional cattle production, taking a new direction. This realignment will create a suitable context for plant-based meat and cell-based meat based on economic and environmental reasons. Alternatively, the young population might decide to change their whole diet as in the case of vegetarianism and veganism. This has partly materialized in developed markets like the UK where veganism has become a method of self-expression in the young generation to help the environment. A BBC report and survey (please see below exhibit), on the rise of veganism in the UK, has revealed some important facts (Appendix XI):
- 49% of those interested in cutting down meat consumption said they would do so for health reasons. Weight management, animal welfare and environmental concerns were also big motivators. In the case of non-meat eaters, “animal welfare” is the main driver.
- Young women are driving the vegan movement. There are twice as many women than men who are vegan.
- Influencer’s Impact: Endorsement by well-known public figures has promoted vegetarian and vegan lifestyles. In 2010, former President Bill Clinton started talking openly about his decision to go (mostly) vegan as a way to manage his health. Soon, the plant-based diet was luring celebrities like Jay-Z and Beyoncé, who pledged in 2013 to give being vegan a try. Bill Gates invested in Beyond Meat and publicly supported the company. Suddenly, veganism wasn’t a fringe category dominated only by activists. This has helped the growth of veganism and vegetarianism.
Exhibit 1: Explaining Veganism’s Rise
A similar phenomenon also exists in Germany according to Mintel Research (Appendix XII). While the vegan segment is a hot market worldwide, it seems that Germany is the leading country for vegan product innovation globally. According to Mintel’s Global New Products Database (GNPD), Germany was the leading market for vegan food and drink product launch activity in 2016, accounting for 18% of all global food and drink product launches with vegan claims. The only country coming close to this was the United States, where 17% of all new global vegan food and drink products were launched, followed by the UK with 11% of the global share. Mintel research reveals that vegan-friendly launches have soared over the past few years in Germany, with the share of food and drink products featuring vegan claims in total food and drink launches rising from 1% in 2012 to 13% of all launches in 2016.
The image of vegans has undergone a significant shift in recent years. The decline in meat substitute product launches could be a sign that the current offering does not fulfill consumer expectations. The trend towards naturally-produced food plays a dominant role in the choices of German consumers, who prioritize the health benefits of unprocessed products. Germans have been shown to mistrust the content of the food and drink products they buy, opting for natural products. German consumers are increasingly skeptical about the ingredients in meat substitutes, creating the need for natural formulations with less ingredients. With long ingredient lists and food additives becoming a topic of growing concern and a possible threat to future sales growth, meat substitute brands should begin making their products more natural. This is another example of changing habits and the solidity of environmental-friendly dietary changes in the developed societies. While the term “veganism” is frequently discussed in the public sphere and in our paper, other related concepts are of equal importance. For example, a semi-vegetarian diet, also called a flexitarian diet, is one that is centered around plant foods and with the occasional inclusion of meat. The combined effect of veganism, vegetarianism and flexitarianism will be less red meat consumption in the long-run – at least in the developed world.
Exhibit 2: 2016 Vegan Food Launches By Country
D. Is artificial meat just hype or is it here to stay?
Sceptics argue that artificial meat is a fad that is likely to persist for a few years before falling by the wayside. We argue that artificial meat is a long-term theme and it is here to stay. One important testimony to this is the current actions being taken by some important companies in the domains of plant-based meat and cell-based meat. In this context, we would like to selectively mention the following events which have taken place in the past years:
- In 2019, one of the world’s biggest alternative protein brands, Beyond Meat, the manufacturer of the plant-based Beyond Burger, went public at a valuation of almost $1.5 billion.
- Also in 2019, Burger King released the Impossible Whopper — a meatless variant of its most well-known product. The Impossible Whopper replaces beef with plant-based meat manufactured by Impossible Foods, a company that has raised more than $700 million in disclosed equity funding. The company was given a valuation of $2 billion at its last funding round in 2019 (Appendix XIII).
- McDonald’s menus in Canada now include the P.L.T (Plant/ Lettuce/ Tomato) hamburger. The product is made with a juicy, plant-based patty made with Beyond Meat and served on a sesame seed bun with tomato, lettuce, pickles, onions, mayo-style sauce, ketchup, mustard and a slice of processed cheddar cheese. The initial sales results are encouraging.
- Recently, coffee chain Starbucks confirmed that a plant-based breakfast is scheduled to debut in early 2020 in the United States and Canada (Appendix XIV). Their action follows similar actions by its competitor Dunkin’ which partnered with Beyond Meat last year to launch Beyond Sausage Sandwich.
- Kellogg’s MorningStar Farms is launching a new line of plant-based meat called Incogmeato. The new products include the company’s first ready-to-cook plant-based burger as well as plant-based Chik’n tenders and nuggets. The products, which use non-GMO soy, will hit grocery stores in early 2020. The 4-ounce plant-based patties will be sold in the refrigerated meat case, while the Chik’n tenders and nuggets will be sold frozen (Appendix XV).
- Following its “Incredible Burger” launch in 2019, Nestlé’s interest in meat substitutes from plants also continued in 2020. In January 2020, the company announced that it has teamed up with small Canadian plant-based food ingredient makers Burcon NutraScience Corp. and Merit Functional Foods. This is a long-term agreement whereby Nestlé will buy pea and canola proteins from a 20,000-tonne-a-year Merit plant to be built by the end of this year in Winnipeg, Canada. Merit will also process the proteins using Burcon technology under a licensing agreement (Appendix XVI).
The vibrancy of the start-up activities and corporate business investments into artificial meat clearly show that this is not a short-term transitory fad. When deciding on new product developments, a multinational company like Nestlé performs rigorous due diligence work where their experts evaluate long-term feasibility and profitability of such launches. The fact that Nestlé opted for several launches demonstrates their conviction in the concept of artificial meat and its long-term potential.
Not only is the number of companies focusing on the segment substantial, but also the range of products available is also impressive. Table 1 below shows the different artificial meat types and also highlights their advantages and inconveniences. Moreover, Table 2 displays the the Nutritional Profiles of 4 oz-plant-based burgers. Compared to beef burgers, all the other plant based burgers have equal or higher protein amounts whilst having lower levels of fat. Based on this observation, we can safely argue that the nutritional quality of plant-based burgers is superior to that of the traditional beef burger. This substantiates the claims of the plant-based meat producers.
E. Future in projections and conclusions
In the paragraphs above, we established that artificial meat is a long-term theme that is here to stay. The meat industry is on the eve of major transformation and there will be huge consequences. Based on the above premises, we expect the following shifts and changes to take place in the food segment during the course of the next decade:
- Artificial Meat and the prospect of a meatless food industry will be a serious challenge to the global meat industry. The future will be one where protein provision will not be dominated by conventional meat sources. Realistically speaking, this transformation will be piecemeal: Farmers all around the world are lauded for their skill in adapting their production processes to new realities.
- Despite its political clout particularly in the US, the traditional industrial meat industry faces a rising tide of challenges related to business, ethical, and environmental concerns.
- Meanwhile, startups using technology to engineer meat in labs or manufacture it from plant-based products are gaining popularity. This is likely to continue. Judging from new company starts and patent applications, we expect more start-ups to enter the market between 2020 and 2025.
- In terms of timing, one could anticipate observable changes in the food production industry as of 2023. By this time, the production processes and new patents will start to be operational, following the initial test period and quality control checks.
- According to the RethinkX (Appendix XVII) and its predictions, there will be a major disruption to the cow industry. “Production volumes of the US beef and dairy industries and their suppliers will decline more than 50% by 2030. Moreover, crop farming volumes such as soy, corn and alfalfa will fall by more than 50%. The current industrialized, animal agriculture system will be transformed by an efficient model where foods are engineered by scientists at a molecular level. This scientific revolution will have positive results for humans and nature. Modern foods will be cheaper and superior to animal-derived foods. Environmental benefits will be profound, with net greenhouse gas emissions from the cow sector falling by 45% by 2030.” We expect ever-closer cooperation between farming industry and scientific community on this front.
- During the second half of this decade, we are likely to see the emergence of more artificial meat companies (similar to Beyond Meat), whilst observing a transformation of the traditional meat industry.
Table 1: Veggie Burgers and Artificial Meat: Advantages and Inconveniences (Appendix XVIII)
Table 2: Side-by-Side Look at the Nutritional Profiles of 4 oz-plant-based burgers compared to a beef burger (Appendix XIX)
I. Disruption, Implications and Choices, A RethinkX Sector Disruption Report
II. State of the Industry Report Cell-Based Meat https://www.gfi.org/non-cms-pages/splash-sites/soi-reports/files/SOI-Report-Cell-Based.pdf
III. Disruption, Implications and Choices, A RethinkX Sector Disruption Report
IV. Disruption, Implications and Choices, A RethinkX Sector Disruption Report
V. https://data.bls.gov/pdq/SurveyOutputServlet and Data Grap
VI. Bloomberg based World Bank GDP per Capital at Constant 2005 prices WBGDPUS Equity
VII. Disruption, Implications and Choices, A RethinkX Sector Disruption Report
X. Table 1:Generational Cohorts according to the Pew Research Center taken from BIL Research Report “Uberization of the kitchen: online ordering instead of cooking, dynamic domain of the Food Delivery, 11.10.2019
XVII. Disruption, Implications and Choices, A RethinkX Sector Disruption Report
Author: Group Investment Office