By Christopher Delporte
There seem to be as many predictions about the future of alternative proteins as there are products in that market. Most everyone’s crystal ball predicts rapid growth, which would seem to make sense. Considering potential market size and current market share, there’s nowhere to go but up compared to traditionally sourced protein options. The bigger questions are what’s fueling the expansion, how steep will the growth curve continue to be and how do U.S. farmers and ranchers benefit, if at all? Is it an opportunity or obstacle for them?
“The surge in plant-based alternative proteins centers on several factors,” says Karol Aure-Flynn, a food and agribusiness industry adviser with Wells Fargo. “The momentum in health and wellness trends and the consumer focus on purpose-driven purchases is attracting attention to the growing market for substitutes for traditional animal protein. Alternative proteins, including plant-based and cellular, are positioned as an eco-friendly choice for consumers.”
Issues such as “factory farming” also have traction with the public, says Aure-Flynn. “People care about the treatment of animals and their health,” she adds.
Cell biology
The North American plant protein market comprises the bulk of the alternative protein market and includes several categories: protein beverages, dairy alternatives, meat alternatives, protein bars, bakery goods and other applications. Lab-grown meat, cultured meat or “cell-cultured meat,” as the U.S. Food and Drug Administration calls it, requires muscle samples from animals and collected stem cells. Cells are then replicated and multiplied. These products are beginning to appear in overseas markets, but lab-grown meat alternatives not yet available in the United States. The technology is getting cheaper but remains pricey. As technology becomes more efficient, falling costs should help to make this sector more sustainable.
The U.S. regulatory process adds to the complexity of cell-cultured meat’s market prospects. In 2019, the FDA and U.S. Department of Agriculture established a dual-oversight framework for lab-grown protein.
“The agreement delineates responsibilities by way of ‘pre-harvest’ versus ‘post-harvest’ activities, with FDA asserting oversight through the time of harvest and USDA’s Food Safety and Inspection Service assuming jurisdiction over harvested cells that are intended for use in meat or poultry products,” explains Danielle Beck, senior executive director of government affairs for the National Cattlemen’s Beef Association. “Under this agreement, USDA FSIS is expected to protect consumers by ensuring these products are held to the same stringent food safety and production standards as real beef products, and USDA’s mandatory labeling pre-approval process will theoretically guard against deceptive labeling practices.”
The NCBA, Beck says, wants to ensure “a level playing field and labeling standards” so that consumers have “appropriate information to make informed purchasing decisions.” NCBA supports legislative and regulatory strategies to allow alternative protein products to “appropriately differentiate themselves” in the market, she says.
Caroline Bushnell, GFI’s director of corporate engagement, says that recent capital infusions and funding still to come will “facilitate much-needed R&D and capacity building to enable [alternative protein] companies to scale and reach more consumers.”
In 2020, U.S. retail sales of plant-based foods hit $7 billion, up 27 percent from 2019, according to the Plant-Based Food Association. Retail sales of milk alternative products reached $2.5 billion, a 20.4 percent increase from 2019, while sales of meat alternatives rose 45.3 percent to $1.4 billion. According to the multinational investment firm UBS, global growth of the plant-based meat alternative market is projected to grow to $85 billion by 2030, up from $4.6 billion in 2018. UBS analysts predict the global plant-based dairy alternative market could reach $37.5 billion in sales by 2025.
“Even though the market is still very small compared to traditional proteins, the growth and attention is attracting investment in the space, and ag-food tech is booming,” says Aure-Flynn.
A report released in March by Boston Consulting Group and Blue Horizon Corp. forecasts that plant-based alternatives such as burgers, dairy and egg substitutes made from soy, pea and other proteins will achieve parity (not in market size, but in consumers’ evaluation of factors like taste and cost) with traditionally raised proteins in 2023, if not sooner. BHC has invested more than $650 million in more than 50 companies in the alternative protein sector.
“While the environmental and food security benefits are encouraging, the key to consumer acceptance is parity,” according to the report’s authors. “Alternative proteins must taste and feel as good as the conventional foods they replace and cost either the same or less.” The report also notes that “significant amounts of capital—in the hundreds of billions—will be needed to perfect alternative-protein technologies and scale them up to industrial levels.” Beyond the market value, investors “have much to gain from the protein transformation, which presents a prime environmental, social and corporate governance opportunity,” the report says.
Don’t have a cow
Despite the impressive numbers, NCBA’s Beck advises taking them with a grain of salt.
“While growth rates of imitation, plant-based meat may appear impressive at first glance, it’s important to keep these numbers in perspective,” she says. “In 2019, the retail value of U.S. beef surpassed $111 billion, and that’s compared to $1.4 billion for plant-based imitation meat products. Comparing a relatively new product to an industry that’s grown and evolved over literal centuries is like comparing apples to oranges.”
Plant-based protein advocates, however, remain eager about future expansion.
“The alternative protein arena is wide open, and progress is happening fast,” says Björn Witte, managing partner and CEO of BHC. “There is a real opportunity here for investors to make their moves early and become integral players in the future of food. But to successfully navigate the industry, they must hone their technological knowledge and ensure they’re one step ahead of potential disruptions.”
One of those potential disruptions is sourcing. Research conducted by the Plant-Based Food Association and the University of Illinois determined that the number of U.S. acres that would be needed to grow pulses for the U.S. retail meat alternative market. Pulses are the edible seeds of plants in the legume family, and the term is limited to crops harvested solely as dry grains, which differentiates them from other vegetable crops that are harvested while still green. The research showed that 188 million pounds of pulses requiring an estimated 263,775 acres would have been needed to fill 2020 demand. Include milk and dairy alternatives and the estimated cropland needed would increase to more than 1 million acres. By contrast, almost 900 million acres are farmed in the United States.
Proteins mostly are sourced from other countries because it is cheaper to import it than to grow the crops domestically, according to reporting by Agri-Pulse. More research is needed to develop seeds that can be grown on U.S. soils or with higher yields, according to PBFA and University of Illinois data. This sourcing challenge can make it difficult for companies—particularly startups—looking for protein other than soybeans, wheat and brown rice, which are three of the more established crops in the United States that are extracted for protein used in plant-based alternatives. Demand for dried peas has grown (they are, for example, Beyond Meat’s primary protein source for its alternative meat products). The economics of yield and price per acre often don’t make sense for many U.S. farmers.
NCBA’s Beck says the influence of larger, traditional markets is hard to ignore.
“U.S. cattle production keeps people on the land in a way no other sector of agriculture does,” she says. “Our industry spans more than 800,000 individual farms and ranches, 96 percent of which are family-owned businesses. Cattle and beef production is not just an iconic feature of American cuisine and our shared history—it’s an economic powerhouse. U.S. beef production and related industries support hundreds of thousands of jobs and contribute tens of billions [of dollars] to federal, state and local economies.”
Courtney Schmidt, also part of Wells Fargo’s food and agribusiness advisory team, says the focus on the role of protein in nutritious diets is a “lift” across this space and the ingredients for some plant-based recipes may get a boost from these trends but that farmers and ranchers “are very adaptable” as demand evolves.
“Traditional protein players have participated through their own venture funds in the discovery process for innovations,” Schmidt says. “Think about the meat counter in retail, for instance. Display cases now carry more ready-to-serve and ready-to-cook than ever before. It will be interesting to see if alternative proteins end up in the display cases alongside animal protein-based foods. Remember when soymilk used to be in a can or box on the shelf? Now, you usually find it alongside traditional dairy in refrigerators. Some say the surge in soymilk was a result of this replacement. We may see this play out similarly in the alternative meat world as well.”
Ultimately, convenience and value are “the ultimate compass,” Schmidt says, noting that ag-savvy banks can help organizations navigating the market.
“As with any industry, banks need to be ready to adapt,” she says. “These trends require capitalization at all stages. The industry moves at lightning speed. Banks will need to be ready to provide customers with experts who understand these nuances.”
