Investors seem to have had their fill of meat and dairy replacement products as demand looks to have peaked for oat milk and pea protein-based chicken. But a related sector, "cellular agriculture", is pushing to become the main recipient of funding.
Venture capital backing for meat and dairy replacement products slumped by 80 per cent in the third quarter, as slowing sales collided with a much tighter funding environment.
Globally, $493mn (£419mn) of venture funding went into “alternative protein” providers, a slump from $2.5bn in the same quarter last year, according to Pitchbook. The average deal size also slid to just under $10mn, from $26mn a year earlier. Part of this is due to waning investments by venture capital firms more generally, which fell by 53 per cent in the quarter to $81bn, according to Crunchbase.
However, the terrible performance of the shares of the two highest-profile alternative protein companies to list in recent years – plant-based meat maker Beyond Meat (US:BYND) and Swedish oat milk company Oatly (US:OTLY) – hasn’t helped. The former’s shares have declined by 78 per cent this year, with the FactSet consensus of analysts’ estimates forecasting a doubling of net losses to around $366mn on a single-digit decline in revenue to $424mn. Oatly’s shares, meanwhile, have fallen by 74 per cent. Although its sales were up by more than a fifth in the six months to 30 June, its net loss widened by over 80 per cent as it incurred higher employee, marketing and distribution costs.
The addressable market for plant-based meat alternatives “may be more limited than many thought”, Deloitte Insights said in a recent report. Although the dramatically improved taste of such products has convinced more consumers to try them in recent years, the percentage of people who sometimes buy them for themselves or their family has declined by 3 percentage points to 47 per cent this year, it found.
It's a similar story in the UK, where year-to-date sales of meat alternatives have declined by 6 per cent, according to Nielsen IQ.
As often happens with new products, people look at growth trends and extrapolate them while “not realising some of this is actually people going and trying it … it’s trial-based growth”, said Sara Welford, an analyst at Edison Investment Research.
Moreover, in economically tougher times, people “tend to retrench to the products they know – particularly in food”, she added.
Funding for plant-based protein companies has dropped by 86 per cent year-on-year to just $167mn in the third quarter, according to Pitchbook.
“In our view, these products simply do not meet consumers’ sensory profile expectations,” said Anthony Chow, co-founder of London-listed investment company Agronomics (ANIC).
It took a decision not to participate “meaningfully” in investments in plant-based meat products in 2019, Chow said.
“That turned out to be prescient,” he told investors during its capital markets day earlier this month. Although plant-based meat products “paved the way” for alternative proteins, Agronomics sees more value in ‘cultivated’, or lab-grown, meat, as well as fermented proteins. It has raised £135mn since inception and has a portfolio of 24 companies, focusing on businesses that “have the potential to really reach parity in terms of price, taste and convenience” of conventional food production methods, he said. Its shares are down by around 37 per cent year-to-date.
Agronomics holds stakes in Meatable and BlueNalu, which cultivate meat and fish respectively. It has also invested in egg and dairy proteins makers OnegoBio and All G Foods, as well as a company called Vitro Labs that makes lab-grown leather products – in which luxury goods giant Kering (FR:KER) and environmentalist Leonardo di Caprio have taken stakes. Its most recent deal has been a $7mn investment into a $20mn seed funding round by Liberation Labs, a precision fermentation contract manufacturing company.
“This is where the trillions of dollars are going to be deployed if cellular agriculture is going to make a meaningful contribution to the world’s food production,” Chow said.
Chow highlighted an AT Kearney report from 2020 which forecast that conventional meat consumption will shrink by 3 per cent a year between 2025-40 and only make up 40 per cent of the total at the end of that period. Cultured meat would provide 25 per cent, while plant-based meats would have a 25 per cent share.
But this already looks a little optimistic, though. According to Pitchbook, venture funding for cultivated proteins is also down around 90 per cent year-on-year and there are still some pretty substantial cost and regulatory hurdles to clear before cultured meat is approved. And although Singapore approved cultured chicken products made by US-based Eat Just in 2020, most other jurisdictions have not “and that’s proving to be a pretty long process”, said Welford.
Alternative protein producers will also have to contend with a conventional agriculture sector that continues to enjoy generous subsidies.
“Only a certain proportion of these companies are going to be viable,” Welford added. One part of this market has seen growth recently, though – albeit from very low levels. Insect-based protein companies raised $26mn in the September quarter, compared to a cumulative total of under $6mn for the four preceding quarters.
