Where’s the meat? A look at alternative proteins

Nuts as alternative proteinsTim Luginsland, Wells Fargo Sector Manager, Grain and Oilseeds
Chris Eggerman, Sector Analyst, Grains, Crop Inputs, Forest Products

Traditional meats such as beef, pork, and chicken are the dominant protein sources in the U.S. and also in most other developed countries, and account for an estimated 30% of the calories consumed globally. However, alternative protein sources — plant-based sources, lab-produced “meat”, seafood substitutes, and insects — are becoming increasingly popular.

Drivers of the increased demand for alternative proteins include:

  1. Macroeconomic factors: Global meat consumption is expanding due to increasing population, urbanization, and rising incomes. Much of this growth is occurring in China, the world’s leading meat consumer.
  2. Scrutiny of livestock production practices: Animal rights activists and consumers, in general, are becoming increasingly concerned about animal welfare. The majority of animals are treated in a manner that is acceptable to most. However, isolated incidents of animal abuse within the supply chain have impacted public perception of the meat processing industry, pushing consumers away from meat.
  3. Less reliance on antibiotics: While some are advocating for animal welfare, others are demanding that their meat come from animals produced without the use of antibiotics to treat sickness. Lab-grown meat eliminates the need for antibiotics.
  4. Environmental issues: Cattle and other livestock are major users of feed grains and water, and are believed to be a significant source of greenhouse gas emissions. Some environmentally conscious consumers have reduced or eliminated meat from their diet in an effort to help the environment, but embrace alternative protein sources produced with fewer natural resources.

We’ll examine 4 different alternative protein sources below.

Pulse crops

Pulses are a group of 12 leguminous crops, including dry beans, dry peas, lentils, and chickpeas, that produce an edible seed that grows within a pod. U.S. pulse crop production occurs mostly in the Northern Plains and the Pacific Northwest, where cool-season legumes grow well. Planted area for these crops has risen 1.8 million acres, or 69%, since 2013 as demand increase has helped prices hold up better than grain prices. Represented in the chart below, pulse crop production increased for three consecutive years before declining in 2017 due to a drought in the Northern Plains.

U.S. Pulse Crop Acreage Production

Strong exports and rising domestic demand are driving the surge in pulse crop production. Americans are consuming more pulse-focused food products such as chickpea-based hummus, which has seen retail sales rise from under $10 million in the late 1990s to an estimated $700-$800 million in recent years, according to the U.S. Dry Pea and Lentil Council.

Consumption of pulse products is supported by trends toward healthier snacks and gluten-free products. Pulse crops are naturally gluten free and are a good source of both fiber and protein. The 2010 U.S. Dietary Guidelines for Americans recommend more frequent consumption of lentils, dry peas, and beans, and notes that servings of these pulses can be classified as either the vegetable or protein food group.

Veggie burgers made from soy, edible beans, other legumes, or grains have been around for some time, but newer versions are receiving notable attention. Further, a number of alternate protein manufacturers are achieving industry success, and are forcing traditional industry giants to take notice and action.

Beyond Meat, a company headquartered in southern California, produces burger, ground beef, and chicken substitutes from non-GMO pea protein and soy protein, and sells their products through retailers that include Kroger, Albertson’s, Safeway, and Whole Foods. Tyson Foods, the largest U.S. meat producer, purchased a 5% stake in Beyond Meat in 2016. Toronto-based Maple Leaf Foods also is investing in plant-based proteins, purchasing Lightlife Foods in March 2017, and recently announced that it is acquiring Field Roast Grain Meat Company.

Another company, Impossible Foods, makes its “Impossible Burger” from wheat, coconut oil, potatoes, and heme. According to the company website, heme is an iron-containing molecule in plants and animals that makes meat “smell, sizzle, bleed, and taste gloriously meaty.”

Lab-grown meat

Lab-grown or “cultured” meat is produced by taking tissue from a live animal and multiplying those cells into a meat-like product. Memphis Meats, based in San Francisco, produces meat from self-reproducing cells, thereby manufacturing an “animal-based” product without an actual animal. The company produced its first synthetic meatball in 2016, and followed with the world’s first cell-cultured chicken and duck in 2017. Production costs for its original meat were $18,000 a pound, but the company announced it had reduced production costs to $3,800 per pound in May 2017. Memphis Meats claims it can produce animal-free products using just 1% of the land and water required in traditional meat production, and in August, received an investment of $17 million from a group that included Bill Gates, Richard Branson, and the protein division of Cargill.

Most of the meat substitute deals have occurred in the U.S., but there is a meatless market in Europe as well. Lab-grown meat also is emerging in Asia as evidenced by the fact that China announced a $300 million deal to import lab-grown meat from three Israel-based companies as part of a plan to cut the country’s meat consumption in half. Yuki Hanyu, founder of Tokyo-based Integriculture and nonprofit Shojinmeat Project, is providing Japanese high school students access to high-tech heated boxes that allow them to culture animal cells into meat-like products at home.

Lab-grown proteins are environmentally friendly, however, significantly more costly as depicted in the below two charts.

Our Meatless Future

Traditional Meat Production vs. Lab-Grown Value Chain

Our Meatless Future

Source: CB Insights

 

Our Meatless Future: Costs and Benefits

Resource Comparison of Animal-based vs. Lab-grown Meat

Our Meatless Future: Cost and Benefits

Source: CB Insights, Water Footprint Network, Business Insider, Forbes, Food Climate Research Network (FCRN), Quartz

 
Lab-grown meat faces some obstacles including its high cost to produce compared to other alternative protein sources. One of the main reasons that lab-grown meat is so costly is the prevalence of fetal bovine serum (FBS) in meatless products. FBS, extracted from cow fetuses and a core ingredient in lab-grown meat, is expensive. As a result, startups are trying to eliminate FBS from meatless products. Memphis Meats says it has developed a method to grow cell-cultured chicken without FBS. In addition to the significant expense of FBS, there are high costs of electricity, heating, and other resources associated with lab-based technologies. Continued investment likely will help to reduce costs in the years ahead, allowing manufacturers to market meat alternatives at prices that are more competitive with traditional meats. Lastly, regulation of artificial meat production is in its early stages, and is likely to have a larger impact in the future.

Seafood substitutes

Substitutes for seafood also are being developed. Ocean Hugger Foods currently manufacturers a product called Ahimi, a substitute for ahi tuna, made from tomatoes depicted in the photo below. Business Insider reports that Ahimi is being sold through food service channels, including college campuses. The company sees college campuses as an ideal distribution channel because they buy large volumes of food, and because younger adults are more open minded about plant-based foods and will be consumers for many years to come. Market research firm Y-Pulse conducted a 2015 survey of food-service operators at college campuses, and found that plant-based menus and sustainable seafood were among the most popular trends desired by younger students.

Ahimi

Source: Ocean Hugger Foods via Business Insider

 
Several other companies are also known to be producing seafood substitutes. According to CB Insights, Finless Foods produces artificial fish meat using cellular agriculture; New Wave Foods produces algae-based imitation shrimp; and French startup ODONOTELLA manufactures algae-based salmon.

Insect protein

While consumption of insects dates back to the Old Testament, and has been common in third-world countries for many years, it is now also gaining traction in the U.S. This past season, the Seattle Mariners sold grasshoppers, toasted in a chili lime salt and served in a 4-ounce cup for $4 at concession stands in Safeco Field. The snacks, depicted in the photo below, were so popular that the stadium sold out each of the first three games of the season. About 16,000 orders were sold during the first half of the season, more than the supplying restaurant sells during an entire year.

Grasshoppers

Source: Seattle Mariners via Sports Illustrated

 
A number of other U.S.-based companies are attempting to capitalize on the insect protein craze. New York–based EXO produces and sells protein bars made from cricket flour. And, Texas-based Aspire Food Group sells whole-roasted crickets in flavors that include BBQ, sea salt and vinegar, and sour cream and onion. While Aspire achieves most of its sales online, the roasted crickets also can be found on tacos at some concession stands at Philips Arena, home of the Atlanta Hawks.

About 2 billion people regularly consume insects, and many of those consider insects a crucial source of nutrients. According to Persistence Market Research, the global edible insect market was valued at $424 million last year, and is expected to reach $723 million by 2024.

Insect consumption is nutritional and considered to be ecologically responsible. A single serving of crickets or grasshoppers contains 150 calories and 13 grams of protein. And, cricket flour requires just one gallon of water per pound to produce, while it takes 441 gallons to produce one pound of boneless beef according to a study funded by the Beef Checkoff program. Crickets for commercial consumption are raised in large cardboard boxes with water and corn meal. The temperature must be in a tight range or the survival rate could drop from 90% to 10%. Once they grow and become more active, the crickets are moved to larger containers so they do not harm each other. For consumption, crickets are generally roasted with vegetable oil and mixed with seasonings such as chili peppers or garlic powder. Ground insects can be eaten by themselves as a snack, or used as nutritional ingredients in cookies, crackers, chips, or protein bars.

While insect consumption has many positive benefits, marketing of edible insects must be improved to increase unilateral appeal. Though insects are not likely to replace traditional animal proteins, they already are an important food source in many developing countries, and may continue to gain popularity in the U.S.

Summary

Continued advances in genetic engineering and plant-based innovation likely will enhance taste, flavor, and health benefits, and further encourage consumption of alternative proteins. These technologies also may expand across largely untouched meat and seafood categories such as pork and duck, potentially creating direct competitors for all traditional meats. For now, production of meat substitutes is challenged by high costs and the potential for increased regulation, and food manufacturers incorporating insects must hurdle the obstacle of perception.

This said, alternative proteins are expected to continue growth in the near future, gaining both public attention and also that of investors that already include large producers of traditional meats such as Tyson, Cargill, and Maple Leaf Foods.

Sources:
CB Insights — Our Meatless Future: How the $90B Global Meat Market Gets Disrupted – 2017
Business Insider — Generation Z is creating a $5 billion market for fake meat and seafood – 2017
Digital Trends — The burger of the future comes from crickets, not cows – 2017
Sports Illustrated — ‘Buy Me Some Peanuts and Grasshoppers’: How toasted bugs became a huge hit at Safeco Field – 2017
United States Department of Agriculture, Economic Research Service — Pulses Production Expanding as Consumers Cultivate a Taste for U.S. Lentils and Chickpeas – 2017

 

Tim LuginslandTim Luginsland is a senior vice president and sector manager within the Food and Agribusiness Industry Advisors group focusing on the grain and oilseeds industry sector.

Tim joined Wells Fargo and the Agricultural industries department in 2000. Prior to Wells Fargo, he held various professional positions within the agricultural industry with Archer Daniels Midland and Bank of America.

Tim holds a bachelor of science degree from Kansas State University, and a master of science degree from the University of Arizona; both in agricultural economics. More recently, he completed a two-year agricultural leadership program sponsored for leaders from the state of Kansas. The program was an intensive study of local, national, and international agricultural issues. Tim was also raised on a diversified farm in Central Kansas.

Tim serves on the Kansas City Agribusiness Council, University of Arizona College of Agriculture Board of Directors, Kansas State University Ag Advisory Council, the National Alpha Gamma Rho fraternity Finance Committee, and the Board of Directors of a youth baseball organization.

Chris EggermanChris Eggerman is an assistant vice president and sector analyst covering the Grains and Oilseeds, Crop Inputs/Feed, and Forest Products sectors.

Chris joined Wells Fargo in 2016. Prior to Wells Fargo, he spent 10 years with Informa Economics managing feed grain and oilseed analysis with responsibility for long-term supply, demand, and price forecasting for U.S. and world crops. At Informa, he also served as a senior commodity analyst with responsibility for analysis of U.S. and world oilseeds, protein meals, and vegetable oils. In advance of Informa, Chris was a research assistant within the Agricultural & Food Policy Center of Texas A&M University, where he developed a stochastic model of Texas crops to forecast state-level farm income and analyze the impact of rising fuel prices on state-level farm income.

Chris was raised on a row-crop, dairy and beef farm in southwest Missouri and earned his B.S. in agribusiness from Missouri State University in Springfield, Missouri, and his M.S. in agricultural economics from Texas A&M University in College Station, Texas.