The world’s largest beef producer joined a chorus of Cassandras this week signaling the end of alternative meats. Meat giant JBS SA killed its Planterra business in the US and shut down a 190,000 square-foot Colorado facility producing plant-based products. Yet the closure was gravely shortsighted. It reflects a crisis of confidence at a time when investors should be strengthening, rather than curbing, their funding in this sector.
There’s no question that plant-based product sales in the US have been flagging. The category’s meteoric growth in 2020 flattened in 2021 and, since last September, a key portion of its retail sales has dropped more than 10%. Its reputation has also been badly bruised by the stock performance of Beyond Meat Inc., which plunged almost 80% from its peak after a spectacular initial public offering in 2020. Still, it’s a mistake for investors to write off the value and potential of the sector as a whole, which will be a keystone among climate solutions going forward.
Sinking sales of alternative meats have been driven in part by fluctuating prices. The 2020 demand surge for plant-based products occurred alongside risings costs of animal meats due to supply chain disruptions in the early stage of the pandemic. Now conventional meat prices have declined, and inflation is hurting producers like Beyond Meat as they struggle to make their plant-based products more affordable.
For now, consumers are understandably reluctant to pay a premium for alternative products, but many analysts predict that, soon enough, prices will swing back in favor of animal-free proteins. Far more concerning are the consumer perception problems that are punishing the plant-based category. A study released last week by Deloitte Consulting LLP, in which 2,000 consumers were surveyed, found that consumers are increasingly skeptical of the environmental and human health benefits of plant-based meats as compared to conventional meats.
The waning trust is dangerously misguided. The environmental advantages of plant-based products are well-documented and profound: Recent analysis shows that the production of plant-based burgers generates up to 90% less greenhouse gas emissions than that of beef burgers, while requiring less than a quarter of the agricultural land, about 95% less water, and causing substantially lower water and air pollution.
Investors should also take note of a recent report from the Boston Consulting Group concluding that, dollar for dollar, investments in the alternative meat and dairy sector result in seven times greater greenhouse gas reductions than investments in the green building sector, and a staggering 11 times greater reductions than investments in the production of zero-emission cars.
These numbers are especially poignant at a time when, just this week, U.N. Secretary-General Antonio Guterres warned that humanity now faces “a life-or-death struggle” for survival as “climate chaos gallops ahead.”
Investors in alternative meats should also not be deterred by the fading consumer confidence in the health benefits of these products. Alternative meat startups have made great strides in improving not just the flavor and texture of their products (the Deloitte study found that 70% of its respondents agreed that product taste had gotten better) but also in their health benefits. A study in the American Journal of Clinical Nutrition showed that when participants swapped their protein from animal meat to plant-based Beyond Meat burgers, their weight and cholesterol levels dropped, as did their risk of heart disease. Another recent European study based on the UK's Nutrient Profiling Model found that a far higher percentage of conventional meat products were classified as “less healthy” compared to their plant-based counterparts.
And while the sales of many alternative protein brands in addition to Beyond Meat have been disappointing this year, including Maple Leaf Foods Inc. and Conagra Brands Inc.’s Gardein, others in this sector such as NotCo Inc. and Impossible Foods Inc. are reporting growth. The chief executive officer of Impossible, which sells its vegan patty in Burger Kings, reported a 70% surge in retail sales this year.
Outside the US, alternative protein sales overall are growing worldwide. Even JBS reports rising demand for its plant-based products overseas, and the company has opted to continue growing its Planterra divisions in Brazil and Europe. And though demand for McDonald Corp.’s vegan burger, McPlant, has stagnated in the US, it’s going strong in Europe.”
Keep in mind that food and agriculture comprise the third largest investment category globally after transportation and energy, and proteins are the single most significant area of innovation in this category. Human population doubled in the past half-century, while demand for protein tripled. Going forward, increasingly wealthy populations worldwide will continue to demand more protein-dense diets.
According to the Boston Consulting Group report, investment in alternative proteins, including in the promising new category of cultured meats (which are soon expected to enter markets in and beyond the US), quintupled to $5 billion in 2021 from $1 billion in 2019. Given current growth trends, BCG expects alternative proteins to command 11% of global retail sales of meat, eggs and dairy in 2035 — up from 2% today.
“It's still very early in the game,” investor Po Bronson, managing director of the venture firm IndieBio, told me. “Alternative meats are now in the iPhone 2 phase, and it was the iPhone 3 that really took off. Now we’re walking around with phones 11 iterations better. Alternative meats are poised for incredible improvements — better textures and flavors, whole-cut products and far more scalability. There are still tremendous economic gains and efficiencies to be had from growing this sector.” Which is to say, it’s grievously premature to be writing off a sector before it’s actually begun.
Remember, too, that alternative meats are competing against a subsidized industry that has had more than a century to achieve good economics. Even in the US, we can expect a price advantage for faux meats to arrive soon enough. The rising costs of water, feed and supply chain disruptions in the climate change era will increase the cost of livestock production and, eventually, consumers will be paying a green discount for alternative products rather than a green premium.
The upshot is this: For all the difficult headwinds plaguing the plant-based industry today, there are still more powerful tailwinds pushing it forward. As demand for protein grows globally, there is no environmentally sustainable way to significantly increase production through animal-based products alone. All of us — consumers and especially investors — should be committed to helping this industry thrive.
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