Alternative Protein

Demand for animal-based foods such as meat and dairy is expected to grow by nearly 70% between 2010 and 2050, with the majority of demand coming from emerging countries. This forecasted growth intensifies the complexity of accomplishing ecosystem preservation and climate mitigation objectives. Animal agriculture is one of the major contributors of greenhouse gas emissions (GHG), accounting for 18% of global emissions and is the largest single contributor to habitat conversion and biodiversity loss. Beef production, for instance, requires twenty times the land area and generates twenty times the greenhouse gas emissions per gram of protein compared to beans. Moreover, a meat-centric diet has also consistently been associated with an increased risk of diseases, such as coronary heart disease, type II diabetes, stroke, and cancers.

Not only is reducing meat consumption and transitioning to an alternative protein diet one of the most powerful climate change solutions, it is a requirement if we are to achieve a 1.5°C world by 2050. Alternative protein, such as plant-based foods, fermentation-enabled protein, cultured meat, and insects reduces the need for agricultural expansion and associated biodiversity loss. It also addresses the ethical and food safety implications of raising billions of animals to slaughter for food while ensuring the food security of a growing population in a healthier, more sustainable and safe manner.

Investor interest in alternative protein has grown exponentially in the last years and is today one of the most active areas of venture and private equity investment in the food sector. According to BCG's report, alternative proteins could capture up to 22% of the overall protein market by 2035, resulting in projected revenues reaching USD 290 billion in that same year. The success of several high valued IPO exits in the last years has catapulted investing in alternative protein from niche to mainstream and Main Street. Research and analysts reports are bullish on the growth trajectory of the market (Fig 1).

Fig 1: Growth scenarios for the global alternative protein market. Source: FAIRR (2022)

A BCG report projected that alternative proteins could make up every tenth portion of animal protein by 2035, growing more than 7X over the timeframe. Based on their scenario analysis, Bloomberg Intelligence estimates that the alternative protein market could grow from USD 29.4 billion in 2020 to USD 162 billion by 2030, representing 7.7% of the expected USD 2.1 trillion global protein market. BCG forecast a higher market penetration of 11% by 2035 and a USD 290 billion market. With most of the expected population growth occurring in Asia, the region is set to see a double-digit increase in the demand for protein and plant-based protein alternatives.

An example of institutional interest is FAIRR’s Sustainable Protein Engagement initiative, the largest global investor engagement which includes 350 investors with combined assets of nearly USD 68 trillion in its network, as of 2022. Many of the leading animal meat producers have started alternative protein investment groups and ramped acquisitions. In April 2021, JBS, the Brazilian beef giant, acquired Vivera - one of Europe’s largest plant-based meat producers in a USD 410 million deal. Large meat packing companies like Tyson, and Cargill have also started actively investing in the alternative protein sector. Notable partnerships between international conventional meat and food companies and plant-based companies include PepsiCo's joint venture with Beyond Meat and Kraft Heinz's joint venture with NotCo, both in 2022, as well as Cargill's partnership with Bflike in 2021. The trend of investing in alternative proteins is evident as numerous Consumer Packaged Goods (CPGs) and meat companies are now allocating resources to this sector (Fig. 2).

Figure 2: Conventional companies with involvement in alternative proteins. Source: Good Food Institute (2022)

There are currently four types of alternative proteins - plant-based, fermentation-enabled, cultivated meat, and insects.

• Plant-based protein is the most mature and makes up the largest portion of investment to date. Plant-based meat, seafood, eggs, and dairy companies raised USD 1.2 billion in 2022, bringing total investments to USD 7.8 billion. The 2022 invested capital represented 15% of all-time investment. According to Euromonitor data, global retail sales of plant-based meat, seafood, milk, yogurt, and cheese reached USD 28 billion in 2022. In response to this growing market, retailers and manufacturers are introducing new products, forming strategic partnerships, and establishing new facilities. As a result, the intellectual property related to plant-based meat has tripled in the past decade, and large food brands are developing plant-based versions of familiar products such as Philadelphia cream cheese, Kit Kat bars, and Babybel cheese. Pioneers such as Impossible Foods (founded in 2011, valuation surpassing USD 7 billion, as of 2024) serve as evidence of the industry's potential. Their success sets the stage for wider mainstream adoption and continued investor confidence.

• Fermentation-enabled protein refers to the use of microbes such as fungi, algae, yeast and bacteria to produce protein biomass or specialized ingredients, such as flavorings, enzymes, and fats, that can be incorporated into plant-based products or cultivated meat. Fermentation-enabled protein is just starting to develop and projected to grow significantly over the coming years. In 2022, fermentation-enabled protein companies received a total of USD 842 million in investments, which accounted for nearly a quarter of all-time funding. Notably, there was significant growth in funding across different regions, with APAC experiencing a 67% increase, Europe with a 37% increase, and the Middle East & Africa with a 26 times increase. Additionally, the number of unique investors in fermentation increased by 35%, reaching a total of 713 investors.

  Companies like Perfect Day, pioneer in creating dairy proteins through fermentation, exemplify the sector's promising trajectory. With a total funding of USD 802 million, as of January 2024, and a valuation exceeding USD 1.8 billion, Perfect Day demonstrates the commercial viability and immense potential of this innovative approach. Similarly, Nature's Fynd, which develops microbe-based proteins for meat and dairy substitutes, has secured USD 463 million in funding and boasts a valuation exceeding USD 1 billion, as of 2024, further highlighting the financial potential of this sector.

• Cultivated meat is meat grown from animal cell cultures and is a nascent field that is attracting significant venture capital attention. In 2022, cultivated meat and seafood companies raised USD 896 million, bringing the total for the industry (since 2016) to USD 2.78 billion. Cultivated meat is a novel food category and there has been an attendant push by food and health policymakers to regulate its market entry - with Singapore approving commercial sale of cultivated meat and the Israeli Prime Minister becoming the first head of state to taste cultivated meat. In 2022, the largest deals in this field were a USD 400 million Series C funding round for UPSIDE Foods and a USD 100 million Series B funding round for Wildtype, both in the cultivated meat and cultivated seafood sectors, respectively.

• Insects are already consumed by 2 billion people worldwide. Eating insects has several benefits, including the fact that insect farms require little space and water, have high feed conversion efficiencies, and produce fewer greenhouse gases compared to conventional farming. Some insects, like those bred by Entocycle, the largest insect farm in the UK, can also consume waste. According to Barclays' projections, the global edible insect market is expected to reach USD 7.96 billion by 2030. In terms of funding, the global investment in insect protein exceeded USD 600 million, and 2021 witnessed a significant increase in AgriFoodTech investment, with a 50% growth compared to 2020. In 2023, the French company Ynsects closed a USD 175 million financing round, bringing the total amount raised to approximately USD 625 million.

Prominent investors in this sector range from ultra-high net worth individuals like Bill Gates and Jeff Bezos to sovereign wealth funds like Temasek and pensions like Canada Pension Plan Investment Board (CPPIB). Within the field of agriculture and food venture investments, there are approximately fifty funds globally. Some of the leading fund managers focused on alternative protein include Unovis Asset Management, which has been actively investing in alternative protein since 2007 and has made more than 60 investments in this area. Unovis participated in a USD 75 million Series B round in July 2021 in Nobell Foods, a plant-based cheesemaker. In 2022, Unovis closed its second fund dedicated to investments in plant-based products, cellular agriculture, and other alternative protein innovations. The fund initially aimed to raise USD 82 million but ended up closing with USD 166 million, more than three and a half times the size of Unovis's first fund, which was launched in 2015.

Astanor Ventures launched a USD 325 million Global Impact Fund late in 2020 focused on food system sustainability, and in September 2021 led a USD 21.5 million for Plantible, plant-based protein startup. S2G Ventures, which has raised four funds totalling over USD 1 billion and remains one of the most active venture and growth funds in the agriculture innovation space, was the lead investor in the giant alternative protein company, Beyond Meat. In 2023, Big Idea Ventures, a global leader in investments in the alternative protein and ingredient industry, launched its New Protein Fund accelerator company investments. Lifely, a Brazilian venture capital fund focused on alternative proteins and biomaterials, exemplifies the sector's increasing diversification and developing technologies, such as B2B facilitators that show more sector maturity. With a portfolio of 16 companies across 8 countries, Lifely focuses on early-stage ventures across diverse niches like plant-based, cellular agriculture, fermentation, and next-generation materials.

Brazil is a promising market for the alternative protein sector, with significant growth potential. The country is one of the world's largest food producers and has a growing population of consumers interested in more sustainable and healthier options. VidaVeg, the largest vegan dairy brand in Brazil, had a revenue of USD 1.7 million in 2020, which increased to USD 4 million in 2021 and USD 8.3 million in 2022. For 2023, VidaVeg is projected to reach approximately USD 20 million, with expectations of reaching USD 60 million per year within three years. Fazenda Futuro, a Brazilian plant-based food tech company, is present in 24 countries and has a valuation of USD 450 million, as of Nov/23, after a Series C funding round, with an investment amounting to USD 60 million.

Globally, the pace of entrepreneurial activity and technological innovation in this space is blistering, bolstered by a robust network of accelerators and incubators focused on food innovation globally, many of which focus on alternative protein production. As a generalist, SOSV, the seed and pre-seed investment platform, has backed hundreds of companies in food innovation, including many of the current leaders in alternative protein and plant-based ingredients. ProVeg Incubator, launched in 2018, is one of the leading accelerators for plant-based and cultured meat startups. Its program has worked with over 50 companies and has raised over USD 109 million. Launched in 2014, BRINC is a global venture accelerator firm that operates multiple accelerator programs, including the Agrifood Program. Since 2018, their food technology programs have successfully supported over 8 cohorts of 50 startups, with a focus on key technologies that are transforming the food production and consumption industry. As of 2024, BRINC has invested up to USD 200 million in this initiative. In 2020, BRINC partnered with Lever VC, a leading alternative protein venture capital fund, to launch a joint investment fund and accelerator in China, specifically supporting plant-based, cell-cultivated meat, and dairy companies.

Large food corporations such as China’s Dao Foods have also set up their own incubator program as part of a strategy to diversify its offerings to meet consumer demand. In August 2021, Dao Food announced its second cohort of Chinese and China-focused alternative protein startups and is part of the organization’s plan to invest in 30 alternative protein ventures over the next three years. Governmental support has also been key in scaling up a new sector. Singapore is poised to become a leading hub for alternative protein after the national food agency recently became the first to approve lab-grown chicken nuggets. The +USD 300bn Singaporean sovereign fund, Temasek, is very active in the alternative protein space through funds and directs. Other notable government investments include Canada with a commitment of USD 100 million to Merit Functional Foods, a plant-based protein company. In 2023, the UK government committed USD 19 million to a research hub aimed at improving the country's alternative protein sector. Similarly, the Israeli government is promoting alternative proteins as an economic growth engine. In 2022, the Israel Innovation Authority granted USD 18 million for a consortium focused on cultivated meat development, which includes 14 companies, leading Israeli food tech startups, and 10 universities and research institutions.

Consumer concerns about animal welfare, healthy diets, and demand for alternative proteins have not gone unnoticed as large restaurant chains such as Starbucks (Oatly), Burger King (Impossible Meat), Del Taco and Taco Bell (Beyond Meat) have started offering alternative protein products. The largest food companies in the world including Nestle, Cargill, Tyson and Kellogs are all onboarding alternative protein products.

Investing to shift diets away from meat could be the most powerful lever for biodiversity conservation. As of 2022, animal agriculture occupies 67% of the world’s agricultural land, and 41% of the global cereal output is used for the production of animal feed. However, animal agriculture only provides 18% of global calories and 37% of protein consumed. Raising livestock for food is land inefficient and the largest single contributor to habitat conversion and biodiversity loss today. Meat and bushmeat consumption growth in emerging markets, where food and protein demand is set to surge, is on track to be the largest driver of biodiversity loss in high-biodiversity tropical countries in the future.

In this context, alternative protein production can have a positive impact on biodiversity in several ways. One of them is by reducing land use for food production, which would help prevent deforestation and the destruction of natural habitats. Plant-based foods, insects, fermentation-enabled proteins and cultured meat require significantly less land compared to traditional meat agriculture. RethinkX, a technology forecasting firm, estimates that plant-based proteins, precision fermentation and cultured meat have the potential to liberate 2.7 billion hectares of agricultural land globally by 2040 - the combined landmass of the United States, China, and Australia.

Habitat preservation is also significantly impacted by alternative protein production. By reducing the need for livestock farming, alternative proteins help conserve ecosystems and protected areas. This, in turn, allows endangered species and diverse wildlife populations to thrive. Globally, a growing appetite for beef is a major driver of deforestation, particularly in the Amazon. In a Science article published in 2020 that links Brazilian beef export data to illegal deforestation, researchers found that at least 17% of beef exports to the EU may “be contaminated by illegal deforestation.” According to a report from IPAM, the Amazon has had 81 million hectares of forest cleared and converted to new pasture land from 1985 to 2022. This represents approximately 19% of the Brazilian Amazon. In this region, livestock accounts for 75% of deforestation on public lands.

Alternative protein production can also help** reduce water use and water pollution**. Agriculture uses 70% of all freshwater reserves, three times as much as 50 years ago. Within this sector, meat and dairy production are responsible for around a third to 40% of agriculture’s water demands. Livestock farming exacerbates this challenge through extensive water consumption, nutrient runoff, and waste generation, also contributing to water pollution and environmental degradation. Transitioning to alternative proteins can reduce these pollutants, leading to improved water quality and preservation of aquatic biodiversity. Plant-based, insect-based, and cultured meat options offer a compelling solution to the water crisis associated with traditional animal agriculture. Their water footprints are often lower, with some estimations suggesting plant-based meat requires up to 95% less water than beef production.

Finally, the reduction of animal-based foods can minimize the introduction of invasive species, which is a major driver of biodiversity loss. Traditional livestock farming often introduces non-native species for grazing, which can disrupt local ecosystems. Alternative protein production methods typically avoid this reliance and help prevent the risk of invasive species disrupting biodiversity.

Food systems heavily rely on conventional animal agriculture, which is considered a significant contributor to climate change's ecological, economic, and social impacts. Animal agriculture is one of the major contributors of greenhouse gas emissions (GHG), accounting for 18% of global GHGs emissions. According to the latest IPCC report, enteric fermentation is the primary source of CH4 emissions in agriculture. Livestock also contribute to agricultural emissions through CH4 and N2O emissions from manure management and deposition on pasture, further solidifying their position as the main source of agricultural emissions. Moreover, out of the annual estimated 10.4 GtCO2e of agriculture-related emissions in 2021, raising livestock directly contributes 7.1 GtC02e, which is directly related to deforestation and habitat conversion.

Meat Atlas, using data from GRAIN and the Institute for Agriculture and Trade Policy, found that emissions from just the top 20 largest meat and dairy producers were responsible for more GHG emissions than Germany. The most important GHG emissions from this sector are methane and nitrous oxide, with the bulk of GHGs originating from four main categories of activities: enteric fermentation, feed production, manure management, and energy consumption.

By adopting a more plant-based diet in line with standard dietary guidelines, a study by the University of Oxford projected that food-related emissions could be cut by 29 - 70% and render cost-savings of USD 1.5 trillion in healthcare-related services and avoided climate damages. A 2020 article in Nature Sustainability, estimates that the current 3.3 billion hectares used for livestock production could potentially sequester all global GHG emissions of the past decade. By transitioning to a plant-centric diet and restoring land freed from animal agriculture, 332 - 547 Gt CO2-equivalent emissions could be sequestered, making a significant contribution towards achievement of a 1.5C atmosphere.

Social Justice

Shifting towards non-animal sourced meat could promote environmental justice and health outcomes, as conventional meat production disproportionately affects marginalized communities, who often live in areas closer to industrial farming operations, resulting in pollution and resource depletion. These environmental consequences can worsen existing health disparities and exacerbate social inequalities.

Furthermore, the consumption of meat has been associated with various health concerns, such as cardiovascular disease, certain cancers, and type 2 diabetes. This not only affects individual health but also raises concerns about healthcare disparities, as marginalized communities often have limited access to preventive and therapeutic resources.

Finally, the meat industry is notorious for its poor labor conditions, raising significant ethical concerns. The production lines of the meat industry are among the industrial activities that generate the most occupational diseases and work accidents in Brazil, leading people to require leave and medical care. Historically in Brazil, the majority of cases of slave labor occur in rural areas, and livestock farming is the sector where the problem is most concentrated. Data from the Brazilian government reveals that over half of the confirmed cases of slave labor between 1995 and 2020 occurred in the livestock sector, involving the rescue of over 17,000 workers.

• BCG 2021- Food for Thought
• Bloomberg Intelligence 2021 - Plant-based foods poised for explosive growth
• FAIRR, 2022 - Climate Transition Proteins: Flavour of the Future Appetite for Disruption: The Last Serving
• Good Food Institute 2022 - State of the Industry Report: Plant-based meat, eggs, dairy
• Good Food Institute 2022 - State of the Industry Report: Cultivated meat and seafood
• Good Food Institute 2022 - State of the Industry Report: Fermentation meat, eggs, dairy
• Good Food Institute, 2023 - Introduction to alternative proteins