Something strange is happening in the world of alternative proteins. Investment into the sector surged in 2019 until reaching a record $5.1 billion in 2021. The bonanza ended almost as soon as it began, however, drying up by 2022 and leaving the newly-flush sector in the lurch.
Although investors have shied away for now, it seems consumer demand for livestock-free proteins still exists: a recent report found that US companies aren’t able to find enough commercial or demo-scale supply in precision fermented proteins as they need. Why then this gap between consumer interest and investment?
What makes precision fermented proteins different?
Alternative proteins can be divided in two: plant-based and precision-fermented. The former has become pretty well-established on the market over the last decade and were, in absolute terms, the major beneficiaries of the pandemic-era funding boom.
The precision fermented proteins – proteins made from microbes and cell samples – was much newer territory for the food sector in 2019. Although precision fermentation has been used for decades to produce biologic drugs like insulin, efforts to commercialise it as a food manufacturing tech has been a more recent trend.
Plant-based proteins are a broad group. They cover traditional fermented products like tofu or tempeh, produced when certain bacteria metabolise soybeans, or else mimic meat and dairy by combining proteins extracted from plants with other flavouring and texturising ingredients.
By contrast, microbially fermented dairy and meat are the real deal: they can be chemically and physically indistinguishable from livestock produce.
Precision fermentation works by taking genes from the target material (beef fat, for example) then inserting them into inside microorganisms. When the microorganisms replicate, they produce whatever biological material the original genetic sample codes for.
Pretty much any biological substance can be produced in this way. Wilk is an Israeli food tech company working on creating human milk fat from lab-cultured cells, for use in infant formulas. German startup Formo is using it to make various heritage cheeses. It introduces their range on its website as ‘cheese like you’ve always known’ and ‘no terrible tofu vegan cheese affair’.
Microbial protein startups say it can do a lot for the future of our planet. They say growing edible protein inside bio-engineered microorganisms uses far less land, carbon, and other resources than farming protein from cows or even soybeans. It also promises to entice more people into sustainable eating, since it gets rid of the need to give up entire food groups.
Between 2018 and 2021, plant-based meat sales grew 74 percent despite pandemic disruptions. 28 precision fermented companies were founded between 2019 and 2021 where only 8 had been founded in the previous 3 years.
This unprecedented growth across the alternative proteins sector died down in 2022 when sales decreased 42% year on year and funding returned to pre-2021 levels. Even big, celebrity-endorsed producers like Beyond Meat registered massive drops in sales.
Weaker sales in alternative proteins stemmed from global food price inflation after Russia’s invasion of Ukraine. A Deloitte consumer survey of respondents from the US, UK, the Netherlands, and Germany found that willingness to pay a premium for PBA meat dropped 9 percentage points in 2022 from 2021. Alternative proteins already tended to be more expensive than tofu or chicken but ethical buying rapidly became a luxury for large segments of the market once Covid’s economic aftereffects collided with a European war that disrupted trade in major commodities.
Precision fermented alternatives proteins had, for the most part, been a niche-to-non-existent commercial product when food inflation and investor caution took hold. These are very early stage products with few companies in the space. The funding slump – $842 million in 2022 compared to the record £1.69 billion of 2021 – was a relatively bigger blow for this segment since it froze many young brands out from even the earliest stages of commercialisation.
New consumer priorities
There was more driving the slump than food inflation, however,
Consumers had become alive to the fact that many popular plant-based proteins often resemble industrially meat-based processed foods in terms of the additives and poor quality ingredients they contain. Their nutritional value, particularly in comparison to unprocessed omnivorous diets, became questioned.
While demand for healthful, unprocessed, and rigorously carbon-accounted alternative proteins grew, it coincided with global food inflation as well as a period where biotech investment more broadly subsided after the pandemic peak.
Even as consumers turn against processed alternative proteins, there were few affordable alternatives ready to hit the market.
Finding money for scaling alternative protein was difficult even before the economic effects of Covid and the European war disrupted the economy. Now, it will only get harder and especially for precision fermenters. Recession uncertainties and the shrinking pool of startup funding means the industry is particularly ill-placed right now to start turning out the affordable, high-quality products that consumers want.
However, consumer interest is still out there. Even as consumers moved away from the sector in 2022, Deloitte found that 87% of their US and European consumer survey respondents were committed to cutting back or eliminating meat from their diets.
On the one hand, precision fermentation is less well-placed compared to conventional plant-based substitutes in capturing this market. They are a much newer product with lower consumer familiarity. The biomanufacturing process itself is still new to the food industry and microbial manufacturing is still a complicated and expensive process. Then there are the regulatory obstacles to getting products approved across various jurisdictions.
All this should make precision fermentation an even less attractive prospect to investors right now than ordinary plant-based protein alternatives. Yet select precision fermented products has some qualities that could make investors return.
Fermented products have unique market advantages
Precision fermented proteins have one advantage on the simpler vegan products that have achieved some scaling already: it is almost uniquely capable of manufacturing quality ingredients that health-conscious food buyers are increasingly demanding.
The tech holds massive potential to address the health concerns driving consumers away both from industrially-reared animal products and from cheaper, intensively processed vegan alternatives.
Because it can reproduce any meat or dairy to a tee, precision fermentation can offer no-slaughter, land-efficient wholefood ingredients that are just as healthful as unprocessed dairy, chicken, and other farmed proteins. If a new food tech investment wave arrives, it is the biological complexity of precision fermented proteins that will give the products an edge over products that simply imitate meat using plants and a melange of synthetic additives.
What’s more, by eliminating the animal rearing process, it can also address consumer concerns about antibiotics and hormones use in the livestock industry.
Consumer sentiment around precision fermented meat and dairy also remains positive, supporting the idea that the technology will eventually attract interest again. A survey done by Hartman Group, Cargill (a global agribusiness giant) and Perfect Day (a precision fermentation startup), says that 80% of those in their sample who understand what the technology involved said they would purchase a precision fermented product. Safety was their sample’s biggest concern, with taste a close second.
In order to get a piece of a much smaller funding pool and draw in a more discerning consumer, precision fermentation producers starting up today must craft their products in ways that highlight the unique advantages of microbial proteins over traditional plant proteins.
Benefits like the possibility of producing healthful, affordable, and unprocessed lower-impact proteins would distinguish them from many of the first-wave alternative proteins to have hit the market over the last several years. They must also offer rigorously carbon-accounted products, as the process can be more energy intensive than traditional plant-based proteins like tofu and tempeh.
Ultimately, precision fermentation products done right can displace some of the lower-quality processed fare that have tended to dominate the alternative proteins sector over the last decade.
The industry is also showing signs that it is using the funding lapse to regroup and rethink: 9 precision fermentation companies from across the world co-founded the Precision Fermentation Alliance in 2023, implying the industry will become more assertive in promoting its interests as it waits for the capital to return.