Alternative protein for animal feed (Newsletter #3)

Why the demand for protein is increasing

Exponential population growth comes with a host of economic and environmental consequences. Though impossible to perfectly project population expansion, the consensus is clear – at the current growth rate the world’s population will top 9 billion by 2050, with some estimates reaching as high as 9.7 billion.

With such a monumental increase, questions immediately beg about environmental sustainability and an even more pressing concern – food security. Food demand is inherently linked with population size, and, as a result, researchers project a demand increase from 60% to 100% by 2050. 

As an essential building block for human development, protein remains perpetually in high demand. Animal proteins – beef, poultry, dairy, etc. – are suggested to comprise at least one-third of daily protein intake. Reaching that threshold, however, is often difficult for many living in developing nations, particularly in Asia and Sub-Saharan Africa. But incomes for the middle class in those regions continue to rise, increasing demand for protein as evidenced by the positive correlation illustrated in Figure 1. Given this anticipated rise in protein demand, the United Nation’s Food and Agriculture Organization (FAO) projects significant expansion of current animal protein production levels, with the poultry and fish industries driving growth (Table 1). 

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According to the FAO, worldwide demand for animal protein is expected to increase between 50-70% from current production levels, meaning that the projected production increase highlighted by Table 1 may either exceed or fall short of demand expectations. In either case, the surge in supply of animal protein sources generates an attractive investment opportunity in an underinvested industry – alternative protein for animal feed and human consumption. 

Protein for animal feed

The protein animal feed ingredient market represents an industry ripe for disruption. After decades absent ground-breaking ingenuity, a swarm of innovators are beginning to take interest in a market presently valued at $50 billion and projected to grow 70% by 2050. And yet, despite the massive growth projection, venture capital funding for sustainable protein declined to $111 million in 2016, down from $200 million in 2014. Animals and humans share the same protein narrative – it is essential for proper health and day-to-day functioning. For farmers, however, particularly in the aquaculture and poultry industries, finding access to quality protein at stable prices proves to be an onerous task. Many common feed blends either lack sufficient protein content or are deficient in their essential amino acid composition. As a result, two protein sources have emerged as dominant in the industry – fishmeal and soybean. Over 75% of soybean production goes towards animal feed and close to 20% of captured fishery is used for fishmeal. Both possess high crude protein content – a vastly important metric for farmers – and a diverse quantity of vital amino acids. Though these two have played a foundational role in the growth of animal protein production to present day totals, each comes with weighty consequences that have left the door open for innovation, technology, and a revolutionary new product – alternative proteins.

Why adopt alternative proteins?

As the aforementioned data and trends suggest, global animal protein production will rise dramatically in the ensuing years. Indelibly linked to any rise in livestock or aquaculture supply is the necessity of quality feed ingredients, specifically protein. Put simply, upward pressure on the demand for animal protein ensures high-growth potential for the entire protein feed market, especially for technologies capable of fully disrupting existing inputs – namely, soy and fishmeal. These two represent unsustainable feed options in the long-term for two primary reasons: price volatility and environmental constraints. With global commodity prices decreasing, margins on the farm are being perilously squeezed. Soybean and fishmeal fluctuate frequently in price, making financial planning over the long-term nearly impossible. Soybean prices have varied from as high as $600 (per ton) to their current lows of approximately $300 (per ton), far lower than fishmeal largely due to fishmeal’s more substantial protein content. Alternative proteins provide a price stability crucial for animal producers looking to project expenses or cut costs on other areas of production. Though the recent freefall in soybean and fishmeal prices spells trouble for alternative protein producers working to achieve commercial scale and cost effectiveness, the World Bank anticipates a 90% real growth in fishmeal prices from 2010 to 2030. Furthermore, shifting consumer preferences towards sustainable food production and the well-documented consequences of fishmeal and soy combine to establish an attractive opportunity for alternative protein producers.

Environmental consequences of fishmeal and soybean     

As highlighted in table 1, production of fish and chicken is forecast to double over the next forty years. These two proteins consume over 90% of current fishmeal production, with 70% going towards aquaculture and another 22% for poultry farming. Instability in supply (Figure 3), however, coupled with the price volatility illustrated in Figure 2 confirms the presence of strong demand for fishmeal. Yet, even despite lower fishmeal production, marine biodiversity and global fisheries continue to experience massive exploitation – just 10% of fish stocks could be fished more heavily, down from 40% in the 1970s (Figure 4). All of these factors merge to form a seemingly simple notion – it is no longer sustainable to take fish out of the ocean in order to feed farmed fish for consumption. As supply continues to fluctuate and diminish in the presence of continuous demand increases, fishmeal prices are likely to rebound from their present dip, creating a more attractive market for alternative protein sources in the long-term.

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Though soybean represents a less attractive protein meal strictly in terms of crude content (45-50%), its favourable price makes it extremely popular with farmers; soybean is three times cheaper than fishmeal and five times lower than the expected cost of bacterial protein. Soybean’s environmental consequences, however, make its current production increases unsustainable, lest the global population be unopposed to a host of ecological catastrophes. Direct comparisons between soybean and single-cell protein production are glaring, both in terms of output per hectare and water consumption per kilogram of feed (Table 2). Soybean prices, much like those of fishmeal, fluctuate frequently due to soybean’s commodity pricing structure. Methane-based alternatives derive their price stability not only as a result of being priced outside an index-based system, but also, and more importantly, due to their independence and insulation from weather patterns and environmental unpredictability. Soybean production is heavily concentrated – 80% comes from either the United States, Brazil, or Argentina, making supply dependent on recurring, prosperous harvests. The farming, however, is both land and resource intensive, contributing to disastrous deforestation – 2.7 million hectares of forest have been cut down in Argentina for farming since 2002. Those macro trends, in addition to projected water supply deficits as a result of severe droughts make researchers’ projections of 18-23% reductions in Brazilian soy output by 2050 as a result of climate change almost feel optimistic. Long-term declines in output pose a threat for regions heavily dependent on South American for soybean, like the European Union, which imported 95% of its soybean consumption in 2014. As gaps form in supply over the long-term, upward pressure on prices will cause financial burden for farmers in regions like the EU without alternative protein feed sources. Though not immediately attractive in terms of price, methane-to-protein producers stand to seize market share as proper scale makes their powder more cost effective and the environmental drawbacks of fishmeal and soybean catch up to production.

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Alternative proteins

Despite the tremendous growth potential evidenced by increasing demand for protein, investments into alternative protein companies totalled approximately $111 million in 2016, just 3.5% of aggregate investment into agriculture and food technology and less than 0.1% of global venture capital investments. Hesitancy from investors likely stems from the absence of precedent that alternative proteins can be manufactured at a commercial scale with competitive prices. However, because the industry possesses such a breadth of youthful characteristics, an opportunity is present to seize a strong first-mover advantage, especially since alternative proteins are fragmented into two end-users – human consumption and animal feed – with more attention and activity focused on the former. For animal feed in particular, a variety of options and intriguing technologies have emerged, with insects and bacteria the most attractive in terms of scalability and protein content (Table 3). 

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Bottom line

The stage is set for alternative proteins to revolutionize farming and food industries. Unsustainable farming practices and exponential population growth create an opportunity for explosive growth for early disrupters. A few companies possess intellectual capital, technology, and scale potential well-ahead of any competitors in the alternative protein industry…. is that it? No! One company is disrupting on another level- see the box below.

The game changer – C02 to protein

We found one company that completely changes the game but is in a very early stage with huge plans for the near future.  Unlike earlier discussed companies C02 is the source that is used to generate high value protein. We already had the chance to speak to the team that came up with this ground breaking idea. There are many more applications and features planned in the near future; not only protein for animal feed but several other purposes will be produced.

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