Foodtech

How to feed 10 billion people? Upcycle food! (Pt 1)

(estimated reading time: 5 minutes) 

Introduction

The United States spend over $200 billion transporting, processing, and disposing of food waste – over 1% of GDP. Estimates vary, but the total amount of food wasted each year hovers between 30-40%, likely towards the upper end. Food waste consumes around 20% of fresh water, crop land, and landfill volume. Put simply, there is a lot of discarded, edible food (!). And unlike most other innovation occurring within agtech, food waste penetrates the entire supply chain, leaving ample room for business and product differentiation amongst companies in the space (see Figure 1.)

reFed

(Source: ReFed)

Despite ample opportunity – the global food and vegetable market is projected to near $200 billion by 2020 alone – a lack of investment in the space has stymied companies from attaining productive scale or consequential results. In 2016, venture capital funding totaled just $140 million. That equates to 4% of the capital inflows to agtech in 2016; agtech itself captured less than 3% of global venture capital funding in 2016. Despite the absence of large raises, our focus for this newsletter, upcycled products, a solution sometimes referred to as value-added processing, has grown steadily. Only 11 companies were active in the space in 2011, according to ReFed, an organization committed to reducing food waste. That total hovers now in the mid-sixties, a substantial increase for a niche sector of a niche market.


What are upcycled products?

Upcycled products, as the name suggests, take waste or byproducts of a particular operation in order to repurpose them as a commercially viable product (hence the alternative name of value-added products). Applications of this process extend beyond creating food. In fact, some of the most successful companies in the space are ones that tackle needs for fertilizer or energy. Upcycled products are attractive investment opportunities for a host of reasons. For starters, the availability of byproducts and waste ensures cheap production inputs, lifting margins and allowing for faster scale. Second, and most important, the nutrient density of repurposed waste products is often higher than comparative products made with cheaper inputs. Take ReGrained, a California-based company that takes spent beer grain and makes granola bars and powders. Its “Supergrain+” grain has 20% protein content – its closest rival, quinoa flour, has 15%. Further, Supergrain+ has almost 40% fibre content, more than double the closest alternative.


More Companies and Risks to Profitability

ReGrained isn’t the only company with an eye on spent beer grain. RISE, a New York City-based company, upcycles beer waste to make a nutritious flour similar. Produce, similarly to beer grain, also has attracted a large volume of entrepreneurs. There are strict standards for fruit and vegetable quality, often leading to perfectly good, but “ugly,” produce being thrown away or left in the soil as fertilizer. Washington D.C.-based Misfit Juicery takes that produce from farmers and repurposes it as nutrient-packed juice. Other applications include waste-to-fertilizer, led by well-funded, Seattle-based WISErg and waste-to-plastic, pioneered by Full Cycle Bioplastics.

As an attractive market that will undoubtedly begin to boom if proper capital is deployed, upcycled products are nevertheless not without risk. One of the primary risks to scale is the vast distribution network required to collect and process waste from suppliers. In the case of farmers and produce, many may be content to leave the produce in the ground to act as a fertilizer as opposed to the labor hours required to uproot it and sell it to a company like Misfit. In addition, companies producing upcycled foods will have significant competition amongst other healthy alternatives, and it will be immensely challenging to develop a strong brand.

Despite the hurdles, value-added products are due to attract mainstream attention in 2018. Stay tuned as we update you with significant funding and news activity!


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