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Alternative protein investment: what you need to know

Although the World Economic Outlook has predicted a global economic slowdown from 3.4% growth in the previous year to 2.8% this year, the alternative protein sector is experiencing a surge in innovation.

Investing in plant-based, fermentation, and cultivated companies during this downturn could be advantageous because there will be less competition for talent and resources. This can allow for the establishment of strong foundations and position the companies for long-term growth as the economy inevitably improves. However, alternative protein investment can be challenging without proper knowledge of the market and industry trends.

In this article, we will provide an overview of the plant-based, fermentation, and cultivated food markets, discuss the current trends and challenges, and offer tips for investors considering investing in alternative proteins.

A positive perspective on the plant-based food market

Despite recent negative perceptions and a temporary dip in demand for plant-based meat, the alternative protein industry remains resilient and promising. Companies in this sector, like in any other industry, may face difficulties in launching products that resonate with consumers. The success of plant-based food products relies on multiple factors, encompassing product quality, pricing strategies, go-to-market strategies, and evolving consumer preferences, among others. It extends beyond mere demand.

While food industry leaders such as Beyond Meat and Heck have encountered significant challenges, it is crucial to recognize the intricate dynamics of the market and consider the broader industry landscape, along with the prevailing financial climate. By acknowledging these complexities, investors and businesses can make more informed decisions and navigate the plant-based food industry with greater insight and adaptability.

It’s important to note that there are many plant-based food companies undergoing expansion and attracting substantial investment. For example, THIS™, a prominent plant-based meat brand, demonstrated remarkable growth within the chilled meat-free sector, contributing nearly £1 million to the expansion of the category in the first 13 weeks of this year. Moreover, THIS™ has emerged as the fastest-growing food and drink brand in the UK, boasting an impressive two-year annual growth rate of 246%. This surpasses major fast-moving consumer goods (FMCG) brands like Little Moons, Huel, and Gousto, further cementing the brand's position as a frontrunner in the plant-based food industry.

Taking a broader perspective beyond individual brands, it is evident that the market for plant-based foods exhibits robust demand and continues to undergo growth and evolution. Major retailers, such as Sainsbury's, forecast a significant rise in the number of individuals adopting meat-free diets. This growing trend is driving increased demand for vegan food products and contributes to the projected compound annual growth rate (CAGR) of 9.1% for the global vegan food market between 2023 and 2031.

The demand for plant-based foods remains strong and continues to grow and evolve

What’s more, while hype often creates short-term inflated expectations, the value of transformative technologies is proven over time; innovations like precision fermentation and cellular agriculture show promise for further sustainable and nutritious alternatives.

Undeniably, there is still ample room for improvement within the alternative protein industry, making it an exciting and dynamic space to watch - make sure you read our article for the bigger picture of the alternative protein industry.

The existing state of alternative protein investments

A recent GFI analysis revealed that, over the past decade, the alternative proteins sector has witnessed substantial private capital investments, with annual funding nearly doubling on average. Investments surged in recent years, peaking at a record $5.1 billion in 2021. However, 2022 saw a decline of 42% in funding, returning to pre-2021 levels.

The decline in funding aligns with broader market trends and economic conditions, including a reduction in global private funding and the impact of factors such as interest rate hikes, climate events, the pandemic, and geopolitical tensions.

Despite the slowdown, the alternative proteins sector remains dynamic and investor appetite for plant-based foods remains strong, with optimism about the industry's long-term potential and plans for continued investment in 2023, particularly in novel categories like fermentation and cultivated dairy. What’s more, while overall investment decreased, specific regions, particularly the Asia-Pacific and Europe, experienced notable growth.

Adding further momentum to this excitement, 2022 witnessed a notable de-risking event when UPSIDE Foods received FDA approval for its cultivated chicken. Several precision fermentation-derived products were also introduced in the US market. These developments indicate a maturing regulatory landscape and enhanced commercial viability for alternative proteins. Additionally, they pave the way for the creation of hybrid products that blend technologies from cultivated, fermentation, and plant-based sectors. These advancements are particularly appealing to investors looking for opportunities in diversified portfolios and long-term growth prospects.

UPSIDE Foods obtained FDA approval for its cultivated chicken, paving the way for the development of hybrid products blending various technologies

Trends and challenges in the market

From shifting consumer preferences to regulatory complexities and market competition, these factors play a significant role in determining the success of plant-based, fermentation, and cultivated food companies and influencing investor decisions:

1. Diversification and optimization

Consumer preferences have shifted towards more diverse and innovative product offerings, including plant-based seafood, mycoprotein-based products, and plant-based ready meals. There is a growing emphasis on clean labels, natural ingredients, and minimally-processed products. Moreover, consumers are increasingly looking for alternative protein foods that not only mimic the taste and texture of animal-based products but also provide additional health benefits, such as being lower in saturated fat and cholesterol.

By investing in companies that utilize a range of alternative protein technologies, investors can tap into various segments of the growing market and capture opportunities arising from changing consumer preferences. Furthermore, hybrid products that combine different technologies demonstrate considerable potential, allowing investors to access the synergies and benefits of multiple approaches in a single offering.

For more information about consumer expectations, make sure you check out our analysis of the plant-based trends to watch out for in 2023.

2. Differentiation through unique value propositions

One notable trend is the intensifying competition among various players, including plant-based start-ups, established conventional meat companies, and supermarket own brands. As the popularity of alternative proteins grows, more companies are entering the market to capitalize on the opportunities.

To stand out in the face of increased competition and capture significant market share, companies in the alternative protein industry, particularly in the plant-based sector, may need to differentiate themselves by offering unique value propositions. This could involve emphasizing attributes like superior taste, health benefits, or sustainability credentials.

To thrive amidst growing competition, plant-based food companies must differentiate themselves through unique value propositions

3. Navigation of regulatory hurdles

Regulatory issues pose another challenge for alternative protein companies and may act to deter those interested in investing in alternative proteins.

Investors are more likely to be drawn to companies that have positioned themselves in markets with supportive regulatory frameworks as it reduces uncertainties and potential obstacles. This strategic decision showcases a proactive approach to navigating novel food regulations, which instills confidence in the company's ability to execute its business plans effectively.

Furthermore, a favorable regulatory environment can facilitate faster market adoption and expansion, resulting in stronger financial performance and increased potential returns for investors.

4. Establishment of a reliable supply chain

Sourcing sustainable and high-quality plant-based ingredients at scale can be difficult, necessitating collaborations and strategic investments. Companies with resilient and efficient supply chains will be better positioned to meet market demands and maintain product consistency, which can positively influence investor confidence.

How to invest in plant-based foods and other alternative proteins

Investing in plant-based meat and other alternative proteins can be an attractive opportunity for institutional investors looking to capitalize on the growing demand for sustainable and alternative protein sources. However, finding the right startups or established companies with substantial growth potential requires astute scouting and evaluations. Bright Green Partners excels in this regard, offering expertise not only in technical assessments but also in evaluating the commercial viability of potential investments.

When it comes to plant-based stocks, it's worth noting that some prominent names, such as Beyond Meat and Oatly, have faced recent challenges in the market. Nevertheless, these setbacks don't overshadow the overall positive trajectory of the plant-based food industry; this sector continues to exhibit strong growth potential. Investors seeking to select plant-based stocks should consider factors like company performance, market share, sustainability efforts, and competitive advantage. Thorough research or advice from experts is essential for informed investment decisions.

Still unsure?

For assistance in evaluating the latest trends and projections in the alternative protein industry, feel free to contact us at Bright Green Partners. We can help you make informed investment decisions by objectively assessing cultivated, fermentation, and plant-based companies and providing valuable insights into the investment landscape.

Disclaimer: Please note that the content of this blog post is intended solely for informational and educational purposes and should not be construed as investment advice or recommendation to buy or sell any securities or engage in any investment strategy.

Fishing for solutions: omega-3 alternatives for alt seafood

When consumers opt for a seafood substitute, they expect the taste, aroma, texture, and nutritional value to closely match that of the original product. Since one of the key nutritional benefits of consuming seafood is its high omega-3 content, including essential fatty acids like DHA and EPA, manufacturers of plant-based seafood are prioritizing the incorporation of these nutrients into their products.

However, finding a reliable and cost-effective source of animal-free omega alternatives has proven to be a difficult task.

In this article, we'll dive into the importance of omega-3 alternatives for seafood substitutes, explore the current and emerging sources, and discuss the challenges that companies face when incorporating these essential nutrients into their products. We'll also provide practical solutions, covering everything from the latest cutting-edge technologies to collaborative approaches.

Join us as we navigate the sea of omega-3 alternatives and help you to hook the right solution for your needs.

First, know your omegas (ALA, EPA, and DHA)

ALA (alpha-linolenic acid), EPA (eicosapentaenoic acid), and DHA (docosahexaenoic acid) are all types of essential omega-3 fatty acids, but they differ in the length and structure of their chains of carbon atoms. The longer the chain and the greater the number of double bonds, the more biologically active the omega-3 is in the body; EPA and DHA both have longer chains with more double bonds compared to ALA.

EPA and DHA are classified as essential because they play a critical role in various bodily functions and health benefits, such as fetal development, reduced inflammation, improved cognitive function, and heart health. On the other hand, ALA doesn't have many biological functions other than being used for energy. Nevertheless, it's still classified as an essential fatty acid because the body can convert it into EPA and DHA.

Why omega-3 alternatives are important for seafood substitutes

The alternative protein industry has come a long way since the days of Sosmix and textured vegetable protein. To meet rising consumer expectations, manufacturers need to deliver products that not only taste and smell similar to conventional seafood but also provide comparable, if not better, nutritional benefits.

Plant-based seafood products should aim to mimic the sensory and nutritional qualities of traditional seafood

Omega-3 fatty acids, particularly EPA and DHA, are one of the key nutritional components found in seafood. Therefore, alternative seafood products that contain omega-3 alternatives are more likely to meet consumers' expectations for nutritionally similar products.

In addition, while plant-based diets contain omega-3s in the form of ALA, the only abundant natural sources of EPA and DHA are marine algae and bacteria. The body can only partially convert ALA to EPA and DHA. What’s more, conversion rates are generally low and can vary from person to person, making it challenging to obtain adequate amounts of EPA and DHA without supplementation or fortified foods.

Consequently, seafood substitutes containing EPA and DHA omega alternatives are likely to be more appealing to consumers who follow a plant-based diet or to those who can not or choose not to eat seafood.

Animal-free omega-3 alternatives

In general, the choice of omega alternative depends on various factors such as the specific needs of the product, the cost of sourcing, and scalability. By understanding the benefits and drawbacks of each source, plant-based seafood companies can make informed decisions about which omega-3 alternative to use in their animal-free products.

Common sources

The most common sources of omega-3 alternatives are:

Microalgae and bacteria

Some species of microalgae and bacteria are favored sources of omega-3 alternatives because they are rich in EPA and DHA. They are advantageous due to their ease of cultivation, scalability, and harvestability.

However, the production and extraction process can be costly. What’s more, at present, while numerous alternative protein ingredient companies are using algae to produce seaweed protein, few have ventured into the field of fatty acid production. Brands that have demonstrated interest in supplying bulk amounts of omega-3 from microbial sources include Algarithm, Royal DSM, and iwi.

Macroalgae (seaweed)

Macroalgae, also known as seaweed, is another potential source of omega-3s for seafood substitutes. Like microalgae, some species contain high levels of EPA and DHA. Additionally, if managed properly, macroalgae is a sustainable crop that can be grown in the ocean, making it an attractive option for alternative seafood producers looking to reduce their environmental impact.

Certain species of algae are promising sources of omega-3 alternatives and can be sustainably farmed in the ocean

One of the challenges with using macroalgae as a source of omega-3 is that it can have a strong taste and odor, which may not be desirable for all types of alternative seafood products. However, researchers are working to develop methods for mitigating this while still retaining the nutritional benefits.

In addition, macroalgae farms typically operate on a seasonal basis, which can negatively impact the reliability of the supply chain. Seaweed also requires extensive processing to be used in food products, which adds to the overall production costs.

Fungi

Fungi are another source of omega-3 alternatives that have gained attention in recent years. They may provide a more cost-effective option than microalgae and can be grown on waste products. However, the amount of EPA and DHA in fungi is generally lower than that in microalgae, which can limit their use in some applications.

Plant sources

Plants like flaxseed and chia seeds are also good sources of omega-3s, particularly alpha-linolenic acid (ALA). However, as discussed, the body must convert ALA into EPA and DHA, which is not very efficient. As a result, these sources may not be as desirable as algae or fungi.

Emerging sources

The following technologies provide promising solutions to the challenges of sourcing omega-3 alternatives sustainably and affordably:

Precision fermentation

Precision fermentation is an exciting new source of omega-3 alternatives for seafood substitutes. This process involves using microbes, such as yeast or algae, which are programmed to produce high levels of omega-3s in controlled environments, resulting in a highly concentrated and pure form of fatty acids.

This approach has the potential to be more sustainable than traditional sources of omega-3s, including fish oil and algal oil, as it eliminates the need for the farming of aquatic organisms. However, while it’s not a new technology, precision fermentation within the alternative protein industry is still in the early stages of development and numerous bottlenecks need to be addressed before it can be widely adopted as a source of omega-3 alternatives for seafood substitutes.

Discover this technology's latest developments and opportunities in our corporate guide to alternative protein precision fermentation.

Plant molecular farming

Another approach is to genetically modify plants to produce omega-3s, adding them as non-native components to the seed oil profile.

Transgenic plants allows for the production of large quantities of omega-3 fatty acids

One successful example of this approach is transgenic Camelina sativa, which has been engineered to produce EPA and DHA using seven genes from microalgae. This method has resulted in the production of seeds containing up to 20% EPA and DHA and has been shown to be safe and effective in aquafeed trials.

However, some concerns remain regarding the use of genetically modified organisms, including their potential impact on the environment and human health, as well as their impact on consumer acceptance.

In vitro enzymatic methods and cell-free systems

Enzymatic methods and cell-free systems enable the synthesis of fatty acids from simpler starting materials outside of living cells. These approaches have several advantages, including faster production rates, precise control over the production process, scalability, and easier automation when compared to traditional cell-based systems.

Despite the progress made in enzymatic methods and the potential of cell-free systems, a true cell-free system for FA synthesis has not yet been developed. Further research is needed to determine whether these approaches can be optimized to produce the desired omega-3 alternatives in commercially viable quantities while maintaining consistency.

Hook the right solution for your needs

Establishing a reliable supply of animal-free omega-3 alternatives has the potential to enable plant-based seafood companies to achieve nutritional and price parity with conventional seafood. The incorporation of EPA and DHA is particularly beneficial for manufacturers as it can help them attract more customers, meet nutritional needs, enhance product quality, and gain a competitive advantage in the marketplace.

While several sources of omega-3 alternatives exist, including microalgae, bacteria, macroalgae, and fungi, there are various factors to consider when choosing a source, including cost, scalability, and reliability of the supply chain. Promising alternatives can also be found in innovative technologies, such as precision fermentation, plant molecular farming, and in vitro enzymatic methods and cell-free systems.

Bright Green Partners, the leading alternative protein consultancy, offers solutions for companies looking to incorporate omega-3 alternatives and other essential nutrients into their products. We specialize in providing comprehensive support for the alternative protein industry, including insights and guidance on the latest developments and opportunities.

Don't hesitate to reach out to us for more information on how we can help you grow and win the future of seafood.

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