8 July 2022 - The ongoing war in Ukraine has been hugely affecting global animal agriculture markets. High prices of agricultural raw materials are impacting the traditional meat sector, which begs the question: How is the critical raw material situation impacting the plant-based meat space; a market which had seen a meteoric rise before the war?
We spoke to Australian food futurist Tony Hunter to find out what the implications for plant-based meats are.
Consumption before the war
When we were last in touch with Hunter in 2021 when the COVID-19 pandemic was raging, he said that despite the global disruption caused by the pandemic, the demand for plant-based meats continued to grow. Asked how the consumption of plant-based meats has evolved since, he said that consumption appears to have stalled in the US during 2021 while it continued to grow rapidly in Europe. As for Asia, growth also continued but from a relatively small base. The biggest change though, since 2021, is “the rise of multiple sources of non-animal-based proteins,” said the food futurist.
Supply and demand since the war
In terms of the supply of plant-based meats, currently there is “no shortage of supply at retail or food service level of alternative meat products,” Hunter said. He added that this might change, however, when the full effects of war-related raw material shortages hit. Similarly, the full impact of the war on the consumption of plant-based products is also yet to be seen.
“Once the full effects of the war related raw material shortages domino through the supply chain to both animal and plant-based products, things will become clearer,” Hunter reckoned. “It could be that products like grain-fed beef and pork spike in price more than plant-based products, widening the gap between the two categories.”
He further explained that alternative protein products will become more price competitive as their volumes increase, and they may even become cheaper in some categories, replacing low-end animal protein products. “As households react to high inflationary pressures, will they turn to cheaper plant-based products and/or will chicken further increase its market share?” Hunter wondered. In his view, “2022 to 2024 are definitely going to be interesting years.”
Impacts of the war on raw materials used for plant-based proteins
As Ukraine is the world’s largest producer of sunflower oil and a big exporter of other raw materials, there has been a huge impact on the prices of those raw materials. Hunter said that while the increase in grain prices will be reflected in both conventional animal agriculture and plant-based products, the increase in prices of animal products could be magnified compared to the prices of plant-based products, considering the feed ratios for certain animal products.
“The Good Food Institute estimates that sunflower oil is used in 36-40% of the US top 75 plant-based products, and [sunflower oil] shortages will have some short-term impact,” he said. He expects, however, that sunflower oil shortages will subside in the medium term as the shortages could accelerate the development of alternative fat products.
Hunter also commented that for pre-seed start-ups, higher raw material costs are somewhat irrelevant to the value of their idea. “In many ways, the uncertainty around the current global food system is fuelling the search for alternatives to counter future supply chain uncertainties,” he said.
Impacts on innovation
According to the food futurist, higher raw material costs may also accelerate the pace of innovation as start-ups and incumbent ingredient companies alike seek new raw materials.
“In plant-based products, chickpea and lupin are seeing increased interest. It is also spurring the development of non-plant alternative protein ingredients such as mycoprotein, biomass, and algae as cost-effective alternatives,” he explained.
Investments in the plant-based meat sector
Regarding investment, there was a big wave of non-industry investment in the plant-based meat sector prior to the war. Faced with the current market context, one might expect such investments to slow down and interest from banks and non-food producers to invest in the plant-based meat sector to fade away. Hunter confirmed he is seeing such a trend.
“According to Pitchbook data, only $585.8 million has been invested in plant-based protein in the first five months of 2022. It is well below the $3 billion invested in 2021,” he said. The food futurist expects that plant-based protein investments in 2022 will be much less frequent than in 2021, unless major IPOs surface.
He also expects that “companies at the Series A fund-raising stage could find funding to be more difficult in 2023 than 2022. However, later-stage companies needing infrastructure capital could benefit from investors redeploying their capital to sustainability-based companies versus their usual high capital investments in cars, energy, batteries, etc.”
Hunter argued that the 2021 “waterfall” of cash has come to an end, and the bar for investment has gone back to 2019 pre-pandemic levels as he sees investors are becoming more selective in their investments this year.
What the war has shown the food industry
“What the war has clearly demonstrated is that the days of globalised supply chains shipping products around the world are numbered. Or if they’re not, they should be,” Hunter stated.
According to Hunter, the current global food system has been proven to be “fundamentally flawed” and “risky” in terms of the reliance on globally traded fertilizer and other inputs, as well as on a restricted range of raw materials for both animal and plant-based products. “The intensive nature of the current agriculture system has been shown to be highly vulnerable to even very localised crises,” he said.
To lessen the reliance on specific countries for raw material inputs, the food futurist recommends that supply chains should be more localised. He added that the use of new raw materials, such as mycoproteins and biomass (which require hardly any arable land and fresh water), would help with that trend.