Protein is a key component of the human diet, but the way we currently produce and consume animal based protein is unsustainable for our natural systems and climate goals. Animal-based products – our major source of protein – place too great a burden on our land, forestry and water resources, and lead to too many greenhouse gas emissions. Our traditional approach to producing and consuming protein is unsustainable and is at conflict with climate goals and food security.

So-called 'alternative proteins’ – plant, micro-organism and cell-based substitutes – offer a possible solution, but consumers have been slow to adopt such products, which need to match traditional protein sources in terms of taste, texture and price to really take off. The good news is that a lot of new innovative companies, in regions such as the US, Israel, Singapore and Europe, are focused on this area and consumer and investor appetite is growing rapidly. But investor confidence has been shaken recently with alternative protein firms missing revenue expectations and recording expanding losses amid spiralling inflation and a global funding crunch.

Nonetheless, there is growing awareness that the success of alternative protein is essential for the planet’s sustainability.  I expect the sector to thrive in the medium term as private and VC investment increases, technological development improves the quality of products,  the regulatory environment evolves to assure customers that their health and safety needs are being met and governments put policies into place to support this growing area.

The ever-growing demand for protein, and the unsustainability of the traditional supply

As income levels rise globally, per capita consumption of protein is also increasing, with many associating protein with health, lifestyle and wellness benefits. Also driven by the increase in the global population, the demand for protein is estimated to double by 2050.

Animal-based products account for around 62% of the total protein intake of US adults (46% from meat and 16% from dairy) while 30% comes from plants (the remaining 8% is unclassified). Meeting the growing demand for protein with traditional sources is unsustainable for our planet; land usage, greenhouse gas emissions (especially methane emissions) and water consumption are all extremely high for meat products. If combating climate change is a priority, the world must promote alternative methods to meet growing demand for protein.

The WWF estimates that Beef and Soy production drive 2/3 of the deforestation loss[1] in the Amazon basin.  The latest IPPC report published in February 2022 estimates that almost a third of emissions reduction can be generated from changing in land use, halting deforestation and changing agricultural methods. This is as much as all the efforts from decarbonising our energy supply and ten times the impact from similar measures in electrification of transportation, with considerably lower capital investment costs.

Alternative protein offers a viable solution, but widespread adoption is still a long way off

The term ‘alternative protein’ encompasses products that aim to provide alternatives to animal-based protein sources (meat, dairy, etc.). There are various types:

Plant-based alternatives are usually derived from soybeans and yellow peas. These alternates have been available in the market for a while now and already have a wide reach (for example, the Beyond Meat brand). Because of improvements over time, these are already relatively close to parity with animal-based products in terms of taste and texture, but are still around twice as costly as traditional meat.

Micro-organism-based alternatives include proteins produced using bacteria, yeasts, algae or fungi, grown in carbohydrate-rich solutions to produce protein through fermentation (for example, the Every Company). These alternatives still have a long way to go before they achieve parity and are currently 2-3x costlier than traditional protein sources.

Cell-based alternatives are grown directly from animal cells, including meat and seafood. These are relatively new and have started to appear in the market (for example, Eat Just in Singapore). For the time being at least, they are very expensive to produce.

Alternative proteins still require substantial development to achieve parity with animal-based products, but the good news is that around 90% of traditional animal-protein products can be successfully replaced. BCG expects that, by 2035, alternative protein technologies will achieve full parity with animal-based protein sources. Plant-based alternatives may achieve parity as soon as 2023, while cell-based products could still take more than a decade to reach parity.

Sector investment has grown in the past two years, but confidence has been shaken recently

According to the Good Food Institute, 2021 was a record year for investment in companies creating sustainable alternative protein they raised US$5bn during the year. Since 2010, the total amount raised by the industry amounts to US$11bn, with around three-quarters of this amount (US$8bn) raised in 2020-21 as the focus on combating the climate crisis has intensified.

However, more recently, broader investor confidence in the sector appears to have been shaken – the share prices of Beyond Meat and oat milk brand Oatly (whose investors include Vangaurd, Blackrock Ballie Gifford, Fidelity and Blackstone), two listed alternative protein companies, have declined by around 50% year-to-date and 80% in the past 12 months. Beyond Meat has missed investor expectations on revenues and its losses have expanded while Oatly has been facing supply problems, which have hit its market share and leadership position. In addition, rising inflation (and weak consumer purchasing power) and the global funding crunch is also a concern for investors and could delay market development.

Share price performance of alternative protein companies (rebased to 100 at June 2021)

Source: Refintiv Workspace

Outlook for alternative protein bridging the gap

The ‘green’ case for alternative protein is clear, but, to build a strong investment and business case, progress is needed on various fronts. I see three major areas where the whole ecosystem needs to evolve to bridge the adoption gap:

  1. Optimising protein sources to bring costs and improve the quality of alternative protein products. For example, most soya (a key source of plant-based protein) is grown for animal feed; new varieties with higher protein content need to be developed in a sustainably acceptable way to ensure we are not just creating the next pressures on water, deforestation or land use.

  2. Technological improvements. Extracting protein to building products that accurately imitate the taste and texture of traditional meat products requires complex technology, which is not currently efficient enough or scalable. More research and development is needed to drive costs down and improve the taste and texture of the end products and to improve saleability

  3. A conducive government and regulatory framework is key for the development of any sector. One of the major sticking points, besides taste and cost, is the safety of these alternative products. There needs to be proper monitoring, licensing and safety standards to assure customers that they aren’t harming their health to save the planet. The argument from many producers is that these foods are more healthy, but without food standards and regulatory involvement consumers will be reluctant to take on that risk themselves. There is also the question of subsidies and support for local farmers and communities, who often rely on government subsidies to support meat and traditional based agriculture – governments will have to and should address this if they are going to meet ambitious climate goals

  4. Consumer appetite and acceptance is building but needs to continue with a step change. According to BCG’s recent report on alternative protein 76%[3] of consumers are familiar with alternative proteins and 50% have increased their consumption due to mainly health concerns. There is also a growing awareness of the benefits to the environment.  The Marketing and positioning of products is also key, early entrants tried to brand themselves as “meat substitutes” vs. newer products are avoiding the pitfall of introducing a direct comparison to meat.  The same report states that earlier predictions, by 2035 11% of all protein consumed globally will come from alternative sources, are likely to come true with a benefit of reducing Co2 emissions by 0.85 gigatons (equivalent to decarbonising 95% of the aviation industry).

As quoted in the recent FT article “Investors grapple with complexities of biodiversity” we should not let the perfect get in the way of the good. There is much which is very good about alternative proteins, not just the taste and nutritional value but the lighter footprint on the natural system and the positive contribution to climate change – we should not let perfect get in the way of investing and consuming something which is become very good for both our health, our planet as well as in time, our pockets

The author is the former CEO of Refinitiv, and co-chair of the TNFD (Taskforce on Nature-related Financial Risks) delivering a global market-led framework for companies and investors to assess, manage and disclose on nature related risks and opportunities www.tnfd.global

[1] What are the biggest drivers of tropical deforestation? | Magazine Articles | WWF (worldwildlife.org)

[2] Course 1: Reduce Growth in Demand for Food and other Agricultural Products (Synthesis) | World Resources Institute Research (wri.org)

[3] Food for Thought: The Untapped Climate Opportunity in Alternative Proteins | BCG