Alternative protein source – food for your portfolio

The food industry is seeing a shift towards alternative protein sources. That helps the environment and offers investment opportunities.

At the Credit Suisse event for Swiss External Asset Managers titled "The transformation of our diet: opportunities and challenges for the food industry," Björn Witte, CEO of Blue Horizon spoke about the possibilities offered by meat substitutes in the future and why they provide first-class investment opportunities. The topic was later discussed in more detail with an expert panel including Björn Witte, Stefan Nolte (Migros Industry), Benjamin Morach (BCG), and Christine Schäfer (Gottlieb Duttweiler Institute).

World's growing population putting a strain on resources

By 2050, there will be ten billion people living on our planet. That will inevitably increase demand for resources and energy. This is the case especially for food production, which currently accounts for one quarter of global greenhouse emissions. More greenhouse gases are generated in the global production process of meat and dairy products alone than in the entire global transportation sector. According to Björn Witte, "Even if every consumer decides to buy an electric car every few years, it will not be enough to offset emissions." He added that food production and the accompanying shift toward alternative sources of protein – the transition from using animal-based to plant-based and other proteins – would be more important.

Meat substitutes in response to climate change

The COVID-19 pandemic contributed towards more sustainability in food consumption and raised greater awareness of healthy diets including those with fewer animal products. In combination with long-term megatrends and technological advancements, these developments are supporting the "protein transformation." Products made from alternative proteins are no longer seen as exotic, slow-moving inventory. Instead, they have become seriously competitive – and popular – meat substitutes. They are made from proteins based on plants, algae, bacteria, and fungi.

State-of-the-art biotechnology is also enabling the creation of fermented and cell-based options. For example, it will soon be possible to produce beef by growing animal tissue without incorporating the animal itself in the manufacturing process. The trend toward meat alternatives could contribute substantially to reducing CO2 emissions in the agricultural and forestry sectors, which have a 70% larger carbon footprint than the entire transportation sector.

Transformation instead of disruption

Within a span of ten years, proteins from alternative sources could catch up with animal-based proteins – not only in terms of taste and consistency but also when it comes to price. According to Blue Horizon, that is likely to happen in three major waves. Currently we are seeing focus of applying known food production technique from meat and diary industries and plant-based proteins in general. Later on the market is likely to progress to alternatives produced from microorganisms by 2025 and eventually leading to cell-based meat in 2030. At this intersection between biology, technology, and agriculture, new companies could sprout up that quickly become global players.

Yet, even conventional farmers and food producers will also help drive this development as they adjust to the new market demand. As a result, the trend will open up numerous opportunities to invest in companies involved in the food production value chain and contributing to the protein transformation. They include suppliers of raw materials, producers, and companies that take care of branding.

Taking advantage of alternative proteins as an investment opportunity

Consequently, this field is opening up new and enticing opportunities for investment that also meet ESG criteria. What's more, the market potential is enormous. The global market for meat and dairy products is currently worth USD 2 trillion annually. Currently, the market penetration of the animal-based protein market by meat substitutes is still around 2%, but it could reach between 10% and 22% of the overall market in ten years.

Blue Horizon believes this would create a market for alternative proteins worth at least USD 290 billion. For Björn Witte, that is the greatest opportunity from the investor's standpoint: "The feeling reminds me of what it was like just before the internet took off."

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