The Big Business of Lab Grown Meat

Lab-grown meat was once a novelty, but now it's big business. More than 150 companies, backed by $2.6B in venture capital, have entered the "cellular meat" market since 2013.

The latest entrant is Archer Daniels Midland (ADM), which has partnered with Believer Meats to bring cultured meats to market. The company sees enormous potential for meeting protein demand while reducing environmental impact and improving animal welfare.

ADM's investment will focus on developing the technology and scaling up production, a significant step forward for the industry. UK-based Agronomics (ANIC: UK), a leading publicly traded company in the space, holds a portfolio of companies developing a range of synthetic meats and other tissues for commercialization. And it's not just hamburgers anymore – fish, dairy, leather, and coffee are also on the menu.

The number of firms invested in alternative agriculture has grown exponentially in the last decade.

FDA Interventions

Supporters of cellular agriculture, or "Cell Ag" as it's commonly referred to, tout its numerous benefits over traditional agriculture. These benefits include reducing the environmental impact, improving animal welfare, and providing a more sustainable protein source.

From an economic perspective, the process can be scaled more efficiently, consuming less labor and resources than traditional agriculture. But the real appeal lies in the fact that alternative proteins and food products are poised to take a significant share of the $1.7B meat and seafood industry.

Recently, the Food and Agriculture Organization (FAO) and the World Health Organization (WHO) convened to discuss the safety of cultivated meat. They concluded that further research is needed to ensure that Cell Ag meets safety standards and gains widespread regulatory approval.

However, the FDA has already granted pre-market safety approval to Upside Foods, deeming lab-grown meat safe. Singaporean GOOD Meat’s cultivated chicken also received FDA clearance last month, with the USDA now holding the company to open its production facility in Alameda.

The industry is experiencing significant growth, with increasing investment and a growing number of companies seeking access to the market. The FAO and FDA are working together as the regulatory landscape continues to evolve.

Challenges of Scale

The cost and acceptance of lab-grown meat are still major challenges for the industry. Prices have reduced significantly compared to the first $325,000 lab-grown burger, but they are still relatively expensive compared to conventional meat. For instance, producing a pound of cultured beef costs around $17, compared to only $2 for cow meat.

Younger generations, such as Gen Z, are more open to trying non-traditional meat, indicating a growing market segment. However, it remains to be seen whether acceptance will extend to the general population, especially as the average American currently consumes about 100 kg of red meat and chicken per year.

So far, cellular agriculture has shown more success in the medical field than in the food industry, as some forms of lab-grown cell technology have already overcome scaling and commercialization challenges.

In 1990, the FDA approved the first genetically modified product for food produced through cellular agriculture: a bacterium that generated rennet, a mixture of enzymes that coagulates milk to form cheese curds.

Although there were some initial challenges, the cellular agriculture process has proven to be cheaper and more efficient than traditional methods, and the use of this technology in at least one food product has not led to public rejection, indicating potential for other "lab-produced" food processes.

Most cellular agriculture companies are still privately owned and in the venture capital stage, although there are a few exceptions, such as UK-based Agronomics mentioned earlier. One such example in the US is Precision BioSciences (DTIL), which holds a stake in privately owned Elo Life Systems.

Elo Life Systems was spun out of Precision BioSciences in 2021 and is working on using gene-editing technology for agricultural applications. DTIL and Elo Life share a common focus on leveraging gene-editing technology to enhance various aspects of life, and Elo Life is aiming to produce high-protein chickpeas that could become a source of plant-based proteins, similar to Impossible Burger and Beyond Meat.

Beyond Meat, Beyond Saving

After a period of robust growth propelled by significant private equity investments, the demand for meat substitutes has experienced a considerable decline. The UK, for instance, saw a surprising 6% decrease in sales last year.

Specialized vegan producers like Meatless Farm and Plant & Bean faced administration earlier this year due to lackluster sales and substantial cost hikes. Furthermore, prominent brands like Oatly, Nestlé, and Innocent Drinks withdrew vegan products from the UK market in 2023.

Mirroring the UK trend, Beyond Meat, established in 2009, has witnessed a sharp decrease in market value from over $10 billion in 2019 to $981 million currently. This value slump puts it below the valuation of major players like Macy's and Xerox.

Sales of meat substitutes in the UK are predicted to either decline or plateau this year, according to market research firm Mintel. The surge in living costs has led consumers to opt for more economical protein sources such as processed meats or traditional vegetarian options.

Alice Pilkington, a food analyst at Mintel, noted that while people initially assumed cutting down on meat consumption would save money, the rising cost of fake meat products is increasingly becoming a barrier.

Beyond Meat, which collaborated on McDonald's McPlant vegan burger, disclosed a 30.5% sales drop to $102.1 million in the quarter ending on July 1. The company cited "softer demand in the plant-based meat category, high inflation, rising interest rates, and ongoing concerns about the likelihood of a recession" as contributing factors.

Ethan Brown, Beyond Meat's CEO, pointed to shifting perceptions around the health benefits of plant-based meat as a factor holding back sales. He suggested that interest groups have sown doubt and fear regarding the ingredients and processes used in these products.

In response, Beyond Meat has adjusted its sales forecast, projecting a decline of at least 9% this year to no more than $380 million, down from previous estimates of up to $415 million.