Pivot Food Investment

Industry Disruption

Plant-based, cultivated, and fermented meat, dairy, and egg products pose a significant and intensifying threat to the factory farming industry.

Public awareness of the deleterious impacts of factory farming operations and animal-product consumption on people, animals, and the environment is steadily increasing at the same time as innovators and investors—including the world’s largest food companies—are increasing the accessibility, affordability, and appeal of alternative proteins.

Against this  backdrop, governments around the world are grappling with the joint challenges of mitigating climate change and sustainably feeding a 2050 global population of 10 billion. In May 2020, the European Commission revealed its “Green Deal” plan to achieve carbon neutrality in the EU by 2050. The proposed plan includes €10B in funding for the Commission’s “Farm to Fork” strategy, which involves increasing the availability and accessibility of sustainable plant-based and cultivated alternative proteins.^[1] To date, the governments of Canada, Spain, Singapore, and Saudi Arabia have all partnered with private industry to advance the development of alternative protein technologies and product distribution.^[2] Alt-protein investment in China has also drastically increased, as corporations including Cargill, Nestlé, Tyson, and Yum Brands as well as a number of seed and venture capital investors seek to capitalize on consumers growing interest in alternative proteins, a trend that has only intensified since the COVID-19 outbreak of late 2019.^[3]

Plant-based meats are positioned to claim increasing market share

Global consultant AT Kearney predicts that by 2025, plant-based meats will comprise 10% of the total global meat supply. By 2040, the firm claims, this figure will have risen to 60%.^[4] As for dairy alternatives, which already account for 15% of the total U.S. market and significant shares of the European and Asian markets, consultants from Grand View Research predicted these will grow at a 6-year CAGR of 16.07% to top $41B by 2025 and claim roughly 7% of the total global share.^[5] 

Other predictions regarding the proliferation of alternative proteins are more bullish. According to the think tank RethinkX, the influx of new food technologies will see factory farming (including seafood) revenues decline by 90% by 2035, bankrupting operations burdened by stranded assets and land that has decreased in value by 40% to 80%.^[6] “We are on the cusp of the deepest, fastest, most consequential disruption in food and agricultural production since the first domestication of plants and animals ten thousand years ago,” RethinkX notes. “By 2030, modern food products will be higher quality and cost less than half as much to produce as the animal-derived products they replace.” If Impossible Foods founder Patrick Brown has his way, all factory farming revenues will disappear by 2035. Brown aims to remove all animals from the food system by that date.^[7] 

Major factory farming operations are warning investors of alt protein-related financial risks

In its 2019 10-K filing, Tyson warned investors market demand for alternative proteins ranked among the factors and uncertainties that could “cause actual results and experiences to differ from anticipated results and expectations expressed forward-looking statements,” which “include, but are not limited to, current views and estimates of [the company’s] outlook for fiscal 2020, other future economic circumstances, industry conditions in domestic and international markets, [the company’s] performance and financial results (e.g., debt levels, return on invested capital, value-added product growth, capital expenditures, tax rates, access to foreign markets and dividend policy).”^[8] 

On November 12, 2019, America’s largest milk producer, the Dallas-based Dean Foods, filed for Chapter 11 bankruptcy protection. The company ended 2018 with a $326.9M loss on $7.8B in annual revenue, which had fallen 38% since 2011^[9]. Between January and May of 2019, shares in Dean Foods shed roughly 60% of their value as the company’s market value plummeted to $141M, roughly 5% of what it had been worth a decade earlier.^[10] Commenting on the filing, Dean Foods CEO Eric Beringause noted, “Despite our best efforts to make our business more agile and cost-efficient, we continue to be impacted by a challenging operating environment marked by continuing declines in consumer milk consumption.”^[11] During the decade leading up to the filing, milk consumption in North America had declined an estimated 2% year-over-year (YOY) as plant-based alternatives claimed increasing market share. The filing proved costly for investors. Particularly the Central States Southeast & Southwest Areas Pension Plan, which was Dean Foods’ largest unsecured creditor with a claim of $722.4 million.^[12] 

Weeks after the Dean Foods filing, the 176-year-old Ohio-based Borden Dairy Company also filed for Chapter 11 bankruptcy protection. Several U.S.-based meat producers also filed for Chapter 11 protection during 2019, including the Idaho-based CTI Foods, the Missouri-based Rancher’s Legacy Meat Company, and Texas-based Kane Beef. Longtime seafood powerhouse Bumble Bee also filed for bankruptcy in November 2019, 120 years after the company opened its doors and two years after it had pled guilty to price-fixing.^[13] Bumble Bee’s Canadian sister company Clover Leaf also filed for bankruptcy in Ontario Superior Court. As of March 2020, Bumble Bee was planning a restructuring that involved a strategic partnership with the plant-based seafood company Good Catch.^[14]

Footnotes and Sources