It takes a lot to get a person to change their eating habits.
Things like cost and improved health will often work on smaller scales like individuals and families.
Yet, how do you change the habits of entire countries and societies?
The big-name food manufacturers have been doing it for decades mostly in the name of profit and to the detriment of people’s eating habits and overall health.
But over the last few years, we’ve been seeing questions being asked in the name of sustainability and ethics.
The world’s population has only grown over time and it’s going to continue to do so. That means more people to feed and more strain on the environment to produce that food.
It’s with that in mind that companies have been exploring how to produce food in a way that has less of an impact on the environment while still meeting growing demand.
Producers that deal in meat, seafood, and vegetables are all undergoing drastic changes in the way they do business, and that means consumers will be changing how they buy and consume food no matter their diet.
The public has been seeing a gradual change over the past few years in the form of alternative meats and dairy. Behind the scenes, companies have been exploring new methods of farming that are more sustainable, energy-efficient, and take up less space.
These new food-based trends and innovations, although off to a sluggish start across the board, point to many of these alternatives gaining traction over the next several years and decades as they continue to tackle issues such as climate change, public health, food security, and a growing world population.
Let’s take a look at a few key areas of the future of food to see what’s happening now and what’s on the near-term horizon.
You’ve probably heard about plant-based meat substitutes that have been popping up over the last several years.
Brands like Beyond Meat (OTC: BYND) and Impossible Foods (IPO pending) have had their products on grocery store shelves and in fast-food restaurants for a while now and have enjoyed enough success that they’ve been able to expand to new markets across Europe and elsewhere.
However, purely from an investment standpoint, Beyond Meat’s stock performance, following what can only be described as an initial euphoric rise post-IPO, has been dismal to say the least.
Most industry analysts remain positive on the future for plant-based meat but they’re now seeing it more as a multi-decade story as opposed to an overnight success.
Despite BYND’s poor share price performance, along with delay after delay in the planned IPO for Impossible Foods, these kinds of products are still proving to be hits with people who’ve sworn off meat for health or moral reasons.
They’re also resonating with people who are trying to consume less meat for many of those same reasons. The products are also winning over consumers who are trying them merely out of curiosity.
They’ve gone from niche status to being featured on the menus of places like Burger King and other international chain restaurants in just a few short years. But there are still plenty of people who have their own reasons for not wanting to try plant-based meat products.
That’s where a different kind of alternative meat can come in and win over consumers while doing its part to cut down on things such as the environmental impact that raising livestock to produce meat can have.
It’s called cultured meat and it’s in a place now where its plant-based counterparts were not that long ago.
As more and more people learn about cultured meat, this nascent subsector of the meat industry could see a rapid rise in popularity and adoption that dwarfs plant-based offerings simply because it has the potential to appeal to people who don’t want to change what they eat but are willing to change how they source it.
You might hear it called cultured meat, cultivated meat, or lab-grown meat. Essentially, scientists take stem cells from animals and bathe them in a liquid that provides them with the nutrients they need to grow until the cells can divide and increase their population.
From there, the cells are placed into a machine called a bioreactor, which is like a brewery tank designed to help the cells develop under ideal conditions.
Those cells are seeded to scaffolds, which are molds designed to encourage the cells to organize into a larger, cohesive structure.
There’s much more to it, and the process to bring the product from stem cell to meat product is involved and still undergoing improvements, but there are many factors in its favor when you compare the finished product to conventional meat.
Foremost among those concerns is the environmental impact.
The production of meat impacts the environment in several ways. It starts with fossil fuels but also involves methane produced by the animals as well as how much land and water get used in the production of meat products.
Of the different meat products available, beef is the biggest culprit when it comes to impact on climate.
Cows require more resources than any other livestock, grow more slowly, reproduce more slowly, and require much more land than animals like chickens and pigs. Their waste produces methane, a greenhouse gas that traps 30 times more heat than carbon dioxide and is one of the biggest contributors to climate change because of it.
When you throw in the fact that 50% of the planet’s habitable land is used for agriculture and 77% of that land is used for livestock, you start to get a sense of just how big an impact something like cultured meat could have.
It also starts to make sense that many of the pioneering developments in alternative meats start with beef products.
Even though it comes behind pork and chicken when talking about how widely consumed different meats are, a lot more goes into raising cattle and getting beef to market.
So makers of plant-based and cultured meats will likely have the most noticeable impact in that particular part of the sector in the coming decades.
The benefits of shifting to cultured meat don’t stop at doing something to address environmental concerns either. The science behind creating cultured meat demands that the environment in which the work is done be a sterile one, which is a far cry from many meat processing plants.
Think about the many times you’ve heard about how E.coli and other bacteria spread in plants that handle meat and you’ll immediately see the advantage. During the pandemic, many meat processing plants had to be shut down due to the spread of COVID-19, causing a shortage of chicken, beef, and other meat products on grocery store shelves.
It’s also worth considering antibiotics, which are often given to livestock to keep them healthy but at the cost of antibiotic-resistant bacteria becoming more common.
Cultured meat doesn’t need to be treated with antibiotics, so antibiotic resistance is something that would become less of a concern with more cultured meat on store shelves.
Yet, even with all of those benefits, cultured meat products still face a steep uphill battle before they can carve out a meaningful market share.
Like any new technology, cost is first and foremost among those challenges. In 2012, the first lab-made hamburger came in at a total cost of $325,000 after it was produced.
That cost, obviously, has already come down as time has brought about improved technology and increased scale but it still has a long ways to go before the average person will be able to afford a lab-grown beef patty. Still, the good news is that research shows cultured meat could hit a competitive price by 2030.
There’s also the challenge of public perception. After all, a company can make the cheapest, healthiest lab-grown meat in the world but it won’t mean much if no one wants to buy it.
Think about how many people are hesitant to eat genetically modified organisms (GMOs) and the perception that they’re unnatural. The arguments against cultured meat could be much the same.
Furthermore, if a segment of the population feared that the government was putting tracking devices into covid vaccines, then who knows what kind of “mind-control” systems they might think are going into lab-grown meats!
Clearly, change isn’t something that comes overnight… so producers of lab-grown meat will have to do what they can to make their products marketable on top of making them affordable.
Even with these many challenges, companies are forging ahead to get lab-grown meat to the market.
One company that’s poised to potentially lead the cultured meat sector is a privately held startup called Upside Foods. The name stands out above others in the somewhat crowded cultured meat sector because of who’s behind it.
Upside Foods was originally founded as Memphis Meats in 2015 by Dr. Uma Valeti, a cardiologist, and Dr. Nicholas Genovese, a cell biologist, and is based in Berkeley, CA.
The company has a stated goal of feeding 10 billion people by 2050 while preserving the environment. It has already proven its technology works through the creation of cell-cultured beef meatballs, chicken, and duck but aims to create more offerings thanks to a production method designed to be flexible across a variety of animals.
As of now, Upside Foods is a private company, like many others in the sector, but stands out due to some big-name backing. Food industry giants Cargill and Tyson have invested in the company and so have billionaires like Bill Gates and Richard Branson.
In 2020, the company completed a $161 million Series B fundraising. It’s for reasons like this that many believe Upside has the best chance of being first to get a cultured meat product to customers, thereby cementing its place as a leader in the industry.
That may become a reality as the company’s name change coincided with an announcement that it intends to get its first product, chicken, on store shelves in the very near future. The company recently received FDA approval for consumers to eat the lab-grown chicken filet that it has engineered.
That, coupled with the fact that the company recently opened a production plant that will produce, package, and ship all of its products, has the company and enthusiasts hopeful for the future of the sector.
We’ve talked about meat but it pays to mention vegetables too.
One area that saw positive attention during the 2020 pandemic was indoor farming and growing operations. Agriculture is one of the biggest, most important industries in the entire country but much of the produce we get comes from Mexico, which can lead to supply chain issues as we saw during the pandemic.
When it comes to domestic produce, California feeds much of the country, alongside Texas and several states throughout the midwest.
One of the main issues that the farming industry contends with is one of possible disruption along the supply chain.
Think about the many things that can happen to a shipment of fruit that has to get from California to, say, Virginia. Delays, accidents, and other incidents lead to lost revenue, less choice for consumers, and increased insecurity in a time when the population is growing and food sources have to grow right alongside it.
Indoor farms go a long way in helping to reduce that risk but that’s hardly the only advantage this emerging sector brings to the food industry.
Another big reason indoor farming is taking off is that it offers the advantage of protection against adverse weather. Operators of indoor farms don’t have to worry about whether the season is right for producing crops.
The controlled environments being made possible by indoor farms mean that crops can grow even during the winter months. Beyond that, farmers don’t need to worry about production windows and the potential to lose crops because of adverse outdoor conditions like droughts, storms, and floods.
Indoor farms are also protected against invasive species. Systems can be put in place to reduce the likelihood that crop-destroying insects will contaminate the plants, which, in turn, means that little to no pesticide will have to be used to protect the crops.
Likewise, because the farm is indoors, the crops will be protected from invasive plant species and wild animals that eat crops. This leads to larger crop yields and the continuous, uninterrupted creation of bulk produce.
Another thing to think about is just how much water is used to grow the food we eat.
Many indoor farms recycle the water they use by drawing from an on-site pool, using that water to grow crops, and passing it through a filtration system that cleans the water to be used again.
That process eliminates a lot of the water waste that comes with traditional farming and is a crucial step in ensuring that farming over the next several decades will be able to keep up with growing demand for food.
Indoor farming is also about getting food to people in less time. These indoor farms can be built closer to the communities that will be buying and consuming the food, thus cutting back on transportation costs and reducing carbon emissions. It also cuts back on the risk of supply chain disruption.
Those are just a few of the many advantages presented by indoor farming. As the sector scales up and becomes more widespread, it will become apparent to more and more people that indoor farming is going to be a big part of the future of agriculture in America.
There are several companies in the sector that are positioning to take advantage of the indoor farming trend as it moves from a niche market segment to becoming the standard.
One of those companies is AppHarvest, a Kentucky-based company that, while currently struggling financially, owns several indoor tomato farms and has the goal of shaping the future of the agriculture industry.
The company, which was founded in 2017, prides itself as being driven by scalability and sustainability thanks to the technology that it uses in its practices.
That includes a hybrid lighting system that makes use of sunlight, energy-efficient LEDs, and high-pressure sodium grow lights that double as a heat source during cooler months. This hybrid system makes it possible for the company to produce robust crop yields year-round.
In addition to the hybrid lighting system, AppHarvest also uses a recycled rainwater system that draws from a 10-acre pond to water its crops. The system employs a closed-loop drip irrigation system that gives every plant exactly the right amount of water it needs, and any water that’s left over is put through filters and recycled back into the system.
AppHarvest also uses artificial intelligence to monitor crop health and deal with pests while also predicting the crop’s yield. This results in making it easier for the company to make decisions related to scheduling workers and transporting products to retail partners.
That, on top of harvesting done largely by robots, allows the company to create and pick only the ripest tomatoes to send to its customers.
And speaking of customers, AppHarvest has strategically placed its farms within a day’s drive of 70% of the country's population. It can reach major population centers along the eastern seaboard in a much shorter timeframe as compared to growers located in places like California and Mexico.
The company’s advantageous positioning also puts it in easy reach of places like Houston and Chicago. Thus, the company enjoys the competitive advantage associated with lower carbon emissions while ensuring customers receive fresh produce.
AppHarvest’s retail partners include Target, Walmart, Costco, Whole Foods, and Trader Joe’s, just to name a few.
AppHarvest completed the SPAC process in February of 2021 and is the first company of its kind to go public via reverse IPO. Yet, earnings growth has been hard to come by thus far.
Its stock price surged in late-2020 after going public amid the SPAC boom but has since sold off sharply. Not only did SPAC companies largely fall out of favor but AppHarvest made the announcement that it was shifting its focus from growing the business to further developing its technology so that it could “create more long-term shareholder value.”
That strategy, obviously, has yet to pay dividends. And with that shift also came a sharp shift in revenue to the downside. As of this writing, following multiple years of poor financial results, the company has a market cap of just $77 million.
Unless the company can quickly find a way to exponentially increase its revenue stream, the business will almost assuredly lose money every year through at least 2025, if not longer.
The bridge to breakeven will undoubtedly require hundreds of millions of dollars of capital, which likely means more equity or debt financing in the future, which will further dilute shareholders. In other words, the jury is still out on AppHarvest’s prospects for survival.
The third area that has to do with the future of food combines elements of the previous two.
During the covid pandemic, one food category that saw growth despite supply chain disruptions and restaurant closures was seafood. While many areas of the economy shrunk or stagnated, seafood saw growth across the fresh (24.9%), frozen (35.7%), and shelf-stable (21.3%) categories to generate over $16 billion in sales. This happened across high-end categories like shellfish, as well as more affordable options like tilapia.
The reason behind it is fairly simple. People were spending more time at home over the course of the pandemic and, amid the biggest health crisis in living memory, were looking for ways to eat more healthily. Seafood boasts many health benefits, so it makes sense that demand for the food group increased over the course of the pandemic.
Of course, covid vaccines have since been rolled out and life has pretty much returned to normal in most places but the public is still going to carry the lessons of the pandemic with it for years to come, which means keeping many of the new habits that were picked up in 2020.
When you pair this with the fact that the world’s population is only going to continue to grow over the next few decades, it becomes apparent that something needs to be done to make sure populations can be fed.
Remember, food security was a big issue during the pandemic, and that applies to all areas of the sector, including seafood. That’s on top of the concern that dwindling wild fish supplies are growing increasingly more expensive.
That’s why aquaculture and indoor fish farms are set to take off as another big trend in food in the near future.
Aquaculture operations are responsible for the farming of fish, shellfish, and aquatic plants in fresh, salt, and brackish water, making it possible to supply high-quality sources of protein to consumers without disrupting oceanic habitats through actions like overfishing and pollution.
The industry is projected to pull in over $300 billion by 2025. Thanks to technological advances in sustainability, these indoor fish farms will be able to thrive without harming the environment the way traditional commercial fishing can.
More than anything, the stability of fish populations is important in fish farming. Through the use of aquaculture, a stable supply of fish is relatively easy to maintain. Compare that to fish in the wild where populations are subject to not just pollution and environmental changes but predation and habitat destruction.
The controlled environments set up through aquaculture make it possible to protect species and habitats while providing enough nutrition for growing populations.
Building from that, aquaculture also plays a large role in research related to marine life. While most people associate the industry with food, it also provides the scientific community with an easier way to study various fish species.
Oceanographers, biologists, and other types of scientists with access to aquaculture facilities can use them to study how aquatic lifeforms adapt to living in enclosed spaces and how they interact with each other. This not only advances conservation efforts but also makes it so that fisheries can become more effective and efficient at what they do.
Then, of course, there is the job creation aspect of an aquaculture operation. From management, biologists, and research assistants to general labor and support staff, these kinds of operations employ large numbers of people and help local economies.
As populations grow and as food demand goes up, more facilities that breed and raise fish will be needed, and that’s where companies in the aquaculture sector can capitalize on the opportunity.
One company poised to potentially take advantage of the boom in indoor fish farms is Atlantic Sapphire.
The Norwegian company was founded in 2010 and has since grown into an international operation that specializes in raising Atlantic salmon at indoor facilities it calls Bluehouses. One of those facilities is located in Hvide Sande, Denmark, while the other is in Homestead, Florida, about an hour south of Miami.
Atlantic salmon is a cold-water species whose native habitat isn’t anywhere near Florida. Until Atlantic Sapphire set up its operation there, the fish were systematically flown in from the company’s native Norway.
With the Florida-based aquaculture facility now in operation, entire generations of Atlantic salmon now live out their entire lifecycle in tanks thanks to the company’s aim to supply the U.S. with nearly half of the salmon it consumes.
It does this through a Recirculating Aquaculture Systems (RAS), which purifies the water and simulates a system that allows the salmon to swim against the current in a manner similar to the way they would in the wild.
The system is also designed so that the salmon are never exposed to sea lice or diseases that sometimes infect fish in the wild, and thus the company never runs the risk of getting customers sick.
Atlantic Sapphire recycles 99% of the water used at its Florida Bluehouse while simultaneously maintaining control over factors such as chemistry, temperature, salinity, and current using artificial intelligence.
This all combines to create an ideal environment for the salmon as the company reaches more customers in America with fewer middlemen and fewer potential points of failure in the supply chain.
The company aims to grow 220,000 annual tons of salmon by 2031 and, because of its location, those salmon would be able to reach store shelves in many parts of the country within a day.
However, it is quite common for a relatively new company in a niche sector to experience growing pains and setbacks, and Atlantic Sapphire is certainly no exception.
Back in 2021, the company, in a statement to the Oslo Bors, reported that higher mortality had forced its Florida operation into an early slaughter. Those problems have since persisted, and, unless the company’s scientists can figure out a way to resolve the issue, the company’s shares will likely remain under significant sell pressure going forward.
As of this writing, Atlantic Sapphire is trading near an all-time low at a market cap of just US$80 million.
Thanks to factors like the covid pandemic, climate change, supply chain disruptions, food scarcity, and a growing population, we’ve had to reevaluate not just what we eat but also how we source the food we consume.
The companies outlined in this report are putting practices in place that have them at the forefront of these trends but, as detailed, consumer acceptance has been molasses-slow, costs have remained high, revenues have been constrained, and numerous problems have arisen throughout the technological landscape.
For those reasons, we believe investors will be best served by remaining on the sidelines in the space until such time as we begin to see some upward traction across specific categories.
A lot of these niche food market segments will eventually have their day in the sun. Yet, at present time, we believe the prudent approach would be to simply keep these companies, along with others in the space, on your investment radar for future potential participation.
Until that time… happy eating!
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