"Chaos " in meat industry coincides with"record" investment growth in alt proteins

Commentary

FAIRR, an investor network that scrutinises the ESG credentials of firms linked to intensive livestock and fish farming, says the animal protein industry has failed to withstand the stress test of covid, and this failure has coincided with a surge in investment in alternative proteins.

The COVID-19 pandemic has been a stress test for the animal protein industry – one it failed to withstand.

Meat processing facilities around the world shutdown due to high worker infection rates; supply chains were disrupted, and the head of commodities at Goldman Sachs has listed livestock alongside oil as one of the two most precarious commodities for investors next year.

Meanwhile, in the lead-up to COP26 in Glasgow, we’re seeing growing scrutiny of the meat industry’s climate footprint. The recent IPCC report is a sobering assessment, predicting a 1.5C global temperature increase will be reached by 2040 if global emissions are not halved by 2030.

With livestock production responsible for 14.5 per cent of all greenhouse gas emissions, a sustainable protein transition will prove essential to meeting our governments’ nature and climate goals.

The pandemic revealed the animal protein industry’s vulnerability to unprecedented global shocks, and brought renewed focus for investors on the need for resilience in the face of challenges like climate change, antibiotics resistance and pandemics.

Yet chaos in the meat industry coincided with a spotlight moment for alternative proteins. The last two years saw 43 per cent growth in dollar sales of plant-based foods and record private investment of $3.1billion in alternative protein companies, up a staggering 300 per cent on 2019.

For both investors and consumers, two years of economic uncertainty and lifestyle changes has taught us that our current food system is neither sustainable nor secure – and alternative proteins, whether in the form of plant-based or cultivated protein, offer the ultimate ‘nature-based solution’.

Taking the temperature on food firms

But how are corporates responding to this seismic market disruption?

That’s been the focus of FAIRR’s five-year $17tn engagement with leading food companies on how they’re using the protein transition to drive growth and decarbonise their product portfolios.

It reports encouraging progress since, for the first time, companies are making formal commitments to increase the volume and sales of meat and dairy alternatives to meet growing consumer demand for more environmentally friendly protein options.

In 2021, seven companies (Ahold Delhazie, ICA Grupen, Loblaw, M&S, Tesco, Unilever and Nestle) all set targets to expand their alternative protein offerings.

For example, Nestle have set a target to switch to plant-based ingredients at category-level by 2030, which includes frozen meals, pizza, and dairy, as part of their Net Zero Roadmap. UK supermarket Tesco’s has also cemented its’s position as a leader in protein innovation by setting a target to reach a 300 per cent sales increase on meat alternative products by 2025.

We’re also seeing notable progress on the reporting of emissions from livestock production, with 48 per cent of companies now tracking and publicly reporting their emissions from animal agriculture (Scope 3) – a figure that’s up from just 21 per cent in 2019. In addition, 52 per cent of the companies in the engagement now have a net-zero ambition - up from just 8 per cent in 2019.

Room for improvement

Despite the rapid growth in investment in alternative proteins, considerably wider and faster adoption is needed to achieve significant transformation within the protein industry, and secure the confidence of ESG-conscious investors.

It may be helpful here to draw parallels to the rise of electric vehicles. In the same way that electric vehicles are gradually displacing fossil fuelled vehicles by offering a more sustainable alternative that also promotes growth and creates jobs, animal protein alternatives are gradually stealing market share from meat and dairy.

However, despite protein diversification’s significant carbon abatement potential, FAIRR finds that investments in electric vehicles in 2020 were over nine times that of alternative proteins.

In FAIRR’s modelling of growth in the sustainable protein sector, a low-growth scenario sees these products achieve a 16-22 per cent share of the total global protein market by 2050, whilst FAIRR’s high growth scenario sees the alternative protein market rise to an enormous 62-64 per cent share of the total global protein market in 2050.

Despite these forecasts, many food firms aren’t seizing the opportunity to mitigate their climate risks, and are lacking drive to diversify their consumer offering to reach new audiences through protein diversification.

FAIRR’s data shows that 72 per cent of firms including Walmart, Costco, Whole Foods (Amazon), Morrison’s and Kraft Heinz are yet to set a concrete target to boost the sales or volume of their meat alternatives. This indicates a clear lack of strategy around a growing market trend and valuable climate mitigation tool.

What’s more, the progress of US retailers remains slow. Amazon (Whole Foods), Costco and Kraft Heinz are the worst performers in FAIRR’s ranking, with none of them reporting their Scope 3 emissions relating to animal agriculture, a critical measure of the environmental footprint of their meat supply chains.

Food companies should ensure they set business-wide targets on protein transition, integrating them into all aspects of their business strategy, including product development and consumer engagement.

Food firms should be tracking and reporting on their Scope 3 emissions from agriculture. Emissions targets should be science-based and factor in the timeline required to support planetary boundaries and achievements on the Sustainable Development Goals (SDG).

Investors highlight a once-in-a-lifetime opportunity

That’s why investors managing $17 trillion in assets are engaging in dialogues with these huge food companies to ask them to accelerate their adoption of alternative proteins.

There’s increasing urgency to these dialogues, with policymakers now recognising reduced meat consumption and protein diversification as effective climate mitigation and health tools. The UK National Food Strategy recommends a 30 per cent reduction in meat consumption by 2030, Denmark’s dietary guidelines recommend a 30 per cent reduction in meat, whilst France’s recommendations include meat reductions of approximately 28 per cent.

The appetite for disruption is there - from investors, policymakers and consumers. It’s time for food firms to put alternative proteins on the menu.

FAIRR’s new report Appetite for Disruption: The Last Serving is available on its website.