The Agricultural dilemma as disruptive Technologies take hold

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A September 2019 report by RethinkX, an independent think tank based in London and San Francisco, predicts major disruption in food and agriculture over the next decade.

Rethinking Food and Agriculture 2020-2030, the Second Domestication of Plants and Animals, the Disruption of the Cow, and the Collapse of Industrial Livestock Farming forecasts the wholesale collapse of dairy and cattle industries by 2030 as animal protein production is replaced by “precision fermentation” (also known as synthetic biology or recombinant protein production) and a new “food-as-software” production model.

The report predicts that, due to rapid improvements in underlying biological and information technologies, the cost of precision fermentation – a process that enables the programming of micro-organisms to produce any kind of complex organic molecules, without the need to physically grow livestock or plant – is dropping exponentially. The price of protein, it says, will fall to $US10 a kilogram by 2023-25.

The cost of food ingredients produced by industrial fermentation including proteins, lipids, vitamins and biologics will be five times cheaper than traditional animal proteins by 2030 and 10 times cheaper by 2035, the report calculates.

First on the chopping block are …

Should the report’s predictions come to pass, commodity dairy ingredients (milk solids, whey and casein) and mincemeat produced from cows will be first on the chopping block and then the rest of the livestock industry, along with all forms of agricultural or animal-derived co-products such as seafood, collagen and leather, will follow.

The report has received significant pushback from established industry players, with one even describing it as “clearly hyperbolic” (more on that later). But its co-author and co-founder of RethinkX, Tony Seba, is a bestselling author in technological disruption and has a track record in accurately forecasting major industry disruption well before mainstream commentators in the case of solar energy, solar storage and electric vehicles.

Now he predicts that, at current prices, revenues of the US, along with other industrialised beef and dairy industries globally will at least halve by 2030, sending them into a “tailspin.” The land value of traditional livestock-bearing land worldwide could plummet by anywhere between 40% and 80% by 2030, he says. 

Asked whether such bold and some would say fatalistic, predictions apply to New Zealand’s largely pastoral agricultural system, Seba is clear no country will escape what the report describes as the “fastest, deepest, most consequential disruption of food and agriculture in history.

“The disruption will be global. Assuming open markets, the same cost curves would also apply. Pastoral, free-range systems – it doesn’t matter. Once you can get a product that is a lot cheaper and can be produced locally without transport cost, it’s over. It’s going to happen, and these new proteins are going to continue to get even better and cheaper and then even better and even cheaper again.”

Any country that is exposed to agriculture dependency on the international wholesale market will suffer the pain, Seba says.

He’s even predicting that ‘lab’ meats produced through cellular agriculture technologies such as the en vogue plant-based protein alternatives sold by Beyond Meat are unlikely to survive the onslaught of precision fermentation. 

“But the cow disruption comes first because it’s the most inefficient food production system on the planet. The idea you have to build up a whole cow over three years to then break it up, that’s essentially a Neolithic idea. It’s amazing it has taken this long to disrupt.”

Dairy industries will be the first of the country’s primary sectors to collapse once modern food technologies have replaced the key functional proteins in a bottle of milk, the report says. A mere 3.3% of its content, Seba emphasises. 

 By 2023-25, the cost of cow-free PF proteins will fall below $10/kg, under the existing costs of protein and whey from cows, he says. “That means in about five years, nearly half of worldwide dairy exports will be wiped out.”

While the market is pushing for value-add in the form of high-value infant nutrition and liquid drinking milk for consumers who care about food provenance, the reality is nearly three-quarters of the millions of tonnes of milk produced is bought by large international food ingredient and industrial foodservice companies servicing mass markets with products such as pasta sauces and cheese. It’s easily substituted by cheaper and more compelling alternatives.

Countries like New Zealand have already warned of the risks of primary dairy exports dominating the country’s overall export performance as well as the dairy industry being too concentrated on China as its major customer. Industrial fermentation technologies are arguably a bigger threat.

“Farmers get two cheques from their cows: milk and, after a few years, a meat cheque too. Both are early candidates for disruption. We are talking about ingredients based on milk components – not drinking milk (which has a host of taste, texture and compositional characteristics to replicate) and mince,” says Peter Fraser, agricultural economist and a senior research fellow at Victoria University’s Institute for Governance and Policy Studies.

Companies designing microbes for protein production such as animal-free dairy will not only dominate the food industry, says Seba, but are also capable of developing entire new, high-value categories far more sophisticated in nutrition and functional health than anything we are seeing from a cow today, including human-derived infant breast milk and sugars, cannabinoids and lactose-free milk. 

“Businesses make decisions based on supply, predictably of quality. And you can’t get that with any cow product, be it because of seasonality, geopolitics or trade markets, etc. With precision fermentation, you can give [your customer] an exact number all year round, based on production costs – you can predict that” he says.

Though less exposed than dairy and despite a steady shift to higher-value markets in recent years, the red meat sector could also be troubled by the new alternatives.

Meat Industry Association’s (MIA) latest annual report indicates that the volume of low-value beef and lamb frozen exports is upwards of five and 15 times higher respectively than its higher-value chilled cuts.

Sad news considering in 2017 the average value for all chilled lamb exports was $11.70 per kilogram versus $6.10 for frozen, and chilled beef commanded $12.46/kg versus $6.45 for frozen. Not only that, co-products – such as hides, skins, bone meal and offal, which can also be produced via new technologies – comprise an important contribution to industry returns, accounting for about 19% of total industry export value.

Energy efficiency

Like Seba, Fraser is convinced that the dairy and livestock industries may not survive the forces of incoming technological change.

“Remember milk is 88% water, with the other 12% being a combination of fats, proteins and sugar. If they can replicate the fat, the protein or the sugar components, then the whole thing starts falling over. The only hole I can see here is in terms of energy, but my suspicion is precision fermentation will need much less than the status quo,” he says.

The RethinkX report claims ingredients and proteins produced through precision fermentation and other modern technologies will be about 10 times more efficient across the board – from land and water use to feedstock consumption and energy use.

Ryan Bethencourt – chief executive and co-founder of Californian alternative protein pet food startup Wild Earth, and also a partner at Silicon Valley venture capital fund Babel Ventures – says alternative protein fermentation technology is 80-90% more energy, water and resource-efficient than traditional agricultural methods. Given just under a third of meat consumed within the US is through the pet food market, Bethencourt says if his startup makes just a couple of percentage points of difference, it will have some effect on reducing greenhouse gas emissions.

He thinks the timeframes the RethinkX report forecasts for reaching price parity with incumbent protein players are “quite possible” once the new technology companies hit scale.

Already, alternative proteins produced via industrial fermentation have plummeted in cost from $US1m per kilogram in 2000 to about $US100 today, the report says. That downward curve is being accelerated with increased investment into biotech startups and more strategic partnerships providing the fermentation and production facilities needed to scale.

In July 2018, Mosa Meat, a Netherlands-based cellular agriculture startup making animal red meat from cultured animal cells, completed a $US8.8m capital raise led by M Ventures. The backer is the venture capital arm of German pharma Merck, which is a specialist in cell culture media, the key ingredient and major cost hurdle that cell-based meat companies have to overcome to reach price parity with live animal meat. The partnership allows Mosa Meat to reduce the formerly prohibitive cost of the cell media, and founder Dr Mark Post says it hopes to bring lab-grown meat to the European market in 2021 at $US10 a burger. That compares with the first such burger costing (in total) more than $US250,000 just six years ago.

And Memphis Meats has just closed a breakthrough $US161m funding round – the highest ever for the cell-based meat industry. The funds will be used to build a pilot production facility, build the team and to launch products into the market once regulatory approvals are gained. As Forbes says in an article on the fundraiser: “There’s no question about it: the sustainable food industry is on fire right now.”

Fraser is uncertain whether the disruption will come within a 10 or 20-year timeframe but is sure it is less than 30 years away. If biotech develops Moore’s law-type properties, exponential cost reductions are possible in the same way seen in everything from big-screen TVs to computer chips, he says.

Critics rebut the report

Not everyone agrees with the content of the RethinkX report.

Jack Bobo, chief executive of US-based food and agriculture foresight company Futurity and a former US State Department adviser, says there’s little reason to believe precision fermentation will achieve in a decade what plant-based alternatives have failed to do in several decades.

He labels the report ‘clearly hyperbolic.’

“When it comes to livestock products, alternative proteins currently offer no competition to premium meat products and no prospect for offering competing products within a decade,” he says. 

Bobo also stresses the agricultural industry has delivered impressive environmental gains in the past few decades, with the US livestock industry alone halving the footprint of a quarter pounder between 1980 and 2011.

In New Zealand, Lincoln University’s honorary professor of agri-food systems Keith Woodford also doesn’t believe New Zealand’s agricultural industry will be thrown into a tailspin as quickly as the report’s authors predict.

“Their costings are based on extrapolations and at some point there are fundamental biological considerations that have to come into play – I also note that food is a lot more than the macronutrients of protein, carbohydrates and fats.”

Even if the report’s predictions do come true, Woodford thinks New Zealand would reconfigure around premium pastoral products plus some horticulture, with a strong Asian focus.

Matt Gibson, chief executive of Kiwi-founded New Culture, which is using microbial fermentation to make cheese, thinks the report’s timeframes may be off, given the enormous investment in new infrastructure required over the next decade to supply dairy to the growing world population.

One of the biggest hurdles to overcome is achieving scale in fermentation capacity, which is unavailable yet. 

The human factor

One key factor critics say the report has overlooked is human behaviour. Beef + Lamb, Pamu (New Zealand’s biggest farmer) and Agriculture Minister Damien O’Connor all say the report dismisses both the cultural significance of ‘real’ food and the likely consumer backlash against ‘chemically derived’ foods in favour of naturally produced ones with a provenance story.

“I wouldn’t underestimate just how in-built our culture of meat and dairy consumption is globally, a culture that goes back thousands of years,” says Steven Carden, chief executive of Pamu (Landcorp).

Carden points to a growing dichotomy in Western diets that he thinks will curtail the speed of adoption and associated downward cost of alternative proteins.

“We’re seeing a move toward highly processed synthetic foods on the one hand and a shift toward unmanufactured natural foods produced as ‘naturally’ as possible on the other.

“Food in the West is consumed for enjoyment, not to hit a specific nutrient or calorific intake requirement,” he says. “The existence of cheaper ‘higher quality’ substitutes won’t drive adoption of them in the west, where food remains a relatively small percentage of our household income.”

Beef + Lamb chief insight officer Jeremy Baker thinks the report’s fatalistic predictions are irrelevant to New Zealand’s red meat sector and that the rapid emergence of manufactured proteins may help differentiate it well on the international market.

“If the report’s predictions come to pass and industrial agriculture is decimated, this is a fantastic opportunity for New Zealand red meat to escape being compared to this commodity production system, and continue to differentiate itself as a premium, high-value, natural and low-footprint product.”

O’Connor also thinks the report is less applicable to pastoral systems such as New Zealand’s and that it is in a prime position to shift toward becoming the ‘Swiss watch’ of global agriculture.

However, he says, there is no denying both the trend toward more alternative proteins and that there is still much work to do in moving the industry away from a strong commodity focus to a premium business-to-end-consumer model.

“It would be naïve to think this won’t affect us over time. We need to reposition as the finest products of nutrition in the world.”

Fake food

Although people often claim they wouldn’t eat unnatural or human-engineered food products, one of the most telling signs of a more relaxed consumer willingness to adopt them is Impossible Foods’ plant-based meat analogue that bleeds. (Air NZ was the first in the world to offer it up on business class flights from Auckland to Los Angeles).

Consumers don’t appear to have been deterred by the company using genetically engineered yeast to produce plant-based ‘heme’ – the same protein molecule found in red meat that gives it its savoury bloody texture, consistency and aroma. In fact, demand is rising, with the product now sold across 17,000 foodservice outlets internationally, in addition to recently entering the US grocery sector to compete for head on with traditional mincemeat on supermarket shelves. The same goes for Perfect Day’s microbially produced animal-free dairy ice cream that similarly sold out within hours of launch.

Generational differences in food preferences will also come into play.

The idea of the quintessential Sunday roast is already dying out among millennials and generation z, who comprise about 65% of the global population. According to Mintel’s 2017 Power to the Plant report, nearly eight in 10 US millennials eat meat alternatives compared with more than half of non-millennials.

The way and what people eat is determined on the basis of cost, taste, convenience and now nutrition – less so on methods of production, Seba says. “Millennials are already making different food choices.”

For his part, Seba admits certain types of pastoral farming – carbon-neutral, artisan, organic, regenerative – will continue to have a place but he estimates it will be about a tenth of the size it is now.

“Any survivors of this disruption will be an artisan. But would I bet the economy on that? Heck no! And, if that is your only reason to stay in farming, then don’t do it,” he says. 

New food technology will blur the lines between food, cosmetics, healthcare and more. Fortunately, many people, such as Seba and Bethencourt, believe some countries are perfectly positioned to take advantage. “If there is a reason we should invest – this is it. This is not just about food. This is the new multi-trillion-dollar industry that will employ millions of people. The same technology disrupting the cow today will soon be used to make lipids, vitamins, medicines, cosmetics – anything of value.”

Rural land close to cities has value for creating food fermentation farms and bringing universities and the technology to farmers so they can see alternative views could also help any transition, he says.

Cropping or reforestation on legacy land could also create a lot of jobs, and ones that don’t require a lot of retraining of agricultural workers, he says.

Despite many countries reliance on legacy farming systems, they really don’t have a choice on whether or not to play in the new biological revolution, Wild Earth’s Bethencourt says.

“They have to compete and to get tech-ed up – fast.”

Cheese without cows

New Culture, a startup co-founded and run by Kiwi entrepreneur Matt Gibson, is aiming to tackle the dairy industry head-on with its unique microbial fermentation process.

The company is trying to engineer dairy products in a lab by creating animal-free recombinant casein proteins (alpha-s1, alpha-s2, beta, kappa) that are sustainable and ethical. Its first focus is cheese and it hopes to launch with mozzarella, a top-selling cheese in the US.

Gibson first worked on the technology for about a year in New Zealand before deciding to set up the startup in Silicon Valley with co-founder Inja Radman. It has been a US-registered company for a year.

“I decided to situate New Culture in the US because the outdated genetic modification laws in New Zealand were prohibitive to our work and there is also a lack of direct access to venture capital funding,” Gibson says.

The startup was part of a cohort last year in IndieBio, the world’s largest biotech startup accelerator based in California.

Although it has already filed a preliminary patent for its technology, it will be some years before New Culture’s products hit shop shelves, given it has to overcome the challenge of producing casein proteins through fermentation at scale.

What is different about New Culture’s technology, says Gibson, is its unique fermentation process designed specifically for cheesemaking that allows the startup to bypass many typical costly steps along the entire bioprocess.

“You can use mammalian cells to produce target proteins (which we are not doing) but it is very expensive to scale up and you will face the same types of problems clean meat companies face to scale up their cultured cells.”

New Zealand’s Dairy Company Fonterra new focus

Irrespective of the long-standing industry rhetoric around value add it can’t be ignored that most of New Zealand’s agricultural export dollars are generated from commodity food and ingredient products on the low-value and margin-slim wholesale business-to-business market.

That’s the market, according to RethinkX’s analysis, where the bottom will fall out first.

“The problem is that in a B2B ingredients play, no one gives a damn about free-range anything and they’re definitely not willing to pay more for the same,” agricultural economist Peter Fraser says. “The only place this matters is in places like consumer goods – ice cream is a great example. And look at what Fonterra did with Tip Top – it sold it.”

Fonterra, which controls the vast majority of the country’s dairy supply, announced a radical strategic shift last year to help improve its financial performance. It decided to stop chasing global market share and focus on selling its shareholders’ New Zealand milk.

The dairy cooperative is also withdrawing its focus on high-value consumer brands and its foodservice businesses to concentrate on B2B sales, which tend to be its most profitable segments. However, that is also the part of the business arguably more exposed to the looming technological threats.

Fraser, a long-time Fonterra critic, reckons the dairy company is toast under the new strategy.

“If a rotten balance sheet doesn’t get it now, then stranded assets will get it as New Zealand’s milk supply falls over the next five years. And if that doesn’t get it, then the synthetic [milk] will.”

The agriculture minister has also expressed his concern about Fonterra’s change of tack, saying a step back from consumer products to ingredients is not the right move.

Fonterra declined to comment on the threat posed by alternative proteins.

Source: NBR- Dr Rosie Bosworth is a future foods consultant, speaker and entrepreneur with a key focus on alternative protein systems (fermentation and artificial meat, animal proteins and dairy) and new technologies.

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