Investing in companies making fake meat and other imitation animal protein products doesn't pay, according to research by a sustainable investment industry leader.
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Plant-based meat alternatives are currently too expensive, not appetising enough and unlikely to grab more than 10 per cent of the total protein market in the medium term.
In fact, Australian sales of plant-based products mimicking real meat appear to have slowed this year, despite the global interest in promoting alternative protein innovations in recent years, says Nanuk Asset Management.
Nanuk's chief investment officer, Tom King, said the investment case for plant-based protein companies was not particularly strong and unlikely to improve until their product prices were comparable with real meat, milk and eggs, and generating bigger sales.
"The economic characteristics of the industry globally are unlikely to support the sort of profit growth that will lead them to be attractive to investors," he said.
"Admittedly, there's been quite a lot of investment enthusiasm from some supporters, but (shares in) alternative protein companies are overpriced for the returns they are likely to generate."
Mr King conceded new plant-based protein foods had created a wave of interest, particularly as consumers showed greater desire to eat less meat for health reasons.
They were also promoted as being "greenhouse friendly" because the production process created fewer carbon emissions and represented a more efficient source of protein than livestock.
However, it was largely curiosity about products from companies such as Beyond Meat, Impossible Foods and v2food which had driven sales trends to date, particularly during the COVID 19 pandemic.
He believed this was a temporary trend which was flatlining.
Supermarkets, fast food restaurants, celebrity chefs and even big name meat processors such as JBS, Tyson Foods and Australian poultry producer, Baiada, have rushed to ride the fake meat bandwagon to diversify their product offering and protect themselves from any consumer shift against animal protein products.
Yet, Mr King said the alternative category's relatively expensive production processes and premium retail prices had actually led to slowing sales growth in the past nine months.
Price parity needed
"Our research indicates plant-based meat needs to achieve close to price parity to achieve widespread adoption," he said.
"Last year, consumer advocacy group Choice surveyed more than 1000 Australians and found 32 per cent of people felt the cost of vegan food is a barrier to adoption."
Nanuk's research into one US listed plant-based producer indicated its 2021 prices were almost 20 per cent higher than equivalent real beef products.
It also showed more than 70 per cent of Australians actually enjoyed animal products, which in turn, restricted their willingness to switch to vegan alternatives.
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Nanuk only anticipated plant-based imitations to account for about 10 per cent of the protein market during the next decade.
Australian-based Nanuk manages a $600 million global investment portfolio focused on environmentally sustainable and resource use efficient businesses in sectors such as clean energy, food, agriculture, water, waste management and healthcare technology.
Mr King said cutting agriculture's methane emissions certainly must be a priority for the industry and governments, particularly as many livestock structures demanded a lot of cropping protein for conversion into meat or milk.
Inefficient protein use
Compared to producing plant-based foods, that conversion process was "very inefficient".
This was particularly the case where deforestation and land degradation were consequences of expanded feed grain production for intensive livestock industries around the world.
"I'm not saying producing plant-based alternatives has zero impact on the environment, but 30 per cent of the world's emissions and detrimental land use changes are linked to agriculture and our view is this set of problems requires bold action across the whole economy," he said.
Rising red meat and poultry prices could make meat alternatives relatively more attractive to shoppers, especially if new lines emerged to better replicate the experience of eating real meat.
At the same time some plant-based protein manufacturers may also be able to take advantage of current food inflation and limit their price rises to win more market share.
However, slashing prices without achieving more manufacturing efficiencies or dramatically more turnover would also make it hard to stay profitable.
Crowded house
This was especially the case if new hopefuls continued joining the fake meat and milk categories, making the marketplace more crowded, more competitive and less novel.
While the plant-based product sales were still likely to grow at rates above the food sector average, Mr King remained "cautious" about the category's financial outlook, particularly if more competitors kept emerging.
One possible game changer for the plant protein segment in Australia and overseas could be government mandates for lower greenhouse gas emissions penalising carbon positive livestock production or methane "taxes" on meat.
"Any regulatory change within this space would drastically reframe the market, potentially facilitating growth of alternative meat and carbon-neutral meat products."