Beyond Meat IPO boosts Israel's meat substitute cos

Beef Photo: Shutterstock ASAP Creative

Ecological and ethical problems with meat production have injected new momentum into startups developing meat substitutes made from plants, insects, and cells.

Two historic events took place on Wall Street on May 2. One was official and documented: Beyond Meat, the company that makes protein substitutes from plants, posted the steepest rise in its share price following an IPO since 2008. The second event is more difficult to quantify, but conversations with sources familiar with the meat substitutes market give the impression that the time will come when this date will be remembered for giving this industry the institutional stamp of approval it has waited so long for.

In the first day of trading in Beyond Meat's share, the company sold 9.63 million shares at $25 a share. By the end of the day, its share price had zoomed to over $65 - a 163% increase. As of now, the share price is close to $80, and Beyond Meat's market cap is nearing $4.7 billion.

The strongest support for the historic standing of the second event came less than two weeks after Beyond Meat's IPO from Beyond Meat's biggest competitor - Impossible Foods. This company announced that it had raised $300 million in a financing round at a company value of over $2 billion, and that it had signed an contract with fast food giant Burger King to have its products sold at the hamburger chain's outlets.

In contrast to Impossible Foods, Beyond Meat's products are already being marketed in Israel at 200 restaurants. Its products are scheduled to become available for home preparation towards the end of the year.

There are quite a few reasons for the boom in production of meat alternatives. Like all animals, people need protein, and their meat consumption has been growing. Western countries may give the impression that vegetarianism and veganism are conquering the world, but the figures tell a different story. Global consumption of meat and milk grew by 1.9% and 2.1%, respectively, in 2007-2017, almost double the rate of population growth. The UN Food and Agriculture Organization predicts that from 4.1 billion in 2015, the number of ruminants on the world will increase to 5.8 billion by 2050. The projected growth in the chicken population is even faster.

The price of this meat and milk consumption is paid not only by the unfortunate animals, but by the earth itself. Increased meat production wastes land resources (almost 80% of agriculture land in the world is used to grow animals), causes significant carbon dioxide emissions, pollutes land and water resources, and creates enormous quantities of organic waste. In the oceans, our protein hunger is disturbing the ecological balance due to over-fishing. At the same time, the vast majority of the animals that we grow and eat are filled with hormones and antibiotics.

Since the earth's human population is projected to reach nine billion protein consumers in 2050, and since the industries producing those proteins cause damage to the earth that will exacerbate climate change, it is clear that something has to change.

Not the industry's stepson

Flying Spark cofounder and CEO Eran Gronich says that he feels that in the past year since he spoke with "Globes" in May 2018, a major change has occurred in the protein and meat substitutes industry. Gronich's company, which has raised $2 million to date and is about to complete a $5 million financing round, fits in with the trend by producing protein from insects. The company is growing a specific species of fruit fly, gathering the eggs that it lays, "planting" them in growing facilities, and feeding the flies a special diet. When they reach the right size, they are "harvested" and processed into protein powder and oil.

"There's a lot of noise in this sector. Every company producing alternative protein gets a lot of attention, whether it works with plants, cultured meat, or protein from insects, which is what we do. A successful IPO like that of Beyond Meat makes it much easier to raise money, because the investors in food-tech have to see IPOs and exits to give them confidence," Gronich says. "But I think that the interest isn't just because of health reasons and the realization that it's impossible to eat only junk food and red meat. It's happening because of ethics and conscience. People are more aware of how their food is grown, and they realize that someone has to suffer in order for them to benefit.

"There is also the environmental aspect, of course, which is starting to affect people. Up until two or three years ago, climate was a subject that only people like Al Gore spoke about on the news. Now, it's a subject that everyone's talking about and aware of. I think that what is today called alternative protein will no longer exist in a few years. Like you go to the supermarket today and buy steak or liver, in a few more years, you'll just buy a hamburger made by Beyond Meat or a hot dog made out of crickets, and it will be considered the same as beef or chicken."

Until alternatives like protein from flies enter the mainstream in the West, Flying Spark will focus on East Asia. "We feel that Europe and the US are less ready for protein produced from insects, so we're going to set up a large production operation that will open in Thailand in mid-2020. In the first stage, we'll produce several hundred tons a year of protein, but we want to also produce seafood substitutes. For us, Thailand is a natural place to grow, because it has had a culture of eating insects for hundreds of years."

The great grasshopper harvest

Dror Tamir, cofounder and CEO of Hargol Foodtech, which grows grasshoppers for producing protein, says that he feels the momentum in the sector. Hargol, which has raised $3 million to date, is about to hold a financing round that will raise the same amount. The company currently has 14 employees, and this week inaugurated a new plant near Katzrin. Hargol is already thinking ahead. "We have finished developing our growing method. Now we're racing to market with orders," Tamir says. "Our new facility can produce 20 tons of grasshoppers a year, and will later be able to double its production and more. In agriculture, we're talking about very high income and very high returns, and a very quick return on the investment. Even if we found dozens of such facilities in Israel, we won't meet the global demand we have now."

Although the grasshoppers have to die in order to provide protein, Tamir says that this cannot be compared with large animals. "Large animals are grown under difficult conditions, while grasshoppers grow in an environment that does not create pressure on them. They also lack a developed nervous system, so they feel far less pain. Since we comply with the European Union standard for preventing cruelty to animals, however, we prevent this suffering by taking advantage of the fact that grasshoppers have cold blood. In order to harvest them, we lower the temperature, and they fall asleep, after which we handle them."

Tamir agrees with Gronich's analysis of the reasons for the awakening of substitutes from plants, and adds that awareness of the environmental damage caused by growing traditional meat is especially strong among young people. He says that the turning point in the sector did not occur with Beyond Meat's IPO. "We have been feeling the interest in this sector for five years already. When we started working with our venture, there were many startups talking about alternative protein, but there weren't many investors. Three years ago, we started feeling a dramatic increase in the number of investors, and this trend is continuing and accelerating. They're now talking about cultured meat grown in a laboratory, about algae, insects, mushrooms, and vegetable compounds like those made by Beyond Meat and Impossible Foods."

Tamir says that the importance of the agreement between Impossible Foods and Burger King goes beyond the bottom line in this year's accounting books. "As a startup, you can find small niches for yourself, but if you look at the longer term, you have to educate the market and appeal to groups for whom the new products are a little strange. Here is where cooperation with traditional food companies comes in. Impossible Foods' cooperation with Burger King gives it a stamp of approval. Investors say to themselves, 'What do you know! Even the traditional companies are working with them.' The power of these large concerns is that they're educating the market."

Steak is still the holy grail

While Beyond Meat and those like it are promoting meat substitutes made from plants, and most of the companies in the meat market that grow it in laboratory have meanwhile abandoned the attempt to create meat that will resemble meat from animals, Aleph Farms is one of a handful of companies that plans to create the ultimate protein - meat cuts. The scientific base on which the company is built is a study by Prof. Shulamit Levenberg from the Techion - Israel Institute of Technology. She developed the ability to grow muscle tissue outside the body in order to rebuild hearts damaged in heart attacks. The company's patent converts this research into an ability to grow tissue for eating.

"The entire protein market has grown in recent years," says Aleph Farms CEO Didier Toubia. "We see this in both meat substitutes and milk substitutes. In milk substitutes, I think that protein from plants is starting to attain a considerable market share, but in the meat sector, I think that what we'll see in the coming years is an increase in the market share of cultured meat, meaning meat grown in a laboratory. Beyond Meat's IPO will help several companies develop new products, and this creates more buzz, which is very important for this industry."

The challenge that faced Aleph Farms in the past year was to cause four different types of cells - muscle fiber, fat, connecting tissue called collagen, and blood vessels - to combine together on a 3D platform, so that they will eventually become a cut of meat like those with which we are familiar. "We actually solve all of the problems that are an integral part of the meat industry: cruelty to animals, sustainability, and the use of antibiotics. We are able to reproduce the meat experience, which is a complicated product. We are able to create tissue that is very similar to natural meat and gives the unique chewing experience that is very difficult to create if meat substitutes from plants are used," Toubias claims.

Aleph Farms, which has raised $15 million to date and has 15 employees, has created a prototype of its cut late last year, but a great deal of work remains before its steak reaches the market. "We need all of the sensory features - taste, smell, texture - to be exactly like meat. It's very close to this now, and we have more improvements to make. I hope that in another 1.5-2 years, we'll also have the job of putting the product into production. I assume that we'll be able to really enter the market in another four years, but we might have an earlier launch, such as cooperation with a restaurant, in three years."

Published by Globes, Israel business news - en.globes.co.il - on June 11, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Beef Photo: Shutterstock ASAP Creative
Beef Photo: Shutterstock ASAP Creative
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