I met VegTech Invest CEO, Elysabeth Alfano at the 2023 ESG for Impact Conference, where she made a strong case for investing in food and agricultural systems innovation as a method for reducing greenhouse gas emissions and other environmental harms.  I wanted to learn more about the specific innovative companies she thinks are worth investing in, and so I interviewed her and VegTech Invest Chief Investment Officer, Dr. Sasha Goodman about these themes.  The interview follows. 

 Tom Konrad Ph.D., CFA –

Editor

 Q: Thanks for taking the time to speak with me.  To begin with, can you tell us what VegTech is and why investors might want to invest in the theme.

 Ms. Alfano: VegTech is the innovation that is driving the transformation of sustainable food systems, moving away from inefficient and unsustainable animal proteins and replacing them with nutritious alternatives that are significantly less damaging and, at scale, less costly.  Given the problem-solving nature of these innovations, this theme reflects an anticipated megatrend in which all consumers adopt – to varying degrees – proteins that are more nutritious, more prolific, take less time, require fewer inputs and create less damage.

This represents a significant opportunity to make money with this trend, as well as potentially bring down the carbon footprint of one’s portfolio by investing in this theme.

Q: What percentage of world GHG emissions come from the food system and what is the potential for reducing these emissions by 2030 and by 2050?

 Ms. Alfano: Conservative estimates state that 16.5% of the world GHG emissions come from animals as food.  More significantly, 32% of the world’s global methane emissions come from grazing and growing crops to feed animals.  Life cycle analysis shows the delta of impact for a plant-based burger is 99% less water, 93% less land, 90% fewer greenhouse gas emissions emitted and 46% less energy used.

Impact by 2030 and 2050 will depend on how much capital is driven (through the public markets, but also governments) to VegTech innovations.    According to the Boston Consulting Group, investing in VegTech/Alternative Proteins is 3x-40x more impactful at reducing GHG emissions than investing in alt energy, electric vehicles or alternative building materials.  This is primarily because the CapEx needed to build out the VegTech infrastructure is much lower than the other sectors, so adoption and impact can happen faster.

Q: What are the current options for public market investors to access this theme?

 Our research shows that there is only one option for this theme in the public markets: EATV ETF (NYSEArca:EATV).

 Q: I note that EATV is an actively managed ETF.  Why did you choose an active as opposed to a passive, more index-based approach?

 Ms. Alfano: Markets are dynamic and this sector is dynamic, with anticipated IPOs for novel technology companies. Therefore, we thought it best to have the option to make decisions without restraint. Still, the ETF trades quarterly and, thus, is mindful and disciplined regarding turnover.

Lastly, it is rare to see an ETF led by industry sector experts, but both Stanford educated Dr. Sasha Goodman, Portfolio Manager of EATV, and Elysabeth Alfano, CEO of VegTech Invest, are food systems transformation experts who understand and are involved in the nuances of the shifting global food supply system, as well as being venture and private investors.

Q: How do you decide if a company that’s involved in the food system belongs in the VegTech theme? How many companies are currently in your investing universe?

Dr. Goodman: We continually scan the landscape for plant-based companies, starting with a pool of over 100 potential candidates, as listed in the VegTech non-tracking index EATVi. Companies are selected based on rigorous quantitative and qualitative analysis, including in-depth revenue research. We sample around 50 products per company, aligning them with revenue segments to ensure they meet our prospectus criteria, ultimately choosing those best positioned to leverage market trends in sustainable food systems transformation. These are companies that are innovating for efficiencies and disruption and fit into our categories, which notably include business-to-business players, such as flavor technology and ingredients producers and synthetic biology specialists, in addition to the plant-based consumer goods.

Q: How has the ETF performed in comparison to EATVi?

 As of 10/31/23, the actively managed and non-tracking ETF, EATV, surpassed the EATVi index across the 1, 3, 6, and 9 month cumulative periods, and the 1 year average annualized periods.

Q: What technologies or methods for transforming agriculture are you most excited about?

Ms. Alfano: We are most excited about both fermentation and cultivated meat.  Cultivated meat, growing meat from cells, is still 6-8 years away from scaling, so I will discuss fermentation here.   We have been fermenting foods for hundreds of years: kimchi, vegetables, tea, bread, and beer are a few examples.  It makes good sense that we would now ferment proteins.

Companies like Gingko Bioworks (NYSE: DNA) engages in partnerships and collaborations where they provide their services and expertise to help other companies develop and produce bio-based products. This is often done through the use of Ginkgo’s platform.  Lamb Weston is selling potatoes to be fermented as protein.  AB inBev, the largest fermenter in the world, is now fermenting proteins through its company BioBrew.  It is exciting to see a company of such size and expertise, now focusing its attention on feeding a growing population quality proteins, without damaging the planet.

Q: Under what circumstances is controlled environment agriculture (greenhouses, etc.) better for the environment than field agriculture, and when is it worse?

Dr. Goodman: Controlled environment agriculture (CEA), like greenhouses, is generally more eco-friendly than traditional agriculture. When positioned near urban areas, CEAs reduce transportation emissions, offer fresher product that can last longer and minimize food waste. Their enclosed nature safeguard waterways by limiting pesticide and fertilizer runoff, and operate with 70-95% less water use, also utilizing rainwater collection. Modern CEAs optimize natural light, use energy from biogas, and CO2 from industrial sources, enhancing sustainability. Linking CEAs to renewable energy sources such as wind, solar, or geothermal eliminates dependence on non-renewable energy.

Q: EATV’s full holdings are available for review here: https://eatv.vegtechinvest.com/full-holdings.  Please describe how your top 3 holdings are helping reduce the environmental impact of the food system.

Dr. Goodman: VitaCoco’s (NASD:COCO) specialization in coconuts puts them in a good position in the Plant-based Innovation food supply chain. They currently offer coconut water, coconut milk, and coconut oil. Their coconut milk is a dairy alternative that lasts around 12 months on the shelf, and is less likely to spoil and therefore reduces food waste. Both their coconut water and milk are shelf-stable. Notably, their ability to produce coconut oil positions them well in the supply chain, as it is a popular ingredient in plant-based meat recipes. Coconut oil is currently a primary fat source in many plant-based meats due to its semi-solid state at room temperature, which makes it a better substitute for solid animal fat than other plant oils.  Further, VitaCoco is also committed to eco-conscious initiatives, investing in recycling infrastructure and promoting regenerative agriculture.

Celsius (NASD:CELH) offers plant-based energy drinks made with natural ingredients like green tea extract and ginger. Their products, packaged in recyclable aluminum cans, align with sustainable practices, emphasizing a long shelf life and the use of recyclable materials.

e.l.f. Beauty (NYSE:ELF), while not food-related, focusing on carbon reduction and ethical practices. Material companies like this comprising about 20% of the fund portfolio.

Q: I found a few of your holdings surprising, since I had not previously associated them with food system innovation.  Can you tell me how you believe DOLE and TESLA are helping make our food system more sustainable?

Ms. Alfano: Dole (NYSE:DOLE) is the OG of non-dairy ice cream, if you will, with the Dolewhip product.  But much more on the cutting edge is that Dole is upcycling is pineapple skins to produce alternative leathers.  Ultimately, if we are making less beef, we are making less leather.  And given the environmental footprint of a tannery, that’s a good thing.

Alternative materials act as a follow-on hedge with alternative proteins if you will, per the above.  It is for this reason that EATV focuses around 80% on food and 20% on materials. Not only does this give the fund diversification, but also capitalizes on the innovations that are occurring around replacing environmentally damaging animal products from supply chains.

Enter Tesla (NASD: TSLA).  Tesla was the first car manufacturer to mandate only having alternative leather in its vehicles. This prompted Mercedes and BMW to have around 50% alternative leather for their cars.  Automobile leather is second only to shoe leather for its large-scale production, so it is meaningful to have car companies move away from leather per Tesla’s initiative.

Q: One company I immediately expected to see were companies focused on plant-based food products like Beyond Meat (NASD: BYND and SunOpta (NASD:STKL), but I was surprised to note that these names each account for less than 1% of your portfolio, when your top holding (Vita Coco/COCO) is almost 10%.  Why do you have such low allocations to such obvious VegTech names?

Ms. Alfano: We allocate in the fund according to a mix of qualitative and quantitative considerations: performance, financials, potential IP moats, CapEx spends, EBITDA and revenue growth and profitability, volatility, in addition to considerations of environmental and human rights goals. The companies can’t just have great innovations. They also have to be well performing companies for larger allocations.

The markets have been tricky and that has been almost without exception for all companies, bar a few.  We believe two things are at play: small and mid-cap companies, which is around 70% of EATV, are undervalued at the moment, leaving room for a great buying opportunity.    The markets have not yet priced in the magnitude of demand and necessity for food systems transformation.   Thus, currently, EATV offers high growth companies and low growth prices.  We do believe it is a great time for buyers to get into the EATV ETF as we see food innovation coming to take center stage in the investment community on the near horizon.

 Q: Moving beyond investing for a moment, can you describe a few actions people can take in our personal lives to help make the food system more sustainable?  What is the potential for each of these actions to reduce our own carbon footprints?

 Ms. Alfano: For starters, investors can invest in the EATV ETF to potentially lower the carbon footprint of their portfolios.  EATV is determined by ACA Global’s Ethos ESG to be the only ETF to be Carbon Neutral without buying credits due to the emissions avoidance impact of the fund.  It isn’t producing large amounts of emissions, thus, doesn’t need credits to cover them up.  Perhaps this is best illustrated by the following:  Ethos ESG has found the global temperature warming potential (image attached) of EATV to be 1.18C, well below the Paris Accords recommendation.  For a reference point, the global temperature warming potential of one of the most common investments, the S&P 500 index, is 3.87C.

Beyond investing to lower the carbon footprint of one’s portfolio, Project Drawdown, the Physician’s Committee for Responsible Medicine and the Intergovernmental Panel on Climate Change (IPCC) all agree that one of the most important things one can do for the environment is to remove meat and dairy in part or in full from one’s diet.

The LinkedIn, San Francisco headquarters took its employee cafeteria two-thirds plant-based for 1 month, with meat and dairy still available, but less than usual, and the employees 1) dropped their meat consumption by 55% and 2) the company as a whole dropped its CO2 by 14,000kg.  Further they received letters of thanks from the employees who had been trying to eat better for their own health and healthcare costs but were finding it hard when fried meat and rich dairy fats were the choices they were given.  They were happy for the healthier options and the company was also happy to reduce its CO2 numbers and in the long-term, they believe, their corporate healthcare costs while improving employee productivity.

 Q: What else do you think stock market investors should know that I have neglected to ask about?

 According to OurWorldinData.org, 41% of the world’s tropical deforestation is driven my growing crops for animal feed and grazing animals.  According to the United Nations, animal agriculture is the leading cause of biodiversity loss and deforestation due to growing crops and grazing for animals who get the food instead of people.

According to the U.N., the population will grow from 8B to 9.7B by 2050, but we won’t get more land or water.  A growing middle class in Africa, India and China will increase the demand for meat without the natural resources to sustain this.

These aren’t new data points and governments around the world are deeply focused on food insecurity and the political insecurity that comes from this.  Israel, China, the Middle East, Singapore, German, Holland, Canada and the U.S. are all investing in the infrastructure and innovation, along with private investors and now, through EATV, and the public markets.    Shifting the food systems isn’t a nice option or a preference. It is a necessity and the production and adoption is expected to shift quickly according to meat industry experts at Cargill.

Synthesis Capital, based on the think tank, ReThink X, anticipates the tipping point adoption of 10% around 2035 with earlier investment opportunity and growth to be made before the tipping point.

We believe the VegTech sustainable and prolific proteins theme, as exemplified in EATV, is a very strong thesis.  Please reach out to either Stanford educated Chief Investment Officer, Dr. Sasha Goodman, or VegTech Invest CEO, Elysabeth Alfano at Info@VegTechInvest.com. For more information on the Plant-based Innovation & Climate ETF, EATV, and to view the full holdings, visit https://EATV.VegTechInvest.com.

The post EATV: An ETF for Investing in the Agricultural Transition (Interview) appeared first on Alternative Energy Stocks.

by Jim Lane

In hand we now have the latest earnings reports from what you might call the 8 Pathfinders – eight publicly traded stocks whose second quarter results offer insights into the health and performance of the advanced bioeconomy as 2019 heads towards its closing crescendos.

Our 8 Pathfinders – In the world of global renewable diesel at scale, Neste (Neste.HE); pure-play enzymes, Novozymes (NVMB); In pharma and synbio, Codexis (CDXS); as a hybrid play in advanced fuels, Aemetis (AMTX); in advanced marine and jet fuels, Gevo (GEVO); for biodiesel and hydrocarbons, Renewable Energy Group (REGI); in advanced began foods, Beyond Meat (BYND), and for a diversified ethanol and nutrition play, Green Plains (GPRE).

At Neste

As CEO Peter Vanacker, noted: “Neste’s solid financial performance continued. We posted a comparable operating profit of EUR 367 million in the second quarter, compared to EUR 277 million in the corresponding period last year. Renewable Products’ quarterly sales and production volumes were the highest ever. The renewable diesel market continued to be favorable, but feedstock prices increased as communicated earlier. Our sales volumes were 745,000 tons, and this new quarterly record was also supported by the excellent operational performance at the refineries. The higher sales volume had a positive impact of EUR 79 million on the comparable operating profit year-on-year. The comparable sales margin averaged at USD 568/ton, which was 12% higher compared to the corresponding period last year, leading to a positive impact of EUR 32 million on the operating profit. During the second quarter 65% of volumes were sold to the European markets and 35% to North America. During the quarter our renewable diesel production facilities operated at a very high average utilization rate of 105%, based on the nominal capacity of 2.9 Mton/a. The share of waste and residues was 77% of the total renewable raw material inputs.”

Outlook: Developments in the global economy have been reflected in the renewable fuel, feedstock and oil markets; and volatility in these markets is anticipated to continue. Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks. Global oil product demand growth is expected to continue at a lower rate than in 2018, while global refining capacity additions are expected to grow driven by large projects in Asia and the Middle East. Based on our current estimates and a hedging rate of approx. 80%, Neste’s effective EUR/USD rate is expected to be within a range 1.14-1.16 in the third quarter of 2019.

At Novozymes

Novozymes “confirmed on all fronts following the adjustments communicated on June 6,” with First-half year-on-year (y/y) organic sales growth of -3%: Household Care -2%, Food & Beverages -2%, Bioenergy -4%, Agriculture & Feed -6%, Technical & Pharma +2%. EBIT margin 30.0%. Net profit up 1 percentage point (y/y).

CEO Peder Holk Nielsen said, ““Our half-year sales performance is not satisfactory, but as expected, following the revised full-year outlook on June 6. Softness in US agriculture and some emerging markets, including the Middle East, has created headwinds. We’re confident sales growth will accelerate in the second half of the year as the Freshness platform, BioAg and Bioenergy all step up, and the Middle East comparison eases.”

At Codexis

As CEO John Nicols noted: “Product revenue increased a very solid 68% over the prior-year period with strong contributions from Merck, Urovant Sciences and four additional global Top 25 pharmaceutical customers. R&D revenue was spread across an increasingly wider base of customers including Nestlé Health Science, four global Top 25 pharmaceutical customers, and two new customers in two new verticals. We also secured a dedicated R&D project team working with another new global customer targeting an entirely different molecular diagnostics application class for Codexis. Additionally, we are delighted with Casdin Capital’s $50 million investment in Codexis, as announced in June. We appreciate their confidence and their recognition of the versatility of our CodeEvolver platform technology.

Q2 revenues were $12.3 million, compared with $13.5 million for the second quarter of 2018. Product revenue was $6.2 million, up 68% from $3.7 million for the second quarter of 2018, with the increase reflecting customer demand for enzymes for both generic and branded products.The net loss for the second quarter of 2019 was $6.5 million, or $0.12 per share, compared with a net loss for the second quarter of 2018 of $3.7 million, or $0.07 per share.

Codexis is affirmed its financial guidance for 2019 for revenues are expected to be $69-$72 million; and product revenues are expected to be $26-$29 million.

At Aemetis

Aemetis’ reported in Q2 $11.1 million of revenue from India operations during the second quarter of 2019, representing a 106% increase from the prior year quarter.  Aemetis said it continues to advance its ultra-low carbon California cellulosic ethanol biorefinery, which is expected, upon completion, to add approximately $80 million of high margin revenues. Utilizing thousands of tons of waste wood from California’s Central Valley, the Aemetis cellulosic ethanol biorefinery is expected to produce the state’s lowest carbon ethanol fuel and reduce greenhouse gas emissions in the process.

At Gevo

Gevo reported $5.1M in quarterly revenue, a $4.7M EBITDA loss and ended the quarter with cash and cash equivalents of $29.2 million. The company entered into an agreement with Air TOTAL for Gevo to supply its sustainable aviation fuel to Air TOTAL for use and distribution in France and other parts of Europe.  With the finalization of this new supply contract, Gevo will initially supply Air TOTAL SAF from the South Hampton facility in Silsbee, Texas and eventually from the expansion of Gevo’s advanced biofuels production facility in Luverne, Minnesota plant which is expected to be constructed in the next several years. Gevo also reported successful completion of the Port of Seattle renewables trial, and a trial with Virgin Australia.

CEO Pat Gruber noted “the pieces necessary to drive Gevo’s business are falling into place.  We believe we are making real progress on refinancing our secured debt, securing offtake agreements for our advanced renewable biofuel products and advancing manure biogas and wind projects to decarbonize our Luverne Facility.  Evidence of our progress include the supply agreement with Air TOTAL.  In addition, we are working on securing a loan for up to $45 million that could be used, in part, to pay off our current secured lender.

At REG

REG reported 197 million gallons sold, 127 million gallons produced, revenues of $560.6 million and adjusted EBITDA of ($42.3 million).

REG’s average selling price per gallon was $2.70, a decrease of 13.2% resulting primarily from lower biodiesel prices, which were down $0.55 per gallon from the second quarter of 2018. The lower biodiesel prices resulted from customers’ preference to take on smaller share of the benefit of a potential BTC reinstatement, and from lower ULSD prices. D4 RIN prices in the second quarter of 2019 were $0.16 per RIN lower on average compared to the second quarter of 2018. The Company produced 126.8 million gallons of biomass-based diesel during the quarter, a 2.0% increase.

CEO C.J. Warner noted:  “The challenging margin environment continued in the second quarter as a result of uncertainty around both the BTC and small refinery exemptions. Within this context, our underlying performance was strong with a 15.0% increase in gallons sold and a 2.0% increase in gallons produced. We continue to believe that the BTC will be reinstated, which will reward our strong operational performance. On the non-operating front, we are pleased that we finalized the sale of our Life Sciences business and paid off our 2019 convertible notes without financing, primarily from cash on hand.”

The Company estimates that if the currently lapsed BTC is retroactively reinstated for 2019 and 2018 on the same terms as in 2017, REG’s Adjusted EBITDA would increase by approximately $81.0 million for the quarter.

At Beyond Meat

BYND reported net Q2 revenues of $67.3 million, an increase of 287%; gross profit was $22.7 million, or 33.8% as a percentage of net revenues, net loss was $9.4 million, or a loss of $0.24 per common share, compared to net loss of $7.4 million, or a loss of $1.22 per common share in the year-ago period; and adjusted EBITDA, which is a non-GAAP financial measure, was $6.9 million compared to an Adjusted EBITDA loss of $5.6 million in the year-ago period.

CEO Ethan Brown said, “We are very pleased with our second quarter results which reflect continued strength across our business as evidenced by new foodservice partnerships, expanded distribution in domestic retail channels, and accelerating expansion in our international markets. We believe our positive momentum continues to demonstrate mainstream consumers’ growing desire for plant-based meat products both domestically and abroad,”

Brown said that Q2 growth was driven by an increase in sales volumes of products in the fresh platform across both retail and restaurant and foodservice channels, driven by expansion in the number of retail and foodservice points of distribution, including new strategic customers, international customers, and greater demand from existing customers.

At Green Plains

Green Plains reported a Q2 net loss of $45.3 million compared with net loss of $1.0 million, or $(0.02) per diluted share, for the same period in 2018. Revenues were $895.9 million for Q2 compared to compared with $986.8M for Q2 2018.

CEO Todd Becker noted, ““We continued to face a challenging ethanol margin environment compounded by a reduced run rate early in the quarter as we emerged from a first quarter production slowdown that impacted our financial performance,” commented Todd Becker, president and chief executive officer. “We believe that maintaining a strong balance sheet while continuing to reduce operating expenses through our Project 24 initiative, should give us the financial stability to withstand any elongated margin weakness the industry may face.”

“While our company and industry have been hit hard by government policy, geopolitics and oversupply, we are not waiting for the recovery to happen. We will continue to transition this platform to high protein animal feed production as a growing driver of more predictable and stable earnings, beginning with the completion of our high protein project in Shenandoah, Iowa in late 2019.”

Becker confirmed an LOI to sell a minimum of 50% of its cattle subsidiary for $75M. He also said that Project 24 remains on course “in lowering our operating expenses to an estimated 24 cents per gallon across our ethanol platform.

Looking at the Sector

So there we have it, choppy waters. Fast growth at Beyond Meat, confidence and strong growth in renewable diesel crisis in first gen US ethanol and biodiesel, lackluster growth in enzymes, particularly in agriculture. Synbio product revenues continue to be small but fast-growing, as we see at Codexis; Indian biodiesel finally performing as long expected, but slow development within Aemetis’ cellulosic ambitions. Gevo continues to zig and zag in search of the capital to realize its ambitions in marine and jet, with significant offtakers showing increased interest in the platform.

The bottom line, the more advanced the technology (Beyond, Neste, Codexis), the better the results for this quarter. For a number of years there has been a real increase in the dependence of the industry on its more established companies and sectors, such as first-gen ethanol, biodiesel, and conventional protein. The pendulum has been singing towards “advances via advanced” and it will be interesting to see how the second half of the year shapes up.

For sure, the Trump Administration is just killing farmers, advanced manufacturing and domestic renewable fuels. EPA has been a thorn in the industry’s side ever since the agency was handed responsibility for administering the Renewable Fuel Standard, but never more so than now. The distress is real, though companies that saw the headwinds are doing better than others. As Green Plains’ Todd Becker observed, “we are not waiting for the recovery to happen.”

Transition is in the air — it is a Year of Living Endangeredly.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

The post Living Endangeredly- Q2 Biobased Earnings Roundup appeared first on Alternative Energy Stocks.

by Jim Lane

It’s Thanksgiving week in the United States but we are feasting alternatively on acronyms here in Digestville. I.E., e.g., ICYMI, BYND IPO PDQ, and FYI Perfect Day AKA Muufri JDA w/ ADM.

As they said at Bletchley Park, let’s get out the Enigma machine and decode.

In New York and California this week, the nutrition side of industrial biotechnology — and specifically, the “beyond the cow moovement is, ahem, mooving faster with news that Beyond Meat has filed for its IPO and Perfect Day has inked a Joint Development Agreement with Archer Daniels Midland(ADM) to scale up the production of dairy proteins using fermentation in microflora.

Beyond Meat’s placeholder IPO target is $100 million and is supported by Goldman Sachs, J.P. Morgan, Credit Suisse, BofA Merrill Lynch, Jefferies and William Blair in the IPO.

What’s driving the action?

It’s combination of consumer shift, the industrialization of alternatives, and a successful foray into direct-to-consumer marketing.

As Beyond Meat expressed in its IPO:

We believe that consumer awareness of the perceived negative health, environmental and animal-welfare impacts of animal-based meat consumption has resulted in a surge in demand for viable plant-based protein alternatives. A key analogy for both the approach to and the scale of our opportunity is the strategy by which the plant-based dairy industry captured significant market share of the dairy industry. In the United States, the current size of the non-dairy milk category is equivalent to approximately 13% of the size of the dairy milk category. According to the Mintel Report, the non-dairy milk category in the United States was estimated to be approximately $2 billion in 2017. The success of the plant-based dairy industry was based on a strategy of creating plant-based dairy products that tasted better than previous non-dairy substitutes, packaged and merchandised adjacent to their dairy equivalents. We believe that by applying the same strategy to the plant-based meat category, it can grow to be at least the same proportion of the approximately $270 billion meat category in the United States, which over time would represent a category size of $35 billion in the United States alone. As a market leader in the plant-based meats category, we believe we are well-positioned to capture and drive a significant amount of this category growth. We also believe there is a significant international market opportunity for our products.

Perfect Day and ADM

Perfect Day is one of a number of companies targeting “milk without the cow” — but theirs is a full milk replacement in terms of taste and mouth feel, rather than a plant-based milk alternative.

The first project for Perfect Day and ADM is an animal-free whey protein that can be used in a wide variety of food products, across many different categories and geographies. Perfect Day adds:

This will be the first time in world history that dairy proteins are produced at large scale via fermentation instead of using farmed animals. Through this partnership we will leverage ADM’s existing fermentation infrastructure to bring the cost of producing animal-free whey protein down to that of conventional whey protein. This will allow us to bring our new source of nutritious protein to full commercial scale within the next few years.”

The Beyond Meat backstory

Beyond Meat is one of the fastest growing food companies in the United States, offering a portfolio of revolutionary plant-based meats. They build meat directly from plants, an innovation that enables consumers to experience the taste, texture and other sensory attributes of popular animal-based meat products while enjoying the nutritional benefits of eating our plant-based meat products.

The flagship product is The Beyond Burger, the world’s first 100% plant-based burger merchandised in the meat case of grocery stores. The Beyond Burger is designed to look, cook and taste like traditional ground beef. Our products are currently available in approximately 28,000 points of distribution primarily in the United States as well as several other countries, across mainstream grocery, mass merchandiser and natural retailer channels, and various food-away-from-home channels, including restaurants, foodservice outlets and schools.

Not marketing to veggies

Instead of marketing and merchandising The Beyond Burger to vegans and vegetarians (who represent less than 5% of the U.S. population), BB requests that the product be sold in the meat case at grocery retailers, where meat-loving consumers are accustomed to shopping for center-of-plate proteins. We believe merchandising in the meat case in the retail channel has helped drive greater brand awareness with our end consumers. The Beyond Burger is now carried by approximately 11,000 grocery stores in the US.  Interestingly, a Kroger study reported that “93% of Beyond Burger buyers over the 26-week period ended June 30, 2018 also purchased animal protein during the same period”.

It’s a big market.

According to Fitch Solutions Macro Research, the meat industry in 2017 generated $270 billion in retail sales in the United States and $1.4 trillion globally.

The Halo effect

Beyond Meat writes:

Reflecting the strength and value of the Beyond Meat brand to its partners, many of our restaurant, hotel and other food service customers choose to prominently feature our brand name on their menu and within item descriptions, in addition to displaying Beyond Meat branded signage throughout their venue. We believe that we have established our brand as one with “halo” benefits to our partners, as evidenced by the speed of adoption by key partners. For example, Beyond Meat was the fastest new-product launch in the history of both A&W Canada and TGI Fridays, and a number of our key partners are investing their own resources to tap into our brand and product awareness. Our products are now carried by approximately 11,000 restaurant and foodservice outlets across the United States.

Expansion beyond the US market

Beyond Meat writes:

“Our recent success with A&W Canada illustrates the growing international demand for our products. We launched in Europe in August 2018 through contracts with three major distributors and have also received strong expressions of interest from some of Europe’s largest grocery and restaurant chains. We intend to establish production capabilities in Europe in 2020.  Additionally, for several years we have maintained a presence and generated brand awareness in Hong Kong through our local distributor and expect further expansion in Asia over time.”

Expansion beyond beef

Beyond Meat has developed three core plant-based product platforms that align with the largest meat categories globally: beef, pork and poultry. We create our plant-based products using proprietary scientific processes that determine the architecture of the animal-based meat we are seeking to replicate and then we assemble it using plant-derived amino acids, lipids, trace minerals and water.

Impressive revenue growth

Beyond Meat writes:

“We have experienced strong revenue growth over the past few years, increasing our net revenues from $8.8 million in 2015 to $32.6 million in 2017, representing a 92% compound annual growth rate. We have generated losses since inception. Net loss in 2016 was $25.1 million compared to $30.4 million in 2017, an increase of $5.3 million, as we invested in innovation and the growth of our business. In the nine months ended September 29, 2018, our net revenues were $56.4 million, a 167% increase from $21.1 million in the nine months ended September 30, 2017. For the nine months ended September 29, 2018, our net loss was $22.4 million. Going forward, we intend to continue to invest in innovation, supply chain capabilities, manufacturing and marketing initiatives as we believe the demand for our products will continue to accelerate across both retail and foodservice channels as well as internationally.”

Who’s the competition?

Meats? Well, there’s the traditional players, Hormel, Tyson, Cargill and the like. And there’s been a host of new companies coming along, Impossible Foods just snagged the #1 Hottest Technology” designation in the 40 Hottest Technologies rankings — and there’s Boca Foods, Field Roast Grain Meat, Lightlife, Morningstar Farms and Tofurky, to name a few others. Milks? Again, the traditional diaries, and also the makers of Silk and a raft-full of almond-based milks.

What’s the bottom line?

What we don’t yet know about plant-based alternatives are the limits. Specifically, the limit on the number of customers that will try an alternative, the extent to which they will make it a regular part of their purchasing routine, and the extent to which alternatives will succeed culturally and in terms of distribution strategy outside of US markets.

That will tell us whether the companies will create another important niche in the US with, say, 5 percent market share like the vegetarian and vegan market commands — or whether this will explode out of a $10-$15 billion niche and into the $300B+ markets for milk and meat in the US, or even the $1.5T+ global market.

Industrially, we don’t know — especially on the Perfect Day front — whether the costs will come down in commercialization to be competitive in the market, but we do know broadly that alternative milks are commanding a premium.

With Beyond Meat, we’ve seen clear evidence that the company can compete on price — one reason are the extravagant processing and distribution costs already baked into the meat supply chain. The price of beef is around $1.15 from the farmer — wholesale beef ranges from $1.99 for the cheapest cuts of chuck to $11.41 for tenderloin, and there’s another big markup on the way to the retail shelf. Beyond Meat is able to integrate the first two cost centers and avoid the substantial cost of butchering.

So, meat without the cow and milk without the cow have taken giant steps forward this week. How far and wide the impact — say, on grain prices, soymeal demand, health outcomes, sugar and other alt-meat ingredient prices — we’ll know in the next few years.

Beyond Meat expects to trade as BYND on the NASDAQ Global Exchange; the complete IPO documentation is here.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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