Nature’s Fynd CEO Thomas Jonas explains why investors and policymakers are increasingly positive on alternative proteins.
Putting aside its greatest achievement in putting a man on the moon, NASA is an institution to which most of us have some reason to be grateful. In its efforts to dominate space, the North American Space Agency has created numerous inadvertent innovations that have proved life changing, including water purifiers, memory foam, baby formula milk and smartphone cameras. Its latest discovery is one that could solve world hunger.
As part of its exploration into the possibility of humans surviving on hostile planets, NASA funded investigation into extreme life forms on earth. Scientists researching the almost entirely uninhabitable sulfuric hot springs in Yellowstone National Park, came across a fungi protein that offers an alternative to meat and dairy sources.
The fungi known as Fy, looks so promising as a replacement for high-polluting and inefficient conventional farming that private equity investors have ploughed US$508 million into Nature’s Fynd, the company that can turn this obscure microbe into everything from yoghurt to sausages and burgers.
Investor appetite
This July, Nature’s Fynd secured US$350 million from a consortium of private equity investors led by SoftBank’s Vision Fund 2. This was made up of new investment from Blackstone Strategic Partners; Hillhouse Capital; SK Inc; EDBI; Hongkou; and Balyasny Asset Management, as well as existing backers including Generation Investment Management and Breakthrough Energy Ventures.
Nature’s Fynd CEO Thomas Jonas says: “Regardless of how you feel about animal husbandry and climate change, the inefficiency of today’s protein supply chain cannot be denied. Our goal is to produce one of the key proteins of the future, which is not only efficient, but good for you and for the environment.”
The company already has warehouses in Chicago full of Fy, which is grown on huge mats and resembles – perhaps rather unappetisingly – raw chicken breast. Jonas explains that the flavour is purposefully neutral, allowing the company to add flavours to create meat or dairy alternatives.
There are many reasons why Nature’s Fynd and other companies producing protein alternatives are a big deal for investors right now. According to The Good Food Institute Asia Pacific, investment directed to alternative protein companies worldwide tripled in 2020 to reach US$3.1 billion – four and a half times greater than 2018 – largely thanks to their ability to divert resources away from polluting food sources.
These figures cover the full gamut of alternative protein producers, including cellular or cultivated meat, which is perhaps the highest profile sub-sector but not without controversies, and plant-based foods, which Bloomberg Intelligence recently predicted would experience a five-fold increase in value to US$162 billion by 2030. Nature’s Fynd belongs in the fermentation sub-sector, which collectively doubled its investment inflows in 2020.
Growing risks
Investors are increasingly aware of the risks to the environment posed by industrial-scale animal farming. Research from food and agriculture-focused investor collective FAIRR found that 86% of major meat and dairy suppliers are failing to declare or set meaningful emissions reduction targets, while the EU says livestock produces 14.5% of the global anthropogenic GHG emissions and one third of the world’s surface and three quarters of freshwater resources are used for agriculture. These are statistics that do not play well to the ESG investment community.
Covid-19 did little to enhance the meat producers’ reputation either, bringing social and governance risks to the fore. The British Medical Journal described meat processing plants as the ‘new front line’ during the pandemic. A 2020 BMJ report noted: “Slaughterhouses and meat processing plants are favourable environments for [Covid-19] transmission. The virus thrives in lower temperatures and very high or very low relative humidity. Metallic surfaces retain live viruses for longer than other environments.”
FAIRR says 70% of meat and dairy suppliers are at high risk of spreading future pandemics, claiming that they are responsible for “an unsustainable health footprint”. In the US, meat processing giant Tyson Foods endured production disruption, legal challenges and a shareholder revolt due to its repeated failures to protect its workers from Covid-19.
Low energy, low cost
All this strengthens Jonas’ argument that it is time to move to alternative sources of protein.
“Fy is grown in a clean environment that can be controlled; nothing can get in or out from the warehouses which brings additional food safety,” Jonas says.
He also claims that Fy not only outdoes traditional meat and dairy sources of protein; it is better than plant-based offerings too, from an efficiency and sustainability perspective. Since the fungus is grown in warehouses rather than in fields, it demands fewer resources, especially water.
Jonas says: “We really need a fraction of the energy not only of that needed for meat, but also soy and pea protein, and we can build our warehouses at a fraction of the cost of that needed for pea and soy crunchers.”
Nature’s Fynd has also attracted investor attention since the company is able to deploy capital immediately. The firm needs to build significant infrastructure to achieve its ambition of being a leading provider of alternative protein sources to the world’s rapidly expanding population.
Jonas says: “We need to put money to work to build factories and develop this new way of farming. It is very different to a completely digital food tech offering because we need to make the whole supply chain work.”
Counting the human cost
So far so positive as far as ESG box-ticking goes, but how does Jonas respond to concerns that abandoning the traditional agricultural sector will inevitably result in job destruction.
“If you look in the western countries such as the US or Europe, the share of population employed in agriculture is very small. We have highly intensive production methods, it is mechanised and few people are doing the work,” he says.
Jonas does not completely dismiss there will be “some transfer of jobs” as is the case in the transition from fossil fuels to clean energy sources. However, the bigger concern is our the ongoing reliance on an industry that is becoming unaffordable all the way along the supply chain. Jonas cites a 40% spike in food costs in the year to May 2021 according to the FAO Food Price Index, which is based on international prices of a basket of food commodities.
“The human cost of people in the world having to pay so much more for food is terrible. The implications are critical and goes beyond the job of the guy in slaughterhouse. It is about how to create a system where we have food at a cost they can afford,” Jonas says.
Policy and dietary shifts
While these arguments will likely prove incendiary to farmers across the globe, they have been largely embraced by policymakers.
The UK’s National Food Strategy makes specific reference to fostering alternative protein start-ups, and recommends the government put £50 million towards building shared facilities in a commercial ‘cluster’ for entrepreneurs and scientists working on alternative proteins.
The European Union meanwhile places alternative proteins at the heart of its food policy for 2030, stating that “dietary shifts towards plant-based, microbial-based, ocean-based, insect-based, meat and fish meat alternatives can contribute to one fifth of the mitigation needed to ensure global warming does not exceed two degrees”.
The global food future then is fungus, and while this may still prove unfamiliar and potentially unpalatable to many, there is no denying the environmental and health benefits, as well as the ESG investment potential.
