Alternative Proteins - A reality check

Consumers are ready for change and the carbon-neutral economy is here to stay

Increasingly, conscious consumers are seeking to lower, or fully substitute, their animal-based protein consumption. 87% of consumer respondents from the US, UK, the Netherlands and Germany are committed to becoming non-meat eaters, flexitarians or conscious meat eaters. A major factor behind this shift in consumer behavior is the lower environmental impact of alternative proteins versus animal-based proteins. At the same time after years of double-digit growth, sales are now flat. What’s happening?

Besides supply chain problems data from Deloitte’s research suggests two consumer-driven reasons for the current stagnation:

• With inflation, fewer people are willing to pay a price premium. Paying more is a tough ask amid high food-price inflation. Willingness to pay a premium for PBA meat dropped 9 percentage points from last year and remained well below the number of people who say they would pay a premium for the best traditional fresh food.9 PBA meat producers believe they are on the path to achieving cost parity with animal meat, partly because animal meat prices are rising. But until they get there, price will likely continue to be a PBA headwind—especially for consumers who are less passionate about the product.
• Some assumed benefits are being questioned by consumers. Even buyers of PBA meat are changing their views on some of its attributes. The biggest change is in health perceptions. Many early adopters believed that the health benefits of plants would apply to all food products made from plants. Last year, almost seven in 10 consumers (68%) who had purchased PBA meat believed it was healthier than animal meat. But some of these consumers are changing their minds, as this year, the number dropped by 8 percentage points. A similar but smaller drop occurred with environmental sustainability, down 5 percentage points.

To return to growth, PBA meat producers should explore ways to expand the addressable market, bring down relative costs, and create formulations that provide health benefits while maintaining taste. 

The livestock sector, for example, is responsible for producing over 8,000 MtC02e/year, or 16.5% of global greenhouse gas (GHG) emissions. Pushed by this consumer momentum, the EU is also recognizing the urgency of accelerating the protein transition and is positioning itself to becoming the sustainability market leader with its recent announcements of new plans and regulations, such as the Corporate Sustainability Reporting Directive (CSRD), the Circular Economy Action Plan and a European Green Deal.

The animal-based proteins versus alternative proteins market

Despite current trends and headlines, which point alternative proteins remains one of the most powerful weapons against climate change, it is easy to forget how massive the animal-based protein market remains

The market size for animal-based proteins is over USD 1.4trillion, with the US comprising ~20% of the market. The growth of the traditional animal-based market is around 2% and relies on demand from developing countries, where populations and average household incomes are increasing. The alternative protein market, on the other hand, has a market size of USD 14bn and a growth rate of 10%, which is primarily driven by trends in health and sustainability awareness. Although plant based and alternative proteins remains one of the most powerful weapons against climate change, on the short term all hands need to be on deck to put animal-based proteins on the roadmap to climate neutrality.

So how do we accelerate the protein transition while creating a more sustainable animal-based protein sector?

Increasing demand for alternative proteins creates a ‘virtuous cycle’ where greater economies of scale and improvements in cost and capabilities further drive demand for alternatives. The consequence of this cycle is that animal-based proteins will experience the reverse and follow a ‘vicious cycle’, where less demand will hamper economies of scale, affordability, margins and investment. 

To mitigate the effects of the ‘vicious cycle’, animal protein suppliers could leverage existing capabilities or build new capabilities to capitalize on the growing alternative protein market.

For example, animal protein suppliers could:

1. focus on making existing operations more sustainable (e.g. by using sustainable feed or using methane inhibitor supplements)
2. leverage fermentation expertise to provide speciality yeasts for precision fermentation
3. provide speciality food ingredients to alternative protein food producers
4. use existing route-to-market capabilities as a service to alternative protein food producers
5. acquire or partner with alternative protein start-ups to speed 

Types of alternative proteins

The alternative protein landscape consists primarily of plant-, fermentation-, cell- and insect-based products. Plant-based protein has a market size of ~USD 4bn, followed by f-based (~USD 350m). The key barrier to mass adoption remains price, relative to traditional animal-based products. If production can be scaled and costs reduced, significant growth in demand can be expected.

Plant-based protein

Plant-based proteins, consisting mostly of soy, wheat, potato, pea, rice, chickpea, and others, is the largest and most established alternative protein source and receives the most investment.  Demand has been accelerating as a result of the mainstream emergence of the ‘flexitarian’ consumer and increased numbers of vegetarians and vegans, as consumers respond to a combination of ethical, environmental and health concerns. Although plant-based alternatives are still more expensive than traditional products, price parity is expected as manufacturing scale picks up. Companies are using a variety of scaling models including acquisition of plant-based manufacturing plants, co-manufacturing and co-packaging, local distribution models and launching partnerships and retail presence.

Fermentation-based protein

There are two types of fermentation-based protein: precision fermentation and biomass fermentation. Fermentation-based products can make substitute products that taste almost identical to animal products, while having nutritional, health and environmental benefits. Costs have declined by around seven orders of magnitude from 1990 to 2021, as result of increased operating efficiency and scale. Today, the cost lies at around USD 80/kg protein, enabled by breakthroughs in computing power, data storage and DNA sequencing/synthesis. Costs are projected to fall to USD 1/kg protein in 2038, as feed conversion rates improve, production cycles become faster, and supply chains become shorter. Cost parity of fermentation-based milk substitutes is expected in 2027-28, although the view on the exact pace varies.

Cell-based protein

Cell-based protein production replicates the processes that occur inside a living animal to produce meat. Costs for cell-based production have the potential to decrease by 50%-80% in the next five years, through cost reduction in cell culture medium and inputs, which currently makes up 80%-90% of the production cost. Price parity with beef is expected around 2028-2029, and the forecast for cell-based meat looks optimistic due to fundamental cost advantages of higher feed conversion rates (25% vs 4%), a faster production cycle (~2 weeks vs. 3 years) and shorter supply chains. The main challenges facing cell-based meat are the differences in texture and the structural complexity of the production process.

Insect-based protein

The edible insect market has been around since the dawn of civilization but as agricultural practices developed, insects were seen as pests or a plague. Over the past decade, efforts have been made to destigmatize the edible insect market and it is expected to reach a value of USD 9.6bn (3,139,035 tons) by 2030, at a CAGR of 28.3% between 2022-2030. Insect-based products are sold for both human consumption and animal/plant feed. The main limitation behind insect proteins is the consumer appeal, particularly in the western world, but awareness of the benefits of insect consumption is expected to generate increased demand in the future.

Want to know more?

With Deloitte’s expertise in sustainability, the global food industry, customer growth strategies, supply chain and network operations and more, we are uniquely positioned to help your organization tap into the potential of the alternative proteins market. Whether it be through co-creating net positive solutions, defining and implementing sustainability labeling, activating partnerships, improving or building sustainability analytics capabilities, we can leverage our proven methodologies and frameworks to tailor a solution that is fit for your organization. Please contact Randy Jagt, Fred Nijland or Tom Facon for more information!