Chicken-less nuggets and fish-less seafood
The world is full of counterintuitive ideas – ideas that seem to be good but once you dig deeper, aren't.
A great example is 0% unemployment. No one wants people without jobs, so that's a good thing, right?
0% unemployment drives inflation and stalls economic growth so having a small amount of unemployment is actually desirable.
In times of low unemployment, the demand for labor (by employers) exceeds the supply. In such a tight labor market, employers typically need to pay higher wages to attract employees.
Higher salaries mean higher operating expenses, so businesses are forced to increase prices to cover the difference. And boom, inflation starts.
Another classic example is that, contrary to popular belief, subsidized low-income housing is not good for cities. The less of it there is, the better off the city is — even the low-income residents of said housing.
Those two are prime examples of backward intuition, something we’ll have to keep in mind for today’s piece.
Why is this important?
Last week, Swiss-based Planted launched it’s “ultra-simple meatless poultry”. Made from pea protein, pea fiber, water, and sunflower oil, Planted claims it is “nearly indistinguishable from the real thing, better in other ways and, soon, cheaper.”
But the “alternative meat” craze doesn't stop there.
In the US, Beyond Meat’s shares spiked by over 163%, reaching a valuation of $3.77 billion at market close during its first trading day. They are also planning to start production in Europe next year.
Plant-based meat companies like THIS are launching every year, and Impossible Burger is setting its eyes on us after a $300 million round.
“Now is the time where we have reached sufficient scale; we are just beginning to meaningfully explore what it means to go to the EU — that will be an exciting development in the years to come.” - David Lee, CFO Impossible Burger
There are two main reasons why plant-based meat is on a surge:
- Alternative meat is better for you than real meat.
- Alternative meat is good for the environment.
At first sight, this looks reasonable. Meat is bad. Animal farming is destroying the environment. Right?
Today I'm going to argue that even though today's narrative suggests alternative meat is better than real meat, this is another case of backward intuition and therefore, the fundamentals of this market are all wrong.
Looking at the business fundamentals
When evaluating a market or an individual business, I look at the value proposition, their claims, and then figure out if they are true.
So let’s do that.
Is alternative meat better for you than real meat?
Personally, I struggle to understand how lab-engineered food can be healthier than, you know, the stuff we are evolutively designed to consume to fuel our bodies (and have done for millions of years)
But let’s look at the data.
Beyond uses canola and sunflower oil as main ingredients in their burgers, both of which are problematic individually. Now, when served combined and with a side of additives and unnatural ingredients, is it suddenly awesome?
Other alternatives, like Impossible Burger, are soy-based. Soy comes with a litany of other problems, including but not limited to hindering testosterone in men.
What’s even more ridiculous is that the FDA sent them a long letter saying data they'd submitted wasn't sufficient to "establish the safety" of heme, the ingredient that gives the burger its meat-like flavor and bleeding capabilities, for human consumption.
New engineered foods might be fine to eat, but they also might have massive risks that we don't know about yet.
Is alternative meat better for the environment?
The main narrative is that meat is bad for the environment, and therefore, anything that limits meats consumption (like plant-based protein) is a net positive. That’s why concerned journalists come up with coverage like the Guardian’s, Avoiding meat and dairy is ‘single biggest way’ to reduce your impact on Earth.
But let’s not throw out the baby with the bathwater just yet.
Environmental impact of omnivorous, ovo-lacto-vegetarian, and vegan diet is almost equal when considering the entire consumption spectrum (like alcohol).
On top of that, all of animal agriculture contributes just 3.9 percent of total U.S. greenhouse gas emissions.
“According to our research at the University of California, Davis, if the practice of Meatless Monday were to be adopted by all Americans, we’d see a reduction of only 0.5 percent.” - Source
Contrary to popular belief, continuous crop production is not sustainable.
That’s was the mistake made by the Sumerians 5,000 years ago in what is now Iraq, and the Romans in North Africa 2,000 years ago–in both cases the soils never recovered. That's why the Fertile Crescent isn't the Fertile Crescent anymore.
In the end, the best solution might be not to go vegan - but to eat ethically sourced meat.
How can it play out in Europe?
First, the fundamentals aren't there. I think that there is a demand for this in Europe (and worldwide) and that demand is rising, but we won’t see alternative meats being the norm anytime soon.
Second, as with most innovations, dominating Europe is a challenge. Not only food regulations are more strict but they are also fragmented across country borders.
A great example is how a Brussels committee ruled that calling non-animal burgers can't be advertised as burgers.
Good call, if you ask me.
Last but not least, Europe is usually too early or too late to most innovations. Nicolas Colin puts it better than I ever could in one of his latest newsletters:
"Either it’s Stage 1 (the new technology of the day), and it’s too early: European players don’t have Silicon Valley’s firepower to sustain their investment effort over several generations of (likely failed) startups. Or it’s Stage 3, and then it’s too late: at this point, a potential winner has already positioned itself (think: Amazon, Uber, Netflix), and that position will only be cemented by the incumbents striking back, which usually happens at the expense of lesser, would-be European competitors." - Nicolas Colin
Alternative meat is "the new technology of the day", we are now seeing the first European players emerge, but there is no clear winner yet.
This is one of those times where looking at how this will play out in the US is actually a good idea.