Cultivated meat consolidation? Cell-based food firms face shrinking investment

02 Nov 2023 --- The cell-based meat industry could be entering a period of consolidation amid inflationary pressures in the macroeconomic environment, according to a new report by Oghma Partners. The F&B industry finance advisor also reveals the US has become the preferred destination for cultivated meat players, given the country’s favorable regulatory framework and huge consumer market.

Currently, the sale of cell-based meats is regulated and approved in only two countries (the US and Singapore), and just two companies enjoy regulatory approval (Upside Foods (US) and Eat Just’s Good Meat (US and Singapore)).

As cultivated meat players battle to win over consumers, improve cost-effectiveness and achieve wider regulatory approval, the global economic downturn has restricted new investment in the emerging industry.

“Money for new investment is now harder to come by, as the slowdown in funding so far in 2023 demonstrates. But the slowdown in funds is not sector specific — we have seen an across-the-board reduction in investment activity in early stage businesses due to the changing interest rate,” Mark Lynch, partner at Oghma Partners, tells Food Ingredients First.

“The industry will be challenged to deliver sales to consumers and stretch funding runways to the point of delivering profitability. We see a shake-out similar to what we are seeing in the plant-based meat sector, with consolidation among the players most likely.”The US has become a cultivated meat hotspot due to its trailblazing regulatory framework.

Destination America
According to Oghma Partners, the US is paving the way for the cell-based meats industry globally with the largest number of investors and producers. Approval for cultivated foods in the country is seen as a critical development due to the size of the consumer market.

“A favorable regulatory environment and ease of business is seeing the US become a hub for industry activity. Multiple overseas companies are looking to relocate or move certain operations to the US,” says Lynch.

“Israel and the UK are the second and third most active countries in terms of the level of funding for cell-based meat start-ups, which reflects a combination of the level of innovation in their respective food industries and universities and the capital market pool available, combined with a flexible regulatory environment.”

Lab-to-fork challenges
Cell-based meat production is seen as a way to generate cheap, low-carbon alternative protein without the need for animals and antibiotics and in a safe and controlled environment. For Lynch, cell-based agriculture has, therefore, substantial potential as an alternative to traditional agriculture.

“We believe this potential has driven interest and speculative investment in the industry. It is unlikely in the near term that full replacement of conventional proteins will occur. However, if the costing is right, then cell-based meats have the potential to become a significant part of the supply chain,” he tells us.

The general challenge the industry faces — aside from a friendly regulatory environment — is consumer acceptance and cost-effective production. “Both of these issues will require investment in marketing and production processes and technology,” continues Lynch.Cell-based meat holds potential for boosting protein diversification, but investment has slowed amid the economic downturn.

“Currently, cell-based meat is expensive to produce and uneconomic compared to conventional farming. However, we see this changing over time as costs reduce as and when the market grows.”

“In addition, if a ‘fully-costed’ farming model is taken on board (the cost of farming related to, for example, effluent and GHGs), then the cost gap will be narrower and, if this methodology is used as a marketing tool, we may see a faster growth curve among some consumers for cell-based products.”

The regulatory road
Meanwhile, the challenge for cultivated meat firms in non-regulated countries is to secure approval for the sale of their products.

According to Oghma Partners, regulatory progress “looks promising” in several other nations, including government-backed programs in Israel, the UK, the Netherlands and China. The EU is also prepared to receive its first commercial wave of requests for market authorizations.

Mark Lynch at Oghma Partners: Cell-based meat can play a big role in the supply chain if firms achieve cost-effectiveness.Many nations have set out or are developing frameworks by which companies will gain regulation for sales within the market, mostly through existing “novel foods” frameworks. 

But, not all nations view cell-based meats favorably. For instance, the Italian government recently moved to ban any cell-based meat activity within Italy.

Funding breakdown
The report suggests that a small group of companies have secured the majority of funding to date. Upside Foods, for instance, has raised ∼£555 million (∼US$674 million), representing 21.5% of the global total.

In all, the top five cell-based meat manufacturers (Upside Foods, Believer Meats, Wildtype, Aleph Farms and Mosa Meat) account for 46.9% of all funds raised (FP 2016-2023 YTD).

Some 68% of deal activity is directed toward companies whose activity includes the development and production of cell-based meat. The remaining activity is spread across cell-based seafood (17%), ingredients (11%) and pet food (4%), with the funds raised representing 21.5% of the global total.

“Significant investment into the cell-based meat industry has increased cap-ex spending with many companies scaling up production capacity and R&D facilities. These investments — some of which are yet to be completed — have the potential to accelerate the launch of products to consumers in the cell-based meat space,” says Lynch.

By Joshua Poole