Source: Citywire Investment Trust Insider
By David Stevenson 18 May, 2021
A couple of days ago a good friend of mine dropped me an email asking ‘what the hell is going on with Agronomics (ANIC)?’
I have been telling said close friend for the last year that there’s a food revolution on its way and that investors need to get their heads around a profound shift in both what we eat and how its grown. It’s partly why I launched an investor-focused blog called www.futurefoodfinance.com which talks endlessly about this space and its also why I bought some shares in Agronomics a while back when they were just 5p a share.
For the record, Agronomics is an AIM listed investment fund, founded by Jim Mellon, which invests (largely though not exclusively) in businesses involved in what is called cultured meat (aka lab grown meat) using bioreactors.
I thought my friend’s exclamation mark-heavy email would be about why the share price at one point hit 30p which compares rather unfavourably with a net asset value (NAV) that is very substantially below the share price, but no. He was astonished because Agronomics has successfully raised a stonking £62m despite initially targeting a minimum of £50m. ‘Where’s all this money coming from?’ he plaintively asked.
Today I am going to try and provide an answer to that question and also suggest that Citywire readers might need to keep a close eye on this space.
Why investors are hungry for foodtech
But, spoiler alert, if you are a value investor who likes either A) a close relationship between NAVs and the share price or B) fabulously profitable businesses that are already profitable and don’t need any tech hype to sell the shares look away now (or maybe skip to the last paragraph!).
For the rest of us I would suggest that over the next year we are about to run into a bunch of tipping points.
The first is that the main alternative to meat, plant-based proteins designed to taste and look like meat, are beginning to approach price parity with existing meat products such as mince and burgers. Throughout the last six months the industry news sites have been humming with stories about the two main players, Impossible Meat and BeyondBeef cutting wholesale prices.
We’re not quite at what Jim Mellon calls the griddle point where a packet of alternative mince is the same price as traditional farm grown meat but we are definitively not far off.
This is prompting an investment scramble into the space and over the last year we’ve seen an acceleration of existing investment flows into the industry. Mainstream venture capitalists are jumping on the bandwagon and pumping hundreds of millions of pounds into all manner of private businesses trying to sell you everything from plant burgers to antelope, lobster and kangaroo alternatives (I jest not).
Importantly we are also seeing a growing number of private businesses move beyond the seed rounds and early-stage series A towards later stage Series b and c rounds. A small handful are also moving into special acquisition vehicles (Spacs) and listing on the main markets – BeyondBeef is already there, and rumour has it that Impossible Meat is not far behind.
Foodtech is the new ‘gold rush’
Another poster child for the Foodtech space is Oatly, which sells, very successfully, milk-based alternatives. It is planning a huge initial public offering (IPO) in Asia.
Quorn’s Philippines-based owner is not far behind with a local IPO. And lurking in the background, the really big food brands are also aggressively moving into this space. One deal nicely summed it up a few weeks ago. The world’s largest protein company, JBS ,announced it had bought Dutch plant protein producer Vivera, which is currently Europe’s third-largest plant-based food producer, for an enterprise value of €341 million (£294m).
We can all be cynical after the fact about these ‘gold rushes’, but huge infusions of capital will have two immediate impacts. First, it will boost product innovation and result in new products coming to market. In addition, the extra capital helps boost production capacity and helps lower the price point for said products, making them less premium, more mainstream.
But that is only the supply side of the equation. What about demand? Here there are a few not inconsiderable challenges. The first is that even those businesses with products on the mass market need to find a way of getting them into our pantries.
For the time being that means supermarkets. On this score times are also changing. One industry news website[ds1] recently carried a story that Beyond Meat will enter around 450 new retail outlets through deals with supermarket giants Sainsbury’s and Waitrose this year.
Other last mile solutions are also being pioneered. In the US, meat alternative boxes and home delivered plans are being pioneered as are fast food takeout chains.
But even once this last mile is sorted out another challenge remains: taste.
Does it actually taste good?
Taste. If I’m honest, most of the early adopters have been vegans, and vegetarians who frankly are less worried, by and large, about whether a product looks and tastes like meat. The bigger mainstream flexitarian markets do care about taste.
Which is where cultured (lab grown) meat comes in.
The aim here is not to blend different ingredients like pea protein or soy with the right sub ingredients to have something that tastes like meat. No, the aim here is to culture meat sourced samples in a bioreactor, at scale, with the same look, texture and taste of meat but with purely non-meat media as inputs.
Meat without animals in essence.
Until just a few months ago I would have said that this was still four to five years away from the mass market but one of the players in this space called EatJust has brought out the first cultured chicken nuggets in Singapore. These nuggets might taste like the real thing, but they are stupendously expensive and this cultured meat is not exactly about to takeover KFC (yet) but they are on the market in a country with high regulatory standards.
Alternatives to fish are also likely to emerge very soon courtesy of outfits such as Blue Nalu. And not before time in my view, considering the horrendous damage we are inflicting on marine ecosystems by industrial trawling. Crucially this cultured meat space is the focus of Agronomics.
And of course, that mention of fish reminds us why so many are thinking about these alternatives. You do not have to be an asparagus-wielding vegetarian to be concerned about the impact of red meat on environments and climate change – with studies suggesting that anything between 20-35% of all carbon emissions come from the agriculture sector. Plus of course there’s the growing nervousness about factory farming and the health consequences of eating red meat.
But I do not want to dwell on the environmental, social and governance (ESG) angles here. I think they are obvious. Also, the sometimes hysterical tone of many industry advocates needlessly puts the back up of traditional farming lobbies in the UK.
One can, I think, believe that there is a market for both meat alternatives and existing British beef and lamb, raised on well-managed, family farms with high standards. Its not a zero sum game despite what some would tell you.
So, this has sketched out a brief answer as to why investors are getting excited.
How to play the theme
Now to the practicalities of how to invest. At the speculative end of the spectrum the two most accessible vehicles are Agronomics and a Canadian-listed fund called EatBeyond.
Both have a slightly detached relationship between NAV and their share price, but I hope the explanation above tells you why investors might be excited about portfolios full of earlier stage, younger businesses developing new technologies and products.
In the boxes below I have listed the main portfolio businesses held in the two funds. I own shares in both and think they are sufficiently different from each other.
EatBeyond is North American-focused and is broader in the niches it invests in – its shares have also under performed Agronomic.
The UK-listed fund has momentum behind it. It has raised a great deal of money and has a very impressive portfolio of businesses focused on the intellectual property behind cultured meat. And it has Jim Mellon sitting on the board, which will always help marketing the fund.
EatBeyond’s portfolio:
The Very Good Company
Good Natured
SIRE Bioscience
Private companies:
Eat Just
Turtle Tree Labs
Nabati Foods
Singcell
Above Food
Zoglo’s Incredible Food
Plant Power Fast Food
Agronomics’ portfolio:
BlueNalu
Live Kindly
Meatable
Mosa Meat
Solar Foods
Vitro Labs
Super Meats
Formo
Galy
CellX
Tropic biosciences
Rebellious Foods
Bond Pet Foods
Oritain
New Age Meats
Shiok Meats
If both of these funds strike you as highly rated (which they are), it’s worth looking at more mainstream alternatives. The global sustainability team led by Jessica Alsford at investment bank Morgan Stanley has done some brilliant analysis in a series of research papers on this fast-emerging foodtech spectrum.
The foodtech opportunity is diverse
I’ve tried to massively summarise their analysis into the following key areas of opportunity:
–Precision agriculture: ‘We anticipate growth in the low teens over the next decade, resulting in a market worth c$17bn in revenues. Deere and Co: The company has commercialised several differentiated products, including Exact Emerge, Exact Apply, and Combine Advisor. Its Exact Emerge product enables farmers to plant their crop in tighter windows by planting speeds twice as fast while also providing more uniform seed spacing.’
–Innovation in seeds: ‘This is a scalable solution that can be used globally; we forecast 5-7% growth per annum to 2030, reaching market revenues of ~$100bn.’
–Agri food testing: ‘We expect 5-7% growth over 2020-30 to a market size of $52bn.’
–Aquaculture: ‘We forecast a c5% CAGR over the next decade to reach revenues of over $300bn.’
–Vertical farming: ‘This relatively new product set of technologies is ‘pesticide-free and uses less water than traditional farming (95% less for aeroponics and 70% less for hydroponics). Up to 99% less space is needed compared to conventional agriculture methods, with productivity up to 300x higher than a field farmer. However, it is only suitable for high value crops such as leafy greens and strawberries and thus its scale will be limited. We expect a CAGR of c25% over 2020-30 to a market of c$20bn.’
–Alternative meat: ‘We estimate that, together, plant-based meat and milk could be worth more than $80 billion by 2030” – see a more detail analysis below.
–Fertilisers: ‘Two new areas to watch, though, are: 1) green ammonia: Yara, OCI and CF Industries have begun to invest here through pilot projects; and 2) biofertilisers: Compass Minerals, Yara, Nutrien, ICL and Syngenta are all working on this technology on a small scale.’
–Crop protection: ‘Biological crop protection is an area to watch; the likes of Koppert, FMC, Bayer, Novozymes and BASF all operate within the space.’
There is also a growing number of funds that invest in this field and I would highlight two that are accessible to private investors -there’s a third from Newton based around their Future Food Strategy which is more aimed institutions- : Pictet’s Nutrition fund and Rize ETF’s Sustainable Future of Food (FOOD) exchange traded fund.
They both focus only on listed, public businesses form around the developed world. The Pictet fund is probably the slightly more blue chip fund of the two in that many of its biggest holdings look well known; Deere, Nestle and Kerry Group stand out.
Looking down the list of top holdings for both funds I would make last comment – there is clearly plenty of marketing hype about alternative proteins and cultured meat, but over in the agricultural technology (agtech) bit of the spectrum, there’s a huge amount of money already being made by the likes of John Deere and Co.
Everything from precision agriculture to providing robots and drones for farms is already a profoundly lucrative business and if I were a more cautious investor I’d be looking to cultivate a deeper interest in what the farm of tomorrow looks like.
