Losses on meat substitutes leave investors with a sour taste

In February 2021, Walter Robb, former co-chief executive of Whole Foods, described consumers’ gradual shift from meat to plant-based alternatives as a “megatrend similar to digitization” – possibly “the biggest single trend in the history of food”. “.

Since then it has been a torrid two-and-a-half year journey for investors in the sector. Rob’s bold call on an index tracking 46 plant-based food companies has come down in value after a peak week, hit by declining sales and rising interest rates.

Shares of California-based Beyond Meat, the poster child for the sector, whose early backers included actor Leonardo DiCaprio and the Bill & Melinda Gates Foundation, rocketed after a flotation in 2019. It briefly enjoyed a market capitalization of more than $14bn, but shares have since fallen by around 95 per cent. The company has also faced class-action lawsuits. Shares of Oatly, another vegetarian option, have fallen 90 per cent since listing in early 2021.

Despite ethically focused investment and growing concerns about the carbon footprint of the meat industry, consumers have not developed a taste for plant-based alternatives, which still account for a fraction of one percent of the global meat market .

Until they can match meat on taste, texture and cost, analysts say plant-based alternatives are unlikely to ever win a substantial share of the market. On all of those fronts, a rival technology — farming alternatives grown from animal stem cells — could pose a greater long-term threat to legacy meat companies than their plant-based peers.

Among the advocates is Eric Kaufman, chief executive of Israel-based Stakeholder Foods, which harvests stem cell-grown meat with its “bioprinting technology” for squeezing steaks and fish fillets.

“As time goes on the uniqueness of our printers will unfold, flexitarians will switch to our products and we will eventually produce ‘real’ meat, although it won’t happen in a day,” Kaufmann said. Renaissance Technologies, one of the world’s most successful hedge fund firms.

But Stakeholder’s shares haven’t escaped the broader sector sell-off, falling 92 per cent over the past two years. Still, Kaufman pointed to Israeli Prime Minister Benjamin Netanyahu’s April visit to the company’s apparent endorsement of grouper fillets as evidence of the technology’s potential.

Others tentatively agree. Geneve Shah, portfolio manager at Sarasin & Partners, said meat farming would be “the silver bullet from an environmental perspective,” given how much land and water is needed to grow plant-based meat products.

“Food security is another driver for this technology,” Shah said, adding that it was no coincidence that Singapore, which imported 90 percent of its food supply in 2021, was the first to approve farmed meat products for commercial sale. The first country was

Shah estimated that the total market for the alternative meat industry could reach roughly $300bn by 2035, with the share of lab-grown meat continuing to grow. According to data provider Spin, sales of plant-based alternatives in the US fell 13 percent in April from the same month last year.

“I don’t see Beyond Meat being bought by a company like JBS or Tyson,” Shah said, referring to the two largest legacy meatpacking companies. “Only a few of them are realistically thinking their business is going to be disrupted and who will instead look to private groups in (meat) fermentation and farming.”

According to Barclays, the farmed meat industry will raise $896 million in venture capital funding in 2022, down from $1.3 billion in 2021, slightly below the 35 percent average year-over-year decline in global venture funding . The proportion of total investment in the meat-alternative space has been shifting towards lab-grown products over the same period.

Legacy meatpacking companies have also suffered. Shares of Tyson Foods are near their all-time lows and JBS’s value has more than halved in the past year. Tyson’s chief executive blamed “adversities in almost all the countries where we operate” during first-quarter earnings calls, while the head of JBS said he couldn’t remember another time when “beef, pork And Chicken (experience) was facing the challenges of the market at the same time.

Meanwhile, Beyond Meat has to deal with more than its $366mn annual loss from last year. Its shares took a hit in early May after announced It will sell up to $200 million in common stock in an effort to quickly raise financing.

It also faces class-action lawsuits: the most recent, filed on behalf of investors in California, accused the company of squandering its production capacity and the success of its product tests with retailers including McDonald’s, Starbucks and Taco Bell .

The suit also alleges that Beyond Meat executives participated in a scheme to defraud the market by selling shares at artificially inflated prices. The filing mentions former chief financial officer Mark Nelson, who sold 440,000 of his personally held shares for $58.3mn between May 2020 and October 2022. Nelson announced in March 2021 that he would be retiring from the company, but continued to consult for the company until the end. month.

Beyond Meat said, “The company believes the claims are baseless and intends to vigorously defend all claims made.”

However, for a group of investors, the sector’s problems have presented an opportunity to profit. Hedge funds betting against Beyond Meat’s stock raised more than $1.6bn since January 2021, according to data provider Ortex.

“A short seller used to classify its shorts as fraud, fad and fad —[plant-based meat]looks like a fad,” Barry Norris, chief investment officer at hedge fund Argonaut Capital, told Beyond Meat. The bet made a profit.

“Many companies rediscovered the bean burger, and there’s no economic moat behind making bean burgers,” he said.

In February 2021, Walter Robb, former co-chief executive of Whole Foods, described consumers’ gradual shift from meat to plant-based alternatives as a “megatrend similar to digitization” – possibly “the biggest single trend in the history of food”. “.

Since then it has been a torrid two-and-a-half year journey for investors in the sector. Rob’s bold call on an index tracking 46 plant-based food companies has come down in value after a peak week, hit by declining sales and rising interest rates.

Shares of California-based Beyond Meat, the poster child for the sector, whose early backers included actor Leonardo DiCaprio and the Bill & Melinda Gates Foundation, rocketed after a flotation in 2019. It briefly enjoyed a market capitalization of more than $14bn, but shares have since fallen by around 95 per cent. The company has also faced class-action lawsuits. Shares of Oatly, another vegetarian option, have fallen 90 per cent since listing in early 2021.

Despite ethically focused investment and growing concerns about the carbon footprint of the meat industry, consumers have not developed a taste for plant-based alternatives, which still account for a fraction of one percent of the global meat market .

Until they can match meat on taste, texture and cost, analysts say plant-based alternatives are unlikely to ever win a substantial share of the market. On all of those fronts, a rival technology — farming alternatives grown from animal stem cells — could pose a greater long-term threat to legacy meat companies than their plant-based peers.

Among the advocates is Eric Kaufman, chief executive of Israel-based Stakeholder Foods, which harvests stem cell-grown meat with its “bioprinting technology” for squeezing steaks and fish fillets.

“As time goes on the uniqueness of our printers will unfold, flexitarians will switch to our products and we will eventually produce ‘real’ meat, although it won’t happen in a day,” Kaufmann said. Renaissance Technologies, one of the world’s most successful hedge fund firms.

But Stakeholder’s shares haven’t escaped the broader sector sell-off, falling 92 per cent over the past two years. Still, Kaufman pointed to Israeli Prime Minister Benjamin Netanyahu’s April visit to the company’s apparent endorsement of grouper fillets as evidence of the technology’s potential.

Others tentatively agree. Geneve Shah, portfolio manager at Sarasin & Partners, said meat farming would be “the silver bullet from an environmental perspective,” given how much land and water is needed to grow plant-based meat products.

“Food security is another driver for this technology,” Shah said, adding that it was no coincidence that Singapore, which imported 90 percent of its food supply in 2021, was the first to approve farmed meat products for commercial sale. The first country was

Shah estimated that the total market for the alternative meat industry could reach roughly $300bn by 2035, with the share of lab-grown meat continuing to grow. According to data provider Spin, sales of plant-based alternatives in the US fell 13 percent in April from the same month last year.

“I don’t see Beyond Meat being bought by a company like JBS or Tyson,” Shah said, referring to the two largest legacy meatpacking companies. “Only a few of them are realistically thinking their business is going to be disrupted and who will instead look to private groups in (meat) fermentation and farming.”

According to Barclays, the farmed meat industry will raise $896 million in venture capital funding in 2022, down from $1.3 billion in 2021, slightly below the 35 percent average year-over-year decline in global venture funding . The proportion of total investment in the meat-alternative space has been shifting towards lab-grown products over the same period.

Legacy meatpacking companies have also suffered. Shares of Tyson Foods are near their all-time lows and JBS’s value has more than halved in the past year. Tyson’s chief executive blamed “adversities in almost all the countries where we operate” during first-quarter earnings calls, while the head of JBS said he couldn’t remember another time when “beef, pork And Chicken (experience) was facing the challenges of the market at the same time.

Meanwhile, Beyond Meat has to deal with more than its $366mn annual loss from last year. Its shares took a hit in early May after announced It will sell up to $200 million in common stock in an effort to quickly raise financing.

It also faces class-action lawsuits: the most recent, filed on behalf of investors in California, accused the company of squandering its production capacity and the success of its product tests with retailers including McDonald’s, Starbucks and Taco Bell .

The suit also alleges that Beyond Meat executives participated in a scheme to defraud the market by selling shares at artificially inflated prices. The filing mentions former chief financial officer Mark Nelson, who sold 440,000 of his personally held shares for $58.3mn between May 2020 and October 2022. Nelson announced in March 2021 that he would be retiring from the company, but continued to consult for the company until the end. month.

Beyond Meat said, “The company believes the claims are baseless and intends to vigorously defend all claims made.”

However, for a group of investors, the sector’s problems have presented an opportunity to profit. Hedge funds betting against Beyond Meat’s stock raised more than $1.6bn since January 2021, according to data provider Ortex.

“A short seller used to classify its shorts as fraud, fad and fad —[plant-based meat]looks like a fad,” Barry Norris, chief investment officer at hedge fund Argonaut Capital, told Beyond Meat. The bet made a profit.

“Many companies rediscovered the bean burger, and there’s no economic moat behind making bean burgers,” he said.