B2B Pivots, APAC Growth & Plant-Based 2.0: ProVeg on Alt-Protein’s ‘Correction Phase’ & Trends for 2024

Amid investor pressure, sales declines and negative media coverage, the alternative protein sector is navigating a “correction phase”, but there is cause for optimism, according to ProVeg International.

We’ve all seen the headlines. Sales falling, investors losing faith, companies shutting down, prices shooting up – all amid a wider food tech landscape that’s as volatile as it is exciting. All that has led to what is now a “correction phase” for the alternative protein industry, according to food advocacy organisation ProVeg International.

In a new report celebrating the 100 startups it has incubated in the last five years, the non-profit argues that bad press doesn’t equate to a failed industry, pointing to how there was a small uptick in global sales for plant-based food (from $28B to $29B) last year, contrary to the widespread losses that most people will have you believe.

“The industry is simmering down, not burning out,” says Divya Murthy, co-head and investment lead of ProVeg Incubator. “Like any emerging sector, this is a healthy recalibration, separating the true potential from the hype. This consolidation will help the sector build back stronger on the other side.”

ProVeg points to its incubated startups to underline the strides being made to overcome the challenges and make the sector more resilient. These include players in the plant-based, cultivated meat, precision fermentation, fungi and algae protein, molecular farming, and plant cell culture spaces – think Infinite Roots, Better Nature, Formo, Remilk, Omni, Libre Foods, Aspyre Foods and Marinas Bio, to name a few.

“Our startups are developing some mind-blowing products, ingredients and technologies,” notes Vicki Sagar, marketing and communications manager at ProVeg Incubator. “They are the future.”

So what does that future look like? ProVeg highlighted five trends shaping alternative proteins, and long-term outlooks for the industry’s future.

1) Food tech and climate tech are becoming synonymous

Only a tenth of all climate tech dollars has gone to the agrifood sector in the last decade, despite financing in the category bringing the highest CO2e savings per dollar of invested capital of any sector.

However, change is afoot, with the link between food production and climate change becoming clearer, according to ProVeg. Food production accounts for a third of all human-caused emissions, while the livestock sector is responsible for 12-20% of all emissions. Meat itself makes up 60% of the food system’s emissions, twice as much as plant-based foods. As producers struggle to keep up with demand from a growing population, and climate change affects access to natural resources, things will only become more dire.

ProVeg notes how governments like Singapore, Japan and China are recognising the role of food tech in tackling the climate crisis, with policies that include alternative proteins as a central strategy.

2) Plant-Based 2.0 is here

In September, Green Queen founding editor Sonalie Figueiras and industry veteran Maarten Geraets outlined the need to unleash a new category of innovation: Plant-Based 2.0.

The ProVeg report notes that we’re seeing this shift, with many startups addressing the pain points of the industry and developing products with cleaner labels, better flavour and texture, and cheaper, more competitive price tags. Fungi-derived and fermented ingredients will drive this growth, as will algae-based foods, known for their fast growth, high photosynthetic efficiency, low water consumption, and favourable protein profile, and the fact that they don’t need land for growth.

Blended and hybrid meats – something we’ve covered extensively over the last few months – can further help companies meet consumer needs for these proteins, while upcycled food and sidestream valorisation is expected to ramp up, thanks to the value proposition and ability to create novel ingredients for multiple food sectors.

“We expect a wave of plant-based 2.0 products and a steady flow of new product success stories that will generate a new narrative for the alt-protein category, leading to improved investment conditions for startups,” says Hédi Farhat, investment manager at ProVeg Incubator.

3) It’s all about B2B

A growing number of startups are focusing purely on B2B applications, while many are pivoting away from B2C – Californian precision fermentation company Perfect Day is perhaps the most famous example here. This is in response to high marketing and customer acquisition costs, narrow margins, and investor unease over the direct-to-consumer approach.

Instead of doing it all themselves, companies are now hoping to be part of the solution by working on specific technologies, ingredients and scale-up platforms, such as fermenters, growth media or customised fats. This lets startups focus on specific gaps in the value chain, rather than having to put millions into developing all aspects of the end product.

“To unlock long-term consumer demand and retention, we need to develop the next gen of alt-protein products – imagine juicier textures, cleaner labels, and perfect price points. This requires innovation further up the value chain,” says Murthy. “By empowering B2B startups to develop these technologies and ingredients, we can unlock consumer delight.

She adds: “While B2C brands do face challenges at the moment, compelling USPs and innovative go-to-market approaches will still be crucial in the medium term to ultimately deliver these products to the broader consumer market.”

4) Molecular farming headlines novel approaches

Alternative protein think tank the Good Food Institute has already named molecular farming the fourth pillar of the industry, and technologies like these (including plant cell cultivation) are “key to tackling the problem of recreating dairy proteins and other ingredients on a mass scale”, according to ProVeg Incubator director Albrecht Wolfmeyer.

Meanwhile, fermentation technologies are also important, especially biomass fermentation, which leverages the high protein content and rapid growth of microorganisms to make protein-rich food at scale. This is because developing and scaling functional ingredients will be key to the industry’s success.

“{lant molecular farming is still at an early stage. There are technological and also regulatory challenges. So far, it has been less prominently discussed in public than precision fermentation or cultivated meat. In terms of knowledge and acceptance among consumers though, there is actually potential to leverage this as one of the most sustainable technological approaches,” Wolfmeyer says.

“Molecular farming could actually be farming, in open fields, and thus visibly and directly promote the transformation of our agricultural systems. I can imagine this to be very appealing to consumers – given, of course, that the industry explains well what and why they are doing this,” he adds.

5) APAC is becoming the next alt-protein hub

Asia-Pacific has already caught up with the US in terms of the number of cultivated meat companies, while Singapore’s progressive regulatory frameworks have always placed the region as a hub for food tech development and market launches.

APAC is home to over half of the global population, and faces the biggest threat to food security. But as their spending power and standard of living progress, so does the demand for alternative proteins, something governments like India, Japan and South Korea are recognising. However, a funding gap remains, with research suggesting that agrifood systems are currently the “lowest-hanging climate fruit” in the region, and investment in existing solutions could cut emissions by 12% by 2030.

“Governments in countries like Singapore, South Korea or Japan are becoming more and more bullish about agricultural and, in particular, food tech. This is because they are realising its potential for contributing significantly to their sustainability agendas – without public funding and support, this will simply not be feasible,” note Wolfmeyer.

“At the same time, there is more openness among consumers and more interest in healthy, nutritious and sustainable food options. Plus, given that fundraising has become such a huge challenge for startups, supporting them is also a strategic question and a reason why more and more countries are embracing food-tech and alt-protein.”

The now, next and later

ProVeg provided a tiered outlook of the industry’s future, looking at immediate challenges, as well as middle- and long-term ones. The non-profit expects a challenging 2024-25, punctuated with harsh economic conditions and a difficult investment landscape, which may mean some startups in their growth stage may run out of runway – that has happened to a number of players over the last 12 months.

“We are in a phase of consolidation and correction that isn’t over yet. Given that venture capital is so scarce, fundraising and due diligence processes are taking extremely long, and especially lead investors are so hard to find, we expect to see more businesses going down,” says Wolfmeyer. “At the same time, we are seeing a lot of exciting innovation in the ecosystem and also growing consumer and corporate interest in markets like Germany. This and parts of next year will be tough, then we’ll see more light at the end of the tunnel.”

But there are bright notes too, with new-wave products and regulatory approvals for cultivated meat and precision-fermented proteins on the rise. The “steady flow of success stories” is likely to drive a new narrative, improved investment conditions, and a more favourable market environment.

However, the EU remains closed off to novel foods, with a framework so stringent it has driven companies away in search of more open pastures. But Murthy remains optimistic: “The growing demand for alternative proteins and innovative food products is putting pressure on EU’s regulators to strike a balance between safety and fostering innovation. It is hard to say when exactly this is likely, however – there is a strong need for a more open framework to streamline the approval process, incentivise more R&D in the space and make it easier for startups to launch in a major market like Europe.”

Over the next three to five years, ProVeg expects to see significant progress in product development, with 80% of alternative protein products matching their animal-derived counterparts on taste, texture and price, with renewed interest from retailers, distributors and foodservice operators. “We expect to see the effects of consolidation, along with signs of recovery in the sector, between 2025-26, with more corporate investors driving innovation in the sector,” says Farhat.

And in the long term, eight to 10 years from now, ProVeg believes alternative proteins will become the default option, with better functionality and greater awareness of animal agriculture’s climate impact. By then, investment in the sector is forecast to surpass $10B per year (double the 2021 figure), although much more capital will be needed and delivered by strategic investors, corporations and public funds. Regions like Africa and Latin America – still in their early stages of adoption and investment in this sector – will present a significant growth opportunity.

“We’ll see more cultivated foods in restaurants in Singapore and the US. In Europe, where regulatory approval is slower, the first wave of restaurants will have cultivated meat and seafood on their menus,” says Antje Räuscher, co-head and partnerships lead at ProVeg Incubator.