By David Stevenson on Monday 12 April 2021
A few months back Future Food Finance’s David Stevenson caught up with Mayssa Al Midani, senior investment manager for nutrition at Pictet, a leading wealth and asset management company which runs a fund specifically dedicated to investing in Nutrition and food-based businesses.
This interview is especially interesting as Pictet are one of the most established fund managers in the thematic and specifically food space with many years’ experience of putting money to work in both food/consumer brands and agriculture based businesses. What follows is a lightly edited version of the video interview.
Linked In profile for Mayssa: https://www.linkedin.com/in/mayssa-al-midani-ciia-78747340/?originalSubdomain=ch
Pictet Nutrition fund: https://www.am.pictet/en/uk/global-articles/2017/insights/equities/product-focus/nutrition
DAVID STEVENSON: Mayssa, thank you very much for talking to me, you are the senior investment manager for the Pictet-Nutrition fund. What is your take on the debate between plant-based alternatives and cultivated meat?
MAYSSA AL MIDANI: So I think for me it’s not so much the debate of plant based versus cellular, which one is winning, they can both gain share at the expensive traditional proteins, and we’ve seen really a surging demand for animal based proteins throughout the years, you know, growing population, rising middle class, and this has led to a very unsustainable form of agriculture which we call factory farming or, you know, intense large scale animal husbandry which is associated with a number of challenges. And, you know, the proliferation of antimicrobial resistance in humans which is actually one of the biggest concerns of our current health care systems, environmental degradation as well and 14% to 15% of greenhouse gas emissions come from livestock and even, you know, zoonotic disease. I mean 75% of all new infectious diseases in humans have actually come from animals in the past decade. So anyway, so all this to say that if we want- Yes, if we want to continue to consume as much meat or what we think as meat, are we going to have to look into alternatives, so I think there’s room for both plant based and cellular- Now if I had to give my view on, you know, sort of compare the two I would really look at a few factors. The first one would be sensory experience because at the end of the day, you know, to really motivate a consumer to switch from their usual, juicy, yummy burger they’re really going to have to have a similar experience. So it’s difficult for me to judge personally because I've never tasted a lab grown piece of meat or chicken, I don’t know if you have? I have tasted the plant based alternatives but from what we’ve seen from all the, you know, reported taste tests, you know, they’re both okay. I mean they’re said to be maybe not 100% the same experience as meat but close enough. And then, down the line when more of these cell-based products will become commercialised, some say that they’ll actually be able to go one step further than plant based in terms of flavour and nutrition and performance, and more closely resemble real meat. So, you know, time will tell if that’s the case. I think the current hurdle that they’re facing is that it’s very difficult to replicate the fat component and the taste and the texture. So it’s too late to judge if that’s going to be achievable but I think from a sensory experience we can get there. Then from a nutritional point of view, it’s true that they both have the advantage of being antibiotic free and I think I mentioned this problem with antimicrobial resistance in humans, toxin free, I mean I think in a lot of seafood you see things like mercury poisoning and other parasites and toxins. You don’t have the issues of spreading zoonotic disease in the farming process and actually I think also my understanding in the case of cell based meat the composition can actually be controlled. So you can actually for instance reduce cholesterol fat, you can add micro nutrients and vitamins. So I think from a nutritional perspective, the road definitely there and, yes, maybe cell based can go one step further but time will tell. Then it comes to affordability because again I think I mentioned I think consumers really want to shift to healthier diets for people and planet, they’re much more conscious of the environment but at the end of the day, you know, it still has to be affordable if we’re going to get widespread growth in these categories. And here it’s true that for the time being plant based is much more affordable, I mean the inputs for plant based alternatives are inherently, you know, much more cost efficient, and pea soy, wheat protein, I mean these are relatively inexpensive inputs any anywhere between, I don’t know five and fifteen times cheaper than actually their animal counterparts.
For now these products are still sold at a slight premium to animal based products but I think it’s just a matter of time as they scale up and they get, you know, more economies of scale in terms of procurement that they’ll be able to really- I know it’s an objective from many of these companies to achieve price parity, so I think that box should be ticked for plant based proteins. When it comes to cell based meat we don’t have a lot of data about pricing, I know that the first cultured meat burger developed by Maastricht University in 2013 was reported to have cost $280,000, so it’s a little expensive for my taste. But that being said I think we have come a long was because we do have evidence of a currently commercialised plant-based chicken, which is sold in a Singaporean restaurant, and a trio of three chicken dishes that is sold for I think $23, so relatively- I mean, the CEO of the company says that this is on par with premium chicken that you would find in any nice restaurant. So perhaps we have come a long way, we’ve come down the cost curve and I think that it’s a key milestone for this industry and probably proof that, you know, yes, affordability can probably be achieved and time will tell as well.
DAVID STEVENSON: Just on that one, it’s interesting, I saw Mosa Meat have got their price point down for each burger down to $9. So actually, we are, you know, even for a relatively innovative and experimental technology, we are closing in on market prices, certainly a lot less than the million dollars.
MAYSSA AL MIDANI: Yes and imagine down the line as you scale up and get more economy of scale and, you know, further innovation I mean, and also attracting new entrants to the market which will drive the competitor spirit and I think that, you know, as you say these are great, it’s great evidence of the sort of commerciality and affordability of this category. So I think that should be fine. Then there’s obviously the regulatory aspect, I mean plant based products are regulated like any other non-animal based food ingredient products, so it’s pretty simple. I think that maybe with cell based it might be a little bit more complicated, there’s a little bit more of an unnaturalness factor, especially in some cases the cells are genetically modified, so I think also here, you know, I think it will depend on different countries. Then again it’s true that for all the true meat lovers, the true carnivores, it’s still a meat based product. I mean I think that in the United States, meat is defined as any product made from a whole or any part of a meat product. So I believe they’re coming from a cell that could be considered meat. So maybe for the labelling it might be easier for cellular agriculture. Then I think the final aspect is sort of just consumer acceptance and the, yuck versus cool factor, and here I think plant based has become pretty mainstream now. Okay, I think in the US it’s only 2% penetration within the overall meat category, but then, you know, I think people are used to plant based diary as well and it’s just become a little bit more mainstream, people generally understand the list of ingredients, they understand how it’s made. You know, it’s not that difficult and maybe with cellular agriculture it’s a little bit, you know, I mean it’s- Yes, it’s grown in a petri dish in the lab so maybe there will be a little bit more pushback there but I think that down the line if we really want to reduce our consumption of meat and care for the environment, care for our health, you know, eat less meat that is full of antibiotics and, you know, other hormones and things like that then there’s definitely scope for both of these categories to grow significantly.
DAVID STEVENSON: Just on that kind of division between cellular and plant based alternatives, one of the arguments and one of the investors in the field, Jim Mellon who’s involved with a firm called Agronomics which is one of the few listed business- His argument is he prefers cell based because effectively there’s a lot more intellectual property in there, you could defect – as you said it’s much more based on technology and science. You basically start with a stem cell and then effectively you use growth factors and you also growth media, you get a bioreactor and you expand it all- So it’s much closer to the biotech industry, and there’s much more defendable he thinks therefore- That’s why as a venture capitalist he refers to that and is less enthusiastic about the plant based proteins because he worries that effectively there’s no so much technology involved and you're having to spend a lot of money building effectively food brands, and food brands is an expensive business. Where do you fall on that debate?
MAYSSA AL MIDANI: I think that there is some degree of truth there, obviously lab grown meat it’s a lot more technical, there’s a lot more- Yes, it’s a lot more difficult to achieve obviously, I mean if you just think about the project at hand. So there is a bit of truth there but I would say that there is still some IP- I mean I don’t think with plant base is just building a food brand, there is still quite a bit of IP and I think that the proof of that is just that, okay, obviously they’re having a lot of emerging brands in this space but very few have really managed to succeed, get on the shelves, get into people households.
I think that- I don’t know if you’ve tasted – I've tasted a bunch and it’s true that there are very few that really manage to mimic the taste, the mouth feel, the sensory experience of real meat. So I think that there is still some IP- I would agree that there’s perhaps less but there is still a large degree of IP on the plant based side as well.
DAVID STEVENSON: So, looking back at this broad divide between the two areas, there’s not a lot of companies listed in the market, that’s the problem though, they’re mostly venture capital backed businesses. There’s even talk of a kind of vegan VC mafia out there, which is not surprising because I imagine if you’re a venture capitalist and you're interested in this area you’d probably like to have vegan or vegetarian tendencies. But there’s not a lot of business out there, and one of the few business out there is eponymous Beyond Meat- I mean what is there, I mean can you invest in anything in this sector, is it all venture capital at the moment?
MAYSSA AL MIDANI: So actually there are quite a few listed companies on the plant based side, where there is a plant based meat alternatives or dairy alternatives as well. Some are on the smaller side, so I think it depends on the constraints of the investor. It is true that on the cell-based side there are much fewer listed companies for the moment, I think you mentioned there is one that is listed that is an investment company investing in sort of start-ups in this space. But we have seen a great number of IPOs in this space in the past few years. It’s really enlarging. I think that what we’re hearing, because obviously we stay connected to the private side and what we’re hearing is they would prefer to come to the listed market and remain independent when they search for capital, rather than disappear into a large group where they’re going to be, you know, just a brand amongst others and lose really their identity. So, we do expect a large number of these to come to the market going forward and the opportunities and there’s space to grow.
DAVID STEVENSON: Just again sticking with the timescales, we’ve already seen I think Impossible cut their wholesale prices, I think literally this month, from January, when we’re talking. So I think they’ve cut their wholesale prices by 15%. Do you think that – I mean if you had to put a finger in the air, when do you think for plant based alternatives they will cost less than meat? We’re not quite there, you said quite rightly at the moment they’re largely charging a premium. Do you think they will charge less than conventionally grown meat?
MAYSSA AL MIDANI: So here’s the thing, so we mention that the inputs are, you know, anywhere between four and fifteen times cheaper than their animal counterparts. I think the reason why today they trade at a premium, sorry, they’re priced at premium is, a, because the economy of scale aren’t there, the procurement scale isn’t there, and these companies have all said that they are reaching for price parity, they don’t want to have premium products, they really want to have products that are available to the masses and for people to be able to switch to healthier products for people on the planet without having to, you know, make a big dent in their wallets. So they’ve all said that they’re aiming for price parity and they could probably even go below, I think that we have seen some other companies, you know, not on the meat side maybe on the plant based side actually go below, you know, their animal based alternative- Sorry, counterpart. So, they haven’t really guided for a specific timeline but I think that, you know, if we continue to see growth in the category it’s a bit of virtual cycle because scale will drive, you know, economies of scale will drive down cost and we’ll be able to get there pretty fast I think.
DAVID STEVENSON: We’ve already seen, you’ve mentioned there’s the first products in Singapore in the cellular meat side, which is a chicken based product that’s come out. You said about £23 in Singapore. When do you think, I mean none of us know the answer to this except the companies doing it but when do you think we’re likely to see a main market cellular based red meat, i.e. pork or beef? Would you reckon next year or two or do you think it’s probably a bit further away at scale?
MAYSSA AL MIDANI: To be honest I’m not sure because, you know, I remember one or two years ago people were saying, “This is something for 10, 15- We’re not going to see anything before 10, 15 years,” and surprise, surprise in December that’s something actually like served in a restaurant. So I think, yes, I think it could come sooner rather than later but I wouldn’t be able to pinpoint a specific date.
DAVID STEVENSON: Let’s pull that a bit further, so there’s a few listed businesses but not many. There’s of course a very successful, very big listed food sector in the world’s main stock markets, you know, lots of very successful Swiss companies you're speaking from a Swiss fund manager, our big food companies. Which of the big food companies do you think are really switched on to this area? Because obviously they could see it as a threat but equally they could see it as something that they’d co-opt. Where do you feel the big majors are positioning themselves? So let me give you an analogy, in climate change, you know, BP and Royal Dutch Shell have jumped on the renewables bandwagon, and are making great claims that they’re going to go down that path. Exxon traditionally has been a bit more aloof and said they’re probably not as interested. Are the big food companies kind of differentiating themselves by their attitudes towards this revolution?
MAYSSA AL MIDANI: So we have seen a lot of the big food companies going to the plant based side, so we’ve seen Nestlé they have their own plant based products and they’re investing heavily in this area, actually they’ve been divesting a lot of their less healthy businesses to have some R&D to go in there, and if you really think about the R&D budget of Nestlé that could potentially be quite huge. So they’ve moved there, also Danone actually has the leading plant based [s/l dairy oil 00:15:45], so they acquired WhiteWave in 2017 and they’re actually the leaders in plant based dairy. So this is – and then the issue that we see with some of the pure meat companies is that it’s a bit contradictory, right, so you're pushing a product that is better than traditional meat but you’re also selling traditional meat. So I think here it is a little bit more difficult although some of them have tried. So, yes, so I think that they have to move in this direction because it’s the way that the world is going. It’s faster growth, it’s better margins and so, you know, yes, and this is why we pay close attention to the companies that are innovating into plant based to make sure that they are on top of the trends.
DAVID STEVENSON: There is a broad – we’ve talked a lot about meat based alternatives, protein based alternatives, there is a wider agtech sector, agriculture tech sector, and there’s wider food tech sector. There is also a wider agtech sector. Are there opportunities in the wider food and agtech sector and if so where do you think they are? I mean we hear lots of talk about clever GPS technology with farmers and all that kind of stuff, farming is probably due for a data revolution. Where do you think the next interesting kind of niche is in the broader agtech market is going to be?
MAYSSA AL MIDANI: So if we start with agtech, there are actually quite a few listed companies across this space. So one category that we really like precision farming, so basically companies that allow better use of natural resources to extract higher yield with the same or fewer inputs. So as you know, we’re facing a food security challenge, growing populations and 10 billion people by 2050 which will require 50% increase in food production but as you know we don’t have 50% more natural resources to work with. So the opportunity here is huge, and here there’s quite a few listed companies. The leading company in this space is John Deere, they offer state of the art technologies, things like blue river technology which is a CN spray technology. So basically you apply water and fertiliser only where needed on the field resulting in 80% to 90% reduction in our water and fertiliser use. So this is great and also less chemical fertiliser use means reducing nitrogen oxide which is, you know, sent into the environment and run off into streams. So although John Deere is a leader there are also many more precision farming companies, either on the hardware side or on the software side, so this is an area where we see a lot of abundance in the list space.
Another area that we like a lot is vertical or indoor farms where there are now two listed companies, and maybe more to come. So, you know, basically vertical and indoor farming is also a solution to our food security challenges, the lack of arable land and natural resources because basically food is grown indoors where- So in precisely controlled environments and there are clear sustainability advantages here because, you know, there’s 99% less water used, 99% less land use, no need for pesticides and chemical fertilizers, we have predictable yields, no agricultural run-off polluting the water streams.
Then if we look at it from a consumer’s perspective, you get tastier and fresher products all year round, you don’t get shortages like you did during COVID because of the structures and supply chain. We also think that COVID really highlighted the drawbacks of these very complex global supply chains. So locally grown is definitely an advantage there, and also you benefit from less, you know, being locally grown it also reduces the environmental burden of having to transport fresh fruit and vegetables for hundreds of miles, and reducing the food waste that occurs. So, I think when lettuce is shipped from the east cost of the United States to the west coast, 20% is wasted just in the transportation process. So we like this space as well. Another area that we like is land-based fish farms, so there’s quite a few listed companies there and, you know, in the same the way that we think of vertical farms as greenhouses, land-based fish farms are blue houses. So basically, you know, fish are raised again in an ideal environment, the water’s continuously purified, but 99% recycled, you know, the water isn’t polluted then you're not hurting biodiversity, the fish are kept safe from sea lice and other external diseases. And because they’re located close to the end consumer, you also don’t have to ship like clean fish as we do today which also reduces the carbon footprint and you get fresher salmon.
DAVID STEVENSON: Just picking up on that last point, I was actually listening to a podcast by the chairman of Moderna, the vaccine company, and he was busy having a chat away and then the interview said, “What do you think about plant biotech?” And he said, “Absolutely fascinating space, that’s the space to watch out for.” Is there anything interesting- Are there interesting companies operating in the kind of plant biotech space effectively engineering new plants to do better stuff. Is anything on the stock markets there?
MAYSSA AL MIDANI: Yes, so we do have a few companies on the stock market, so I can’t give you specific names but we do have a few in the US that are listed. They’re small for the moment but, you know, depending on how the liquidity constraints of the investors they’re definitely investible and, yes, we also do think that this is a very exciting area because it’s definitely needed to address our food security issues in a sustainable way.
DAVID STEVENSON: Very last question, with many of the big investments gold rushers, where people have seen a lot of money going into a sector. Quite often the best money is made in the picks and shovels companies, the people supplying the equipment which all these people are using. So in the cellular space you’ve probably got biotech companies, I imagine in the plant based space you’ve probably got the people supplying the actual equipment that they’re making and also probably the ingredients. Are there any other kinds of picks and shovels areas that investors should watch out for in this space?
MAYSSA AL MIDANI: So I think that I would say that we would see opportunities in both the actual finished products such as ingredients manufacturers that supply the extra emulsifiers, textures and ingredients that help to mimic the taste and mouth feel and the chew and the entire experience of meat- They’re essentially the R&D engines of these food companies and they really like in the same way that they, you know, they help these companies reduce fat, reduce sugar, reduce salt content whilst preserving taste and mouth feel, they also help these companies mimic colour, taste, mouth feel of meat but without any meat. The benefit of investing in the supplier is actually that they have exposure to a large number of different products and brands, so potentially multiplying potentially success. That said, the winners of the plant based meat alternatives revolution, I mean there’s also huge adjustable market there, right? I mean we talked about it, if you go from 2% even from 2% to 10% penetration in this category it could be huge. So we would also keep an eye on those and I guess this is where our job is to identify the winners of this market. So that’s on the plant based side. I think on the vertical farming side there is also, you know, the companies which are going to be supplying the equipment, you know, for the vertical farms, for hydroponics and aeroponics that one can look into as well. But I think that, you know, there will be winners both in the actual finished product where the actual company, yes, running the farms or making the plant based alternatives, as well as the suppliers.
DAVID STEVENSON: Thank you very much.
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