New biological technologies are sweeping across industries and unlocking possibilities for food.1 Fermentation, a type of bioprocessing, allows food producers to make proteins and other ingredients using microbes rather than animals, significantly reducing land use and emissions from animal agriculture while increasing reliability and food security.
Fermented novel proteins could make up about 4 percent of total protein production by 2050, an annual market of $100 billion to $150 billion, with variability based on climate policies and the pace of technological development. Advancements in fermentation technology also stand to benefit other industries such as chemicals and materials.
Before novel proteins can take off, fermentation technology will need to scale. Most novel-ingredients players today have production costs that are an order of magnitude higher than the cost of the production of traditional protein, which are typically in the range of $2 to $15 per kilogram. To bring down price points through economies of scale, our projections show fermented-novel-ingredients players will need to invest more than approximately $250 billion cumulatively by 2050 to expand capacity.
In this article, we explore how the food industry can accelerate the shift to fermentation-derived ingredients, most notably proteins. To get there, incumbents, start-ups, and investors can improve fermentation production processes and bioreactor technology to reduce costs, make new products that are compelling to consumers, and bring partners together to scale the industry.
The potential for novel ingredients
The potential market for fermented-protein products is expected to be $100 billion to $150 billion by 2050 (Exhibit 1).2 This opportunity has spurred traditional-fermentation players, food giants, sovereign wealth funds, and others to invest more than $4 billion of capital in precision and biomass fermentation over the past five years.3
The high interest in novel foods is due to their ability to augment traditional food production. For proteins in particular, the global market today is sizable, at approximately $3.0 trillion, and is estimated to grow to approximately $3.5 trillion by 2050. However, increasing feed prices, climate volatility, and disease are challenging animal agriculture’s ability to support the nutrition needs of the growing global population.
Novel ingredients produced through bioprocessing are a way to mitigate these risks (see sidebar “About fermentation and cultivation of cell cultures”). Because fermentation takes place in a synthetic environment (bioreactors), manufacturing is both controlled and modular, increasing geographic flexibility and reducing exposure to weather, supply chain, and disease-related disruptions in the traditional food and agriculture value chain. In addition, fermentation requires a smaller land footprint than traditional agriculture, making it a powerful option for building greater food security.
Scale drivers for the future of food
Before the novel-ingredients industry can help make food systems more sustainable and resilient, it needs to be scaled up significantly. However, existing capacity to support scale-up is limited, and contract manufacturing organizations (CMOs) often have margin expectations that are not in line with food manufacturing industry standards, often making them unviable for companies looking for more capacity. Although several new capacity additions have been announced, others have fallen by the wayside due to macroeconomic factors.
Building more capacity isn’t the only challenge. The underlying technology and processes need to be developed and improved. The opportunities and risks of novel ingredients are still being investigated, and incumbents, start-ups, and investors alike are in the process of allocating capital expenditures, keeping stock of new developments, and understanding customer needs.
To demystify the future of this growing industry, we identified three areas crucial to building and scaling a new food ecosystem:
- Process improvements and redesigned bioreactors could drive yield improvements, reduce bioreactor costs, and lower production costs by approximately 50 percent; new bioreactor technology could also expand the global market opportunity for OEMs.
- Upgraded formulation and food design could result in a wider variety of high-quality offerings, particularly as companies improve product taste and texture.
- New business models could help the industry mitigate risks and finance more than $250 billion in expected infrastructure scale-up.
Production improvements could reduce unit costs by 50 percent
The single most important factor for launching the novel-food market will be reducing the unit costs of novel ingredients. By implementing technological innovations in bioprocessing and downstream production processes—taking a total cost-of-goods-sold (COGS) approach—novel-ingredient companies could have line of sight to cost reductions of approximately 50 percent right now (Exhibit 2).
Most savings are expected to come from primary drivers of the COGS, including titer (the measure of concentration of the desired product in the post-fermentation broth), downstream processing (converting the fermentation broth into a stable product), and cycle time.
Some of these drivers have steadily improved over time. For example, core intellectual property (IP) owners are making continuous titer improvements, and for decades, chemical and pharmaceutical companies have deployed digital analytics and, increasingly, AI to optimize manufacturing.
What could truly spur the industry forward is step-change process improvements. More-fundamental changes to bioprocessing could significantly increase active cycle time and capital efficiency. Several start-ups are exploring converting fed-batch processes into continuous ones (see sidebar “Case study: Australian bioprocessing start-up Cauldron”), while other companies are converting traditional aerobic processes into anaerobic ones.
In addition to step-change improvements in processes, it will be critical to upgrade bioreactor technology. Industries such as pharmaceuticals and chemicals have designed fermenters to fit their needs, but bioreactors have not yet been redesigned to suit the needs of the food industry. New assets must be developed that meet food-grade specifications and move closer to the margin expectations of the food sector.
To get there, bioreactors and their surrounding components need to be stripped down and built from the ground up in a fit-for-purpose way, but global OEMs have yet to address this opportunity. In this gap, some start-ups (including a small set of asset-focused start-ups such as Sterling Bio Machines and Ark Biotech) have redesigned bioreactors and built custom models out of necessity. In addition, some companies are exploring the use of more-modular fermentation tanks to significantly reduce capital costs and drive learning curves.
Better food-formulation capabilities could create groundbreaking new products in the approximately $3.5 trillion protein market
As fermented novel foods begin to come down the cost curve, food and beverage companies will have the chance to introduce new ingredients and offerings for consumers. While precision-fermented ingredients are genetically the same as their animal-derived counterparts, biomass proteins offer unknown and exciting possibilities because many of these ingredients are totally new to human consumption. New tastes, meat alternatives, and beverages will become available, and innovators that have strong food-formulation capabilities will stand out from the pack.
As food scientists learn the true breadth of the texture, taste, and protein fortification capabilities of novel proteins, companies will be able to create unique proprietary offerings for consumers. Manufacturers can experiment with using novel fats, for example, to improve mouthfeel and add savory flavors to food while replacing undesirable ingredients such as palm oil. Precision fermentation could also allow manufacturers to use individual egg, dairy, or other proteins that offer more-specialized nutrition, tastes, or textures. It may be that these novel ingredients can replace many traditionally sourced products such as gums and methylcellulose that deliver critical performance benefits in foods but that can be considered undesirable by consumers.
Knowing what consumers are interested in will be key to driving the development of new foods. As outlined in a recent McKinsey article, consumer insight at this stage is nascent but shows promise for novel ingredients.4 Depending on the ingredient, 49 to 67 percent of consumers indicated willingness to try food and drinks containing novel ingredients. Survey results also indicated that consumers are particularly interested in trying novel ingredients in snacks and during lunch. These results can provide guidance for food formulators as they develop new offerings and work to educate consumers about novel ingredients.
Scaling the industry poses an investment opportunity to build new business models of more than $250 billion
To drive the expected scale of this industry, $250 billion or more may need to be invested in fermentation assets over the coming 30 years, according to McKinsey analysis. This global expansion approximates the type of industry shift that solar panels and electric vehicles (EVs), for example, have seen in previous years.
The infrastructure investment needed is likely too large to be funded solely by venture capital. And until remaining technology and commercial milestones are achieved, project finance and growth equity players remain reluctant to enter. This leaves a gap in the global funding landscape that the ecosystem can adapt to fill (Exhibit 3).
To unlock new funding models and allow global capital pools to begin investing at scale, two areas need to be addressed:
- Commercial offtakes have been the linchpin in securing debt in major capital expansions in other industries, such as EV batteries, sustainable aviation fuel, and hydrogen technologies. In consumer sectors, binding offtakes have traditionally been less common, but start-ups and large food companies are beginning to enter joint development agreements.
- Technological risks can deter investors, particularly as process innovations, redesigned bioreactors, and new foods are being tested. However, technological developments regarding process, assets, and scale are expected to deliver material cost reductions over the coming five years, providing a compelling case to investors.
New business models are the key underlying factor that will allow the novel-foods industry to address these points. If start-ups and other players in the novel-food space can build an offtake and risk-sharing ecosystem, they could attract investors and bridge the funding gap. These connections would also make it easier to improve process technology, build better bioreactors, and commercialize novel foods.
A few types of partnerships and funding are already proving to be effective in the novel-foods space:
JVs. Joint ventures (JVs) can be used to share risks—and returns—across many players, unlike CMOs, which alter the unit cost structure of a product. Although JVs can be complex, a number of start-ups are exploring these arrangements and other alliances that bring together multiple sources of capital to derisk investment and jointly contribute IP and assets. For example, the Oman Investment Authority has partnered with MycoTechnology to build a facility to upcycle waste dates into mycelium proteins.5
Sovereign investment. While corporate venture capital has cooled over the past few years, we expect it to rise to previous levels in the long term, given its strong track record in the food industry. In the meantime, sovereign and strategic investment interest remains high. For example, the Dutch National Growth Fund has allocated €60 million for precision fermentation and cultivated novel ingredients.6
Government programs. Many countries are creating government programs to support the budding fermentation industry, such as by providing nondilutive funding and facilitating new capacity build-out. For example, in a recent fundraising round, Business Finland, an organization run by the Finnish government, issued Onego Bio a $10 million grant.7 And Change Foods agreed to concentrate its animal-free dairy production in the United Arab Emirates, supported by the UAE NextGen FDI Initiative.8
Considerations for novel-ingredients players launching the industry of tomorrow
The investors, strategic partners, and commercial partners that come together with innovators will be builders of the novel-foods market and will play a crucial role in fueling the global growth of biotechnology. For each group of players, a few factors will be important to consider:
Ingredients incumbents. Biotech-produced foods can allow ingredients manufacturers to expand their portfolios and build a competitive edge through unique formulation capabilities and know-how. Because novel proteins can be produced anywhere, they offer an opportunity for ingredients incumbents around the world to enter animal protein markets for the first time, shifting the competitive landscape for products such as dairy, collagen, eggs, and even non-protein products such as cocoa.
OEMs. As the asset base to support biotech-enabled ingredient production is constructed, there is a significant market opportunity for bioreactor and downstream processing OEMs. In the novel-ingredients industry, much of the asset base currently in use is borrowed from other industries and has yet to be value-engineered for food production. The companies that choose to invest in designing and developing fit-for-purpose technology over the coming years may become critical players as global capital expansion continues.
Innovators. Start-ups are eager to bridge volume needs with on-demand capacity, and they stand to benefit greatly from partnerships with incumbent players and investors. In the current macroeconomic funding environment, some players may fail to demonstrate progress fast enough to continue to secure funding, leaving a narrowed field of innovators. Looking forward, each innovator will need to make choices about what capabilities to invest in, from titer improvements to ongoing IP creation. Developing food formulation capabilities and a distinctive understanding of how to work with novel ingredients could offer a competitive edge as more proteins are commercialized.
Investors. As stakeholders mature, traditional investors are increasingly exploring the sector and looking into business models that might allow for greater investment. Establishing infrastructure-grade financing from securitized assets with committed offtake at market-clearing prices is expected to be critical for scaling the industry, as in other industry scale-ups such as wind and solar.
Over the coming five years, we expect a combination of cost parity and consumer demand to mature and derisk the novel-ingredients industry, leading to a global infrastructure expansion. In the meantime, leaders can continue building creative mechanisms to balance capital, risk, and returns. If players can enter this investment opportunity now, they have a chance to build the food supply chain of the future.
