Investors are now turning their backs on products like plant-based meats, insect protein bars, synthetic fat replacers, and precision fermented milk proteins, with Rabobank predicting the global consumer food industry will see a shift in innovation strategies towards fewer total 'disruptive' innovations.
Instead, large food companies – including those here in Australia – will refocus their attention on incremental changes, the agribusiness banking specialist has predicted in a new report.
Rabobank senior consumer food analyst Thomas Bailey said weaker demand for disruptive innovations, economic uncertainty, and the higher interest rate environment has exacted a toll on many disruptive products coming to market.
“The same group of investors that drove the 288 per cent increase in deals from 2010 to 2022 appears to have put the brakes on deals so far in 2023,” he said.
“Moving forward, disruptive innovations will likely face more rigorous evaluation, resulting in fewer but potentially more successful disruptive products that have endured more intensive vetting.”
Incremental change in food innovation is back
According to the report, consumer food companies will likely focus more on commercially viable incremental innovation, prioritizing improving taste, convenience, and health rather than being caught up in the hype of disruption.
Mr Bailey said incremental innovation – creating new value through minor product or service adjustments – is considered safer.
“In food, incremental innovation looks like line extensions, packaging changes, new flavours, and functionality twists,” he said.
“The main benefit of incremental innovation is that it offers more immediate benefits: supply chain simplicity, sustainability, cost reduction, and generally keeping customers happy and interested. Furthermore, it is better suited to keeping prices low for consumers in an inflationary environment like the one we have today.”
Economics and environmental credentials don't stack up
New research debunking the proclaimed economic and environmental benefits of these products has also been the catalyst for some investors to turn their backs on what was seen as the future of food.
Earlier this month, internationally recognised expert on the future of cell-based protein, Professor Paul Wood AO, confirmed the economics of producing lab-grown meat at scale “just won’t work” and will be less sustainable than traditional red meat production systems.
His comments came following a new study from the University of California, Davis, which argued the global warming potential of cell-based meat production could be up to 25 times greater than the average for retail beef.
“It might not be quite 25 times worse for the environment, but there are now multiple studies which have concluded that producing cell-based protein in a lab will be far more energy intensive when it’s produced at scale,” Prof Wood said.
“In addition to these concerns, there is a distinct lack of nutritional data from the cell-based protein industry, and that’s not good.
"There are a lot of big claims, but no data whatsoever to back them up.”
The Monash University professor - who has led major research teams in Australia and the US - has just had his own peer-reviewed paper on the future of cell-based meat published in the world-renowned journal Animal Frontiers.
The paper discusses the millions of dollars being invested in cellular agriculture, including cell-based meat and precision fermentation, and notes the significant technical, ethical, regulatory and commercial challenges around the products becoming commercially available or viable.
“The labs and factories required to produce cell-based protein at scale will have enormous energy requirements and their annual running costs will be huge, so seeing them compete with traditional livestock production environmentally or with price parity is very unlikely,” Prof Wood said.
“They will also not match a fine steak; they are producing commodity products like burgers, meatballs and sausages.
"Put simply, it just won’t be sustainable in terms of energy consumption and the idea that it will transform the meat industry is ridiculous.
“And these are just some of the reasons investors and potential investors in the industry are walking away.”
Fewer, but better, disruptive innovations moving forward
Those who don't walk away from these types of investments are expected to exercise even more prudence when it comes to food products.
Mr Bailey said investors will need to take more steps to ensure product alignment with consumers in terms of
taste, health, and convenience.
"Investors who choose to continue to seek out disruptive innovations will be a good source of insight for large food companies that are currently shifting to incremental innovation but need to keep an eye on the longer-term horizon”, Mr Bailey said.
“While disruptive innovations underperformed against our expectations this time around, the quality of the disruptive food products will be higher in the future and may catch us off guard.”