The need for protein is on the rise and demand is being led on two fronts. On the one hand, global growth is evolving less-developed nations into more nourished societies. For this particular aspect, much of this protein demand is being met by a rise in meat production via established companies such as Tyson Foods (TSN) or Smithfield Foods (SFD). On the other hand, there is another rise found in the value-added ingredients to foods and beverages. Increased consumer awareness towards specialty foods have brought about a wide variety of wellness products. Protein in particular has been seeing robust demand in areas such as sports nutrition, and can be found in the many varieties of protein shakes and protein powders.
Yet as a whole, protein is largely derived from animals. While meat is entirely derived from animals, people are often surprised when they reflect on just how heavy a reliance the world has on dairy and egg products. Most protein shakes/powders are derived from whey, a dairy product. Eggs and gelatin are also well-entrenched in cooking applications due to additional properties as a binding or gelling agent. For those unaware, gelatin is also largely created from animal waste products such as hides, skin, and bones.
However, the blossoming demand for animals is proving itself to be problematic to address protein production in several ways. As it stands, environmental concerns ranging from overgrazing to an abundance of methane (Want to take a guess where this comes from?) have some pundits decrying that long-term meat production trends are unsustainable. Developing growth in Asia has also given to additional dietary restrictions such as an increased lactose intolerance in China along with an animal-product aversion in India. More important to industry, however, lies the inherent fact that protein derived from animals is largely an inefficient method.
Protein derived from animals requires the tedious conversion process of plants and water into food for a growing animal that is ultimately slaughtered. This requires a large amount of input resources combined with the additional infrastructural needs in order produce protein. The heavy toll on agriculture is already being illustrated in the current drought crisis. Corn's rapidly rising prices have correlated into rising soy and wheat prices as meat producers seek alternative animal feeds derived from wheat and soy. Such price volatility across several markets is just one impact animal raising brings to the table.
What is required to address this situation is further commercialization of a direct plant-to-protein process for human consumption. Plant-based protein is a more efficient use of fuel and land, is a green solution, and makes overall economic sense. Yet historically this has proven to be problematic for a simple reason: Meat tastes better. Indeed, plant-based protein production has been largely driven by the ability to disguise protein into readily edible foods. This has given rise to the ability to create protein isolates which can be easily blended into other products.
One of the stronger leaders in this industry is DuPont (DD) through its wholly-owned subsidiary, Solae. Solae creates protein isolates derived from soy that can be used in everything from food bars, beverages, baked goods, breads, cereals, and etc. The company's promotional video found here illustrates the pressing demand for alternative protein sources. It claims that in order to address a 34% increase in world population growth, protein production is going to have to rise 74%. Yet the competition to this market solution is beginning to stiffen in light of broadly recognized demand trends.
One such company to watch for is a small $168 million company named Burcon Nutrascience (BUR). While largely unprofitable for over the past decade as a company that's traded on the Toronto Stock Exchange, Burcon is about to generate some significant revenues. The company has an exclusive 20-year royalty agreement on top line sales with Archer Daniels Midland (ADM), who as a motivated partner has already constructed a commercial-scale plant dedicated to the creation of Burcon's "Clarisoy". The plant was officially opened in May and customers were expected to begin purchasing commercial-scale quantities in June 2012.
The advantage of Clarisoy to Acher Daniels Midland is that it will now be able to compete on a much larger scale in this niche protein market. Clarisoy has the advantage of being a transparent purified protein ingredient that dissolves in acidic environments. This is highly useful for marketing Clarisoy in beverages ranging from grape juice to sports drinks. The differences in the aesthetic transparency properties of Clarisoy can be found in an advertising video found here.
Another small $839 million company that is beginning to make a real buzz in the protein market is a company that hasn't been largely correlated to the food space. Renewable oils manufacturer Solazyme (SZYM), through its joint venture with French starch giant Roquette Freres, has created a whole food product with the consistency of flour called "Altein." The microalgae-derived protein product is vegan, gluten-free, nonallergenic, and sustainably grown. Altein can be used in beverages, baked goods, ice cream, and etc. Advantageously, Altein can be used to replace eggs and butter while costing less than the products it's replacing. Above all, it's taste is bland and is stable in a low pH environment.
However, unlike Clarisoy, the progress towards commercial scale distribution is still several months away. Solazyme Roquette Nutritionals' [SRN] Phase 1 facility is now operational and trial product samples are now being distributed amongst potential clients. Yet the Phase II facility which will lead to limited commercial scale quantities won't be available until halfway into 2013. But the revenue potential of this joint venture remains high. With an expected 50,000 metric-tons-per-year capacity expected to come online upon the completion of Phase III, SRN's revenue potential lies between $125 million - $1 billion through the first completed facility alone.
Overall, the shifting trends of a world with greater needs for sustainability and protein production has increased the commercialization of finding it via plant-based sources. The increased technological capability to derive protein and to utilize it in a manner that is appealing to the consuming public is what is driving additional players into this novel space. The fight is on for plant-derived protein, but the market size remains very large. This will especially be the case when we begin to see plant-derived protein replacing rather than complementing animal-based protein.
Disclaimer: Please refer to my standard disclaimer statement found here.
Disclosure: I am long SZYM.