Clean Meat Supply Chain Faces a Unique Set of Risks. These Two Things Must Be Considered.

The Clean Meat industry is on the verge of commercialization as products are expected to hit the market in the coming few years. In fact,  Just-company is promising to bring it’s products out already during 2018. While the Clean Meat companies are preparing their products internally, external companies in the supply chain are facing increased risk environment when operating in this new and special industry. What makes the situation very special is that we are talking about a completely new type of material that is not available today. Something very similar is happening in edible insects or IFF (Insects for Food and Feed) field where also new technology is producing a new type of raw material.

Supply chains can be visualized as a stream of supply where the goods are flowing down the river starting from the raw material producers to end product manufacturing and finally to end customers through wholesalers and supermarkets. When looking upstream towards Clean Meat producers a high level of supply risk can be identified. Supply risk, the risk that products are not been delivered, is higher than many other industries because of two reasons: Lack of horizontal integration and limited knowledge.

Lack of horizontal integration means that there is a very limited number of companies able to produce e.g. clean cow meat. There are numerous places to get slaughtered meat if your first option fails to deliver, but what will you do when your primary Clean Meat producer faces delivery issues? A serious production issue will leave downstream without promised products and no chance of buying replacing products as there simply isn’t anyone else to buy from. What makes the supply risk exposure even higher is the limited knowledge of the clean meat production the producer has. No one in the world has ever produced clean meat in industrial scale. It is very likely that during the first years of industrial-scale production unexpected operational risks will occur that will lead to some level of delivery issues simply because of the lack of experience.

What is different between the IFF and Clean Meat industries is that unlike the IFF side, it seems that most of the Clean Meat companies are not only producing the raw material but also making the end product. In supply chain terms the level of vertical integration is different. This way the supply risk is carried internally and in case of production difficulties the consequences are seen first internally, not at the end product producers’ factory. The risk of failed deliveries to supermarkets still exists, but in this case, a supermarket could fill their shelves with something similar like clean pork. This is not ideal but acceptable. Instead, an end product producer cannot do the same and for this reason, unlike supermarkets or wholesalers, they cannot accept as high supply risks.

Another way to reduce the risk exposure in the supply chain together with shifting the degree of vertical integration is increased horizontal integration. Eventually, the supply will increase when competing companies appear, but the increase of horizontal integration can happen also internally within a company by dividing production capacity to multiple locations and production units. When the whole production capacity of a company is not relying on a limited number of machines and operators an occurrence of an operational risk (that are likely due to the limited knowledge) does not jeopardize to complete production capacity of the company.

The Clean Meat industry is still working on bringing the production cost down, but the IFF companies are already in the markets and facing the supply chain challenges today. There are no simple and easy answers, but when the time comes for wide market entry for the Clean Meat companies could look at the fellow alt-protein industries for key learnings.

 

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To look deeper into the risk profile of emerging industries’ supply chain check out my thesis Supply Chain Risk Management in Entomology Farms. The thesis is available also in all major audiobook platforms like Audible.  You may also see my presentation on the topic here.

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How We Changed the Legal Environment of Our Startups

The 20th of September 2017 big news came out: Evira, the Finnish FDA, changed its interpretation of certain EU-level regulations to allow the sale of insect products for human food and for animal feed in Finland. Before the change, all insect products sold for human consumption were banned and there were serious restrictions on insect feed for farmed animals. This change means the end of the years-long waiting period and the Finnish Insect for Food and Feed (IFF) companies have been able to start selling full speed.

The legal environment is one the risks that every company must consider carefully in their business plan regardless the industry they are operating in. In general, a hostile legal environment is seen as a big minus and something that is difficult to change, especially in short term.

No matter how unlikely and how difficult it was considered to be, the Finnish IFF- startups were able to lobby the authorities to change their viewpoint and open the markets. Similar changes are expected all over the Western world, but Finland changed it’s interpretation now sooner than others.

How exactly the Finnish startups spurred the change and how can you do the same in your home country and your industry?

Positive Relationship with Media

The hype around rearing insects for food and feed started around 2011 when FAO started to promote insects as a sustainable choice over conventional animal protein sources. The media attention reached Finland as well and since has been featured multiple times on all major media platforms. Finnish start-ups started to emerge some years after 2011 and since they have featured the articles and news regularly as well.

The IFF- industry is quite unique in many ways and this is one of the major reasons why media has covered so much of it nationally, but all the startups have been not only accepting invites for public speaking and giving interviews, but also reaching out for reporters. What has been great to notice on many occasions I have been asked to cover for other players in the industry to cover for them for e.g public speaking if there has been a double booking. This tells of shared understanding that raising public’s understanding and awareness is very important, even if the publicity points goes to the neighbor company.  For emerging industries many times the competition is not the companies doing similar things than you, but the companies you coming to steal the market from. This essential idea is widely spread in the small Finnish industry and now we all share the fruits of co-operation.

Make Regulators Work for You

Some years ago I had a discussion with Entocube, one of the Finnish startups. I criticized their approach to bring to market end-user products, even though their main business the insect farming technology had at that point many open questions. Now looking back Entocube’s vision to raise awareness about their company and industry by their clever “kitchen decoration products” (insect food was banned) was very unselfish and brave, but also the right thing to do. By pushing the limits of the regulating bodies and sparking even more discussion with their products in media gave the initiative for Evira to start looking seriously on their approach to the topic.

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Above is a picture of the “Cricket Jar”- kitchen decoration jar. Not for consumption! A great way to raise awareness and push the limits. This product forced the regulatory body to react. 

We did not have common plan or organization

What was not done is equally important with what was done. Finnish companies have not formed a registered association, but what we have shared so far is a common goal and modern perception of markets. Also, it is worth noticing that there are no Finnish members in the global association of IFF-companies IPIFF.

To me, this tells that organic communication from different entities was at least in this case the key to build up political pressure that leads to this change. Could it be that when the communication is natural and organic instead of designed and always politically correct it is something that interest media and the big audience more?

Three learning points

Every country is their own case, but I see that there are three points to learn from this case.

  • Raise public’s awareness. This is the first step for people to start accepting the idea of something new and to introduce more wide pressure for the public sector to start thinking of the current policies.
  • Force the regulating bodies to react. Especially in a field that was never been though of carefully by the lawmakers by pushing the boundaries, you force them to draw the lines for the first time. What is most important here is that the decisions must be justified. If there is clear lack of regulation, the wheels will start to move within the public sector.
  • Co-operation of the industry. It is essential that the companies operating in the field do not fall into the trap of thinking that they are each other’s enemies. Even though they are working in the same field, the growth in nascent markets is gained from the growing market, not by winning market share from the competition. When the common goals are understood by the industry players they can work together and achieve bigger targets that they could ever be done alone.

Finnish IFF-industry in 2017:

Imitators, Replacements and Clean Meat

There is no questioning that people are eating too much meat and high meat consumption leads to enormous problems globally. While there is growing interest in sustainable alternatives, it seems that the substitute products widely available in the market today are not attractive enough to quickly bring down meat consumption. Multiple new food industry branches are growing to answer the demand. One of the future branches that have gathered a lot of media attention during the past few years is insects. Even though insects are exciting and clearly better protein source than conventional meat, for me it has become clear that insect does not hold the highest market potential nor are they the best ecological solution when comparing to the other new alternatives. You can read my earlier blogs here and here for my reasoning.

The top three options to replace the modern meat industry are Plant-Based Meat Imitators, Plant-Based Meat Replacements, and Clean Meat. Plant-Based Meat Imitators are products that are 100% plant-based but aim to resemble meat as much as possible. Plant-Based Meat Replacements are products that resemble meat’s nutritional content, in particular, the high-protein level.

These three categories have a lot in common. They all aim to replace conventional meat in human diets with same sales arguments: All are more sustainable, ethical and healthier choices over meat.

To better understand the differences between the categories I made a simple Pugh-matrix. In the matrix, the weight is the multiplier that tells of the importance of that factor. The multiplier can have a value between 1 and 5. The value that each factor gets is selected between -3 and +3. The higher the total number the better. Further, I categorized the factors (the lines) into three parts:

  1. Slow Changing Factors. Marketing is the only line here.
  2. Changing Factors. Regulation and Production Cost.
  3. Unchangeable Factors. Ethics and Nutritional Factors.

The categories are rough and they could be named or categorized in many different ways, but I chose these ones the serve this quick look at the topic. The numbers in this matrix are based on my personal evaluation.

Marketing means how difficult it is to introduce this category to the markets. Conventional meat would get a high score because people are used to it and it has been accepted to be part of a weekly diet. I gave marketing clearly the biggest weight because in the end facts have little to do with our food choices, there are countless examples of this.

Regulation is the law environment that either allows or restricts operating in the markets. Production costs is self-explanatory. These two factors are given small weight because they will not be a deciding factor of the fate of the different industries. The two will either slow it down or help on the way. Also, regulations and especially the production costs can be changed for the better relatively quickly if there is significant market demand. Production cost is the part that is the most difficult to evaluate and the one that keeps on changing the most.

Nutritional facts and Ethics form the “Unchangeable Factors” line. Ethics are a nice plus, but have the least impact of all the factors on the overall score. Nutritional facts are the core of the product on which the marketing is based on. I was thinking hard between giving the nutritional facts 2 or 3, but in ended up to 3 because I wanted to give it more weight than production cost and regulation.

The Matrix

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Before analyzing this one, lets jump to the future where there are no regulatory barriers and production costs of clean meat have decreased significantly:

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The differences are not very significant, especially in the case where regulatory factors are not considered and clean meat production cost has decreased significantly. It is hard to make a clear conclusion other than that the Plant Based Meat Imitators- category will flourish only until Clean Meat technology advantages enough. Yes, the Imitators will get better imitating as well but it cannot escape its fundamental issue that is visualized in the line Nutritional facts and health. No matter if Imitators would become 99% like the real thing, there are always some trade-offs when aiming for the imitation and this we will see in the raw material choices, amounts of additives, sugars, fats and salt. Also, having (unnecessarily) complex product increases the production costs.

Conclusion

When looking at the remaining top two categories we see that the total score is almost the same, but that the score is coming from different factors. The main question is what is more difficult, introducing new products to people’s regular diet or bringing down the cost of producing clean meat at scale? Answering this will tell you which of the categories holds more potential.

If we should decide what people should eat based on science, we would give them a plant based diet including Plant Based Meat Replacements. But when we are talking about food that has strong cultural connections we must consider the bigger picture. The only reason why Clean Meat and Plant Based Meat Imitators are on the same line is not the product itself, but people’s associations to them.

 

Impossible Foods Must Ask Harder Scientific Questions

Techcrunch posted a very interesting interview on 22nd of May 2017, titled “Impossible Foods CEO Pat Brown says VCs need to ask harder scientific questions”. After reading the article, I had to check that I wasn’t reading The Onion.

In the interview, Pat Brown attacks the clean meat industry and VCs with claims that were all proven untrue in a great reply by VC Seth Bannon. The aggressive tone of the interview did not bother me as much as the lack of knowledge shown by Mr Brown. Yes, answering the question “Why not try clean meat?” by saying “The simple answer is because that is one of the stupidest ideas ever expressed” already makes you sound like Donald Trump, but when you back up your claim with untrue statements, things start to look very bad.

Mr Bannon did good job at answering the false claims, but I will continue by looking at two additional points of the interview.

Mr Brown said that with clean meat technology, “you buy into, at best, the same limitations that a cow has.” This statement is very interesting when looking at Impossible Foods’ product. The company is trying to mimic meat as much as possible using plant based raw materials. Isn’t this approach buying into the limitations of the cow? It’s possible the company is looking to go beyond meat at some point, but to an outsider it seems that the product development’s main goal is not to make the best tasting or the best nutritional value having product, but a product that looks, tastes and feels like cow. Yes, the way Impossible Foods are aiming to do it is more efficient and ecological cow rearing, but they share the same goal with the clean meat companies.

The second thing that especially struck my eye was Mr Brown’s demand that VCs should ask harder scientific questions to understand e.g. that clean meat “is one of the stupidest ideas ever expressed”. While demanding deeper studying and understanding from VCs, Mr Brown himself obviously has limited understanding of substitute technologies that his own company is using.

I think the founder has more tendency to have skewed view on his or her business than the outsider. Maybe it is actually Impossible Foods and Mr Brown who need to ask the harder scientific questions?

ps. While you are here you might want to read my related post 5 Questions an Investor Should Ask Before Investing into a Insect Farm from June 2015.