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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Database Analysis; The Chosen Species

I published my Entomology Company Database in this website about one week ago. I already got a lot of positive feedback and also people informed me of missing companies and mistakes, thank you for that! I will keep on updating the database from now on, if you spot a line that needs updating, let me know!

There are many ways to look at the data and I believe it can be used to serve multiple purposes, but what I will do here is to paint a picture of the insect species that are reared by the industry and what can we conclude from the findings.

Database analysis; The Chosen Species

To get started I first filtered out all companies that are not active. Then I selected companies that are involved in farming.  Also, I filtered out companies whose species are unknown.  This leaves us 69 companies (Note! I am using the database file version 08, uploaded on 14th of January).

Point 1. Most companies focus only on one species

First thing we can learn from this is that vast majority of companies, 43 out of 69, are focused only on one species. Putting the company’s focus to only one species brings many positives effects: R&D resources are better used, hardware investments and inventory carrying costs are lower. Also, benefits of economies of scale can be reached easier. There are negative sides as well; Focusing only on one species means higher environmental and supply risks. What if the chosen species are not among the most popular species when the industry grows? Or even worse, what if the species are not in the list of approved species when the legislation is going through big changes?

More on this you can read from my blog 5 Questions an Investor Should Ask Before Investing into a Insect Farm. https://ilkkataponen.com/2015/06/20/5-questions-an-investor-should-ask-before-investing-to-a-insect-farm/

Four companies have chosen the path of two species that might be a way to control the risks, but in the same time keep the costs low. The companies are Ynsect, Ofbug, Big Cricket Farms and Micronutris.

When looking at the “Multiple species” companies 12 of out 23 are companies that mainly focus on biocontrol or pet food manufacturing. When working on these segments of insect farming the higher production costs and loss of the benefits of economies of scale is justifiable as the companies get better price for their product. This is because their selling unit is rather pieces than kilos.  They operate in the a high-end segment, while when producing for food or feed the companies are competing e.g with soy bean that is extremely cheap.

Point 2. The most popular species

Looking at the most popular species is not easy as many companies talk only about “crickets” instead of the actual species of crickets. All the cricket companies make total number of 19. The black soldier fly (Hermetia illucens) farming companies are 21. Maybe surprisingly only seven companies are involved mainly with mealworm or lesser mealworm. Of course some of the “Multiple species” companies are rearing these as well.

Point 3. The lone wolves

Two companies stand out with the selected species: Steak Traz Traz are the only one to choose Grasshoppers so far and Fly Farm Systems only one with Musca Domestica. Being the only raises few issues and increases supply risks. How come these companies have chosen a different answer than others? Do they know something that majority does not, and are they really the one with the better option?  Surely every company is their own individual case and they could justify their chosen species from production and business perspective today, but the in the future the case will be different. One reason is because of the environmental risk explained in Point 1. The biggest risk is not the environmental, but the supply risk that is very significant in the case of the lone wolves. Companies rearing e.g the most popular species black soldier fly will benefit from the wide vertical integration that they build together with other similar companies. This will not only bring security against the supply risk of the company but benefits in increased sales as the demand risk is reduced for the downstream of the logistic chain.

More on the supply risk briefly from my presentation here: https://ilkkataponen.com/2015/10/29/presentation-in-insect-business-and-research-meeting-in-seinajoki-finland/

Or with detail from my thesis here: https://ilkkataponen.com/2015/05/20/thesis-supply-chain-risk-management-in-entomology-farms/