Events of 2022 highlight a need for food system change

The Russian invasion of Ukraine and this summer's heatwaves and wildfires have increased the focus on two big societal debates: food security, and the environmental sustainability of the way the world feeds itself today (food production accounts for 26% of global greenhouse gas emissions). Plant-based protein offers a potential solution here, as it utilises fewer resources than animal protein and emits far fewer greenhouse gases. However, data show that sales momentum in the US retail channel stalled in 2H21, with sales broadly flat year to date. This has been mirrored in corporate updates, leading investors to question whether sales in this market have already peaked. We don't believe they have, forecasting a 16% sales CAGR to 2027 (to $14.3bn from ~$6bn in 2021), although this is below our previous call for a 30% CAGR to 2025. Corporate engagement with the category continues to grow, with plant-based mentions in 2021 Annual Reports up by an average 35% across the Ingredients companies we cover, by 42% for Packaged Food and 14% for Food Retail. In addition, UBS Evidence Lab data show that 76% of US restaurants continue to think a plant-based menu offering generates a competitive advantage.

Two key hurdles remain: #1 taste, #2 price point

UBS Evidence Lab data show that taste remains the #1 inhibitor of broader and more frequent consumer adoption, with those consumers that are increasing consumption most commonly doing so for the environmental benefits over animal meat, rather than the taste profile or price point. In our view, improving products' taste profiles is the #1 priority when it comes to driving increased consumer adoption. This in turn, as it scales, will also drive prices down. Tackling the current taste shortcoming is a key opportunity for Ingredients companies. Price parity with conventional meat products is the second hurdle the sector must overcome, but remains a secondary consideration behind taste parity, according to our analysis.

Technologies of the future: precision fermentation and cultivated meat

The pursuit of taste improvement is also driving a growing focus on precision fermentation, a form of synthetic biology which produces edible fats and proteins that are biologically similar to animal products and can therefore exhibit a similar taste profile. While yet to receive regulatory approval, it is certainly an area to watch closely. Cultivated meat too has yet to receive widespread regulatory approval for sale to consumers (Singapore remains the only market where approval has been granted).

We think plant-based options remain growth-accretive; Ingredients best placed

We remain positive on the growth opportunity for plant-based protein, and as new technologies continue to emerge we continue to see Ingredients companies as best placed to address the #1 barrier to broader consumer uptake – taste.

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