Our investment thesis for ProEon.
Populations are becoming increasingly aware of the risk of climate change with 8-10 people polled during a 2018 survey saying that see Climate Change as a major threat to their countries and homes . Agriculture accounts for over 30% of all GHG emissions – a bulk of which come from upstream activates associated with land use and methane emissions from the raring of animals for meat. Agriculture also takes up 50% (51mn km2) of Habitable land on the plant; 77% of which is used in the production of meat and livestock that account for less than 18% of human calorie requirements and 37% of human protein requirements. With such and unequitable split in resources added with the humane connotations that come with the raring of animals for food – make the case for more plant based foods key for reduction of Agriculture GHGs and its Climate Impact.
The case for Alternative Proteins and the rise of Flexitarians
Food, energy and water: this is what the United Nations refers to as the ‘nexus’ of sustainable development. The choices we make with regards to the food we consume, will define our path to Net Zero. Unfortunately these choices are becoming more critical in developing countries, which are seeing higher than global average rise incomes and going by Bennetts Law – As incomes rise, the demand for animal based proteins increases.
In the west we are seeing the rise of Flexitarians – Individuals who are largely vegetarian and choose to eat meat very occasionally. According to a study in the UK, the rise of Flexitarians is largely being seen across millennials, Gen-Z and Gen Y (18-50 year olds) who are a growing set of consumers. On average 1 in every 5 people in this demographic is a flexitarian compared to almost 1 in 10 in the above 50 age bracket. This trend is fast catching on and one could conclude that younger adults are less likely to eat meat, or more likely to eat meat less regularly, compared to their older counterparts.
In India however this dynamic changes. The country is largely a vegetarian (~60% of the population) whose food choices have been driven by religious beliefs and societal conditioning rather than pure choice. Compared to the west – where meat is a part of a child’s diet from her early days; In most of India it still remains largely vegetarian. As Rising incomes is leading to increased protein demand, as Bennetts Law states, however like most western trends (think the evolution of mobile phones), Indians are more likely to take up to meat alternatives immediately – which fit well into their religious and societally trained choices – compared to a move to meat following into meat alternatives.
There's little use doing general research without thinking about specific use-cases, so we focused on two key industries - Fashion and Packaging - where mushroom-based materials are already being used. After diving deep into each vertical, we found that our answers ranged from "not yet" to "no" for each of the three assessment criteria that we had devised. Mushroom-based materials have generated a well-deserved hype given their advantages at a first glance, but from many perspectives, the success of the material has yet to be determined. It is fair to assume that the issues associated with the material would be eradicated over time as our technology progresses, but for now, here's our views on why large-scale commercial adoption may be challenging.
Advantage of ProEon
The Good Food Institute (GFI) in India has been active in mapping out the segment and along with Deloitte have estimated a demand for Alternative Proteins at USD 4 billion by 2030. India has seen over a 100 start-ups and companies that have come
up in the segments of Alternative Proteins. Most of these, at least on the plant based side, have been D2C brands looking to build out meat, egg and dairy analogues. These companies rely heavily on imports of plant based ingredients (95% of all plant based protein concentrates and isolates are imported) and focus mainly on working on formulations for final products. This is where we believe ProEon can add significant advantage.
The founding team was well know to Peak before our investment and comes with a background in Biotechnology and Nutraceuticals. Both Ashish and Kevin are actively involved in the R&D process and build out of functional, high quality protein ingredients, working closely with brands looking to build out their final products.
ProEon has established an R&D presence at Wageningen, Netherlands – which is known as at Mecca for plant based protein research and development. We expect this to give ProEon an edge over the competition and ability to stay ahead of the curve in terms of product development.
ProEon is one of the first companies in this domain and one of the very few in Asia focusing purely on ingredients. India, with is diversity in pulses and grains, makes product development in India a fairly robust proposition.
Being in India, they have the already build a strong roster of customers locally as well as internationally with marque names in the food processing and product companies in their customer portfolio.