Wild Type food for thought #1

Winter edition part 1 of 5: the business case

The argument for why we need cell-based meat usually goes something like this: meat production has a devastating impact on the environment. There are also significant public health concerns like food-borne illness, antibiotic use in meat, and other contaminants such as mercury and microplastic in our fish.

But, let’s suppose that you don’t find these arguments persuasive. Is it possible to make the case for cell-based meat and fish without relying on the potential environmental and health benefits? We address this question today in the first of five posts exploring opportunities in our field.

If we’re going to make the business case for a new form of meat and fish production, we should expect to see demand for these products increasing over time.

Sources: FAOSTAT food supply: fish, seafood, and meat. Rome, FAO, Wild Type analysis

This chart shows global demand for meat and fish since the 1960s. We had seen many similar charts for meat in the past couple of years, but very few also contemplated fish. All of the charts that we will present include both fish and terrestrial meat.

Starting in the early 1980s, you can see a significant increase in the slope of this line. Demand for meat and fish is accelerating.

The chart below shows similar data, but adjusted for population growth. Per capita consumption of fish and meat is also continuing to grow steadily. The average person on this planet now consumes more than ⅓ a pound of meat and fish per day.

Sources: FAOSTAT food supply: fish, seafood, and meat. Rome, FAO, Wild Type analysis

Let’s now look at how these data break down by geographic regions around the world.

Sources: FAOSTAT food supply: fish, seafood, and meat. Rome, FAO; Wild Type analysis

This chart maps per capita meat and fish consumption by geographic region. Although the Americas and Europe still consume far more meat and fish per person than Asia and Africa, the gap is closing. Asian demand for meat and fish has significantly accelerated since the mid 1980s.

Sources: FAOSTAT food supply: fish, seafood, and meat. Rome, FAO; Wild Type analysis

To make the point more acutely, this chart maps per capita meat and fish consumption for the United States and China. Although US consumption still dwarfs that of China, the gap is rapidly closing. In fact, while growth in per capita US consumption has been nearly flat since the early 1980s, demand in China is growing more than ten times as quickly.

One might think that the rest of the world eats a similar mix of meat and fish as consumers in the United States. As the chart below shows, however, fish and pork are the largest sources of animal protein globally.

Sources: FAOSTAT food supply: fish, seafood, and meat. Rome, FAO; Wild Type analysis

Since 1961, demand for pork and fish have grown by more than 9% on a compound annual growth rate basis.

Aside: if you’re wondering why we’re showing 2013 data, it’s because the Food and Agricultural Organization of the United Nations release new data every five years.

What is the market size for the global meat and fish market? We had heard a figure of $1 trillion being tossed around, but couldn’t find a reliable source for that number. We couldn’t resist the opportunity for a market sizing exercise, so we sized it ourselves. Let’s first start with the US market

Sources: Quantity: FAOSTAT food supply: fish, seafood, and meat. Rome, FAO; Prices: Bureau of Labor Statistics, average retail food and energy prices, Wild Type analysis

This chart provides an estimate of the US market size for meat and fish. To keep things simple, we multiplied the retail prices of meat and fish by respective consumption volumes. We made some assumptions about the breakdown of US consumption between different types of poultry and beef, such as the share of turkey we eat versus chicken.

By this measure, the US market for meat and fish is about $400 billion. By value, beef, poultry, and fish are the biggest markets. By volume, poultry is the largest, with 35 billion pounds consumed per year, followed by beef at 25 billion pounds.

Sources: Quantity: FAOSTAT food supply: fish, seafood, and meat. Rome, FAO; Prices: Bureau of Labor Statistics, average retail food and energy prices, Wild Type analysis

The global market for fish and meat, is worth nearly $3 trillion. By value and volume, fish and seafood are the most important at $1 trillion in market value and nearly 300 billion pounds consumed annually.

To test these market size numbers, we calculated what the average American and global consumer would spend per day in meat and fish products if the estimates above are correct. In the United States, a market size of $400 billion per year implies that we each spend about $3 a day on meat or fish products. Given that most people in this country eat meat or fish at least once a day, this feels about right.

Similarly, a global market size of $3 trillion would mean that the average person on earth spends about $1 a day on meat and fish products; also believable.

So, what’s the point? Market sizing estimates are inherently that — just estimates. Well, this is a really, really big market and is growing fast as we showed you a few charts ago.

To quickly recap, we hope we’ve convinced you that:

  1. The global market for meat and fish is big and demand will continue to accelerate
  2. Some geographic areas are growing faster than others, and
  3. There are significant opportunities globally across all types of meat and fish

But, these three facts don’t convince us that we need a new source of meat and fish. So, let’s get to the heart of the business case for cell-based meat and fish: price.

When we first started talking about what would later become Wild Type in 2016, we hypothesized that if we were to look at global prices (a proxy for costs) for meat and fish, we should see significant reductions in prices during the period between the 1950s to 1990s as dramatic improvements in efficiency were introduced, particularly in cattle and poultry farming.

But, we expected that these benefits would eventually begin to taper off in more recent years as the gains from squeezing more efficiency out of this now 50-year old technology began to diminish.

We then found a 2011 report from the UN’s Food and Agricultural Organization [1] that confirmed our hunch and provided a few other explanatory variables about why meat costs have risen, and would likely continue to rise. The main factor was rising costs in the inputs to meat production, namely higher feed, labor, and water costs.

The ramifications of this UN prediction are profound. If the inputs to meat production are becoming more expensive and we can’t squeeze any more productivity gains out of our current methods for raising animals, then prices for meat and fish will begin to increase. And, they’ll keep increasing as demand rises and inputs become scarcer.

What’s worse, if these prices rise faster than incomes, which is entirely possible, then meat in the future may become less available to lower income people than it is today unless we come up with a more efficient way to produce the meat and fish that we love.

We then set out to confirm this hypothesis with data. We gathered as much historical data on retail prices as we could find.

Sources: Retail value of fresh beef — USDA ERS; CPI — Bureau of Labor Statistics, Wild Type analysis

This chart shows retail prices for fresh beef going back to 1970. We adjusted prices for inflation using consumer price index data.

We see two trends in the data. First, a general downward trend in real prices from the 1970s through the turn of the century. Then, starting around 1999, prices have steadily increased.

In fact, prices, at least for beef, appear to have returned to where they were in real terms in 1970, essentially erasing 30 years of hard-won productivity gains.

We looked at this data for other animal proteins as well, and they showed a very similar trend. For example, the chart below presents wholesale salmon prices from 1980–2016.

Sources: International Monetary Fund, Bureau of Labor Statistics, Wild Type analysis

We would submit that this is the real business case for cell-based meat. Even if you’re indifferent to the potential health and environmental benefits of cell-based meat, if you care about affordable meat for us all, then we need a new way to create meat and fish.

This isn’t to say that conventional producers of meat and fish can’t do anything to help. Most are taking extraordinary steps to make our meat and fish supplies more efficient and sustainable. Cell-based meat and fish production is yet another tool to help ensure our food supply is able to keep up with demand.

Our next piece will dig into the first of five opportunities in the cell-based meat and fish field: geography.

[1] FAO. 2011. World Livestock 2011 — Livestock in food security. Rome, FAO