Is the Future of Food Fermented?

Summary

Podcast Summary: "Is the Future of Food Fermented?"

Podcast Information:

• Title: Thoughts on the Market
• Host/Author: Morgan Stanley
• Episode: Is the Future of Food Fermented?
• Release Date: March 26, 2025

Morgan Stanley’s “Thoughts on the Market” podcast delves into critical market trends and innovations shaping our future. In the episode titled “Is the Future of Food Fermented?”, hosts Rachel Fletcher and Arushi Aggarwal explore the emerging role of fermentation technology in addressing global nutritional challenges. This comprehensive summary captures the key discussions, insights, and conclusions from the episode.

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Introduction to Fermentation in the Food Market

Rachel Fletcher opens the discussion by highlighting the prominence of fermented foods like kombucha and kimchi in health-focused markets. She sets the stage for a deeper exploration into whether fermentation technology can meet the growing global nutrition needs as populations age and lifestyles become healthier.

"From Kombucha to Kimchi probiotic, rich fermented foods have long been staples at health focused grocers. On the show today, a deeper dive into the future of fermentation technology." (00:11)

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Challenges Facing Traditional Agriculture

Arushi Aggarwal outlines the significant environmental and social challenges confronting traditional agriculture. She emphasizes the urgent need to address these issues to ensure food security and sustainability.

Environmental Impact

• Greenhouse Gas Emissions: Traditional agriculture accounts for almost a third of global greenhouse gas emissions.
• Resource Consumption: It consumes over 50% of the world's land and fresh water resources.

"Traditional agriculture is responsible for almost a third of global greenhouse gas emissions and it also uses more than 50% of the world's land and fresh water resources." (00:57)

Nutritional Decline and Yield Concerns

• Nutritional Content: Modern produce has 40% less nutrition than 80 years ago, attributed to increased chemical use and declining soil fertility.
• Yield Declines: Average agricultural yields could drop by 30 to 50% by the century’s end, even under the slowest warming scenarios.

"The produce that we have today has on average 40% less nutrition than it did over 80 years ago." (00:57)

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Potential Solutions to Agricultural Challenges

Rachel and Arushi discuss viable solutions to counteract the challenges in traditional agriculture, focusing on three main areas: alternative proteins, precision agriculture, and seed technology.

Alternative Proteins and Fermentation Technology

• Current Landscape: The alternative protein market is currently dominated by plant-based foods, which face growth moderation due to taste and price challenges.
• Fermentation as a Solution: Synthetic biology-led fermentation offers a promising avenue by cultivating microorganisms in large quantities to produce proteins and other nutrients.

"Synthetic biology led fermentation is a new way to tap into this market." (02:00)

Additional Solutions

• Precision Agriculture: Utilizes technology to enhance crop yields and reduce resource usage.
• Seed Technology: Develops higher-yield and more resilient crop varieties.

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The Fermentation Market: Size and Growth Phases

The discussion transitions to the economic potential of fermentation technology in the food industry.

Market Projections

• Base Case Estimate: The fermentation market is projected to reach $30 billion by 2030, encompassing a 5,000 kiloton capacity for fermented proteins.

"This represents a 5,000 kiloton market for fermented proteins." (03:00)

Growth Phases

1. Phase One (2025-2027):
   • Focus on whey protein and animal nutrition.
   • Initial market entries see competitive pricing and product offerings.
2. Phase Two (2028-2030):
   • Expansion into egg, meat, and dairy replacements.
   • Increased commercialization driven by technological validation and regulatory approvals.

Investment and Capital Requirements

Scaling fermentation technology necessitates substantial capital investment, primarily for setting up bioreactors.

"Achieving our 2030 base case stamp will require 200 million litres in bioreactor capacity. This equals to an initial investment opportunity of $100 billion." (04:06)

Ongoing Costs

• Electricity: Accounts for 40-60% of ongoing operational costs, making it a critical factor for future investments.

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Consumer Preferences and Market Adoption

Exploring consumer behavior, the hosts examine whether there is a readiness to embrace fermented proteins.

Shifting Consumer Trends

• Increased Interest: Google Trends data indicates a significant rise in searches for "high protein diet" and "gut health" since 2019.

"An analysis of Google Trends data shows that since 2019, interest in terms like high protein diet and gut health has increased the most." (04:58)

Product Attributes

• High Protein Concentration: Fermented products often contain 60-90% protein.
• Allergen-Free Options: Utilizes diverse microbial species to create non-allergenic food solutions.
• Multi-Use Formats: Products designed to serve multiple dietary needs, enhancing their market appeal.

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Policy Support and Government Role

The episode highlights the indispensable role of government policies in fostering the growth of fermentation technology.

Current Policy Landscape

• Regulatory Approvals: Achievements in markets like the US and Singapore validate the technology’s viability.
• Government Initiatives:
  • Cellular Agriculture Package in the Netherlands.
  • Plant-Based Food Fund in Denmark.
  • Singapore’s 30x30 Strategy aimed at enhancing food security.

"Growing of fermentation technology hinges on adequate policy support, not just to enable the technology but also to drive demand for its products." (06:00)

Future Policy Needs

• Leveling the Playing Field: Additional policies are required to offset traditional agriculture subsidies, ensuring that fermented products can compete fairly in the market.
• Environmental Legislation: Denmark’s upcoming carbon tax on agricultural emissions could indirectly boost demand for fermented goods.

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Conclusion and Final Thoughts

Rachel Fletcher and Arushi Aggarwal conclude the episode by reiterating the transformative potential of fermentation technology in the food industry. They underscore the importance of strategic investments, supportive policies, and evolving consumer preferences in realizing the market’s full potential.

"It was great speaking with you and thanks for listening." (07:05)

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Key Takeaways

• Environmental and Nutritional Pressures: Traditional agriculture faces significant sustainability and nutrition challenges.
• Fermentation as a Game-Changer: Synthetic biology-led fermentation offers a scalable solution to produce affordable, nutritious, and sustainable food.
• Market Potential: With a projected market size of $30 billion by 2030, fermentation technology represents a substantial investment opportunity.
• Consumer and Policy Alignment: Growing consumer interest and supportive government policies are critical drivers for the adoption and success of fermented foods.

For those interested in the intersection of sustainability, technology, and market innovation, this episode provides valuable insights into how fermentation could shape the future of our food systems.

Transcript

[A]

Welcome to Thoughts on the Market. I'm Rachel Fletcher, Morgan Stanley's head of EMEA Sustainability Research.

[B]

And I'm Arushi Aggarwal, European sustainability strategist based in London.

[A]

From Kombucha to Kimchi probiotic, rich fermented foods have long been staples at health focused grocers. On the show today, a deeper dive into the future of fermentation technology. Does it hold the key to meeting the world's growing nutrition needs as people live longer, healthier lives? It's Wednesday 26th of March at 3pm in London. Many of you listening may remember hearing about longevity. It's one of our four long term secular themes that we're following closely at Morgan Stanley. And this year we're looking even more closely at a sub theme, affordable healthy nutrition. Arushi, in your recent report you highlight that traditional agriculture is facing many significant challenges. What are they and how urgent is this situation?

[B]

There are four key environmental and social issues that we highlight in the Note. Now the first two, which are related to emissions intensity and resource consumption, are quite well known. So traditional agriculture is responsible for almost a third of global greenhouse gas emissions and it also uses more than 50% of the world's land and fresh water resources. What we believe are issues that are less focused on are related to current agriculture practices and climate change that could affect our ability to serve the rising demand for nutrition. We highlight some studies in the note. One of them states that the produce that we have today has on average 40% less nutrition than it did over 80 years ago. And this is due to elevated use of chemicals and decline in soil fertility. Another study that we refer to estimates that average yields could decline by 30 to 50% before the end of the century. And this is even in the slowest of the warming scenarios.

[A]

I think everyone would agree that there are four very serious issues. Are there potential solutions to these challenges?

[B]

Yes. So when we've written about the future of food previously, we've identified alternative proteins, precision agriculture and seeds technology as possible solutions for improving food security and reducing emissions. If I focus on alternative proteins, this category has so far been dominated by plant based food which has seen a moderation in growth due to challenges related to taste and price. However, we still see significant need for alternative proteins and synthetic biology led fermentation is a new way to tap into this market. In simple terms, this technology involves growing large amounts of microorganisms in tanks which can then be harvested and used as a source of protein or other nutrients. We believe this technology can support healthy longevity Provide access to reliable and affordable food and also fill many of the nutritional gaps that are related to plant based food.

[A]

So how big is the fermentation market and why are we focusing on it right now?

[B]

So we estimate a base case of $30 billion by 2030. This represents a 5,000 kiloton market for fermented proteins. We think the market will develop in two phases. Phase one, from 2025 to 2027 will be focused on whey protein and animal nutrition. We're already seeing a few players sell products at competitive prices in these markets. Moving on to phase two, from 2028 to 2030, we expect the market will expand to the egg, meat and dairy replacement industry. There are a few reasons we think investors should start paying attention now. 2024 was a pivotal year in validating the technology's proof of concept. A lot of companies moved from labs to pilot stage. They achieved regulatory approvals to sell their products in markets like US and Singapore. And they also conducted extensive market testing. As this technology scales, we believe the next three years will be critical for commercialization.

[A]

So there's potentially significant growth there. But what's the capital investment needed for this scaling effort?

[B]

A lot of capex will be required. Scaling of this technology will require large initial capex, predominantly in setting up bioreactors or fermentation tanks. Achieving our 2030 base case stamp will require 200 million litres in bioreactor capacity. This equals to an initial investment opportunity of $100 billion. But once these facilities are all set up, ongoing expenses will focus on input costs for carbon, oxygen, water, nitrogen and electricity. PwC estimates that 40 to 60% of the ongoing costs with this process are associated with electricity, which makes it a key consideration for future commercial investments.

[A]

Now we've talked a lot about the potential opportunity and the potential total addressable market, but what about consumer preferences? Do you think they'll be easy to shift?

[B]

So we're already seeing evidence of shifting consumer trends which we think can be supportive of demand for fermented proteins. An analysis of Google Trends data shows that since 2019, interest in terms like high protein diet and gut health has increased the most. Some of the products we looked at within the fermentation space not only contain fiber as expected, but they also offer a high degree of protein concentration, a lot of times ranging from 60 to 90%. Additionally, food manufacturers are focusing on new format foods that provide more than one use case, for example, free from all types of allergens. Fermentation technology utilizes a very diverse range of microbial species and can provide solutions related to non allergenic foods.

[A]

We've covered a lot today, but I do want to ask a final question around policy support. What's the government's role in developing the alternative proteins market and what's your outlook around policy in Europe, the US and other key regions, for example?

[B]

This is an important question. Growth of fermentation technology hinges on adequate policy support, not just to enable the technology but also to drive demand for its products. So in the note we highlight various instances of ongoing policy support from across the globe. For example regulatory approvals in the us, a cellular agriculture package in Netherlands, plant based food fund in Denmark, Singapore's 30x30 strategy. We believe these will all be critical in boosting the supply side of fermented products. We also mentioned Denmark's upcoming legislation on carbon tax related to agriculture emissions. We believe this could provide an indirect catalyst for demand for fermented goods. Now. Whilst these initiatives support the direction of travel for this technology, it's important to acknowledge that more policy support will be needed to create a level playing field versus traditional agriculture which as we know currently benefits from various subsidies.

[A]

Arishi this has been really interesting. Thanks so much for taking the time to talk.

[B]

Thank you Rachel.

[A]

It was great speaking with you and thanks for listening. If you enjoy thoughts on the market, please leave us. A review Wherever you listen and share the podcast with a friend or colleague today.

[C]

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