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Is fake meat really a threat to New Zealand's economy?

Air NZ’s Impossible Burger.

Rosie Bosworth looks at the risk to New Zealand's economy in a post-animal world of plant-based meat and dairy products.

You would have thought the sky was about to fall in. When Air New Zealand became the first airline in the world to announce it was offering a meat-free burger to business-class passengers on daily services – between Los Angeles and Auckland – there was a turbulent response from conservative politicians.

The patty in the airline’s “Impossible Burger” contains a protein called heme, or haem, which makes it bleed like ordinary ground beef and is what makes meat sizzle and smell “meaty”.  But the burger contains no meat at all.

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That’s a problem for Mark Patterson, the primary industries spokesperson for New Zealand First, who called the burger a “slap in the face” for this country’s red-meat producers, in comments that made the press in the UK.

National MP Nathan Guy, a farmer and Associate Minister for Primary Industries in the last Government, tweeted his disappointment at the airline’s move: “We produce the most delicious steaks and lamb on the planet – GMO and hormone free. The national carrier should be pushing our premium products and helping sell NZ to the world.”

Even Acting Prime Minister Winston Peters got stuck in, saying that the airline was built and bailed out by taxpayers, some of whom are farmers, and that “our airline should be [the farming industry’s] No1 marketer”.

Amid the noise, the facts that the burger was an option only, offered to select passengers on just one of the airline’s dozens of routes, and that meat-and-three-veg selections would be available, seemed to get lost. 

Niki Chave, Air New Zealand’s inflight customer experience manager, called the move a “fresh and innovative approach to cuisine … a delicious plant-based option that tastes just like the real deal”. 

Niki Chave.

No surprise

It’s not as if there wasn’t advance notice: the new products of the high-tech protein sector made headlines four years ago when scientists announced they had created a hamburger in the laboratory. The cost – US$330,000 ($482,000) – made it unlikely to be an instant big seller – but meat-free meats are now in supermarkets. They are costlier than most meat cuts, but prices are expected to come down as the technology develops.

And some seriously smart money is betting on that technology, encouraged by its potential to alleviate the ecological effects of meat farming and improve the welfare of animals caught in industrial-scale farming processes. The new “clean-food” industry is being compared to the booming green-energy sector and has attracted investment interest from Bill Gates, Sir Richard Branson, Google founder Sergey Brin, major Silicon Valley venture funds and Swiss food giant Nestlé.

Branson believes “clean and plant-based meat will become the norm”, and within a generation, we will be shocked at how it was acceptable to slaughter animals en masse for food. His investment vehicle, Virgin Group, this year invested in the Californian “clean-meat” business Memphis Meats, one of the many emerging cellular agriculture start-ups using cutting-edge biotechnology to produce animal-free “meat” and other DNA-identical animal products.

Branson is not alone in his predictions that a meatless world may be the only way to sustainably and humanely produce food and protein for the world’s growing masses. Gates has long spoken out about the benefits of a plant-based, animal-free food system, calling a sample of Beyond Meats’ plant-based chicken substitute “the future of food” as far back as 2013.

Now, even the world’s largest meat-producing food conglomerates are hedging their bets on an animal-free food future. Tyson Foods and Cargill, with 2017 annual revenues of US$38 million and US$109.6 billion respectively, weighed in on Memphis Meat’s latest investment round. And PHW, one of Europe’s largest privately owned poultry producers, is a key investor in SuperMeat, an Israeli start-up, growing chickenless chicken from animal cells.

Cargill Protein corporate vice-president Brian Sikes said, “Our strategic alliance with Memphis Meats is an exciting way for Cargill Protein to explore the potential in growing the cultured meats segment of the protein market. As a leading and trusted source for wholesome, sustainable and responsibly produced protein, this investment fits nicely with our customer-first approach to grow our portfolio.”

Fake meat fan Bill Gates. Photo/Getty Images

Tyson’s chief sustainability officer, Justin Whitmore, said the company’s foray into alternative animal-free proteins showed that “we don’t want to be disrupted; we want to be part of the disruption.”

These companies are by no means the only well-funded next-generation meat start-ups with the goal of making conventional animal agriculture obsolete.  Other ambitious biotech ventures that could threaten this country’s $15 billion meat industry include Californian-based Just (formerly Hampton Creek), Geltor and Perfect Day. Having collectively raised hundreds of millions of dollars, these hungry start-ups aim to get products to market by 2020 or earlier.

It’s a wake-up call for all players in New Zealand’s agricultural sector – and the banks that are invested in it – to revise their short- and medium-term strategies. So is a report, released in February, by Farm Animal Investment, Risk and Return (Fairr), an investor network dedicated to exposing what it calls “the material investment risks and opportunities connected with intensive livestock farming and poor animal welfare standards”. The report, “Plant-based Profits: Investment Risks & Opportunities In Sustainable Food Systems”, is backed by a coalition of 57 large and institutional global investors with more than US$2.4 trillion in assets under management – nearly 13 times larger than the size of NZ’s 2016 GDP. It says global livestock production presents “significant reputational and market risks for companies over-reliant on animal proteins to drive revenue”.

Fairr and its consortium of deep-pocketed investment partners are pressuring major global food brands, including Tesco, Costco, Walmart, Kraft and Unilever, to future-proof their supply chains by shifting their product portfolios away from animal proteins towards animal-free and plant-based alternatives. 

It’s an easy sell for some in the industry. According to Fairr, even without factoring in the demand for animal-free meat (real meat grown via cellular agriculture in laboratory settings), alternative protein in the form of plant-based analogues is already a rapidly growing market “that could reach US$5.2 billion, more than an 8% compound annual growth rate by 2020”. What’s more, meat-free and flexitarian (mostly plant-based) diets were named key trends in 2017 and 2018 by numerous industry commentators, including Rabobank, Forbes, the Guardian, Mintel, Innova Market Insights and MarketWatch. Global market intelligence publisher Euromonitor International says worldwide sales of plant-based dairy alternatives alone more than doubled between 2009 and 2015 to US$21 billion, as sales of animal-based dairy products stagnated.

Fake meat fan Sergey Brin. Photo/Getty Images

High-volume, low-value

More than 60% of this country’s primary-sector export revenue – about $23 billion – is dependent on low-value animal-derived commodity products (dairy solids, hamburger meat and wool). The latest Reserve Bank figures say that the banking sector has more than $60 billion – about 14% of the nation’s debt – tied up in rural assets. What is the sector doing to hedge itself against the risk a possible post-animal economy would pose to its lending portfolio?

If Branson’s predictions are accurate, the real threats to our agriculture and the institutions bankrolling it are no longer shaky commodity milk-solid prices or low returns on sheep and beef carcasses. Nor are they costly outbreaks of disease such as Mycoplasma bovis, environmental compliance codes or the proposed fresh-water accords facing a sector that has for decades put growth and intensification before environmental stewardship. Rather, it is a future in which milk solids and animal products may no longer have much market value.

New Zealand’s pastorally raised products are, in terms of both quality and environmental sustainability, superior to their overseas counterparts. But, as economic journalist Rod Oram puts it, “practising one of the least polluting forms of farming may not be enough of a social licence to operate in a world with escalating environmental pressures [which is producing] proteins with minimal environmental impact”.

Ignoring the threat of animal-free meat and alternative proteins is not an option. If billions of dollars of banks’ lending liabilities are tied up in stranded dairy and meat production assets, there is an increasing likelihood of default loans, especially when advances in technology mean new proteins begin to compete in both taste and cost with high-volume, low-value key export produce.

Recent statistics from Beef+Lamb New Zealand indicate that low-value “processing meat” – mainly burger patty meat sold to fast-food companies and supermarkets – made up 60% of the country’s beef exports in 2015-16, but yielded only 45% of the value. Similarly, 55% of dairy giant Fonterra’s sales in the financial year to March was derived from its trade in commodity dairy products and “base ingredients” milk solids and liquid milk. This was despite a decade of corporate rhetoric suggesting the company had made solid progress to move up the value chain towards its three value-added categories: consumer, food service and advanced ingredients.  

Fake meat fan Richard Branson. Photo/Getty Images

Optimism or ignorance?

So, are the banks being optimistic or wilfully ignorant? The top five rural banking organisations (BNZ, ANZ, Rabobank, ASB and Westpac) have long treated the rural and agribusiness sector as a safe and profitable revenue stream. What strategic actions have they taken to understand the risks of entrenchment in the animal agriculture sector? Are they, along with many in the industry, assuming that the shift to a “value-added” model of animal agriculture, concentrating on delivering premium products, will protect their high levels of exposure, when international market forces are increasingly suggesting otherwise?  ANZ, which has a 29% share of New Zealand’s agri-lending sector, has the most exposure. The bank said in a statement that it constantly monitors what major companies and exporters are doing in response to such challenges and keeps up with general market developments. It also said “a thorough review of the synthetic-food market”, published as part of its monthly ANZ Agri Focus reports, was distributed to its agribusiness-focused staff and customer base.

One 2016 report noted that “if such innovations make it to market at scale, they could well sit in the ‘showstopper’ category for the New Zealand economy and primary producer businesses … There is much at stake, not just for a number of individual businesses, but for the entire economy”. But it then chose to downplay the real risk of alternative proteins to those on the sector: “The food market today is vast, with a huge range of choice. Categories such as natural, grass-fed, pasture-raised, organic and wholefoods will always exist and provide a market that synthetic food can’t directly compete in.”

Rabobank New Zealand, which has about 16% of the nation’s rural lending market share, says its European-based global animal proteins team produced a substantial review on the growth of alternative proteins, including synthetic meats, late last year and it was released to its clients to keep them informed of key global trends. However, Blake Holgate, animal protein analyst at Rabobank’s food and agribusiness research arm, says the bank’s New Zealand subsidiary is still very much in the research and investigation phase in terms of how, or if, alternative proteins will affect the company’s domestic lending policies.

“We know change is coming, but the degree of change and time frames around this are still unknown.”

ASB and BNZ, which lend $11.5 billion and $14.5 billion respectively to the agribusiness sector, have engaged Kaila Colbin, New Zealand ambassador for Singularity University, a Silicon Valley think tank that researches “exponential” technologies facing the world’s largest industries, to educate their respective rural and agribusiness teams about the level of disruption now facing the agricultural sector. “We’ve definitely started to lead the conversation,” says Richard Hegan, the general manager of rural business for ASB Bank, which is responsible for 17% of the agribusiness market share. “I’d like our 200-strong rural team to be able to talk to our 5000 farming customers about the emerging trends and the relevance of agriculture in the future.” Last year, Hegan attended the annual Te Hono Stanford Bootcamp at Stanford University – a national programme for New Zealand chief executives or those with senior governance positions predominantly in the primary sector – to inform himself of future trends.

Colin Mansbridge, head of agribusiness for BNZ, which represents about 24% of total bank lending to agriculture, says the bank has commissioned a study about how to respond to the arrival of synthetic products and is gaining a deeper insight into the readiness of its farming customers for new food and protein market trends. “Where we see our role is in equipping our farmers in the best possible way to alter their strategies to remain competitive.” 

All major agri lenders see change as inevitable to an extent, but the degree to which banking leaders see a “post-animal economy” as a genuine threat and a reason for gradual divestment from animal-based rural lending is less apparent.

Westpac NZ’s Mark Steed notes that a lot of investment is going into the alternative protein sector globally, but the bank, which has a $9 billion exposure to rural and agribusiness lending – about 15% of the market – isn’t looking to reduce its exposure to agribusiness.

“We have no problem [with] or lack of appetite for lending to New Zealand’s agri sector. We do not support farmers with poor sustainability track records, but we are certainly open for business from dairy, sheep and beef, organics and kiwifruit. We aren’t excluding any sectors – dairy included.” 

Reducing exposure

Rural lending is also still high on ANZ’s agenda. “We have reduced our on-farm dairy exposure over recent years to ensure debt levels are appropriate,” says Briar McCormack of ANZ corporate affairs. “We’re comfortable with where it sits at present.”

“We still have the ability to feed 40 million people with the highest-quality food,” says Steed. “Just look at the large barns of cattle that are increasingly producing beef in China as their demand for animal protein grows.” Even with local production, Steed says China’s demand for our wagyu beef continues to climb. “New Zealand’s provenance story is what’s going to be a critical aspect of where the sector needs to go.”  

Lachlan Monsbourgh, recently appointed head of sustainable business development at Rabobank, doesn’t see the future of protein being an “either/or” situation. “I don’t see it as a threat at all. I do think we can still have a binary system where regenerative, sustainable farming will continue to play a role. We would have to wait and see if the business case stacks up for [alternative proteins] before changing any policies and lending criteria we have.”

ASB’s Hegan says that if we are going to compete against synthetic protein, it will be as a result of high-quality milk produced in an environmentally sustainable way. “Lower stocking rates, grass-fed systems, good animal welfare are all factors that actually point to New Zealand’s competitive advantage in the first place,” he says. “I don’t for a moment believe that the world is going to switch or manifestly go 100% one way or the other. Will there still be a good portion of the world of nine billion who are going to prefer animal products? Probably.”

BNZ’s Mansbridge similarly believes it is dangerous for the bank to make wholesale projections about the future of agriculture based on current trajectories of one or two popular technologies emerging on the market.

“It’s quite clear that the conversation and dialogue is changing. But we are not going to make an assumption that the market is going to all of a sudden go to one side of the divide or the other.”

Pastoral premium

It is easy to see why leaders in the agriculture and banking sector adhere to the notion that a “premium” pastoral model will continue to hold relevance in the years to come. The share value of A2 Milk, New Zealand’s biggest listed company,  recently soared following a deal that will give it the backing and distribution prowess of Fonterra. And the Ministry for Primary Industries suggests the macroeconomic outlook for primary industry exports and its major trading partners will continue to look rosy in the coming years: dairy export revenue is expected to increase from $14 billion to almost $17 billion next year and higher lamb and mutton prices are forecast.

“Look at the emergence of the Apple Watch and the effect technology has had on the watchmaking industry,” says Minister of Agriculture Damien O’Connor. “There is still a market for Swiss watches.”

O’Connor says agriculture, too, can strive for that similar, premium position. “But we will have to be more clearly focused from every part of the farming and food production system to succeed.”

Even Beef+Lamb’s February report “Future of Meat” recognises  that “alternative protein technologies are likely to further disrupt the protein category and encroach on the red-meat market”.  Yet it concluded by stating, “there is still a strong future for the New Zealand red-meat sector”.

The circumspect responses of ASB and BNZ do concede that change in rural credit policy is in the air. “I don’t think we are planning for no change,” says Mansbridge.  “We are certainly planning for a change. It’s quite clear that the conversation is shifting. But are we, as a bank, reviewing our lending parameters and policies towards our rural and agribusiness sector right now in response to arrival of synthetics? The short answer is no, we have other factors to consider.”

Hegan, too, says ASB  is not thinking about reviewing credit policy. “It’s just a little early for that. But I do think that day is marching towards us. I am just not sure when. What we can do is lead the discussion on this. We certainly don’t want the ag industry to become the next Kodak.”

The risk is that Branson’s vision of a post-animal food economy may become a reality more quickly than New Zealand’s political, agricultural and banking leaders are ready to accept.  Having a significant sum of debt tied up in a commodity-focused, animal-based agricultural system may yet have substantial implications for the country’s “cash-cow” economy.

Rosie Bosworth has a PhD in environmental innovation and sustainable technology development.

This article was first published in the July 21, 2018 issue of the New Zealand Listener.