State of Green Business
For the next big innovation for agriculture, think small
For the next big innovation for agriculture, think small
Western society looks at insects as vermin that lurk in the dark and spread disease. But this is changing, as micro-livestock is more efficient and can reduce the insidious effects of meat eating on human health and global ecology. While insect-based food products have uncertain acceptance, most investors' current focus has been on processing insects into animal feed, primarily fishmeal for aquaculture.
Traditional livestock production accounts for 70 percent of arable land, including 33 percent for crops for livestock feed. As the global population grows to reach 9.8 billion people by 2050, food production is expected to increase by 70 percent. These trends — along with increasing incomes in developing countries — are unsustainable.
As on land, overexploitation of the ocean has exhausted wild fish stocks. Breakthroughs in breeding and adoption of high-quality pelleted feed unlocked a boom; for example, from 2000 to 2010, while Vietnam's catfish pond area doubled, its production grew from 50,000 tons to over a million. By 2014, more fish were farmed than wild-caught and is expected to rise to two-thirds over the next decade.
Increased aquaculture has increased the price of fishmeal, which has been substituted for cheaper soymeal; although soymeal can replace fishmeal up to 60 percent in the catfish diet, total replacement is deleterious for growth (PDF). Generally, high protein feed comprises 50 to 70 percent of animal production costs and the global feed industry was valued at $430 billion in 2017. Insects — a natural part of many animals' diets — is one alternative. A meta-review found that insect protein can replace 25 to 100 percent of existing feed. Furthermore, insect protein digestibility (PDF) is comparable to animal protein and higher than that of vegetable-based proteins.
Feeding the market
However, the European Union prohibited the use of animal-derived feed for livestock and only approved insect proteins for use in fish feed in July 2017. The EU is expected to allow insects for poultry feed in 2019. There are fewer restrictions in the United States and Enterra received approval for fish feed sales in 2018.
The industry is growing quickly, so data is sparse. CB Insights catalogs innovative conservation ventures ranging from AgTech for improving farming efficiency to consumer food replacement — with the smallest listed category being insect protein. Industrially purposed animal feed is not included. An independent analysis on CB Insights and Crunchbase of funding rounds relating to insect protein yielded over 50 companies from 2009 through June. Of these, 42 disclosed founding amounts showing $277 million raised by the industry.
Of the disclosed transactions, feed companies garnered 95 percent of capital and the largest six companies account for 90 percent. Following AgriProtein's relocation from South Africa to the United Kingdom in 2017, 84 percent of all capital and all of the large transactions (such as Enterra's) are European. North American firms raised $26 million, including Enterra ($10 million), eXo ($5.2 million) and Entomo Farms ($3.3 million).
Meals of mealworms
Recently, Nicole Kidman and Vanity Fair released a video of the actress relishing a four-course meal of hornworms, mealworms, crickets and grasshoppers. In practice, industrial sale of insect protein for animal feed uses mealworms, roaches and black soldier flies while consumer edibles mainly are derived from grounded crickets.
Ynsect, after evaluating 15 insect species on 30 parameters, selected the mealworm to be the first on the animal feed market — mainly for fish. Chinese firms have moved from producing medicine out of roaches into the feed business and there are estimates of 400 roach farmers in just the Shandong province. On the other hand, black soldier flies are able to digest low quality feed extremely well and can thrive on livestock waste before themselves becoming feed.
Most firms that raised large capital — including AgriProtein, Protix Biosystems, InnovaFeed, Enterra and Nextalim — derive feed and fertilizer from black soldier flies. Going forward, global food corporations have signaled interest in insect proteins. ADM purchased Neovia — a French animal feed business with insect protein as a key innovation area — and McDonald's is focusing on insect-fed chickens. For consumer edibles, companies including Cargill, General Mills and PepsiCo are searching for opportunities.
Among Western consumers, entomophagy is still embryonic but showing enthusiasm. Michelin-rated restaurants and start-ups across America are experimenting with cricket snacks: protein bars (eXo), in chocolate bars (Chapul), chips (Six foods), pasta (Bugsolutely), cocktail bitters (Citterbitters) and flour (such as Aspire's Aketta brand). In March, Loblaws, the largest Canadian food retailer, launched a cricket powder under its President's Choice private label made with Entomo Farms' ingredients and certified under the BRC Global Standard. Then in April, Maple Leaf Foods, a leading Canadian deli meat producer, took a minority stake in Entomo with a $1.4 million investment.
Scaling for Tiny Farms and beyond
Whether insects are used for breeding or edible purposes, caring for thousands of animals is labor-intensive, and supply is slim. The co-founder of Tiny Farms several years ago described distributors "knocking down [the] doors" of retailers. The supply issue was impetus for feed producer Protix to acquire Fair Insects — a breeders consortium — in 2017. Likewise, Aspire Food Group (a breeder) merged with eXo (consumer edibles) in March.
Breeders have designed proprietary systems to scale efficient production. Ynsect is rearing mealworm larvae using machine-learning software connected to sensors embedded in the farm. Likewise, Aspire launched its first automated cricket farm in 2017 and uses automated robots on wheels to feed crickets and collects over 30 million data points with the goal of answering questions such as the ideal afternoon habitat conditions for a cricket on day seven of its life.
Moreover, the Sichuan Good Doctor Pharmaceutical Group breeds 6 billion cockroaches for medicine annually using a system that collects and analyses over 80 data categories, including humidity, temperature, food supply, consumption and how changes in genetic mutations affect the growing rates of individual cockroaches.
Other companies design technology for other breeders. Founded in 2017, Bühler Insect Technology Solutions — a joint venture between Protix and Bühler, the Swiss food technology provider with sales of $2.6 billion — is completing the largest industrial scale insect processing plant in Europe this year. At a smaller scale, Cowboy Cricket Farms' modular farming system is a self-contained bin that regulates temperature and humidity, monitors air quality and maintains feed and water. Finally, Tiny Farms plans to license its turnkey insect farm so that farmers can produce crickets to specifications and sell them back for processing.
Entomo Farms is also considering outsourcing production: "The processing equipment is incredibly expensive, and it could be prohibitive for farmers that just want to produce protein. If you look at traditional farming, chicken, pork and beef, generally you have farmers and animals go to a centralized processor. … While increased efficiency in edible insect breeding, farming and processing will bring prices down."
AgriProtein has raised $105 million to scale facilities across Africa and Asia to source local waste feedstock for low-cost feed to their fly larvae; each of its six facilities is set to take in 250 tonnes of feedstock per day and produce 50 tonnes of larvae per day.
Going forward, there is immense opportunity for innovation. About 1,900 species of insects are consumed on a regular basis and they generally reproduce quickly and in large quantities: crickets lay 1,500 eggs within 30 days. Insects also reach adult stages quickly and reproduce sooner that than livestock. Applications of this are Protix's collaboration with Hendrix Genetics to proactively cultivate insect traits.