FAIRR: China’s ‘meatless’ push signals boon for investors

Alan Briefel, executive director of the FAIRR (Farm Animal Investment Risk and Return) Initiative, explains why Chinese efforts to reduce meat consumption signals exciting – and meatless – opportunities for private investors. 

Late last month millions of people in China and around the globe celebrated Chinese New Year, and ushered in the year of the rooster – a year said to be typified by prosperity and luck.

Fittingly, the year of the rooster is also the year the Chinese government is set to conduct its third agricultural census, a once-a-decade event where millions of officials are sent to villages and farms to literally count the country’s chickens and other livestock.

The results of the census will inform Chinese food and agricultural policies for the next 10 years and thus are of global interest, especially to international investors.

Shifting production methods

China is the world’s largest aggregate meat producer, responsible for 33 percent of all meat produced, and it seems likely that the census will confirm that a large proportion of this meat is now produced by large industrialized factory farms.

For example, China is home to more than 50 percent of the world’s pigs. Until the 1980s, 95 percent of Chinese pigs came from small holdings with fewer than five animals; but by 2014, just 20 percent of China’s pigs came from these small, backyard farms, according to numbers cited by The Economist.

While on the surface factory farming appears to be an efficient and effective way to produce meat, eggs and dairy and feed growing populations, investors are becoming increasingly worried about the long-term consequences of its environmental, social and governance problems. Factory farming is linked to serious environmental degradation, disproportionate greenhouse gas emissions and water use.

Factory farming is also linked to critical public health issues, including the emergence of antibiotic resistant super-bugs, which threaten to deprive modern medicine of the use of antibiotics. It was in China in late 2015, that the first case of resistance to Colistin – medicine’s ‘antibiotic of last resort’ – emerged.

Moving to a more sustainable model

As a result, Chinese leaders have set agricultural reform as a top priority going forward and evidence suggests that issues of sustainability are being integrated into that thinking. For example, last year the government outlined plans to reduce its citizen’s meat consumption by 50 percent in an effort to curb greenhouse gas emissions and rising obesity levels.

The Ministry of Agriculture has also identified the billions of tons of waste that China’s livestock produce each year as one of the biggest sources of water and soil pollution in the country. The Chinese Nutrition Society has enlisted global NGO Wild Aid and celebrities to promote behavior change in a nationwide campaign, urging people to cut their meat consumption in half.

Research shows that there is reason to believe the public will be susceptible to the new recommendations. A 2015 survey indicated that over 80 percent of middle-class urban residents in China are willing to eat more vegetarian. It also showed high awareness of the health impacts of meat consumption, as well as moderate awareness of its climate impacts. Particularly, as the negative health and environmental impacts of high meat consumption become more apparent, public support is likely to increase further.

What does it mean for investors?

Given that China consumes 25 percent of the world’s meat, any successful measures to curb its consumption will have a significant impact on global meat markets.

This has been a keen driver behind recent private equity interest in alternative protein companies that use biotechnology to produce ‘meatless’ meat, a market that will continue to grow. Companies such as Beyond Meat, Memphis Meats or Modern Meadow all use plant proteins to mimic the texture and flavor of meat or to grow ‘meat’ in laboratories that avoids the sustainability issues of factory farming.

Analysts at Allied Market Research have estimated an impressive 8.4 percent year-on-year growth for the next five years for the meat substitutes market. As China acts to further reduce its citizen’s meat consumption, this number should rise even further.

Investors wishing to cash in on the prosperity and luck of the Year of the Rooster, should take note. The results of China’s agricultural census and shifting attitudes towards meat consumption point the way to a potentially exciting new market.