We have featured the rise of the fake meat or the plant based protein industry in this space earlier highlighting how this could go a long way in reducing carbon footprint generated by the beef industry. This blog by Seth Miller provides an alternate perspective – about how the success of fake meat may not necessarily disrupt the traditional meat industry and hence consequentially any carbon footprint associated with it. Seth argues that the efficiency of the beef industry where the farm share of the retail shelf price is as high as 45%, even greater than apples and lemons where there’s no processing involved, makes it somewhat immune to the threat from fake meat. Seth’s math using Beyond Meat’s numbers shows that for fake meat to become comparably efficient, volumes will have to rise to such an extent that Beyond Meat alone will have to be larger than the entire cattle market today. With both Beyond Meat and Impossible Burger emerging from Silicon Valley, Seth reckons this is one disruption the valley may not end up pulling off.
“That’s what cows do all day, every day — they eat grass. They use that plant energy to locate more grass, and eat that too. A cow’s ceaseless job is to convert the planet’s most fibrous, lowest quality feed into milk and meat. A cow is an engine that turns sunlight to dollars.
It is also an engine that pollutes: Cows alone contribute almost as much to climate change as all of the cars in the world — over 10% of all human-produced greenhouse gases. Their nearly indigestible diet nourishes a microbial community which respires methane into belches and nitrous oxide into manure. Tropical rainforest, and all the carbon it keeps, is leveled to create pasture. Gasoline is burned to keep the butchered meat cold and fresh. Every pound of steak we produce adds almost thirty pounds of carbon to the atmosphere. Every pound of steak protein requires 25 pounds of vegetable protein to grow….For the climate to sustain, global dairy and meat consumption must be cut in half from today’s levels. In developed nations like the US, beef consumption must drop 80% or more by 2050….
……..But the cow is a new sort of target for Silicon Valley. A cow is not a hunk of capital like an internal combustion engine or a coal-fired boiler. A cow will not join your social network or be called by an API. A cow is an animal which has been naturally selected, over millions of years, to turn feed into protein as efficiently as nature allows, lest it be out-competed by another, more efficient creature. A cow, thick with meat and fat, is dinner that humans have evolved to love.
Silicon Valley has convened to disrupt a thing that is solar powered, fully autonomous, and has — to borrow one of the Valley’s favorite terms — perfect product-market fit.
…..Ground beef outsells fake meat by a factor of nearly 100-fold, so it is no surprise that it is less expensive. But the opportunity to close the gap remains: a rough rule of thumb for manufacturing is that increasing scale by 10X will drop production costs in half. Make a burger that the masses are willing to eat and costs will come down naturally. The world’s vegan meat corporations will recoup their investments as the market grows.
But this framework underestimates just how streamlined the cow — and the global beef production system — really is. There is more to the cost of food than just the raw ingredients — there is processing, packaging, marketing, transport. The “farm share” of a Beyond Burger — the total retail value that returns to the farm — is probably just 15¢ per pound of patty. The processed Beyond Burger sells for $12/lb at retail — a price at which the company still loses money — meaning that 1.25% of the shelf price returns to the farm to pay for raw ingredients. This is well below the farm shares of high volume commodity processed food like bread (4%), tofu (2–3%), and roughly on par with a branded product like Coca Cola (1.6%).
Meanwhile, the farm share of a cow is 45%.
Almost half the grocery store price of ground beef covers the cost of the live cow. Thanks to the magic of commodity capitalism trucks are filled consistently, less meat ages in inventory, and little is lost to waste. With volume high, everyone in the supply chain subsists on a sliver of revenue, and grocery stores keep retail prices at or even below cost to drive traffic into the store.
How much do economies of scale save? The farm share of beef is double that of apples, and triple that of lemons. We can slaughter beef, box it, transport it across the country and stock it on shelves with lower added cost than we can put a sticker on fruit.
To match the price of beef on the retail shelf and to win over the bulk of its price-conscious customers, Beyond Meat has to scale. Automated equipment must be erected to purify and texture pea protein, and burgers must be slung at terrifying rates to spread that cost across hundreds of millions of customers. To meet its promise to the Earth, Beyond has to get bigger. Terrifically, implausibly bigger.
To understand how big requires a little math. Today, Beyond’s small production volume — 20 million pounds of plant burger per year, or just 0.2% of the US ground beef market — leaves each burger 4X more expensive to produce than beef.[3] If we use my simple rule of thumb that a 10X increase in scale will drop costs by 2X, then Beyond will have to scale 100-fold — to 2 billion pounds per year, or 20% of US ground beef production — before it matches beef on production cost.[4] But if it also wants profits — a standard 60% “gross margin” above costs to pay for marketing and provide a return to investors — another halving of production costs and another 10X increase in scale is in order (recall that it must compete with beef, a commodity that gets by with barely any profit at all). A single company would have to produce more fake meat than the entire cattle market sells today.
Simply put, there is no Moore’s Law of meat. There is no exponential technological improvement that inevitably turns a cow into a relic of earlier civilization like a steam engine or photographic film. Our canonical vision of disruption arises in industries overturning early, crude human technology, not a machine that Nature has built. There is no universe where technology-enabled meat is half the price of the original, the way that solar is already half the price of coal in the sunniest areas of the world.
Cows are and will remain the technology we wish we could invent: Modular, self-powered factories able to build value from waste. Cows are the open source solution for food, low cost and available to all. Cows are what our technologies might aspire to after a few million years of our own technological evolution, herds of them quietly grooming the planet
We will not stop eating cow because we have built a better meat. When we stop eating cow, it will be because we have built a better us.”

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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.

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