Plant-based eating has seen a boom over the last decade. More and more individuals are switching from omnivorous diets to vegetarian or vegan diets. Multiple reasons explain this trend, from curbing climate change and leaving a smaller carbon footprint to avoiding animal cruelty.
The rise of new technologies also opened the door to the plant-based meat industry. Those companies use plants to replicate the texture and taste of your favorite meat product(think steak or chicken tenders).
Because of these innovations and the switch in consumer preferences, the vegan food market is getting bigger and bigger. Expert Market Research estimates the food market was USD 15.4 billion in 2020 and anticipates a growth rate of 9% in the upcoming period. In 2027, the market will have doubled.
Such a growth perspective makes it extremely attractive to investors, climate-conscious or not. Yet, investing in this nascent industry is not that easy. We tell you why.
Vegan stocks span across multiple industries
A vegan company does not necessarily mean a company reengineering meat in a lab with plants. Other actors in the food industry can also be present. Large food producers and food manufacturers can be listed as vegan stock. Some even include the agricultural manufacturers that help the industry (think Claas, John Deere, Kubota). Here are the different categories:
- Fresh products producers: these are the ones bringing the fruits and vegetables into your plates. They usually have global supply chains and grow your favorite avocado in another part of the world before shipping it to your favorite grocery store. Companies like Calavo Growers (CVGW) or Mission Produce (AVO). They offer vegan products, yet their climate contribution still needs to be improved. Some more climate-friendly and tech-enabled companies, such as Appharvest (APP), are bringing vertical farming to the market, yet, not all products can be grown this way.
- Transformed products manufacturers: finally, companies in this category transform staples into edible products for the consumers. The best example is Oatly (OTLY), the maker of oat milk and all dairy alternatives derived from oat.
- Alternative meat producers: those food companies manufacture meat. Most of them use plants, but an increasing number of companies use “lab-grown” meat. This is cultured meat, where the meat is directly grown from the animal cells. All companies offering meat alternatives like Beyond Meat (BYND), The Very Good Food Company (VGFC), Tattooed Chef (TTCF), or Impossible Foods belong to this category.
- Tech enablers: those companies do not sell products directly to the consumers but rather support the other actors in the industry. They can sell the equipment and machinery needed to manufacture the food or provide the chemistry. Ingredion (INGR), for example, is a significant supplier to the alternative meat industry as a protein and texturizer provider.
For alternative meats, only a few companies are at scale, and market conditions are challenging
Investing in the alternative meat market is tricky. Only a handful of companies are listed on the stock market, limiting options. Many of those companies are still startups in their infancy, trying to reach product-market fit or scale, and have not gone through the IPO process. Impossible Foods is one of those. Despite being promising and achieving partnerships with leading the fast-food giant Burger King, the company has not gone public yet.
Almost all the publicly listed alternative meat companies are based in North America and listed on the Nasdaq.
Alternative meat is going through a challenging period. Wall Street investors have given them a tough time in terms of market cap:
- Beyond Meat (ticker - BYND): the industry leader had its valuation divided by four over the past year, with the current share price trading at $34 when it was $234 soon after IPO.
- The Very Good Food Company Inc. (ticker - VGFC): the Canadian company’s valuation has divided by 33 since its peak in December 2020.
Plant-based food ETFs the solution? Beware, they are misleading!
It is usually stated that buying an ETF is the best solution for retail investors. They get you exposed to a specific industry with proper diversification. It mitigates the risk of holding shares in a single company.
Yet Vegan ETFs are not what you might think they are. We looked for you at the two main ones: Beyond Investing’s US Vegan Climate ETF (NYSE: VEGN) and the VanEck Future of Food ETF (NYSE: YUMY).
- Beyond Investing’s US Vegan Climate ETF (NYSE: VEGN) - Greenwashing at its best: This fund markets itself as a “world with no exploitation of animals or destruction of the environment.” Its name nicely matches Beyond Meat's name, and its website is even called veganetf. Yet the ten biggest holdings of this ETF are... in the tech sector! Its biggest stocks are Tesla, Nvidia, United Health, Visa, Mastercard, Adobe, Google, Salesforce, and Broadcom! With an expense ratio of 0.60, you might be better off just buying a cheap tech ETF.
- VanEck Future of Food ETF (NYSE: YUMY) - Food tech overall. This ETF is much more focused on food stocks with companies across the whole food supply chain. It is, however, not concentrated on vegan food producers. Its main holdings are Corteva (CTVA), a seed and chemical producer; Ingredion (INGR), a protein and texturizer manufacturer; and Deere & Co (DE), an agricultural equipment manufacturer. YUMY is also investing in traditional agribusiness companies from Nestle to Bunge. It offers broad exposure to the food industry and might suit individuals interested in seeking exposure to this sector.
All in all, investing in vegan stocks is not easy. Market conditions are tough, opportunities are limited, and ETF solutions might not feed the need of an investor looking specifically to invest in the alternative meat industry. It is one of those industries where retail investors might need to wait for consolidation before investing in the sector or place limited bets and integrate specific stocks in a fully diversified portfolio.
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