Why Maple Leaf Foods Should Invest in Cellular Agriculture (Lab Grown Meat)

This essay was written as a requirement for MGD422, Management of Technological Innovation, a course at the University of Toronto. It received a grade of 85%.

Executive Summary

The paper analyses the trends in the meat production industry in North America happening alongside developments in cellular agriculture. Particularly, it discusses the growth in the clean meat industry and how it poses a threat to companies that rely heavily on industrial farming methods. Through a literature review, this paper demonstrates the decline in demand for factory farmed meat in Canada and how it is motivated by health and environmental concerns. This decline is happening simultaneously as companies develop alternative ways to cultivate meat products through cellular agriculture (lab grown meat.)

The pace of innovation is capturing a commercially viable product that may be more ethically produced and economically logical. It also presents opportunities to capture micro-markets in North America within the meat industry due to its customization possibilities. It also has implications for the unsustainability of the industrially farmed meat value chain with mass acceptance of lab-grown meat growing globally.

This paper recommends a course of action to Maple Leaf Foods (MLF), the leading consumer protein company in Canada, to be able to capitalize on the opportunities of cellular agriculture as well as mitigate the potential negative effects this growing industry might have on MLF’s profitability. It builds on concepts such as the first and second mover advantage, open innovation, globalization opportunities, business model innovation, less is more and more is better innovations and the atomization of culture to justify why MLF should invest in clean meat technologies, create relationships with global market leaders and shift their resources’ adaptability to cope with changes in consumer demand.

Literature Review

I. Trends in Mass Meat Production

Decrease in meat consumption

According to Statista, Canadian per capita beef consumption is steadily decreasing (Bedford, 2019) (fig.1). The same article details the Canadians reducing and eliminating meat entirely from their diet (Bedford, 2019). This study suggests Canadians’ purposely changing their dietary habits to avoid excessive meat consumption.

This suggestion is supported by findings in the US that align with this dietary shift. A report from the University of Guelph reports a “25% fall in red meat demand over the past decade … and a 15% increase in the demand of plant based food items” (Massow et. al., 2018.) This trend creates a gap in food industry to address changing desires towards fulfilling dietary protein requirements in meals.

Motivations for decreased meat consumption

In an article by Massow et al., the shift in the mix of animal product (fig. 2) being consumed suggests that there are two main motivations: environmental and health concerns (Massow, et al, 2019.) It notes the growing trend of a flexitarian diet, which aims to minimize, not completely eliminate, meat from their diet

An article by Radnitz et al. highlights that animal welfare concerns motivated plant-based diets of 80% of people in their sample (Radnitz et al.,2015) This group of people tended to cut meat completely from their diet.

Reports suggests the rise of alternative sources of protein, which includes cultured meat. This is in line with their findings - “43% of Canadians say they are trying to include more plant based proteins in their diets” (Massow et. al., 2018)

II. Clean meat

Clean meat is genuine meat grown by cultivating animal muscle cells through cellular agriculture (Waschulin & Specht, 2018). This form of meat production is positioned as an alternative to industrial animal agriculture or factory farming. This is due to how the process eliminates the need to breed, rear and slaughter animals in order to harvest its meat for human consumption.

Tissue-based Engineering

The process of producing cultured meat through tissue-based engineering (Fig.3) is outlined in an article by Kadim et al., 2015. It details the seven general steps that start with taking a muscle sample from an animal that is usually under local anesthetic. This study highlights the positive implications of this process on animal welfare in the meat industry however, it can be argued that the animal sourced culture media is not doing enough to address animal welfare concerns. This article also elucidates the high cost of this process being a barrier to mass adoption and commercialization (Kadim et al., 2015)

A. Implications of Clean Meat Developments

In the same article by Waschulin & Specht, clean meat is positioned as a solution to the negative impacts of industrial animal agriculture, namely, “public health, animal welfare, and sustainability issues” (Waschulin & Specht, 2018.) Additionally, the drastic difference clean meat production has on the environment positions it as a better alternative.

Environmental impact

An article by Tuomisto & de Mattos found that “the overall environmental impacts of cultured meat production are substantially lower than those of conventionally produced meat” (2011) (Fig.4.) By comparing the energy use, greenhouse gas emissions, land use, and water use of various traditionally farmed meat to that of cultured meat, they were able to conclude that it was more efficient in most cases to produce cultured meat. It was only less efficient when comparing the energy use of traditionally farmed poultry and cultured meat (Tuomisto & de Mattos, 2011.) This suggests the environmental gains of investing into clean meat as well as the types of meat that will be more (beef, sheep, pork) or less (poultry) impactful.

Food Safety Implications

The developments in cellular agriculture has several implications on food safety in meat production. In an article, Post discusses the move towards clean meat alternatives is influenced by the negative health effects resulting from “foodborne pathogens found in meats, such as Salmonella and E. coli, are responsible for millions of episodes of illness each year” (Post, 2012.) The process of producing clean meat avoids the risks associated with the intensity and unpredictability associated with factory farming methods (fig.5.)

Cellular agriculture however, poses a different health risk. “Bacterial growth in bioreactors could pose a food safety risk if it is not managed well. Similarly, the growth medium could introduce harmful bacteria if it is contaminated.” (Saavoss, 2019.) This shifts the need for process analysis in the production of clean meat to take into account the new health risks it presents.

New Foods

Clean meat presents the opportunity to create new food with more value to shifting consumers needs. As noted by Massow, “different attributes [of food] are becoming more important for different people .. [there is an increasing need to] respond to these evolving demands by offering more choices and niche products.”(Massow et al., 2018) This becomes relevant in clean meat as the technology allows producers to “match or exceed the nutrient profile of natural meat could help increase acceptability” (Hultin, 2017)

Business Model Innovation

Clean meat production also impacts the shortening of the meat production process value chain (CBInsights, 2019.) This positions clean meat as having a more sustainable business model (fig. 6.)

B. Acceptance through increased education

Education continues to become the barrier for commercialization and mass acceptance.Verbeke et al. found that equipping consumers with information about clean meat and their positive environmental impacts, they became more willing to try it (2015) The same study found that price and unmet sensory expectations are obstacles to acceptance. A study conducted my Bryant & Barnett found similar results with participants assuming it was less healthy (2018.)

Analysis and Recommendation

Prediction #1

The increase in demand for clean meat will occur as the demand for factory farmed meat decreases. This will put MLF at risk of losing out on this demand as well as being less profitable in the meat industry. Even though MLF’s subsidiaries include Lightlife, producers of vegetarian and vegan meat substitutes, their lack of investment in cellular agricultural companies will hinder profits and may lead to their bankruptcy as the growth of flexitarianism in Canada increases.

Recommendation #1

Canada’s meat consumption trends present them with a first mover advantage opportunity. By diversifying MLF portfolio through investing in start-ups like Memphis Meats, the most funded leaders in cellular agriculture, they will be able to capitalize on developments as they become more cost-effective. This will come with developments that make it possible to commercialize and scale-up clean meat production. It is at this stage that the first mover advantage will matter the most. Although, it is important to note that the first mover advantage can only be sustained if the research and development of the technology is sustained as well (Cleff, 2012.) Thus MLF needs to keep the momentum they are able to create as a key player in the Canadian market.

The fact that this recommendation is specifically in the Canadian context is important. This move will create a first mover advantage for MLF in Canada but also a second mover advantage (next to the United States.) As highlighted by Udland (2015), the second mover advantage allows MLF to strategically navigate a go-to market plan that takes into account the successes and failures of the firms operating in the US that enter the market before them. Companies like Tyson Meats, who has already invested in clean meat innovations, (CBInsights, 2019) (fig. 7) can become a key player they can analyse when creating a Canadian market strategy.

Prediction #2

Open innovation in cellular agriculture will lead its commercialization and wider acceptance. This is illustrated by the traction made by open-sourced clean meat initiatives in Japan. Capitalizing on the momentum of plant-based diets in the younger Japanese generation, Yuki Hanyu, founder of Integriculture and Shojinmeat Project, both located in Japan, “is providing Japanese high school students access to specially designed heated boxes that allow them to culture animal cells at home and grow them into meat-like products” (CBInsights, 2019.) Projects like this will speed up the commercialization as well as acceptance of clean meat and further drive its demand.

Recommendation #2

MLF needs to create relationships with international companies who leading open innovation in this space so as to capitalize on their success as clean meat becomes more mainstream. The pressure to innovate will increase as developments in the scalability of clean meat increase as well. This idea is based on findings by Gorodnichenko (2010) in an article highlighting globalizations effects on pressuring local innovation. By creating these key relationships, MLF will be able to increase its innovative capacity and be better equipped to build strategies that make them a power player in the Canandain cellular agricultural market as it grows. By connecting with Yuki Hanyu and his work on the mass socialization of lab-grown meat in Japan, MLF will be able to gain insights on how to adopt those techniques in a North American setting.

Prediction #3

The industrial farming value chain will become unsustainable by comparison. This is because the cellular agricultural method of producing meat presents itself as a business model innovation. Much like successful companies like Netflix who integrated business model innovation in to their value chain, this presents the risk of self cannibalization. However, the alternative route of becoming unprofitable and ultimately failing very much incentivises business model innovation. By shortening the value chain (fig.6,) the inputs and resources necessary to produce the same amount of meat will be dramatically less. According to CBInsights, “In the next few years, we can likely expect to see the cost of lab-grown meat decrease considerably” (2019.) This will eventually allow clean meat producers to become more cost efficient. This will allow them to undercut traditional meat producers through price. It will become clear that the economical choice to fulfill dietary protein requirements will be clean meat. This will shift a large portion of the market towards clean meat.

Moreover, the shortening of the value chain will come with the major loss of jobs across the traditional production value chain. This clarifies the attractiveness of encouraging positive risk taking for innovation. This is because clean meat’s production process is an example of a ‘less is more innovation,’ (Nemeth, 1997) which is an innovation characterized by a lower cost of production, a simpler process, and attributes of its precedent stripped away. (Thung, 2019) The process avoids the need for developing the whole animal and instead only produces what can be eaten. Less processing is necessary and less time is needed. However, this simpler process also presents the opportunity to exploit clean meats characteristics as a ‘more is better innovation.’ This is because the customization capabilities of clean meat will allow companies to diversify their product portfolio with relatively lower cost than if they were to do the same through industrial farming methods. The failure of MLF to capitalize on these opportunities will lead to their unprofitability and potential bankruptcy.

Recommendation #3

The shortening of the meat production value chain is something that should be adapted by MLF through acquiring clean meat properties. However, it is important to note that the success that comes with implementing clean meat’s business model innovation comes with it being “initiated while the model is still profitable, before there is sufficient discomfort to motivate such wrenching change” (Euchner, 2016.) This highlights the time sensitivity of implementing this recommendation.

The growing number of niches within meat consumption provides MLF the opportunity to shift its resources towards research and development in cellular agriculture as well as non-meat food production. By investing in the research and development of different health focused and taste diversifying meat profiles, MLF will be able to capitalize of the ‘atomization of culture’ referred to by Manly in the 2006 article. This article details how companies use this phenomenon to retain and provide value to their customers (Manly, 2006.) The increasing diversity of demand and creation of micro-markets in meat make this possible. Moreover, by encouraging open-innovation amongst their corporate culture, MLF will be able accept the risk of transforming their industrial farming equipment to produce non-meat products. Research has found that poultry and swine processing facilities can shift to accommodate mushroom processing instead (Saavoss, 2019.) This ability to adapt to change will indicate their success and survival in the next decade.

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Appendix

Figure 1. Consumption of beef per capita in Canada from 2000 to 2020 (in kilograms of carcass weight) (Bedford, 2019)

Figure 2. Per Capita Meat Consumption in Canada (Massow et al., 2019)

Figure 3. A flow diagram illustrating in general terms some of the steps in the production of a cultured meat product (Kadim et al. 2015)

Figure 4. The percent of the highest impact on Energy use, GHG emissions, land use and water use of beef, sheep, pork, poultry, and cultured meat (Tuomisto & de Mattos 2011)

Figure 5. Antibiotics and Bacteria growth on conventionally farmed meat, organically farmed meat and clean meat (Friedrich, 2016)

Figure 6. Traditional Meat Production vs. Lab Grown Value Chain (CBInsights, 2019)

Figure 7. Animal revenue percentage of meat corporates. (CBInsights, 2019)

References:

Beef per capita consumption Canada 2019. (2019). Retrieved from https://www.statista.com/statistics/735166/consumption-of-milk-per-capita-canada/.

Cleff, T., & Rennings, K. (2012). Are there any first‐mover advantages for pioneering firms? European Journal of Innovation Management, 15(4), 491–513. doi: 10.1108/14601061211272394

Euchner, J. (2016). Business Model Innovation. Research-Technology Management, 59(3), 10–11. doi: 10.1080/08956308.2016.1161396

Friedrich, B. (2016). "Clean Meat": The "Clean Energy" of Food. The Good Food Institute. Retrieved from https://www.gfi.org/clean-meat-the-clean-energy-of-food

Gorodnichenko, Y., Svejnar, J., & Terrell, K. (2008). Globalization and innovation in emerging markets. American Economic Journal. doi: 10.3386/w14481

Hultin, G. (2017, July 28). Lab-Grown Meat: Exploring Potential Benefits and Challenges of Cellular Agriculture. Retrieved from https://foodandnutrition.org/march-april-2017/lab-grown-meat-exploring-potential-benefits-challenges-cellular-agriculture/.

Kadim, I. T., Mahgoub, O., Baqir, S., Faye, B., & Purchas, R. (2015). Cultured meat from muscle stem cells: A review of challenges and prospects. Journal of Integrative Agriculture, 14(2), 222–233. doi: 10.1016/s2095-3119(14)60881-9

Massow, M. von, Weersink, A., & Gallant, M. (2019, September 17). Meat consumption is changing but it's not because of vegans. Retrieved from https://theconversation.com/meat-consumption-is-changing-but-its-not-because-of-vegans-112332.

Massow, M. von, Weersink, A., & McAdams, B. (2018). FOOD FOCUS 2018 Six issues that will shape the food discussion in the year to come., 1–12. Retrieved from https://theconversation.com/meat-consumption-is-changing-but-its-not-because-of-vegans-112332

Nemeth, C. J. (1997). Managing Innovation: When Less is More. California Management Review, 40(1), 59–74. doi: 10.2307/41165922

Radnitz, C., Beezhold, B., & Dimatteo, J. (2015). Investigation of lifestyle choices of individuals following a vegan diet for health and ethical reasons. Appetite, 90, 31–36. doi: 10.1016/j.appet.2015.02.026

Saavoss, M. (2019). PDF VersionPrint this Article How Might Cellular Agriculture Impact the Livestock, Dairy, and Poultry Industries? Retrieved from http://www.choicesmagazine.org/choices-magazine/submitted-articles/how-might-cellular-agriculture-impact-the-livestock-dairy-and-poultry-industries.

Thung, L. (2019). MGD422 Management of Technological Innovations: Less is More Innovations and Disruptive Technologies. Powerpoint Presentation given at UTM MN3100.

Tuomisto, H. L., & Mattos, M. J. T. D. (2011). Environmental Impacts of Cultured Meat Production. Environmental Science & Technology, 45(14), 6117–6123. doi: 10.1021/es200130u

Udland, M. (2015, June 7). The number one key to Apple's success. It was second. Retrieved from 11/4/2016 Apple second­mover advantage ­ Business Insider http://www.businessinsider.com/apple­second­mover­advantage­2015­6.

Waschulin, V., & Specht, L. (2018). Cellular agriculture: An extension of common production methods for food. The Good Food Institute, 1–20. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwiyr9X5x5jmAhXiuFkKHZGvDRwQFjAAegQIBhAC&url=https://www.gfi.org/images/uploads/2018/03/Cellular-Agriculture-for-Animal-Protein.pdf&usg=AOvVaw2wfLfrd1BBOfZVuuzI1zkX