Accelerating Climate Solutions for Food & Agriculture Flashcards
Today, I’m excited to share with you a special episode from a new one-week program we just ran for our MBA students here at HBS students, called Accelerating Climate Solutions. The session I’m sharing today is an interview conducted by my colleague Eleanor Laurans with two food and ag experts: Alex Bondar, a partner at the venture capital firm Acre Venture Partners, which invests in sustainable food and agriculture, and Rebekah Moses, Vice President of Impact Strategy at Iron Ox, an ag-tech company that uses AI and plant science to create resilient food systems.
Food and ag food production account for 26% of emissions. We have both population growth, and we want the world to get richer, and as living standards rise, people tend to consume more meat. And so, we have very deep structural challenges that actually push emissions up in this category, not down. There’s definitely been activity in important areas, but the alternative foods and low-emission proteins have been by far the largest area of investment to date.
Land use is 25%, crop production 27%, livestock 31%, and supply chain the rest. what’s interesting is so much of it is for livestock. This is why there’s been so much interest in alternative proteins.
Feb 2023
03/03/24
We have a very deep-seated assumption in the climate tech US space, which is that to build a business you have to assume consumer behavior will not change. But 10-20 years from now, will there be small but growing and meaningful segments of the population that are actually willing to change their behavior?
My name is Alex Bondar. I’m a partner at Acre Venture Partners. My background is I started in pure finance, so, over time, made my way to venture in food. I joined Acre in 2016 when we were starting the fund. The reason for the fund was investing in the future of food. We invest in food tech, we invest in ag tech,and all the way down to the consumer. If you look a lot of at our sub-verticals, things like food waste being more efficient, I think are really part of that solution as well. We typically see through series B investor. So, early stage venture. Predominantly US focused but also do a lot of work globally because we do think the food system is a global one. And, for instance, I spend a lot of time in Latin America looking at investments I started doing a lot of work there in 2018, and a lot of the comments were, “Why would you ever do something like this?” So, it’s incredible how quickly the space has changed just in the last 4-5 years.
My name is Rebekah Moses. I came out of food and agriculture, and specifically research and ecosystem services. So, I did for many years work around basically food, bugs, birds and farmers. I’ve worked in agricultural sustainability through graduate school, after graduate school for many years, largely in a research capacity.
There’s three big problems that I was thinking about. One was climate change, one was biodiversity collapse, which is probably more threatening than climate change, although they’re certainly linked. And then just water. Water scarcity, water use. But the thing that struck me was that private sector was probably going to be really important. There’s no real way to scale these solutions without private sector, without things like impact investment. I read about this interesting idea from a guy named Pat Brown, and he was founding this company called Impossible Foods. They’d actually been in R&D mode for about four years before I joined. But I came in right before we went to market, and I led their impact strategy team, which focused on everything from operational sustainability to how do we think about R&D roadmap. And a lot, a lot, a lot around consumer activation. There’s some interesting conversation happening around what consumers do or don’t do, how they behave. We also did work with the UN Climate Change Group, and there’s a lot of interesting politicization of meat consumption.
Just anecdotally, we were doing a panel at one of the subsidiary body meetings in Bonn, Germany. I was asked formally within that panel, which was on the climate impact of agricultural systems, to not talk about cattle (cows and oxen) because there had been a letter from certain countries suggesting that that would be inappropriate to do. So that was certainly some diplomatic tightrope walking on that particular panel.
The other issue that’s really interesting to me is climate change adaptation. And that was what brought me to Iron Ox. We had been focusing on figuring out how you can expand the range of what has grown indoors by getting your unit economics in much better shape and getting out of just tomatoes, lettuce and leafy greens to get more crops that can be grown in advanced controlled environmental agriculture systems using AI, machine learning and robotics as well as genomics. We are branching into predictive breeding.
There’s a couple of things I wanted to comment on. It’s a really good thing to think about consumer behavior. My question is how would you test this?
There’s two things I want to push back on, actually. Ground beef is not healthy. Ground beef is quite unhealthy in a lot of ways. Saturated fat, cholesterol, when you season it, you do end up taking in quite a lot of salt. Impossible burger is healthier than meat from a cow. Quantitatively, it is less fat, about the same amount of sodium. I don’t even work for them anymore, but I’ll represent on this. But consumers don’t always behave rationally when it comes to their health.
But the point around consumers not wanting to change behavior is a very good one, and I think really valid. There is precedent for it. There are things like smoking and littering and picking up after your dog. From the 1970s on, we’ve seen sea changes in this. But it came after concerted publicly funded efforts to change people’s minds on things. Things from the ad council, for example. We haven’t ever seen that perhaps because of the political climate. Agriculture is the only bipartisan committee in Congress.
In terms of direct emissions, food and agriculture constitutes about 26% of the total share. if you look at total land use, you can bump that figure up to close to 50% of total climate impact comes from how we eat and that comes from livestock. Extensive grazing lands take up huge amounts of the earth and we have really limited carbon storage available to us in vegetation as a result of that. So, we’ve replaced natural landscapes with our burping cows.
There is a big distinction between plant-based meat and cellular agriculture. Plant-based being plant materials squished together, oils, proteins, binding proteins, that kind of thing. It’s relatively low tech, once you get the formulation and the recipe right. Cellular ag is very, very different, wildly energy intensive. Until it seems like we have an energy system converging on free energy and unconstrained energy, that’s something that would make me pretty skeptical of cellular agriculture.
Alex Bondar
if you think about soy protein, you think about pea protein, those are highly industrial supply chains. They don’t really disrupt the way business is done today. So we’re always searching for our alt protein play. If you look at our portfolio that ended up being a company called Meati, with an I, they’re using mycelium as a way to grow an alternative to protein that also has very similar texture to things like chicken and beef. And if we look at the nutritional panel, it has really high fiber, great protein content, a lot of the things that we look for in a healthy product and has fewer ingredients. So, for us, that was a really key element. I think if you look at a lot of consumer surveys, they all point to the texture, taste, as well as health, as the key attributes that consumers are looking for much more so than sustainability.
To me, this is the same thing, we started with, let’s say Beyond and Impossible, and maybe Meati is the second or third wave, and then there’s going to be another wave which has cultivated meat that we get to at some point in time. The thing is it’s a very urgent problem, and from a financial investment, it’s also one where we would like to get our returns within the scope of our fund. Cultivated meats maybe don’t make sense in that universe in terms of how quickly they’ll be able to commercialize. But that doesn’t mean that 10, 15, 20 years from now we won’t have some other products that will also address a lot of these issues. I think we’re always looking at solutions that contribute to reducing a lot of these impacts. But at the same time, as a fund, we’re looking for financial returns within a reasonable scope of time.
I’ve been at it for 7 years, we just raised our third fund investing in this space. But I do think it’s really important to differentiate between the types of investments you’re making. And so, I’m extremely bullish on greenhouses, for instance, in the United States. That’s been a huge growth driver for the ag industry, irrespective of sustainability, just from a financial standpoint. But I think if you’re an investor in that space and you’re just building purely greenhouses, I don’t think that’s a venture bet for instance. But we as a fund for instance, are investing in a layer of technology to keep these greenhouses more efficient, to be able to save on a lot of this land.
to me, it’s almost finding the right parts of the value chain, the right attributes. Biotech I think has been a really interesting play within food as we think about things like seed genetics that use pure resources. Cultivated meat, it’s a biotech play, but I think it’s really important to differentiate between steel the ground versus something that maybe is a bit more scalable, a bit more capital efficient.
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I think ACRE is one of the funds and firms that’s doing this very, very well. I’d like to see more broadly across the impact investing space, certainly at a VC level, a little bit more focus on what the criteria are to achieve environmental outcomes as a result of those investments.
A big concern that I have with impact investing, is we’re not sophisticated enough. Again, present company excluded, I think that’s an exception. And I’ll say one more thing on this, which is later stage, past VC, growth investing. It’s hard to find growth financing or growth stage capital for food and ag. And when you get later stage institutional, a lot of ESG funds are just investing in tech broadly, not necessarily investing in transformative solutions. So, if you have ESG funds bundled with Meta, Google, the big FAANG group, I’m not sure that’s impact, certainly not environmental.
Student
Drawing the parallel to oil and gas, can we just use price mechanism to change consumer behavior through something like carbon tax on the food based on carbon intensity, and over a longer time through capital discipline, people invest less in the cattle industry so that we drive up the price and people will just think it’s too expensive to eat a lot of meat.
Rebekah Moses
It’s hard to put an additional price burden on a critical good. And I think protein is something people need. It’s not easy to shift diets. So, historically, politically, it’s been a nuclear football, the idea of regulating any industry beyond oil and gas.
What if we were to incentivize the land stewards? Farmers and ranchers are the land stewards, generational knowledge. What if we were to incentivize them to do other types of production? Carbon farming, ecosystem service payments. There is some precedent for that in the Farm Bill. What if we had ways to incentivize some of the landscape level conservation that we want to see without necessarily a punitive approach? That might be a little utopian, but I do hesitate to think about taxing meat, maybe not subsidizing it.
Alex Bondar
I tend to agree with that. If you look at some of the bets that we made recently I think have been around this idea of conservation. That’s something we’re hoping to see as well in terms of making better optimization decisions around what is truly valuable to our society, the planet, all those things by putting some type of value on them. And carbon farming I think is an interesting concept as well that we’re investing behind.
Student
I don’t know if you have experience in fish farming, but I’ve heard a lot of classmates talk about how it solves the overfishing problem, but it also has pretty significant environmental impacts. I was wondering if you could talk about the future of that alternative to just wild caught fish, and if it’s actually viable.
Alex Bondar
We’ve been looking at aquaculture as an investment theme since day one. To be honest with you, we haven’t seen as much innovation in that space. The quality of entrepreneurs that we’re seeing and the number of interesting investments that we’re seeing in the space has increased exponentially over the last 5-6 years. And so, in many ways, I think the solutions are getting better, their talent is getting better.
I’d love to see more entrepreneurs pursue that. But at the same time, I think there are some unique challenges given how consolidated that space is. And there’s basically companies that control most of the farming. And there is maybe a branding issue too, because to your point, I think the consumer is probably pretty confused these days about is wild better maybe because it is more sustainable in other ways like, “What should I do?” The whole issue with oceans I think is a major, major problem that a lot of us are not even considering as part of these solutions. So, to me, I think that’s maybe the next stage that needs to happen is how do we protect the oceans.
Rebekah Moses
I think this particular issue where you do see from a socioeconomic perspective, wild caught fisheries culture is really, really important to certain regions. And I would almost think about fish farming or crustacean farming, just blue food in general in the same way that I think about indoor farming, which is, it’s not necessarily always environmentally better, but oftentimes there’s a socioeconomic component.
Much of the concern associated with fish farming goes down to something called a feed to food ratio. Basically how much energy or protein or calories did you put into that fish in order to get a pound of fish meat out of it? And so often the feed source is the thing that can determine whether or not this is environmentally superior in terms of performance. I know there is quite a bit of innovation going into that, is how do we create a better feed source for these fish that breeds healthy fish that’s not environmentally destructive or as environmentally destructive? And there’s a pretty good paper out actually recently from Stanford that looks at blue foods and the various types of waste.
Student
I was thinking of something more tactical: increasing transparency around carbon, the carbon footprint, let’s say on a menu, you could have, the same way you have calories today. That would be an easy way to maybe give power in the hands of consumers. And I’m thinking of this because in other industries, like in the EV space, for instance, in 2026 in Europe, there’s something that’s going to be called the battery passport. So, when you’ll be buying an electric vehicle, you’ll be able to know the exact footprint of your battery and you’ll be able to compare across OEMs and pick your EV.
Rebekah Moses
e do already have this in some places that are voluntarily disclosing and investing in carbon footprinting. I don’t know if you’ve ever been to Just Salad. I know that they’re on the East Coast, they’re super committed to this. Places like MAX Burger in Sweden, Northern Europe in general, they’ve been doing this for over 10 years. Panera even has a cool foods menu. There are some studies that show dynamic types of messaging will help people shift what they put on their plate. When I was at Impossible Foods, we did this with our packaging. You can look at the full LCA (Life Cycle Assessment) statistics on the side of an Impossible burger or Impossible chicken nugget package. I think we might have been the first to do that, but you can see water, carbon emissions and land use comparison. You can create a carbon neutral pound of beef. Now, if you were to make carbon neutral beef production the norm, you would devastate the planet. That’s an extremely extensive system.
Eleanor Laurans
Alex, I’m going to jump in with another question. I got us started focusing on alt protein and I want to make sure we leave space to hear about other parts of your portfolio and other spaces that you all are interested.
Alex Bondar
As I mentioned, it is that whole value chain. And so, some of the things that we invest in maybe are less in the news and less exciting to people, but at the same time, maybe have even greater impact.
I think starting from the farm, one of the things that has been challenging is that I think a lot of times farmers are forced to be the stewards of a lot of these solutions in ways where they’re essentially asked to do this as a charity work for the rest of us. Even though if you look at their margins and where their profits are, relative to everyone else, they’re getting the least out of the system. So, it’s like taking the most oppressed in this value chain and asking them to take one from the team.
We have investments in that where you have fertilizer reduction that are uses of resources in general, shifting away from chemical fertilizers to biologicals within the ag system so that way you have better soil health.
I think as we look down the supply chain, efficiencies come to mind. We have a company in Boston called Spoiler Alert, which is working with a lot of leading CPGs to minimize their food waste. You can just maybe save the 30-40% of the food that we’re wasting in today’s supply chain. I think Impossible, I think Beyond have done an excellent job of educating the consumer about problems with beef, and 20 years ago, I’m not sure any of us would’ve said a cow is a problem for the environment.
Student
I’m curious about how you guys consider the ability to change consumer’s behavior versus farmer’s behavior, which ones may be easier? And then as for enabling farmers to farm more regeneratively or have fewer carbon emissions, what are the best mechanisms to do that?
Alex Bondar
I think farmer might be a little bit easier just because it is a business decision, it’s an ROI decision. I think fundamentally, farmers are very rational in terms of the types of products they’ve used and what they do.
Whereas on the consumer side, a lot of times it is a more branding emotional decision, and there’s a cultural element, there’s all these things that maybe are less easy to quantitatively control.
To be honest with you, I do think maybe this is also financially, you’ll probably get a more impact from the farming side because if you do change the way the farming system works, that impact flows down quite impressively through that supply chain and can also be very global because most farming globally is done in a very similar manner, especially for some of these large crops. And so, I tend to gravitate towards the B2B world a little bit within our investing.
Rebekah Moses
Ditto, Alex. And I think this is an area where policy is really important. If you look at, farmers are squeezed horrifically in what we expect of them. And if you look at things like farm build programs like WHIP, EQIP, CSP, Conservation Stewardship Program, they’re an acre-based incentives for farmers to adopt basically management practices and to help them pay for things that do create risk and create time and additional labor around their crops compared to a baseline. And we recently saw an expansion of those things, they’re oversubscribed, is pretty helpful.
