Demand for insect protein could hit 500,000 tons by 2030
Beyhan de Jong and Gorjan Nikolik, senior analysts, seafood, Rabobank, say reaching that tonnage milestone in 2030 would be a major turning point for the insect industry.
“The insect industry is on a path to increase scale, backed by investments and partnerships. Efficiency gains due to increasing technology, automation, improvements in genetics, and legislative changes will also enable costs to decrease. After reaching half a million metric tons, it will get easier for the industry to expand supply. From that point on, it will take much less time to double or even quadruple production volume and exceed one million metric tons.”
While sustainability aspects and functional benefits support demand growth, high costs and prices, the current limited production capacity, and legislation are the main factors limiting growth of the sector, according to their new publication: No Longer Crawling: Insect Protein to Come of Age in the 2020s.
Right now, pet food is the largest market for insect proteins, followed by the aquafeed market, but as a niche ingredient.
“Only a few thousand metric tons of insect proteins are used in aquafeed today. Insect proteins have proven nutritional qualities for fish. But, at the current price level, excellent nutritional qualities alone are not enough for the widespread use of insect proteins.”
Current obstacles to growth
Looking to other avenues for future growth, there ie significant potential for value-added applications for insects as well. “With ongoing R&D, we expect the development of new insect products with specific functions for gut health, palatability, disease resistance, and perhaps even uses beyond feed, such as in pharmaceutical products for example.”
The industry’s first challenge is the lack of scale, said those seafood specialists.
Current volumes of insect protein are at around 10,000 metric tons globally, led by a few larger-scale producers and many small-scale players, said the analysts.
After producing smaller quantities at test facilities, many of the leading industry players - mealworm producers, such as Ynsect in France, or black soldier fly [BSF] farmers like UK-based AgriProtein, Netherlands-based, Protix, and France-based InnovaFeed - have built larger facilities to produce at scale.
Some of these plants are already working at, or close to, full capacity, and some have yet to be opened – most of these players have global plans to build multiple production facilities.
“At least currently, the demand for insect protein seems higher than its supply. Aquafeed companies state that the lack of available volume is one of the key reasons for not using insect proteins, as they deal with large quantities and production runs. Some pet food companies also state that the market could absorb more if the availability were higher.”
The analysts point out that, on the way to scaling up, design of the plant will be a critical success factor for climate control and to prevent transmission of pathogens and other contaminants.
“From breeding to hatching, rearing, and processing, a controlled environment under one roof is necessary to maintain production safety. As in every monoculture farming industry, insect farming companies that achieve food and feed safety will be best placed to gain regulatory support for larger-scale production.”
Insect protein is still too expensive
High costs and thus high prices are also limiting the demand for insect protein.
The price of insect protein today ranges between €3,500 (US$4,250) and €5,500 (US$6,066) per metric ton, which is significantly higher than fishmeal and soy protein. Fishmeal prices historically mirror the volatilities in supply - in the last five years, they have moved from US$1,200 to US$2,000 per metric ton, reads the industry note.
However, the analysts said that the sustainability benefits that insects can offer seafood products – such as decreasing the dependency on marine ingredients – combined with marketing of the final product, can justify relatively higher prices.
“If there are also well-understood functional benefits in addition to the nutritional benefits, their use in aquafeed would increase.”
Pending legislative developments could see turnaround
The legislation governing feedstocks and end markets for insect farming varies globally, reported the analysts.
Within the EU, the types of feedstock that can be used to rear insects are limited. Former food waste that includes fish and meat or catering waste and slaughterhouse products are not authorized as insect farm feedstocks. However, the legislation could change, said the Rabobank duo.
"In our view, insects have a larger potential as feed ingredient than as direct consumer food in the next decade. Although edible insects tick all the boxes from a nutrition, health, and sustainability point of view, current consumer acceptance is still low in developed countries, for both whole and processed insect-based foods. Their market share is negligible, and opportunities, at least for now, are limited."
“The insect industry expects unprocessed former food waste that includes meat and fish and undervalued former foodstuffs (e.g. containing unavoidable packaging remnants) to be approved as insect farm feedstocks by 2022.
“This would add to circularity through the upcycling of resources that would otherwise be discarded. It would also bring more flexibility and cost advantages to the insect industry, as utilizing catering waste and other waste that includes meat and fish could be an opportunity for negative feed costs.”
In the EU, insect protein can only be used as pet food and as an aquafeed ingredient, but not as swine or poultry feed. On the other hand, insect oils and live larvae are already authorized for use across all markets.
“The future authorization of insect protein in poultry and swine markets is being discussed, and approval is expected by 2022. Although we think the swine market is a small potential market for insect protein, we believe poultry feed offers considerable opportunities.”
In poultry feed, the largest potential lies in layer hens, said the analysts. “The egg market allows for differentiated concepts and categories, such as free range, organic, omega-3 added, etc., which gives space to market insect-fed eggs.”
Legislation in North America is different, they added.
In the US, the Food and Drug Administration (FDA) regulates animal feed and pet food, but there are differences between states regarding the regulation of insects as animal feed. Insects should be reared on feedstocks approved by American Feed Control Officials. Pre-consumer waste and other by-products are authorized as feedstocks. In Canada, insect farm feedstocks can consist of pre-consumer food waste if approved by the Canadian Food Inspection Agency.
Insect meal is not yet approved as a pet food ingredient in the US but is approved as a poultry and salmonid feed ingredient. In Canada, the application of insect meal is authorized as a pet food ingredient, but not yet as an aquafeed and poultry feed ingredient.
“In both markets, legislation changes are expected throughout 2021.”
Significant investor interest
Insects have received significant investment, however, particularly since 2018, enabling insect companies to build larger-scale production facilities, find the seafood specialists.
"Capital inflow to the sector accelerated after the EU authorized the use of insect proteins as an aquafeed ingredient in July 2017.
“Insect investments in 2018 were around 45% higher than the sum of investments received in the previous three years. Currently, the total of disclosed investments in insects is nearly €1bn.”
The largest disclosed investments were received by Ynsect and by InnovaFeed in late 2020.
“The insect companies that have received the largest investments stand out for their business models, partnerships, or rapid geographical and product suite expansion.”
Move to mainstream use
The analysts constructed a model to assess the potential market for insect protein, assuming no supply or legislative constraints.
They considered three stages out to 2030: a scale-up phase, a wider-use period, and the maturity phase.
“We believe that in the scale-up phase there won’t be a sharp decline in the price of insect protein, so we expect prices to range from €3,500 to €5,500 per metric ton. However, we expect prices to drop by €1,000 per metric ton after the industry completes the initial scale-up phase, and by another €1,000 per metric ton when the sector reaches maturity.”
The second phase of growth for insect proteins and other insect-derived products will be based on the functional properties of insects, they said.
“There is increasing research evidence that the inclusion of insect proteins has some positive features beyond nutritional value. One of these is palatability. Moreover, research suggests that gut health for certain species can be improved by including insects in the diet. High-value freshwater species, such as eels and sturgeon, which in the wild are largely insect and crustacean predators, especially benefit from having insect protein in their diet. It is likely that feed for these species, and other freshwater catfish, trout, and smolt (the juvenile, freshwater stage of salmon), will be where insect proteins have the highest initial benefit if included in the diet.”
Finally, and probably less well-documented in current research, is the antioxidant function of insect proteins, they said.
In this wider-use phase, insect proteins will be used alongside fishmeal and soybean meal but in relatively small inclusion rates, sufficient to achieve their functional properties. As such, their price will not be a reflection on what they replace but what they contribute to the overall value proposition of the feed. “This should allow profitable scale-up.”
However, it is clear that not only is more research needed, but the functional properties will need to be demonstrated to the aquafeed industry in a commercial setting. Although there are some very promising indications, this will take time, said the authors.
“Beyond 2030, we expect scale to allow the cost level to be more comparable with fishmeal.”