Though few have heard of Yantai Shuangta Food Co. Ltd, it is one of the most important companies carving the future of food consumption in the world, supplying the likes of Beyond Meat.
This agricultural company produces one of the most important raw ingredients used in plant-based meat products today. Within its walls of a sprawling industrial complex located near the northeastern tip of China’s Shandong peninsula, ambitious plans are afoot to seize further control of a global revolution in food production that has already begun to change the way we eat.
An Unlikely Rise
A decade ago, few would have imagined that a rice noodle company would have such global influence. Shuangta (literally “Double Towers” in Chinese) was a sizeable though mostly obscure company known as the producer of Longkou-branded rice vermicelli in China. Rice vermicelli is a thin, translucent type of rice noodle popular across Southeast Asia.
But events across the Pacific would soon change the outlook for the firm significantly. In 2012, California-based Beyond Meat launched a plant-based chicken product that was soon followed by a flurry of meat substitutes, including imitation beef patties and the Impossible Burger, introduced to the market four years later by rival Impossible Foods.
This kickstarted a sharp rise in the popularity of meat substitutes that have long proved elusive for manufacturers. Despite the proliferation of fake meat options made from plants like beetroot, previous iterations have failed to attract consumers beyond the most avid of vegans and vegetarians due to sharp differences in taste compared to real meat.
Scientists have therefore sought to create meat products that replicate the taste, texture, and appearance of the real deal down to the last detail, even the grill marks or blood juices of a cooked burger patty.
One much-vaunted method that has made the transition from sci-fi fantasy to reality is the use of culture in labs to grow muscle and stem cells obtained from animals into edible meat. But beyond the hype, hopes for mass production of mass-produced “cell-based meat” remain closer to fantasy than reality, with cultivation remaining prohibitively expensive and difficult to scale up for mass production. A pound of meat produced in the lab can cost up to USD 2,000, while a startup in Singapore recently launched its cultured chicken product in a restaurant for high-end diners as part of a premium dish costing up to USD 23.
Instead, most startups have found success by embracing a comparatively cheaper production method using plant-based raw materials like soybean or pea protein. However, the latter’s deceptively plain name masks its role as a key ingredient in giving faux meat a more realistic texture.
As Beyond Meat and Impossible Meat found success by perfecting the use of pea protein to produce imitation meat, and by forging collaborations with major fast-food chains like Burger King, McDonald’s, and Taco Bell to develop and use new products, they have driven up demand for pea protein.
While the pea protein market has historically been relatively small, with demand being driven by niche products like energy bars and muscle-building protein powder, by 2012, Shuangta was eyeing the potential for an unparalleled explosion in demand. Large quantities of pea protein produced as a by-product of its vermicelli production process previously ended up as fertilizer in farm beds or as animal feed. But the firm began devoting large amounts of its R&D budget into investigating how to further refine its pea protein waste into an edible raw ingredient.
By 2019, its efforts have paid off, with the firm inking a deal with Beyond Meat to supply up to 85% of its pea protein supply after years of selling its raw materials via third parties. Apart from supplying other faux meat producers like American conglomerate Cargill, Shuangta has cemented itself as a major producer of up to 30-40% of pea protein supply.
Seeking Market Dominance
Shuangta’s fortunes have become closely intertwined with the fate of faux meat demand in the west. Like Beyond Meat, which saw a meteoric rise in its share value after debuting on the Nasdaq stock exchange in May 2019, Shuangta’s Shenzhen-listed stock rallied to over RMB 20 (USD 3) in July last year, a nearly sevenfold increase from the end of 2018.
This has been driven on the back of investors’ confidence about the company’s potential to reap dividends from growing demand for plant-based meats. Revenue from pea protein sales has long eclipsed that of the company’s traditional vermicelli production, making up for over a quarter of the firm’s income in 2019, according to Chinese financial data firm Wind.
With faux meat producers willing to pay a hefty premium for high-quality pea protein powder (with a purity of over 80%), a ton can cost as much as USD 3,600. This has pushed up gross margins, with Shuangta making five times as much from protein powder sales compared to vermicelli.
But the firm remains confident about maintaining its pole position as a market leader. Despite rising demand, the pea protein market remains small, with around ten firms worldwide producing pea protein. While European rivals like Roquette and Emsland can produce larger quantities, some firms like Minneapolis-based Puris are small startups unlikely to rival the industrial capacity of Shuangta anytime soon.
The intensive but low-yielding nature of pea protein extraction has meant that few rivals have been able to match the production capacity of Shuangta. While a 30% yield can be extracted from other legumes like soybeans, just a paltry 2% of peas can be processed into protein.
An industry insider told 36Kr that the firm has also blended the use of so-called dry and wet extraction methods, common in the pea protein production industry. The use of wet methods using fermentation is a tedious process, which yields small quantities of starchy protein. Still, it is favored for its ability to preserve complex structures containing nutrients which make the final product ideal for use in health products like protein shakes.
While dry methods are comparatively much faster and more efficient, they require the addition of additives to extract protein from peas, which affect its purity and break down its complex structures, leaving a powder that is best suited for plant-based meat but lacking in nutrition.
Instead, the hybrid method employed by Shuangta preserves the health benefits of the pea while compromising little on efficiency and further removes a musty odor common from the wet process, allowing the firm to market its products to any customer without constraints.
The refining of pea protein as part of the by-product of a wider noodle production has also allowed the firm to save on costs, with other wastewater from the main production process being fermented to create biogas, which is used to power factory operations, and fertilizer that are being used to grow crops harvested for production.
With production costs being up to 30% lower than its peers, Shuangta can afford to slash its prices to attract and retain customers without compromising on quality. It already sells a high-grade pea protein (88% purity) at USD 400 a ton less than other firms.
Far from playing defense, Shuangta is preparing to take the offensive. Company plans reviewed by 36Kr show that management is seeking to capture up to 60% of the market share in the pea protein market in the next two to three years. Production capacity, which already churns out 70,000 tons of pea protein a year, is slated to increase by 20% each year.
Can Shuangta stand on its own two feet?
But ambition can quickly turn to hubris in an industry where there are few certainties.
Pea protein’s dominance in the market may be coming to an end. Plant-based meat brands are on the hunt for cheaper protein sources, with Impossible Foods already using cheaper protein extracted from soybeans. Supply disruptions prompted by lockdowns imposed at the start of the COVID-19 pandemic last year and rising trade tensions between China and the US have also led firms to rethink their reliance on a Chinese supply chain.
Beyond Meat has already indicated its desire to increase its use of other proteins like mung bean, rice, and sunflowers in its products, while investing more in ramping up its production capacity and supply lines in the US and Europe. A three-year extension in a deal with French firm Roquette for the supply of pea protein worth USD 154 million was announced at the end of 2019. Impossible Foods already uses cheaper soy protein in its product lines.
Losing Beyond Meat, which currently accounts for half of its pea protein sales, would be a major blow for Shuangta, which has already begun exploring the production of mung bean and broad bean protein to maintain price competitiveness. But it is looking closer to home instead to drive demand.
In 2019, Shuangta launched China’s first pea protein mooncakes, kickstarting its own foray into creating and selling faux meat products.
Chinese consumers are no stranger to the concept of mock meat options. Since imperial times, chefs have used a variety of ingredients like tofu skin and soybeans to make palatable meat-like dishes to appeal to a sizeable Buddhist vegetarian population.
Still, faux meat producers believe that China’s growing health-conscious middle class will fork over more for plant-based meat products engineered to resemble the real thing more closely. Nearly 40% of respondents in a recent survey by market research company iiMedia said they were willing to give plant-based meat products a try.
Many western firms, including Shuangta’s own customers, have begun entering the Chinese market, with Beyond Meat working with Starbucks and Yum China, which operates KFC outlets there, to launch plant-based meat menus.
Shuangta remains confident that it has a home-field advantage in the turf war without antagonizing its customers. It has teamed up with startup Zhenmeat to create products like meatballs, ground pork, and dumplings that are better tailored for Chinese palates and dishes like hotpot. It also secured a deal with British consumer goods conglomerate Unilever last year to supply plant-based meat patties for Burger King outlets in China.
The firm has suffered from overconfidence before. A previous foray into mushroom cultivation using the waste products of its noodle production turned sour after initial profits, with the company suffering consecutive years of losses since 2016.
For now, investors remain to be convinced that that Shuangta’s expensive bets will pay off. Since last year, the company’s stock has pared gains, although its last traded price was still above RMB 11, more than five times its original valuation when it was floated on the market in 2010.
If history is any guide, it appears that Shuangta will continue seeking to have its cake (meat) and eat it too.
This article was originally written by Ding Mao of 36Kr, KrASIA’s parent company.