When Jackie Taranto, Gilad Grinbaum and Yaniv Izaki set up Paradigm Shift Asset Management it was predictable that their first investment would involve a global industry being turned on its head.
The fundie backed an Israeli start-up, Remilk, because of its potential to cause a paradigm shift in the $US916 billion global dairy industry by removing cows from the supply chain.
The Israeli connection is understandable considering Grinbaum and Izaki both, at one stage in their careers, worked for Israel’s military intelligence. After leaving the military they went on to carve out impressive careers in tech.
Taranto, who has been working in the technology sector for more than 20 years, met Grinbaum when she was the Australian representative of Hanover Fairs, which ran the world’s largest tech industry conference in the 1990s and 2000s.
She later became CEO of the CEBIT technology conference and worked as an adviser to the Queensland government on its Eco sciences precinct in Brisbane. Also, she is an adviser to Gilmour Space and a director of ArmHub, an advanced manufacturer.
Taranto says Paradigm Shift has ambitious targets and wants to build funds under management to $100 million. But this will require its early investments to deliver.
A lot, therefore, is riding on the success or otherwise of Remilk, which completed a $US120 million series B fund raising in January that valued the company at $US457 million.
Remilk looks and tastes like milk and can be used to make cheese and yoghurt. It has the added advantage of slashing production costs in half, dramatically reducing carbon emissions and using a twentieth of the water needed to make cow milk.
The Remilk investment is smack bang in the middle of one of the fundie’s four investment themes – synthetic biology. Paradigm Shift’s other three themes are affordable and clean energy; climate action; and artificial intelligence and machine learning.
Those familiar with mRNA Covid-19 vaccines will know how synthetic biology was so effective in responding to the pandemic and forcing a change of mindset among global pharmaceutical companies.
Those with diabetes will know that synthetic biology is nothing new. Precision fermentation, which is the technique used by Remilk, was first used to make human insulin more than 40 years ago.
That breakthrough wiped out the previous product manufacturing techniques.
A similar prospect faces the global dairy industry at the same time as ESG pressures are building for the world’s large-scale milk producers to do something about their impact upon the environment.
Most disruptive cycles caused by technological change – the internet’s impact on newspapers, book retailing and shopping – were driven by financial logic.
It was cheaper and more effective to advertise online than in print or to sell books via Amazon rather than through bricks and mortar shops.
In the case of the disruption heading toward the dairy industry caused by precision fermentation products such as Remilk, the cycle of disruption has an added twist that is arguably more powerful than financial logic.
It is presented as being good for society as a whole because it is removing the “destructive” practices associated with producing cow’s milk.
For example, Remilk says almost half of the world’s habitable land is used for for animal agriculture , and is responsible for 91 per cent of deforestation in the Amazon rainforest.
It says cows in the United States produce up to 17 times more waste than the entire American human population. It takes up to 2,000 gallons of water to produce one gallon of dairy milk.
Also, the Remilk promoters play the animal cruelty card in the knowledge that the majority of dairy milk production is not done in the animal-friendly ways used in Australia and New Zealand where cows roam in paddocks eating grass.
Grinbaum says the financial logic for switching to Remilk is evident from the fact that the cost of production is about half of the cost of producing milk from cows.
But first a few words on how the Remilk process works.
Milk genes are inserted into Remilk’s modular protein expression platform and are then transformed into a micro-organism.
The transformed cells are fermented under tightly controlled conditions to produce the highest possible yield.
Remilk’s platform enables highly efficient expression for the simplest, most scalable isolation of the proteins, the company says.
Proteins are dried and combined with top natural ingredients to create premium dairy products. It is anticipated that when the Remilk dairy products are available in supermarkets it will carry a label saying “Remilk inside”.
The company has signed memorandums of understanding with a number of large milk manufacturers in Europe. It has not disclosed the names but German dairy company Hochland and Israeli dairy marketing company Tnuva are shareholders in Remilk.
Grinbaum says the dairy industry must do more to reduce greenhouse gas emissions, but the progress will only be incremental based on current projects such as feeding cows seaweed or injecting chemicals into their stomachs to reduce methane.
“The dairy industry is responsible for something like up to 7 per cent of emissions globally,” Grinbaum says.
“At the moment it is very difficult to cut those emissions. The reason that the big dairy companies in Europe are investing in this is because it allows them to offset carbon credits in Europe.
“It’s a really efficient way for them to cut their carbon emissions. They can either reduce emissions or pay a carbon tax on their cheese production.
“The motivation for switching is coming from all directions including consumer choice.
“A third of the population are flexitarians and that means that even if they like milk and like cows, if they have a decent alternative they will consider that. If it is available people will consider it as a replacement for cow’s milk.”
A spokesperson for Fonterra, says the company is keeping an open mind about milk products produced by synthetic biology.
“We’re confident that consumers around the world will continue to want natural, grass-fed dairy as a premium source of nutrition,” the spokesperson says.
“At the same time, we recognise consumers have different nutritional needs and preferences.”
Fonterra’s response to the threat to its business from products like Remilk was to take a stake in 2019 in a company called Motif Ingredients in the United States. It is makes bio-engineered animal and food ingredients.
This aims to keep Fonterra “at the forefront of this emerging, next-generation nutrition sector”.
“It’ll enable us to explore how we can capture more value from this emerging sector.
“Over the long term, we believe the world will need a combination of alternative and traditional nutritional sources to meet the world’s increasing need for food, especially protein.”
Remilk’s value proposition relies on the same data produced by Fonterra including the expectation that an increasing proportion of the world’s population, which is expected to be 9 billion by 2050, will seek high protein and energy diets.
But Grinbaum says it is impossible for the dairy industry to supply the demand for milk products without extensive use of synthetic biology.
“At the moment there are about 7 billion people in the world, but only about 700 million are living in what we call rich countries, and they’re enjoying all the benefits of a protein rich diet,” he says.
“Now the rest they want to live those lives and some of them are on the way there and will become middle class and enjoy it.
“We simply don’t have enough resources to supply the demand. Of course, there will be room for cows, but the majority of the growing demand will be supplied by solutions like Remilk – this is sustainable and the rest is not sustainable.”
Fonterra, which produces 21.8 million tonnes a year of carbon emissions from farming or about 20 per cent of New Zealand’s carbon emissions, says it has a plan to slash its emissions, primarily through changed manufacturing production fuels and planting trees.
Also, Fonterra, which has cheese making operations in Australia, argues that its Australian and New Zealand dairy farming operations are the most sustainable in the world and the world’s most cost-effective.
Source : Financial Review March 25 2022