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From novelty to necessity: Insect breeding faces the future of sustainable agriculture. Part 1#


Exploring the roots of insect farming and the challenges of its large-scale growth

 

Insect farming is rapidly emerging as a pillar of sustainable agriculture. Find out how this innovative practice is becoming a necessity to meet the environmental and food challenges of the future.

Insect farming, once considered a novelty in the agricultural landscape, is now gaining ground as an essential solution for a sustainable future.

This innovative practice is transforming from a niche idea to a concrete necessity to address global environmental and food challenges.






Insects, such as black soldier fly larvae and crickets, offer an efficient and environmentally friendly way to transform food and agricultural waste into valuable resources such as protein, oil and fertiliser. However, behind this promise of sustainability lie significant financial and operational challenges.

On paper, insect farming holds all the cards. Black soldier fly larvae (BSFL), mealworms and crickets can transform food and agricultural waste into high-quality protein, oil and fertiliser at record speed, with a fraction of the inputs required from other protein sources.


However, despite its ecological qualities, industrial-scale farming with insects is not for the faint-hearted. And if we've learned anything over the past decade, it's that if you move too fast, you'll break things: a mantra that may be fine in the tech sector, where startups learn from their mistakes and move on quickly, but is less suited to agriculture, where long iteration cycles, high production costs and a limited pool of investors mean that backers who have burnt their fingers may be reluctant to put their hands back in their pockets.

A lot of people say all you have to do is spread a few worms on food waste, how hard can that be?, But if you want to do it consistently and at scale, it involves an intricate combination of biology and engineering. If you jump into the deep pool too quickly, you will run into difficulties.


In Financing Insect Breeding: 'Investors have seen a lot of capital not achieve much.


Investors - who have invested $1.65 billion in insect breeding over the past decade, a minuscule percentage of the $205 billion invested in agribusiness startups over the same period, according to AgFunder data - have "seen a lot of capital underperform in this space," says Sandy Singh Sandhu, chief financial officer of Singapore-based Entobel, which recently opened a BSFL plant in Vietnam capable of producing 10,000 tonnes of protein meal per year.

The milestones were missed and there was insufficient de-risking of the technology.

And now that the heady days of cheap money and crazy valuations are firmly in the rear-view mirror, the chances of getting VC funds to finance huge CapEx projects have diminished considerably, adds Mohammed Ashour of Aspire Food Group, which is commissioning a 12,000 tonne per year cricket processing plant in London Ontario.

The cost of capital has skyrocketed, so if you want to build a $150 or $200 million plant, it is very expensive to finance it with your own funds. About 25 per cent of the financing for our plant in Ontario came from government grants, about 30 per cent from a loan, and the rest from equity.







Start-ups were 'pushed to do things too fast'


Co-founder and CEO Kees Aarts, of the Dutch company Protix, which is collaborating with Tyson to build a large-scale plant in the US, argues that insect start-ups have been 'pushed to do things too fast'.

"You can't come in with a Silicon Valley handbook and outcompete a traditional industry in three years with growth on an exponential curve," says Aarts, who started insect farming in 2009, when there was no handbook and regulatory framework for large-scale insect farming and pioneers in the industry were building the plane as they flew it.

"This is not a software business," says Protix's Aarts, who has so far raised around €227m ($246m) in debt and equity and now operates a large-scale BSFL plant in Bergen op Zoom, in the south of the Netherlands, processing 14,000t/year. "It is about building assets that have to run continuously for 10-20 years, where quality and constant improvement cycles are more important than quick fixes."


In any new industry, however, 'the pioneers take a heavy toll,' says Pipan of Better Origin. AgriProtein a UK/South Africa-based company that in 2018 secured the largest Series A round for an insect agribusiness with a $105m investment from an undisclosed investor, but which went bankrupt in 2021 is an interesting example because it expanded globally and was trying to do multiple things at once, which was too much too fast"


Commercial due diligence? Operational due diligence?


While investors have told insect breeders that they must have customer purchase agreements in place before funding large facilities, they have not always been as assiduous in assessing the ability of these startups to scale their operations, argues Dr Virginia Emery, entomologist and founder of Beta Hatch, which opened North America's largest mealworm farm in Washington in the summer of 2022 and closed its doors in the autumn of 2023 after running out of funds.

"From what I have seen, due diligence has focused a lot on the business side as opposed to the operational side. Also, many see insects as a basic substitute for fishmeal, when there are much higher value uses. We were being underwritten at $2,000 a tonne, even though we had contracts with prices five to ten times higher,' he says.

"Another challenge is that the indoor agriculture space has fallen out of favour because people were putting money into companies that were not good operators, or the good operators were undercapitalised. We need more creative capital." Dr. Virginia Emery, founder of Beta Hatch


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