Yes, plant-based meat has exploded in the Japan market, but it looks quite different from the alternative protein booms in Western markets

In spring of 2020, we observed a sudden explosion of plant-based meat and dairy products in the Japanese market, with new launches nearly every week. A year later, the launches continue, one after another.

While the conversation in western countries is often dominated by well-funded imitation meat products like Beyond Burger or Impossible Meats, in Japan the new alternative protein products were launched by domestic companies; nearly all major meat processors have released a plant-based meat alternative as well as products from major plant oil crushers and soy-based processors, dairy processors, frozen food manufacturers, health food & drink manufacturers, as well as many major retail chains and major café and hamburger chains.

However, interestingly, nearly all of these plant-based meat and dairy alternatives are soy-based, in contrast to Western countries where there is a much more diversity in the plant-based proteins used in meat alternatives, including pea protein, mung beans or seaweed.

The pioneers of alternative meat and dairy in the Japanese market are the major traditional soybean players. For example, Fujioil, the largest soybean cooking oil crusher, with a 50% share of the soy-based meat market, recently launched their fermented soy-based cheese, mainly for food service players and food processors. We heard from a cheese distributor that these soy-based alternative cheese products are quite price competitive and is starting to develop a market. Marukome, the largest traditional soybean seasoning paste (miso) manufacturer, was also one of the early players in the alternative meat market, with their plant-based ground meat. They have both retail and food service products. The retail sales of they ground soy “meat” grew quickly during COVID19 lockdowns, because some consumers who were limiting their grocery runs liked its long shelf life.

March 2020 was the magic month for meat alternatives in Japan with a sudden explosion of new products.

Almost all major meat processors entered the market. Starzen, one of the leading meat integrated company, together with a leading health food and drink manufacturer Otsuka, developed a brand called ‘ZEROMEAT’, and is selling plant-based sausages, meat ball and hamburg steak patties made from soy protein and egg whites. Ito Ham, one of the leading meat processors, also entered the market with a ‘Soy Meat’ brand in the last Spring. In the same week, the largest meat processor, Nippon Ham entered the market too with a brand called ‘Natu Meat’, which utilize konnyaku (the root of the konjac potato) to add chewy texture to the soy protein.

Of course, various manufactures of savory snacks as well as frozen ready-to-eat products also followed this trend. Koikeya, the second largest player in the savory snack market, expanded their pilot sales of a soy-based protein snack called ‘Guiltless Fried Chicken’ to nationwide in June 2020. Yonekyu, a leading meat and frozen food manufacture, developed a frozen ready-to-eat food brand called ‘AIR MEAT’, which includes curry, dim sum, meat balls and Sichuan-inspired mapo tofu.

In addition to those food manufacturers, the retail and food service chains are also main drivers of this soy-meat trend. In 2020, almost all convenience store chains, including Lawson, Seven Eleven, Family Mart, as well as several food service and cafe chains jumped into the market, but again, all of them are soy-based products. For example, Lawson, one of the leading convenience store chains, released various ready-to-eat products containing soy-based meat last year, including soy-based hamburgers, deep-fried soy-based cutlets, rice balls with soy meat, and deep-fried soy meat nuggets. The leading café chain, Doutor, also launched a soy-based burger in autumn 2020.

What is driving the alternative meat boom in Japan?

Most of these soy-based products are mainly developed for health-conscious consumers, and not necessarily in response to vegan or vegetarian trends, nor any particular focus on the environmental benefits of plant-based products. Many of these products contain eggs or dairy. The number of strict vegans or vegetarians is limited in Japan. A consumer survey conducted by a consulting firm Frembassy in Dec 2019 indicated that about 5.7% of Japanese consumers say they follow a vegan or vegetarian diet. However following a vegan or vegetarian diet in Japan is not necessarily driven by any ethical or lifestyle philosophy. Instead the concept of ‘vegan’ or ‘vegetarian’ in Japan in particular often refers to the type of food desired for a day or meal. “Let’s have vegan food on Friday!” is a common way to hear the term.

Furthermore, there is also hardly any mention of any environmental benefit of soy-based meat in the marketing messages. Japanese consumer concern about any negative environmental impact from the livestock industry is low in Japan, as seen by the surprise in Japan when the Japanese Minister of the Environment Shinjiro Koizumi was denounced in the Western media for eating steak when he went to New York to attend the UN Climate Action Summit in September 2019. Similarly, consumer awareness of the concept of animal welfare is also still very low in Japan.. An online survey conducted by the Animal Rights Center in March 2020 showed that 85.8% of consumers responded that they had never heard about animal welfare.

In fact, these newly launched soy-based plant protein products primarily rely on the existing positive image of soy embedded in the Japanese mind. “Soy is healthy” is a widely accepted concept among consumers in Japan. Japan has a long history of eating local soy-based products, like tofu and natto (fermented soybeans). Many Japanese consumers believe that Japanese traditional cuisine is ‘healthy,’ and the heavy use of various soy-based products in the traditional cuisine is considered as one of the reason traditional cuisine can be considered “healthy”. According to a survey conducted by My Voice Com in Dec 2019, 63% of consumers said they are making a conscious effort to include soy foods in their regular diet[1].

In addition to the overall positive health image of soybeans, Japanese consumers’ growing interest in protein in general is also helping these soy-based protein products. Demand for protein-enriched drinks and food began to increase in Japan in 2015, and this trend was further accelerated by the government’s increase in the recommended target protein requirement for seniors in 2018 to prevent frailty caused by aging. This led to increased consumption of products like whey protein powder, protein bars, and protein drinks. Such demand for protein further expanded after COVID19 as Japan consumers worried about the negative health impacts of “stay at home” restrictions in 2020.

As in Western markets, plant-based protein is a growing food innovation trend in Japan, but the context is very different. Marketing related to environmental benefits, sustainability or animal welfare are not part of the message. Japan is a soy-based alternative protein market, relying on consumers’ strong positive image toward soy as well as on the price competitiveness of soy protein compared to animal-based protein.

What does the future look like?

The trend towards increased protein consumption overall suggests that alternative meat is not just a fad, but has a chance to develop a permanent market in Japan, not necessarily as an alternative to meat or dairy, but as an additional source of affordable protein. We expect to see diversification from soy and into other plant ingredients. Konnyaku (konjac potato) is one that is getting recent play in alternative seafood products such as imitation unagi eel and pea protein suppliers from overseas have shown interest in the Japanese market.

However we expect that successful meat alternatives in Japan will need to continue to focus their marketing on taste, competitive price and “healthier” messaging, and not assume that mainstream Japanese consumers will pay a premium at the moment for plant-based products marketed as a sustainable or eco-friendly “alternative”.

[1] My Voice Com, Dec 16 2019, Survey on Soy Food Products
https://prtimes.jp/main/html/rd/p/000000820.000007815.html

Happy New Year from Meros! (and a quick update on where we are!)

Happy 2021 to all our friends, clients and associates!

The corona pandemic this past year has forced us to pivot, to improvise, to adapt …but after an initial scramble to get all our online tools in place, we believe this year has been opportunity to try new approaches, to innovate and to ultimately become a stronger company than ever.

2020 only demonstrated more clearly than ever the need for strong, flexible and sustainable food and ag supply chains. Impactful investments in food and agri technologies and partnerships with smart and innovative start-ups are more essential than ever for our clients and partners.

Although we have not been able to travel as much as we used to, Meros continues to provide strong support for our clients and partners by fully utilizing the domestic and overseas networks we have developed over the years.

We hope all our clients and network have also been able to find opportunities in the chaos and we look forward to helping you all as you prepare to move forward.

We look forward to working with you again in this upcoming Year of the Cow!

Note: Team Meros’ response to the Dec 2020 State of Emergency (SOE) in Japan

Meros is making every effort to prevent the spread of infection within our global team and our local communities.  We encourage remote work for all employees and emphasize good ventilation and disinfection in our offices.  In Tokyo we expect all of our team to work remotely at least three days a week and encourage fully remote when possible.

Our company phones are still open, but email will be the fastest and most reliable way to contact us. We look forward to talking to you online!

The Development Bank of Japan (DBJ) first Asian investor into US-based Equilibrium’s Agriculture Impact Fund

The Development Bank of Japan (DBJ) announced on November 19, 2020 that it will become the first Asian investor into US-based agricultural impact fund Equilibrium’s Controlled Environment Foods Fund II. This is Equilibrium’s second fund investing in large-scale controlled environment agriculture.

Meros has been fortunate to work alongside the DBJ team over the past year to help identify international agricultural impact investing trends and their impact on agricultural industries. We have also helped to outline the diverse challenges and investment and financing landscape facing Japanese agriculture that may potentially be addressed by agricultural impact funds in Japan. The last two years in particular have seen increased interest in the importance of impact and ESG investments in international farmland and agriculture supply chain investment, with ever-evolving discussion about how to measure and assess the impact of these investments.

Equilibrium Capital, the Pioneer of Agricultural Impact Fund Investing

Equilibrium is a US impact investment fund management company that creates investment opportunities with a focus on sustainability for institutional investors. The company is currently developing infrastructure investment funds for large-scale environmentally controlled agriculture and agricultural wastewater treatment projects. Founded by Dave Chen in 2008, the company is a pioneer in US impact investing.

In 2018, it launched the , the world’s first impact investment fund dedicated to large-scale, environmentally controlled agriculture, raising US$336 million and within one year, Equilibrium was operating over 100 hectares of greenhouse operations. CEFF II is now its second fund.

Equilibrium aims to create impact at every stage of the project. On the production side, the advantages of controlled environment farming are seen as efficient use of limited farmland, no soil runoff problems, less pesticide use, a better environment for workers compared to open field farming, and higher productivity, while reducing the need for irrigation. In terms of distribution and consumption, the peri-urban location of their greenhouses reduces logistics costs and carbon dioxide emissions in the distribution process, preserving freshness and providing nutritious food, reducing food waste, and improving food safety. The fund’s greenhouse operators are asked to align their businesses with Equilibrium’s goals, which include both growing efficiency and increased yields, as well as compliance with international food safety standards (GFSI) and working with retailers and freshness preservation technology companies to reduce packaging materials.

Development Bank of Japan (DBJ) and Sustainable Investment in Agriculture

By becoming an LP in Equilibrium’s fund, DBJ aims to obtain a deeper understanding of global trends in the agri-food sector, acquire advanced know-how, and contribute to the future growth of Japan’s domestic agricultural and food industries by sharing the knowledge gained from this investment with industries in Japan. Mr. Takuya Ogawa, Director of Corporate Finance Department 3, a core member of the DBJ team, commented: “We hope to achieve a more sustainable society through financial support to the food and agriculture sector and gain a deeper understanding of sustainable agriculture as advocated by Equilibrium and CEFF II.

As a government-funded financial institution, DBJ’s mission is to act in the public interest when selecting investments, and thus has a strong affinity with Equilibrium’s mission, sharing a philosophy of sustainable environmental, labor and social structures along the food chain, and impact investing in the food and agriculture sector.

Japanese Institutional Investors Already Moving into ESG Investing in Food, Agriculture and Farmland

While DBJ is the first to invest in an agricultural impact fund, Japanese institutional investors have already been moving into farmland investment. Nippon Life’s announcement in 2018 of an investment of approximately 10 billion yen in an overseas farmland investment fund managed by Hancock Natural Resources, a member of Manulife Life Group, is believed to be the first farmland fund deal by an Japanese institutional investor. According to their press release, Nippon Life Insurance expressed interest in how the fund can contribute to stable food supply through the environmentally friendly operations of farmland. The investment was positioned as an initiative within Nippon Life’s ESG-related investments and loans which total 200 billion yen. Hancock Natural Resource Group has a long history of investing in farmland, but in recent years, it has been focusing on more on sustainable practices in farmland operations, and in January of 2020, it announced the development of an ESG evaluation criteria for farmland operations, called Leading Harvest, together with several other large farmland investment funds.

As awareness of both ESG investing and impact investing grow in Japan, we look forward to Japan’s leading investors increasingly playing a role in global impact funds and bringing the lessons of sustainable farmland operations and impact investing to address Japan’s own agricultural challenges.