Insect Farming’s Tipping Point: Scaling Up Amid Investor Jitters

The burgeoning insect farming industry is at a critical juncture. Hailed as a sustainable alternative to traditional protein sources, businesses specializing in the cultivation of Black soldier fly larvae (BSFL), mealworms, and crickets are grappling with the complexities of scaling up operations to meet industrial demands. These creatures are capable of converting food and agricultural waste into valuable products like protein, oil, and fertilizer, doing so with impressive efficiency and minimal resource input. However, the path to large-scale production is fraught with challenges that have left investors wary and entrepreneurs cautious.

Miha Pipan, co-founder and Chief Scientific Officer at UK-based BSFL farming company Better Origin, sheds light on the intricacies of insect agriculture. Contrary to the simplistic view of “sprinkling some maggots on food waste,” Pipan emphasizes that achieving consistent results on a large scale is a delicate dance of biology and engineering. The stakes are high, and a premature leap into expansive operations can lead to significant setbacks.

This sentiment is echoed in the investment community, where the $1.65 billion injected into insect farming over the past decade pales in comparison to the $205 billion funneled into agrifoodtech startups, according to AgFunder data. Sandy Singh Sandhu, CFO at Singapore-based Entobel, points out that investors have witnessed substantial capital yielding minimal returns in the insect farming sector. Missed milestones and insufficient de-risking of technology have contributed to a cautious investment climate, particularly as the era of cheap money and inflated valuations comes to an end.

Mohammed Ashour, CEO of Aspire Food Group, which is opening a cricket processing facility in London, Ontario, highlights the financial challenges of constructing such large-scale plants. With the cost of capital surging, reliance on equity to fund multi-million dollar facilities is becoming untenable. Ashour reveals that a combination of government grants, loans, and equity financed their plant, and he anticipates that successful demonstration of targeted unit economics will open doors to more accessible forms of capital, including debt financing and joint ventures.

At the heart of the issue is the pace of growth and the pressure to deliver quick results. Kees Aarts, co-founder and CEO of Dutch insect farming company Protix, criticizes the application of a “Silicon Valley playbook” to an industry that inherently requires long-term asset performance and continuous improvement. Protix, which has raised around €227 million in debt and equity, now operates a BSFL facility in Bergen op Zoom, Netherlands, processing 14,000 tons per year. Aarts underscores the need for quality and iterative development over rapid, short-term fixes.

The industry has not been kind to its pioneers, as evidenced by the collapse of AgriProtein in 2021. The UK/South Africa-based insect ag company secured a record-breaking investment but ultimately failed due to overexpansion and regulatory challenges. John Diener, a former AgriProtein employee, suggests there was a disconnect between the company’s perceived readiness for scaling and the actual situation.

Investor due diligence has also been called into question, with Dr. Virginia Emery, founder of Beta Hatch, pointing out an overemphasis on commercial viability at the expense of operational capability. Beta Hatch, which opened North America’s largest mealworm farm and ceased operations in 2023, experienced firsthand the pitfalls of undercapitalization and the need for innovative capital strategies.

As the industry matures, the lesson is clear: scaling up insect farming requires a measured approach, akin to the fable of the tortoise and the hare. Dr. Emery notes that the realities of large-scale operations often differ from smaller, validated systems, and what succeeds in one location may not elsewhere. The design of climate systems, for example, can significantly impact yields due to factors like metabolic heat produced by mealworms.

In conclusion, while insect farming presents a promising solution to global protein needs, the journey from concept to industrial reality is complex. The industry must navigate the delicate balance between innovation and pragmatism, ensuring that the foundations laid today can support the weight of tomorrow’s demands.

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