The Future of Food: Why Climate Tech VC Funds Should Eye the Dairy Alternatives Market

The global dairy industry is a significant contributor to greenhouse gas emissions, deforestation, and water pollution. According to a study published by the IPCC, agriculture is estimated to generate 11% of all global emissions, and based on data from the International Dairy Journal, the contribution of dairy farms to agricultural emissions is as high as 72%. As the global climate crisis intensifies, the need for sustainable food production methods has never been more urgent. The traditional dairy sector faces mounting pressure to become more sustainable. Dairy alternatives are emerging as a sustainable solution, offering immense potential for environmental benefits and investment returns. This confluence of factors creates a compelling opportunity for climate tech VC funds to invest in the burgeoning market for dairy
alternatives.

This stands true, particularly in India, where dairy consumption and production are deeply ingrained in the culture. According to the Indian Council of Agricultural Research, India is the largest producer of milk in the world, contributing 21% to global milk production. The Indian dairy market, therefore, is ripe for innovation and growth. Climate investors have a unique opportunity to drive this transformation by investing in cutting-edge technologies like bioengineering microbes and precision fermentation. Zero Cow Factory, a pioneer in this space, exemplifies the potential of these technologies. This is why it has been a compelling investment opportunity for climate tech VC funds like Green Frontier Capital. This post explores why climate tech venture capital should focus on the dairy alternatives market in India, with a particular emphasis on the ground-breaking work being done by Zero Cow Factory.

The Environmental Impact of Traditional Dairy Farming

The environmental impact of traditional dairy production is undeniable. According to the Food and Agriculture Organization (FAO), livestock farming generates 14.5% of all human-caused greenhouse gas emissions globally. Cattle are responsible for about two-thirds of that, largely due to methane emissions from rumen fermentation, which gives energy and nutrients to the animal. These emissions represent 44% of all livestock emissions. With about 270 million dairy cows worldwide, methane represents about 30% of global methane emissions.

Feeding and grazing livestock requires the clearing of land and dairy production requires a lot of water. A study published in the Journal of Cleaner Production revealed that producing one litre of cow's milk consumes an average of 628 litres of water. Another University of Oxford study found that producing a glass of dairy milk every day for a year requires 650 m2 of land, the equivalent of two tennis courts. Dairy farming also causes significant pollution. Cow manure and fertilisers used to farm animal feed often leak into waterways. This chemical waste pollutes water and causes harmful algal blooms which kill marine wildlife and threaten our freshwater supply.

In India, the environmental impact is particularly pronounced. The country's booming dairy sector contributes significantly to its overall greenhouse gas footprint. Recent data from the International Energy Agency suggests that India is the second-largest emitter of methane in the world, and livestock is responsible for about 48% of all methane emissions in India. Furthermore, water scarcity is a growing issue in India, and the current dairy production model puts a strain on this resource. In this landscape, developing homegrown dairy alternatives is necessary to reduce India’s carbon footprint. Climate investors in India and abroad can help boost this development through sustainable finance.

The Rise of Dairy Alternatives

The dairy alternatives market is a vibrant canvas bursting with innovation. As the environmental impacts of dairy farming become clearer, customers are choosing plant-based milks like oats, almonds, coconut, rice, millet, and soy. According to GlobalData, the Indian market for milk alternatives is poised to grow at a CAGR of 6-8% over 2023-27. While it is still in its nascent stages, it holds immense potential. According to a survey by the Good Food Institute, nearly 69% of plant-based milk consumers claim that they are most likely to increase their consumption in the future. Even amongst non-users of dairy alternatives, 74% said they were aware of the category and a fifth of them have consumed plant-based milk in the past at some point. With a population of over 1.3 billion people and a rapidly expanding middle class, the demand for sustainable and healthy food options like alternative dairy is bound to increase. This should be great news for climate investors involved in sustainable finance.

Such dairy alternatives emit far fewer GHGs and are more sustainable than dairy. These products not only reduce emissions but also require significantly less water and land. While plant-based options like soy milk and almond milk have dominated the scene for some time, a wave of exciting new technologies is pushing the boundaries of what's possible. This presents a lucrative opportunity for climate tech VC funds to invest in innovative companies that are developing next-generation dairy alternatives.

One such option is precision fermentation, which uses genetically engineered microbes to produce dairy proteins like casein and whey. These proteins are then used to create products that are virtually indistinguishable from traditional dairy in taste and texture. This technology holds immense potential to significantly lower the environmental impact of the dairy sector. Another is cellular agriculture, which focuses on cultivating animal cells in controlled environments to produce dairy products like cheese and yogurt. While still in its early stages, cellular agriculture offers the potential to create completely animal-free dairy products with an authentic taste and feel, an intriguing space for climate investors to explore. Researchers are also exploring the potential of unconventional plant sources like mung beans, peas, and sunflowers to create dairy alternatives. These plants offer unique protein profiles and functionalities, potentially leading to more diverse and sustainable options.

With such dynamic research and development shaping the future of dairy alternatives, climate tech VC funds can expect a wider variety of dairy alternative start-ups to fuel their sustainable finance investments.

Zero Cow Factory: Green Frontier Capital’s Bet on the Future of Dairy

Green Frontier Capital has invested in Zero Cow Factory, a Surat-based company founded in 2021 by Sohil Kapadia and Parini Kapadia, aiming to revolutionize the dairy industry with sustainable animal-free milk proteins. Using bioengineering microbes and precision fermentation, Zero Cow Factory produces casein and whey, the primary proteins in milk. These engineered microbes convert sugars into desired proteins, which are then harvested, purified, and used to create dairy products.

This method is efficient, requiring fewer resources and generating lower emissions than traditional dairy farming. It eliminates the need for animals, thus addressing ethical concerns related to animal welfare. The resulting products are also free from antibiotics and hormones, making them healthier for consumers. Therefore, Zero Cow Factory’s impact is delivered through healthier dairy, animal welfare, climate friendliness, and 99% less land consumption, 98% less water consumption, 84% less CO2 emissions, and 65% less energy consumption.

Their first product, A2 beta-casein, is healthier than A1 milk protein, which can cause indigestion. They aim to be the first globally to get regulatory approval for this protein and have the lowest production cost by 2025 at USD 20/kg. Zero Cow Factory aspires to be among the first three companies to commercialize production and sustainably feed 10 billion people by 2050.

India’s market potential for bioengineered dairy products is substantial due to increasing cultural acceptance of plant-based diets and government support for sustainable agriculture. Recognizing this, Green Frontier Capital invested in Zero Cow Factory, aligning with their focus on sustainable agriculture and food production.

The Potential of Dairy Alternatives for Climate Tech VC Funds

Investing in dairy alternatives aligns with the goals of climate tech venture capital to reduce greenhouse gas emissions and promote sustainable practices. By supporting companies like Zero Cow Factory, climate investors can contribute to significant environmental benefits, including reduced methane emissions, lower water usage, and decreased land degradation. Plus, companies like Zero Cow Factory are at the forefront of technological innovation in food production. By investing in these companies, sustainable finance investors can support the development and scaling of cutting-edge technologies like precision fermentation and bioengineering. These technologies have the potential to revolutionize not just the dairy industry but the entire food system.

As consumer awareness about the environmental impact of traditional dairy farming increases, the demand for sustainable dairy alternatives will rise. This presents a significant opportunity for early climate investors to capitalize on the growth of this market. The cost of producing bioengineered dairy products is also decreasing as the technology matures and scales. This makes it economically viable to produce these products at a competitive price point. Moreover, the operational efficiencies and reduced resource requirements of precision fermentation contribute to its long-term viability for climate investors and climate tech venture capital.

The ethical concerns associated with traditional dairy farming, including animal welfare issues and the use of antibiotics and hormones, are driving consumer demand for alternatives. By investing in bioengineered dairy, climate tech VC funds can support the development of products that address these ethical issues.

Zero Cow Factory and Green Frontier Capital: A Growth Story

“With cattle being the No.1 agricultural source of greenhouse gases, precision fermentation start-ups have the potential to disrupt the dairy industry globally. If the world (and India) has to achieve its net zero goals, there needs to be a pivot rather quickly to sustainable solutions like precision fermentation and, in that regard, Zero Cow Factory, is working assiduously on developing its own proprietary A2 casein-based solution, a weakness which plant-based ingredients have not yet been able to address successfully," said Sandiip Bhammer, Co-Managing Partner and Founder at Green Frontier Capital.

The future of food in India is poised for transformation, driven by the urgent need for sustainable and ethical food production methods. The dairy alternatives market, particularly through innovations like bioengineering microbes and precision fermentation, presents a compelling opportunity for climate tech VC funds. Companies like Zero Cow Factory are leading the charge, demonstrating the potential of these technologies to produce high-quality, sustainable dairy products. The time is ripe for climate tech venture capital to seize this opportunity and contribute to building a sustainable future for India's food industry, and with Zero Cow Factory, Green Frontier Capital is doing just that.

FAQs

• What do climate tech VC funds do?

  Climate tech VC funds invest in start-ups and companies developing technologies aimed at mitigating climate change. This type of sustainable finance focuses on innovations in renewable energy, sustainable agriculture, carbon capture, energy efficiency, and more. By providing financial support and strategic guidance, climate tech VC funds help accelerate the development and scaling of solutions that reduce greenhouse gas emissions and promote sustainability. Their goal is to generate substantial financial returns while driving significant positive environmental impact.

• Is climate tech venture capital associated with sustainable finance?

  Yes, climate tech venture capital is closely associated with sustainable finance. Sustainable finance focuses on investing in projects and companies that generate environmental, social, and governance (ESG) benefits alongside financial returns. Climate tech VC funds specifically target innovations that mitigate climate change, such as renewable energy, carbon capture, and sustainable agriculture. By funding these climate-focused start-ups, they drive the transition to a low-carbon economy, reducing environmental impact, and supporting long-term ecological and social sustainability.

• How can climate tech venture capital promote dairy alternatives?

  Climate tech venture capital can promote dairy alternatives by investing in start-ups developing innovative, sustainable dairy products. By supporting research and development, enhancing production efficiency, and driving consumer education, climate tech VC funds can accelerate the adoption of dairy alternatives. Their investments help reduce the environmental impact of traditional dairy farming, promote ethical food production, and meet the growing demand for sustainable, nutritious dairy substitutes, fostering a more sustainable food industry.

• Why should climate investors consider the dairy alternatives market?

  Climate investors should eye the dairy alternatives market because it is poised for rapid growth due to increasing consumer demand for sustainable, healthy, and ethical food options. Investing in innovative technologies like bioengineering and precision fermentation can yield substantial returns while promoting sustainability. Supporting dairy alternatives aligns with climate goals, drives technological advancements, and meets the rising global need for sustainable food production, making it a compelling opportunity for climate-focused investments.