Israeli food-tech advances as Aleph Farms seeks regulatory nod for cell-based steaks

With a focus on alternative protein products, Israel in recent years has emerged as a key player in the global food-tech industry. The country has leveraged the same research and development prowess it has in ICT fields (it ranks No. 7 in the world for knowledge and technology outputs, according to the World Intellectual Property Organization) to become a global innovator in the segment. It is also making strides in commercialization, with Aleph Farms applying this summer for British and Swiss approvals for its cell-based steaks. However, food-tech is facing a severe fundraising slump and waning consumer demand for alternative protein products like fake meat. But industry figures say the market’s long-term outlook remains strong despite the challenge to address high prices and concerns about the health implications of excessive processing. Although no Israeli start-up is likely to emerge as a leading global player, the local industry will serve as a center for continuous innovation, creating start-up investment opportunities akin to those that now exist in the Israeli ICT sector.  

• Israel has emerged as a significant player in the global agri-food tech industry which encompasses a wide range of sectors from online grocery delivery to farm management software and innovative food. Israeli agri-food start-up companies raised $900 million in 66 deals in 2022, making it the world’s seventh-largest player, according to figures by AgFunder, a venture capital investor in the sector. (The United States came first, followed by India and then the United Kingdom.)  
• Israel is the largest player in the Middle East region, ahead of Turkey in 8th place in the 2022 ranking (which raised $800 million in 22 deals) and the UAE in 10th place (raising $500 million in 38 deals). 
• With its small domestic market, Israeli entrepreneurs have avoided retail-oriented downstream segments to focus on alternative proteins — products made from plants, cultured (lab-grown) meat and others based on precise fermentation, a technology that uses genetically modified microorganisms to produce specific proteins, enzymes and other compounds. The Startup Nation Policy Institute (SNPI), a non-profit Israeli think tank, estimates that Israeli alternative protein start-ups accounted for about 36% of the world total of global fundraising in the industry’s peak year of 2021.  
• SNPI estimates that about 70 companies operate in the segment. Some of the main companies include Aleph Farms, a maker of cultured-meat products whose backers include Migros, Switzerland's biggest retailer; Remilk, which raised $120 million last year, has won regulatory approval for its animal-free whey protein in Singapore and Israel, and initial approval from the United States; and Redefine Meat, which uses 3D printing to develop fibers that resemble animal muscle tissues and raised $135 million in 2022, has seen its products added to the menus of Michelin-starred restaurants. 
• Like other tech sectors, fundraising in agri-foodtech plummeted in 2022. The global industry saw a 44% decline to $29.6 billion, according to AgFunder. In Israel, the slump set in during the second half of 2022, with a 25% decline year-on-year, and continued into the first-half of 2023, according to Start-up Nation Central, a non-profit organization that aids the Israeli industry. SPNI says Israel’s alternative-protein segment saw fundraising drop 35% to $367 million last year (there are no figures for 2023). 

• The decline reflects both the worldwide slump in tech fundraising compounded in Israel by concerns surrounding the government’s controversial judicial overhaul program, which seeks to reform the courts. Additionally, innovative food has grappled with sector-specific issues. Consumers have been increasingly put off by high prices as well as by taste, nutritional and health concerns in these highly processed products. Meanwhile, food companies have become more averse to risking investments in new technology and product roll-outs due to the economic slowdown. Investors have been hesitant to cover the costs of scaling up to commercial production. 
• Beyond Meat’s hugely successful 2019 initial public offering seemed to confirm to the industry that consumer interest in meat substitutes was here to stay and led to a surge in VC investment in the alternative protein segment. “We had a multitude of companies both private and publicly traded whose valuations were totally detached from reality. This has contributed to the problematic situation we are in,” says Eli Nir, senior investment partner at OurCrowd, one of Israel’s biggest food-tech investors. 
• Industry figures remain optimistic. “Once there is cost parity, I don't see why this won't take significant market share — it might not take 90% but if it takes 20-30%, it would be a huge change,” says Nir regarding cultured-meat products. Environmental concerns involved in meat production as well as supply chain fears, which have been exacerbated by the COVID-19 pandemic and the Ukraine war, should also spur demand. 
• The Israeli industry enjoys a competitive edge due to a strong base of university research and the support of big local companies such as Strauss and Tnuva as well as multinationals. Israeli companies have invested directly in food-tech start-ups and back three dedicated technology incubators (The Kitchen I and II, and Fresh Start). “They are involved in the incubators, which are doing a good job of getting [start-ups] into the market and connecting them with international players,” says Danny Biran, senior policy fellow at the SNPI. 
• The main short-term obstacle facing the Israeli industry is access to capital; in the long term, it is the commercialization of technology and lengthy regulatory approvals. A small local market plus high costs effectively preclude local manufacturing, so start-ups license their intellectual property, form partnerships and scale up production abroad. Aleph Farms, for example, plans to start production in Singapore in 2025 with ESCO Aster, a high-tech contract manufacturer, and is scouting for sites in the United States for a larger-scale facility.  

• The Israeli government is promoting the agri-food tech sector as a driver of economic growth. The industry requires a different expertise (mainly chemistry and biology) than the dominant ICT sector, which is contending with a chronic shortage of computer science specialists. “If you start another cyber or software company in Israel, you don’t contribute to the economy and unemployment because there are not enough people,” says Biran. Foodtech also employs more women: A quarter of Israeli alternative-protein firms have female CEOs versus 10% of all tech companies, according to SNPI.