New McKinsey report, Ingredients for the Future: Bringing the Biotech Revolution to Food, published that details how fermentation could reshape the industry

Fermentation-based food production could transform the global protein market, potentially reaching a valuation of US$100 billion to US$150 billion by 2050. However, the shift from traditional protein sources to microbial fermentation faces significant cost and infrastructure hurdles, according to a new report, Ingredients for the Future: Bringing the Biotech Revolution to Food, by McKinsey & Company. The analysis, authored by Daniel Aminetzah, John Levene, and Tom Brennan, with contributions from Kate Toews, explores the potential of fermented novel proteins and the business models required to scale this emerging sector.

Fermentation, a bioprocessing technique using microbes rather than animals to produce proteins and other food ingredients, is gaining traction due to its potential to reduce environmental impact and increase food security. Traditional agricultural challenges—such as rising feed prices, climate volatility, and disease outbreaks—are straining global protein supply chains. Fermentation offers a controlled and modular alternative, significantly lowering land use and mitigating disruptions caused by climate-related events.

According to the McKinsey report, fermented novel proteins could represent approximately 4% of total protein production by 2050. However, scaling production to a commercially viable level remains a formidable challenge. Most companies in the space currently face production costs that are significantly higher than those of conventional proteins, which range from US$2 to US$15 per kilogram. To bridge this gap, the sector will require an estimated US$250 billion in investment by 2050 to achieve economies of scale.

Investor interest in fermentation-derived foods has surged in recent years. Over the past five years, traditional fermentation companies, food conglomerates, and sovereign wealth funds have invested more than US$4 billion into precision and biomass fermentation. The overall protein market, currently valued at US$3 trillion, is projected to grow to US$3.5 trillion by 2050, highlighting the substantial opportunity for novel protein manufacturers.

However, securing further capital for large-scale infrastructure expansion is proving to be a bottleneck. Contract manufacturing organizations (CMOs) often have profit expectations that do not align with the food industry’s economics, making outsourcing unfeasible for many novel protein companies. While new production facilities have been announced, economic downturns and funding shortfalls have stalled several projects.

To accelerate the shift to fermentation-derived proteins, companies must focus on three key areas: improving fermentation technology to reduce production costs, developing compelling consumer products, and fostering partnerships to drive industry-wide scale-up.

One of the most pressing concerns for the industry is the cost of production. According to McKinsey’s analysis, optimizing bioprocessing techniques and redesigning bioreactors could reduce manufacturing costs by up to 50%. Currently, many fermentation companies rely on bioreactors designed for pharmaceutical and chemical industries, which are not optimized for food production. Several startups, such as Sterling Bio Machines and Ark Biotech, have emerged to address this gap, creating custom fermentation equipment tailored to food-grade specifications. In addition, companies are exploring modular fermentation tank designs to lower capital expenditures and accelerate scale-up.

Beyond equipment improvements, the efficiency of the fermentation process itself is a key determinant of cost. Increasing product concentration (titer), refining downstream processing methods, and reducing cycle times could contribute to significant cost reductions. Some startups are transitioning from fed-batch fermentation – where nutrients are periodically added – to continuous fermentation, a more efficient process that maximizes production time. Others are experimenting with anaerobic fermentation techniques to further cut costs and improve scalability.

As production costs decline, food companies will have greater flexibility to introduce fermentation-derived ingredients into mainstream consumer products. While precision-fermented proteins are genetically identical to their animal-derived counterparts, biomass proteins present novel opportunities. These ingredients could unlock entirely new flavors, textures, and nutritional benefits, paving the way for innovative meat alternatives, dairy substitutes, and beverages.

The ability to formulate appealing food products will be a critical factor in driving consumer adoption. Research suggests that 49-67% of consumers are open to trying foods made with novel ingredients. Snacks and lunch foods, in particular, present promising entry points for fermented proteins. Companies investing in advanced food formulation capabilities could gain a competitive edge by fine-tuning the taste, texture, and functionality of their ingredients.

One area of particular interest is the use of novel fats in food formulation. Fermentation-derived fats can improve mouthfeel and enhance flavors, potentially replacing controversial ingredients such as palm oil. Similarly, precision fermentation enables the production of specific egg, dairy, and other proteins with targeted nutritional and sensory attributes. These innovations could also replace additives like gums and methylcellulose, which are commonly used for texture enhancement but are often viewed negatively by consumers.

To scale fermentation-derived proteins to commercial viability, the industry must attract more than US$250 billion in investment over the next 30 years. This level of funding is comparable to the capital influx that enabled the rise of electric vehicles and solar energy. However, traditional venture capital alone is unlikely to meet this demand. The industry must explore alternative funding mechanisms, including joint ventures, sovereign investments, and government-backed initiatives.

Binding offtake agreements – where food companies commit to purchasing a set volume of ingredients – could play a crucial role in securing financing. In industries such as electric vehicle batteries and sustainable aviation fuel, these agreements have helped unlock debt financing for major infrastructure projects. The food sector, however, has historically been reluctant to engage in such contracts. Emerging joint development agreements between startups and established food corporations could help bridge this gap.

Sovereign wealth funds and national investment programs are already playing an active role in supporting fermentation technology. The Dutch National Growth Fund, for example, has allocated €60 million (approximately US$65 million) toward precision fermentation and cultivated protein initiatives. Business Finland, a government-run organization, recently awarded Onego Bio a US$10 million grant to support its fermentation-derived egg protein business. In the United Arab Emirates, Change Foods has partnered with the UAE NextGen FDI Initiative to establish a regional production hub.

For fermentation-based food production to scale effectively, companies must align their strategies with industry-specific dynamics. Incumbent ingredient manufacturers, for example, have an opportunity to diversify their product portfolios by incorporating fermentation-derived proteins. Because these ingredients can be produced anywhere, they could allow new entrants to compete in previously inaccessible markets, such as dairy, collagen, and even non-protein-based food ingredients.

Original equipment manufacturers (OEMs) also stand to benefit from the industry’s expansion. Many of the bioreactors and processing equipment currently in use were originally designed for pharmaceutical applications and are not optimized for food production. Developing fit-for-purpose fermentation technology could present a lucrative opportunity for OEMs looking to capitalize on the sector’s growth.

For startups, securing partnerships with established players will be critical to bridging the gap between R&D and commercial-scale production. The macroeconomic climate has made fundraising increasingly difficult, and only those companies that demonstrate meaningful progress will continue to attract investment. Focusing on incremental improvements in fermentation efficiency, food formulation, and intellectual property development could position startups for long-term success.

Investors, meanwhile, must assess the risk-return profile of fermentation technology within the broader food and biotech landscape. As the industry matures, infrastructure-grade financing – similar to that used for renewable energy projects – could help mitigate risks and attract institutional capital. Offtake agreements, cost-reduction milestones, and technological advancements will all play a role in de-risking investments.

Over the next five years, achieving cost parity with conventional proteins and demonstrating strong consumer demand will be essential for the fermentation industry to scale. While challenges remain, the momentum behind fermentation-derived proteins suggests that this sector could play a significant role in the future of food.