Insect farms: Investors see big profits in thinking small

SYDNEY Wed Jul 2, 2014 5:12pm EDT

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SYDNEY (Reuters) - When it comes to resolving a big global food problem, a new breed of farmers and their financial backers are thinking small.

Work on the world's largest fly farm has begun in South Africa after the European firm behind the project won much-needed funding from investors, propelling the use of insects as livestock feed beyond academic theory to a commercial venture.

The project near Cape Town was conceived by a group of scientists and environmentalists racing to find protein alternatives as rising production of livestock feed such as soy gobbles up more and more valuable agricultural land.

The farm, being built by Gibratar-based AgriProtein, will house 8.5 billion of flies that will produce tons of protein-rich larvae as they feed on organic waste. The tallest barrier to such startups has been the availability of capital, with potential investors deterred by legislative hurdles.

But given the prospect of getting hundreds of times more protein feedstock from a single hectare of land compared to traditional sources, political objections are starting to come down. The success of AgriProtein in securing $11 million in funds, while small, is a sign investors are warming to the idea that insects could be big business in the years ahead.

"The world has an issue with waste management and also sourcing protein," said Johnny Kahlbetzer, director of Australian agricultural company Twynam, one of several global investors in the fly farm.

"If farming insects can solve the two problems, then that is a great outcome, and that is what has motivated our investment," he said.

With human consumption of meat tipped to soar, and the increasing impact that livestock production is having on the environment, governments are now considering the use of processed insects as animal feed.

The European Commission is relaxing rules to allow the inclusion of insects in poultry and pig feed from 2015, while the U.S. Food and Drug Administration is considering an application from U.S. company EnviroFlight to sell livestock feed made from insects.

Livestock production, which accounts for 70 percent of all agricultural land, is seen by the United Nations as a leading cause of environmental problems including global warming, land degradation, air and water pollution, and loss of biodiversity.

Referring to forecasts from the UN that food production will need to rise 70 percent by 2050, Professor Arnold van Huis, tropical entomologist at Wageningen University, said, "It is clear to everybody that we need urgently protein alternatives that are less demanding."

HOUSE OF FLIES

Housing billions of flies that feed on more than 110 tonnes of rotting food and waste everyday, the South Africa farm will be capable of producing 20 tonnes of larvae a day, 3.5 tonnes of larvae high in fatty acids, and 50 tonnes of organic fertilisers, Jason Drew, co-founder of AgriProtein, told Reuters last week.

AgriProtein will use a combination of the black soldier fly, the blowfly and the common housefly. In cages, the flies will be fed a mix of spoiled or leftover food, manure, and abattoir waste. They will then be left to breed. Their larvae will afterwards be dried and processed into an animal feed.

When sold, Drew said, the AgriProtein feed is likely to be 15 percent cheaper than fishmeal.

Fishmeal is being sold at $1,658 a tonne at the end of May, the World Bank said, just shy of the all-time high of $1,919 a tonne hit in January this year.

While having a price advantage on fishmeal, PROteINSECT, the EU-funded project investigating the efficacy and safety in using insect protein as a source of animal feed, says insect feed will likely never fully substitute for traditional protein sources. They will rather alleviate environmental pressures, as demonstrated by trials last year.

Based on UK trials, Elaine Fitches of the U.K. government-run Food & Environment Research Agency said it would be possible to get on average 150 tonnes of protein from a hectare of land per year, significantly above 0.9 tonne of soy per hectare.

AgriProtein plans to grow beyond the first site, with work on a second farm set to begin next year in South Africa and a further 38 projects planned around the world, Drew told Reuters.

AgriProtein is not without competition in North America and Europe.

EnviroFlight and Canada's Enterra Feed Corp all plan on expansion in North America, while Ynsect and Protix Biosystems have also committed to commercial fly production over the next year in the EU.

(Editing by Ryan Woo)

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