McDonald’s recently announced that it will test-market a burger using plant protein 28 restaurants in Canada over the next few months. Understandably, the share price of Beyond Meat, the company producing this meat substitute, increased substantially.

But as interest in its substitute meat products grows — McDonald’s MCD, -2.65% is just the latest in a string of announcements (like here and here and here and here) — whether Beyond Meat BYND, +0.33% and its competitors can obtain sufficient supplies of yellow peas is crucial.

Substitute meat products are already big business, with total sales of veggie burgers, tofu and other products estimated to be about $4.5 billion in 2018, and sales are projected to increase by nearly 50% through 2022. This is a small fraction of the total U.S. meat market, which currently exceeds $200 billion a year and includes the beef, poultry, pork, and lamb products we buy at the counter as well as more highly processed products such as canned meats and prepackaged meals.

Beyond Meat’s meatless patty uses protein from yellow peas, a variety that falls into a crop category described by the Agriculture Department as dry peas that are only raised by U.S. farmers using GMO-free seeds.

Already, Beyond Meat has warned in its latest quarterly filing with the Securities and Exchange Commission of supply chain issues: “In 2017, continuing into 2018, demand for our products exceeded our expectations and production capacity, significantly constraining our net revenue growth relative to our total demand opportunity. While we have significantly expanded our production capacity to address production shortfall, we may experience a lag in production relative to customer demand if our growth rate exceeds our expectations.”

The good news: U.S. production of regular dry peas has been expanding. In 2019, the Agriculture reported that farmers planted dry peas on a total of 1.1 million acres in seven states — a 28% increase over the 855,000 acres planted in 2018, and more than double the area planted a decade ago.

When the price is right, farmers in those states have demonstrated they can certainly increase domestic supplies. But how quickly production can continue to increase is another matter, as switching from traditional crops to dry peas may involve some equipment changes. In addition, farmers with little or no previous experience with the crop have to develop the expertise to cultivate dry peas and work them into their year-to-year crop rotations.

Some analysts have suggested that yellow peas could be a lucrative alternative to soybeans, helping farmers who have lost business because of the recent trade disputes. That is unlikely. In 2018, 80% of dry pea production was concentrated in two states, North Dakota and Montana, where farming conditions (land and climate) make it a good fit.

Dry peas compete well with other crops like wheat and barley in semi-arid climates. Because of their contributions to nitrogen levels in soils, they are also included with wheat and other crops in farms’ year-to-year planting rotations. By comparison, the 76 million acres used for growing soybeans this year are in Midwestern states like Iowa, Illinois, Indiana and Ohio. Those “soybean states” have very different climates and soils, and farmers there are not growing dry peas.

Another supply constraint could emerge if food companies insist on using organic pea protein. While U.S. farmers are planting GMO-free dry peas and have no plans to use GMO varieties because of concerns about consumer acceptance, the crops generally aren’t organic. Under USDA rules, it takes three years to convert land that produces non-organic crops to land on which crops certified as organic can be raised. If a farmer decided to start planting organic dry peas in 2020, the crop wouldn’t be certified as organic until the end of 2022 at the earliest. Therefore obtaining organic peas over the next three years could continue to be a challenge,

Whether regular customers at McDonald’s and other restaurants will see plant-based meat substitutes like Beyond Meat as more than just a novelty remains to be seen. But if industry growth forecasts pan out, over the next four or five years plant base meat sales could conceivably double, and even account for as much as or more than 20% of the meat protein market 10, 20 or 30 years from now.

Just don’t expect all that extra pea protein to come from American farmers.

Page: Market Watch