Fermentation

Environmental Issue

Petrochemical and animalbased inputs drive >10% of global GHG emissions.

Modern industrial sectors, from food and cosmetics to pharma and chemicals, rely extensively on a wide range of petrochemical and animal-based inputs, whose production accounts for a significant share of global GHG emissions, estimated at >10%. Their downstream processing often adds further externalities through high energy demand and toxic by-products. Leveraging renewable feedstocks and cleaner processes, such as through industrial fermentation, can substantially reduce these impacts and is therefore increasingly sought after across industries.

Environmental solutions

Fermented alternatives can substantially reduce environmental impact.

Fermentation, one of the oldest biotechnological processes, has in its modern industrial form become a cornerstone of the emerging bioeconomy. It can provide identical, or functionally similar products to those achievable through chemical synthesis, but instead relies on widely-available, renewable inputs such as sugars or industrial side streams. Fermentation has evolved from its origins in traditional food processes, such as yoghurt, vinegar, and pickles, into industrial systems producing organic acids, enzymes, and amino acids. These compounds serve as essential building blocks in a wide range of sectors including food and feed ingredients, paints, pharmaceuticals, and personal care. The environmental benefits of these products are further enhanced by the cleaner nature of fermentation compared with fossil- or animal-derived alternatives.

The substitution effect of shifting to fermented alternatives is often strongly environmentally positive: for example, fermentation-derived whey protein can generate ~85% lower emissions than dairy whey, and emissions of mycoproteinbased sausages can be 70% lower than conventional pork sausages (Fig. 1). Overall, the net environmental benefit of any substitution will depend on the choice of feedstock, energy intensity of the production process, and downstream purification requirements, and must therefore be assessed on a case-by-case basis.

Fermentation: process and technological maturity

Modern industrial fermentation uses natural or engineered microbes to transform low-value feedstocks (often sugar-refining byproducts such as molasses) into higher-value products within the controlled environment of an industrial bioreactor (Fig. 2).

Fermentation is already well established for producing bulk chemicals such as amino acids, where high yields and large-scale production have created cost efficiencies that make these products competitive with animal-based and petrochemical alternatives. Amino acids such as glutamate or lysine, widely used to build muscle and support athletic performance, can be produced for as little as ~$2.5/kg. Similarly biomass proteins (e.g., mycoprotein) now have production costs of ~$4/kg approaching the cost of inexpensive animal protein sources such as poultry ~$5/kg.

Historically, the broader adoption of fermentation has been limited by high capital requirements, input-cost volatility - stemming from the seasonality of agricultural byproducts employed as feedstock, lower yields compared to petrochemical processes, optimised over a century, and competition with fully depreciated capital investments.

Despite this, recent and future advances in strain engineering - enabled in part by AI-driven software streamlining the selection of the most efficient microbes to produce a target molecule - are expected to result in material yield improvements and increased cost competitiveness. An example of advanced strain engineering and process improvement is precision fermentation, which relies on highly engineered, microbes. In this approach, a specific DNA sequence is inserted into a microbial host to produce targeted, high-value molecules. This subsegment of industrial fermentation serves mainly high-value sectors with strong growth potential in such segments as cosmetics and nutrition, producing molecules such as whey proteins, collagen, vitamins, and hyaluronic acid. A notable example is the microbial production of human milk oligosaccharides (HMOs - sugars naturally present in human breast milk) for use in infant formula. Precision fermentation enables the production of biologically identical HMOs, which cannot be derived by any alternative method, representing an ideal business case.

Market Overview

The global market for fermentationderived ingredients is substantial, already exceeding USD 50 billion and growing at a 9% CAGR. It spans a wide range of end sectors, including food and feed ingredients, cosmetics, pharma, and industrial applications. Markets for fermentation-derived ingredients encompass diverse products at varying stages of maturity reflecting the technological readiness and cost competitiveness referenced earlier. Bulk segments (e.g., amino acids, industrial enzymes, and organic acids, which are commonly used as food additives and industrial inputs) are well-established and account for the majority of current production volumes. Specialty categories, such as fermented flavours, pigments, and precision-derived proteins, remain smaller but are rapidly scaling, representing potentially attractive markets for investment.

The largest end markets for fermented products are in food, feed, and nutrition, with fermented proteins, vitamins, cultures, and enzymes all experiencing robust growth in recent years. Within this segment, precision fermentation is particularly dynamic, forecast to grow at 38% CAGR between 2025 and 2030, supported by recent technological advances and propelled by market tailwinds from favourable consumer sentiment and an increasingly supportive regulatory environment.

Products with industrial and agricultural applications, such as biostimulants, enzymes, and organic acids, continue to benefit from a global shift to bio-based production methods also supported by regulatory drivers, such as bans of chemical pesticides that encourage the adoption of natural alternatives. Within this space, Ambienta has recently invested in Agronova, a Spanish group which produces biostimulants through microbial fermentation. The global regulatory environment is increasingly amenable to fermented products and in many jurisdictions growing regulatory pressure to reduce Scope 3 emissions provides strong market demand for fermented alternatives from companies eager to meet their ESG targets.

Investment opportunities

Fermentation technology is gaining market share across sectors as cost curves improve, sustainability considerations intensify, and regulatory frameworks become more supportive.

Fermentation technology is gaining market share across sectors as cost curves improve, sustainability considerations intensify, and regulatory frameworks become more supportive. Market trends favouring natural products, driven both by consumer sentiment and by corporate sustainability targets, align market growth with the renewable attributes of the technology. Attractive investment opportunities can be found across many business models:

Fermented ingredients manufacturers represent an attractive segment, with several interesting opportunities in both private and public markets. Players combining in‑house strain engineering, fermentation capacity, and purification capability benefit from high margins, strong IP moats, and demand from high‑value end markets such as cosmetics, food ingredients, and pharma. Their ability to scale robustly and optimise yields remains a challenge to achieving lasting competitive advantage. Large, listed companies typically target more established market segments, with Asian players such as Ajinomoto (TYO: 2802) and CJ Cheiljedang (KRX: 097950) being particularly dominant in amino acids. These players are diversifying their offering: Ajinomoto is currently branching out into the CDMO (contract development and manufacturing organization) space, offering fermentation expertise and capacity to other ingredients producers. Similarly, traditional yeast producers such as Angel Yeast (SSE: 600298) are increasingly focusing on deriving novel, highmargin yeast-based products to drive sustained growth.
Specialised CDMOs represent another compelling niche, as demand for outsourced fermentation capacity has risen sharply among emerging precision fermentation companies that are unable or unwilling to deploy capex for their own facilities, often in the range of hundreds of millions of euros. The CDMO model, which is well established in the adjacent pharma sector remains limited in the industrial fermentation space. Industrial fermentation CDMOs thus face strong demand and attractive pricing conditions. Traditionally pharma-focused CDMOs, such as Lonza (SWX: LONN), and other European private players do have the capacity to meet some of this booming demand.
Equipment manufacturers, including bioreactor providers and filtration/purification system suppliers, can benefit from recurring revenue in consumables and service contracts. Listed players addressing this market include ThermoFisher Scientific (NYSE: TMO) and Sartorius (FRA: SRT), which more broadly target the bioprocess segment. As downstream processing is widely viewed as the bottleneck to industrial scale‑up, companies delivering improved separation technologies, automation, and process simplification are well positioned for growth.

As technological maturity for fermentation process reaches a wider range of molecules, creating an increasingly compelling business case for sustainably fermented ingredients, we expect further opportunities to arise along the value chain for different risk/ return objectives.

News

Theme of The Month