Beta Hatch, the future of farming

xconomy|October 24, 2016

Like the Very Hungry Caterpillar, there’s more to the humble mealworm than meets the eye. It doesn’t become a beautiful butterfly, but it may contain part of the solution to one of the world’s biggest challenges: sustainably feeding the growing population.

I contacted insect entrepreneur Virginia Emery last spring after hearing about the mealworms her Seattle startup company, Beta Hatch, is growing as a nutritious chicken feed. My family includes two chickens—they’re pets, not cattle—and I’m interested in businesses catering to urban chicken farmers and other people who want to see local, sustainable food systems thrive.

Beta Hatch will begin selling its handsomely packaged “chicken crack”—freeze-dried mealworms—and fertilizer directly to consumers on Amazon, where many sellers offer a similar product, as soon as Tuesday. But this is not just a pet food company.

The ambition wrapped up in Beta Hatch and modern agtech startups like it is not merely to develop a new product or market, but rather to reinvent an entire industry—one that is as fundamental to civilization as electricity or water. The entrepreneurs diving in argue that the agriculture industry, facing a global population of 10 billion by 2050 and a changing climate, needs the same kind of rapid iteration and experimentation that is the calling card of the tech startup world. And everything better be able to scale.

Hence, bugs—lots of bugs. “Insects are the future of farming,” Emery told a room of cleantech enthusiasts as she laid out a succinct view of the problem at an event this summer. Steve Klein, the CleanTech Alliance board chair emceeing the session, introduced her as “the Elon Musk of protein.”

The world needs to produce 70 percent more food by 2050, Emery explains, but per-capita agricultural land has decreased. We need more human food, and more feed for the animals we eat. Among the costliest inputs to farming are protein-rich feed to grow meat for humans, and fertilizer to grow produce.

The high-protein, high-fat mealworms Beta Hatch is rearing by the hundreds of millions at its 3,500-square-foot proof-of-concept farm in SeaTac, WA, could someday provide a consistent, beneficial, and sustainable source of both, she says.

“With climate change, with speculative gas prices, a lot of these inputs can be very unstable, so this is a huge problem for farmers,” says Emery, founder and CEO. “BetaHatch is helping to tackle this problem.”

Down on the farm

The Beta Hatch farm is not located in some bucolic pasture. It occupies a former office space on the second floor of an ordinary building shared with an auto-body shop, an upholsterer, and a guitar maker. It is just south of the airport and jets roar overhead every few minutes, seconds from landing.

The farm itself is partitioned off by plastic curtains and consists of several long rows of custom-built wooden racks, each holding dozens of plastic trays filled with mealworms at various stages of their life cycle. Fans and humidifiers whir, but other than that it is quiet. The farm is clean and has a mild odor, but nothing offensive—and nothing to indicate that millions of bugs are busily eating, going about their four-month lives.

The adult bugs, known as darkling beetles, lay eggs—a million of them fit in approximately a pint—which hatch into larvae and progress through several stages, or instars. (The name Beta Hatch is inspired by the potential of a hatching egg and Emery’s love of rock climbing, in which “the beta” is the essential knowledge you need to reach the top of a difficult climb.)

The mealworm larvae loll in trays of dry, fine-milled grains and vegetables. They are pseudo-domesticated, Emery says, having evolved to live in stored grains. Beta Hatch is shifting to waste-based feedstocks, such as spent brewery grains and fruit humus. The farm uses no water in raising the mealworms; they get all they need from their food.

The mealworms eat and grow and act as little bioreactors, creating valuable products. Beta Hatch harvests their dry, sand-like manure—called frass—for use as an organic, fossil-fuel-free fertilizer, particularly in agricultural applications where precision is prized, such as greenhouses, Emery says. When they’ve fattened up, most of the mealworms are harvested and freeze-dried. (Some are allowed to pupate and become adult beetles to lay the next batch of eggs.)

Right now, the harvest and processing is done by hand, but Emery is planning a scaled-up operation that would use industrial automation such as conveyors or someday even robotic pickers like in Amazon fulfillment centers.

By late summer, the proof-of-concept farm was already producing about 200 pounds of mealworms and 400 pounds of frass each week. In addition to the direct sales, Beta Hatch aims to have both products available to consumers through garden centers next spring.

Developing markets

There are many more potential products and environmental services to be derived from insects, and the consumer market is just the beginning for Beta Hatch. The value of the honeybee industry, for example, that essential pollinator in precarious decline, is estimated at $170 billion a year, Emery says.

Reminding people that honeybees are beneficial insects helps shift the mindset of thinking about bugs as pests to thinking of them as assets, she says. But there’s work to do on this front. Insurance industry policies treat insects as filth, for example, not inventory.

Emery, who earned a PhD from UC Berkeley in entomology, focused on chemical communications and genetics in ants, is applying for grants to study how frass fertilizer may reduce water pollution caused by runoff of fertilizers made with fossil fuels (it has no nitrates) and test the mealworms’ appetite for Styrofoam. A tank of mealworms at Beta Hatch has been living on bits of polystyrene since February. If that grant comes through, “We’ll be working on trying to create our ‘SaaS’ solution—Styrofoam as a soil,” Emery quips. “Getting something otherwise thought to be not biodegradable into our food systems again is pretty incredible.”

As the mealworm larvae grow, they shed like a snake. Their exoskeletons, called exuvia, are high in a biopolymer called chitin, which can be used in pharmaceutical additives, bioplastics, and food and agriculture. The larvae themselves may also be an attractive supplement for other food producers; Emery aims to serve the growing aquaculture industry, for one. And people do eat mealworms—along with many other insect species all over the world. On a recent visit, a table in the Beta Hatch office held samples of cricket chips and several insect cookbooks.

“We’re just starting to warm up in North America to the idea of insects in our food system in a protein way, not a get-rid-of-them, kill-them kind of way,” Emery says.

But she’s counting her chickens first.

There is a large potential market of commercial poultry farmers, and Emery thinks mealworms will be a relatively easy sell: “The natural chicken diet is insects,” she says, and mealworms—which are about 56 percent protein and 33 percent fat—make great chicken feed. Much of the protein in chicken feed now comes from soy, the cultivation of which contributes to deforestation. Also, giving chickens more of their natural diet may have health benefits. “There’s some suggestion insects decrease the need for antibiotics, so that’s kind of an extra bonus,” she says.

Beta Hatch is selectively breeding its mealworms to optimize that nutritional profile, accelerate development times, and make other improvements. Emery says classical selective breeding has dramatically increased yields, consistency, variety, and manageability of most crops and livestock species over the last half century. She sees similar room for improvement in mealworms. “This is hard core, back to the roots of understanding your organism, knowing what you’re growing, and being aware of how it’s producing generation to generation,” she says.

Emery acknowledges that farmers in general are appropriately conservative about their practices and don’t look fondly on the “disruption” that startups proffer. “They don’t have a lot of room for error,” she says. “They want consistency. They want reliability.”

She sees a promising initial market in organic farmers, who may be more open to new products and practices. Beta Hatch also recently hired a head of research and development tasked with gathering evidence to support the case for mealworms and frass fertilizer. The company aims to eventually be cost-competitive with fishmeal and provide a feed source that is potentially healthier for livestock and more sustainable.

“I think there’s going to be a lot of demand on a commercial scale for this kind of product,” she says.

And she’s not alone. A U.N. report in 2013 advocated for insects as a sustainable food source in a crowded world. The last few years has seen a wave of insect protein startups, such as Tiny Farms, which is trying to do for crickets what Beta Hatch wants to do for mealworms, and cricket bar makers Exo and Chapul.

‘How to factory-farm bugs’

If that demand materializes in a meaningful way—still a big if—the scale could be enormous. Already, Emery sees enough interest to increase mealworm production to at least a ton a day in the next two years. Beta Hatch is producing around a ton a month currently and is on track to increase to a ton a week early next year.

It’s the supply side—the process automation and other production aspects at scale; the logistics of moving that much material out to customers—that Emery anticipates as the bigger challenge.

Indeed, agtech companies and startups handling physical things in all industries have run up against the challenge of logistics. Emery was disappointed to see New York-based Farmigo discontinue its farm-to-consumer delivery service in July, opting to focus instead on software to help small farms.

“Dealing with the logistics is tough,” she says. “But that is the problem that needs to get solved.”

Beta Hatch is developing its technologies and processes for more efficiently rearing bugs at scale, borrowing from other industries, automating whatever it can, and building slices of software to help manage it all. Emery says innovation in precision agriculture and indoor farming is providing momentum for insect farming businesses.

“My goal with the business is to be the world experts in how to factory-farm bugs,” she says, adding, “It’s kind of this interesting marriage of engineering, biology, and process engineering and operations.”

Emery began in a 100-square-foot shed in her Seattle backyard—the “Ballard Bug Barn”—where she experimented with a couple of insect species before settling on mealworms. (She says the practices she’s perfecting with mealworms could eventually be applied to rearing other species, too.) She raised the early generations in stacks of plastic under-bed drawers.

Beta Hatch moved to the current farm in January. It has churned through four generations of processing equipment—rack and tray configurations, shakers that separate the frass, freeze-driers to preserve the larvae. (The latter have proved more difficult to obtain as Washington’s growing legal marijuana industry is buying up similar equipment.)

Emery notes that there are other successful mealworm growers, mostly providing feed for pet reptiles or fishing bait. “But they’re not thinking about the scale and volume we’re trying to reach with what we’re trying to accomplish here in agriculture.”

Competition from pot growers notwithstanding, Seattle is a promising place to start a business like Beta Hatch, Emery says. The weather is mild, electricity is inexpensive, and there’s space available for building indoor farms—though not every landlord wants 100 million bugs in their building, regardless of how docile and contained they may be. Mealworms are not considered an invasive species or a health hazard, Emery says, so permitting is doable.

Moreover, Washington has a huge agriculture industry that could benefit as climate change makes growing conditions in the Northwest more favorable, particularly relative to drought-stressed ag kingpins such as California.

“As the agricultural industry expands in the state, I think it’s a great opportunity for us as a farming company,” she says.

Since late summer, Beta Hatch has grown to six employees. Emery says she’s been able to find people with the talent and values she needs to help her build this complex business.

Emery bootstrapped the company at first and then raised additional capital through a community sourced loan—contributions of $50 or so from family and friends, with help from nonprofit lender Craft3, to get the proof-of-concept farm off the ground. She took on outside investors in May. Emery is wary of saying much publicly about her private fundraising, though you can expect to see her talking up Beta Hatch and the broader mission at several events around the Seattle area this fall (including Xconomy Intersect on Dec. 8).

It’s clear that the company needs capital to expand the way Emery imagines it—into a modern agricultural operation handling tons of material each day—but she says there are lots of ways to keep it manageable, and enough market opportunity to justify an investment.

The next big step would be a 50,000-square-foot demonstration farm, which she estimates would cost between $4 million and $6 million to build.

“It’s a very hardware-intensive type of business, which is not where most of the activity in the startup scene has been,” Emery says. “There’s been a huge focus in software, which scales totally differently.”

She adds, “It feels really good to be creating something tangible… to be solving these big problems. That’s really the type of innovation we should be having in entrepreneurship.”

In other words, software may be eating the world, but 10 billion humans will need to eat, too.

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