2. The sluggish start of the insect industry

So far, insect production has not kept pace with optimistic projections. In 2019, the industry body International Platform of Insects for Food and Feed (IPIFF) projected that the annual production of all insect proteins (including for human consumption) would reach 1 million tonnes by 2025 and 3 million tonnes by 2030 (IPIFF, 2019). This projection was widely cited by both academic studies and news articles (Thrastardottir et al., Reference Thrastardottir, Olafsdottir and Thorarinsdottir2021). In contrast, IPIFF's members produced around 9,500 tonnes of insect feed products in 2022 (IPIFF, 2023). Even accounting for insects produced for human consumption (currently a negligible market share (Rabobank, 2021)) and producers that are not members of IPIFF, it is difficult to see how the insect farming industry would achieve the 100-fold growth required to reach 1 million tonnes by next year. The online forecasting aggregation platform Metaculus currently predicts that 47,000 tonnes of insect protein will be used as feed in Europe in 2028 (Metaculus, 2024). This more modest prediction, which still expects the insect farming industry to expand by several times over the next few years, is only a couple of percent of the IPIFF's original prediction for 2030.

There are many factors contributing to the insect industry's struggle to meet expectations, including regulatory hurdles and unresolved logistical challenges (Grasso & Bordiga, Reference Grasso and Bordiga2023). However, one important observation is that many small-scale startups are struggling to scale up their production to a commercial level. There is a high turnover; the majority of insect producers wind down or go bankrupt within five years (Larouche et al., Reference Larouche, Campbell, Hénault-Éthier, Banks, Tomberlin, Preyer, Deschamps and Vandenberg2023; Thrastardottir et al., Reference Thrastardottir, Olafsdottir and Thorarinsdottir2021). There appear to be some underlying economic dynamics that are preventing startups from expanding and reaching commercial production volumes.

3. Europe's insect farms are moving offshore

Offshoring occurs when production is fragmented into separate production processes carried out by different companies in different countries (whether or not those companies have the same owner). Offshoring is a result of the integration of the global economy. The past decades have seen a growing importance of offshoring in the EU in particular (Radło, Reference Radło and Ambroziak2017).

Likewise, we may be witnessing the beginning of offshoring in the EU's insect agriculture industry. Europe's biggest insect companies have recently announced plans to expand production outside of Europe (Figure 1). France-based Ÿnsect has announced deals with Jord Producers and Ardent Meals to expand insect production in the Midwest of the United States, and Ÿnsect has also announced a deal with Mexico City-based Corporativo Kosmos to expand production in Mexico. Meanwhile, Netherlands-based Protix and France-based InnovaFeed likewise have plans to expand into the United States. InnovaFeed has also announced plans to expand into South-East Asia (Roussange, Reference Roussange2022; Ÿnsect, 2022).

Figure 1. Offshoring of European insect production may be driven by Europe's higher costs for energy and agricultural wages. Insect production requires specific temperatures (top), electricity (middle), and manual labor (bottom), which are cheaper to obtain in North America and South-East Asia. The dashed lines in the top graph represent approximate optimal temperatures for rearing larvae of black soldier flies and yellow mealworms. Data: Climatic Research Unit, University of East Anglia (crudata.uea.ac.uk, ODbL 1.0 licence); Global Petrol Prices (globalpetrolprices.com, CC BY-NC-ND 3.0 licence), International Labour Organization (ilostat.ilo.org, CC BY 4.0 licence).

The decision to move insect production outside of the EU may be driven by the economic realities of insect agriculture. The financial details of insect farming operations are often kept secret, but we can glean some information from the seminal economic studies on the finances of this industry (Halloran et al., Reference Halloran, Flore, Vantomme and Roos2018; Niyonsaba et al., Reference Niyonsaba, Groeneveld, Vermeij, Höhler, van der Fels-Klerx and Meuwissen2023a; Reference Niyonsaba, Hohler, Van Der Fels-Klerx, Slijper, Alleweldt, Kara, Zanoli, Costa, Peters and Meuwissen2023b; Thrastardottir et al., Reference Thrastardottir, Olafsdottir and Thorarinsdottir2021).

Two major cost components in insect production are labor and energy. To date, the only study to provide empirical evidence on the finances of insect farms in Europe is a study of seven T. molitor farms in the Netherlands. In this study, labor emerged as one of the biggest cost components, ranging between 677 and 2913 EUR/tonne production when the farmer's own labor was included (Niyonsaba et al., Reference Niyonsaba, Groeneveld, Vermeij, Höhler, van der Fels-Klerx and Meuwissen2023a). Labor costs were exceeded on some farms only by the major upfront investments for buildings and machinery. Manual labor is required when caring for larvae (e.g. moving eggs into crates, feeding larvae, harvesting larvae, cleaning crates, and replacing beetles) and for other on-farm processes, such as administration, transport, and marketing (Grasso & Bordiga, Reference Grasso and Bordiga2023; Niyonsaba et al., Reference Niyonsaba, Groeneveld, Vermeij, Höhler, van der Fels-Klerx and Meuwissen2023a). Given the high costs of labor, insect industry stakeholders have identified high labor costs and low levels of automation as main barriers to the expansion of insect production (Niyonsaba et al., Reference Niyonsaba, Hohler, Van Der Fels-Klerx, Slijper, Alleweldt, Kara, Zanoli, Costa, Peters and Meuwissen2023b). Therefore, in developed countries, the profits of insect production may only exceed that of conventional animal protein sources when insect farms reduce wage costs by becoming highly automated (Halloran et al., Reference Halloran, Flore, Vantomme and Roos2018).

When it comes to energy, there are several on-farm processes that contribute to farms' electricity demands. The temperature and humidity level needs to be maintained within a relatively narrow range. Suitable temperatures tend to be relatively high (27–40 °C, depending on species) (Grasso & Bordiga, Reference Grasso and Bordiga2023). Electricity is also needed for slaughtering insects, which may involve energy-intensive processes such as freezing, oven baking, or blending; processing dead insects; and storing substrates and other perishable products (Grasso & Bordiga, Reference Grasso and Bordiga2023). Furthermore, for farms that invest in automation, we can expect the costs of electricity to increase accordingly.

Critically, labor and electricity tend to cost more in Europe than in other insect-producing regions (Figure 2). Consider the labor costs of 677 to 2913 EUR per tonne production, reported for T. molitor farms in the Netherlands (Niyonsaba et al., Reference Niyonsaba, Groeneveld, Vermeij, Höhler, van der Fels-Klerx and Meuwissen2023a). These costs suggest that a move from the Netherlands (with labor costs of 3841 USD per month for agricultural work; Figure 2) to, say, Thailand (198 USD per hour) could save a producer between 642 and 2762 EUR in labor costs for every tonne of production (91%). Of course, this is a simplified calculation, but it illustrates the important fact that insect producers can save lots of money for every tonne of production by moving to countries where labor – often producers' largest cost component – is cheaper.

Figure 2. The largest European insect farmers are expanding overseas. Key destinations include the United States, Mexico, and South-East Asia (Roussange, Reference Roussange2022; Watson, Reference Watson2023; Ynsect, 2022).

Moreover, the higher temperatures in many insect-producing South-East Asian countries would reduce the difference between the ambient air temperature and the optimal temperature for insect growth, thereby reducing the electricity required by insect farms in the first place. One study on mealworms farmed by the company Ÿnsect in France found that producing 1 kg of fresh insects uses 1.152 kWh at farm gate and 8.940 kWh at processing plant gate (Thévenot et al., Reference Thévenot, Rivera, Wilfart, Maillard, Hassouna, Senga-Kiesse, Le Féon and Aubin2018). In France, with energy costs of 0.136 USD per kWh in 2019, 1 tonne of fresh insects would thus cost the producer 157 USD (at farm gate) or 1216 USD (at processing plant gate) in energy costs alone. Much of this cost comes from maintaining the rearing room at 28 °C in a country where ambient temperatures average around 10 °C (mean for Lille, France from 2009 to 2013; Figure 2) (Thévenot et al., Reference Thévenot, Rivera, Wilfart, Maillard, Hassouna, Senga-Kiesse, Le Féon and Aubin2018). In contrast, ambient temperatures in Vũng Tàu, Vietnam, and Bangalore, India are 28.1 and 25.8 °C, respectively (Figure 2). As such, production in Vietnam or India rather than Western Europe enables the producer to avoid this substantial cost component. The United States does not necessarily have a warmer climate, but that country does have cheaper electricity and would therefore still represent a cost saving for producers (Figure 2).

The economic reality of labor and energy costs, and the resulting incentive to move insect production offshore, is a topic about which stakeholders within the insect industry are candid. The investor Tan Shao Ming, when discussing his support for Innovafeed's plans to expand in Southeast Asia, reports (ABC Impact, 2022): ‘We believe that there is a huge potential for Innovafeed's technology and platform to be rolled out in Southeast Asia, given the tropical climate which is conducive for the black soldier fly’. Alexandre de Caters, the Belgian co-founder of insect company Entobel, gives a similar reason when explaining his choice to base his company in Vietnam (Watson, Reference Watson2023): ‘It quickly became obvious that Europe was not the place to start for the simple reason that black soldier flies are tropical insects. […] We plan to grow further inside Vietnam, but the bigger facilities would likely be outside Vietnam in countries with tropical weather and a stable supply of feedstock such as Indonesia and Malaysia’. And Ankit Alok Bagaria, CEO of India-based company Loopworm that aims to produce insect-based aquaculture feed, emphasizes the role of both labor and energy costs (Fletcher, Reference Fletcher2023): ‘In Europe the labour cost is very high and, as the climate is not so suitable for insect growth, [European producers] have to customise and modulate the climate in their farms’.