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Twenty-three

Thomas Farrugia - Beta-Bugs

Bugs on the menu?…

Thomas Farrugia - Beta-Bugs

Bugs on the menu?

Scotland may be famous for its midges, but a scientist from Malta may soon put a completely different insect on the map – and provide a very different source of protein which could change the feeding habits of livestock and fish farms...

Thomas Farrugia first started thinking about the potential of insects when he ate some creepy-crawlies from a street stall in Antwerp (no pun intended) in 2011. Four years later in Bristol, he came across an article which posed the question, “Why not eat insects?” Intrigued by the idea of insects becoming a main source of protein, he also started learning how environmentally friendly and versatile insect-based products could be, and the scientist in him began morphing into an entrepreneur.

You could say that is when he caught the bug, but a lot has happened since then and Farrugia is now the managing director of a company called Beta-Bugs, seeking to transform the way agribusiness functions by making a new generation of insects a critical – and more sustainable – part of the agricultural food chain. As the company grows, it also aims to play a major role in the bioeconomy by turning its new breed of insects (black soldier flies) into fuel and high-value biomaterials, taking advantage of the fact that you can breed the bugs to weaken or strengthen various genetic traits – e.g., so they provide more Omega-3 or the type of fatty acids good for biofuel.

The challenge for Farrugia is not just to develop the technology (increasing genetic diversity, then selecting the insects for breeding the next generation) and market his new and improved breeds of bugs, but to cope with the ‘chicken and egg’ problem faced by the industry: “Setting up an insect farm requires a big capex (capital expenditure) investment,” he explains, “and the market is not yet mature. Insect farmers will have to scale up operations to meet the demands of a growing feed industry, but if we can offer them new breeds which increase productivity by 50%, then we’re in business.”

The benefits of insect protein are now well established, in aquaculture and for feeding chickens, for example, but pricing is still a big issue. Fishmeal currently costs about £1,000 per ton and soy protein concentrate £600–700 per ton, while insect protein is 2–3 times more expensive than fishmeal. It is only when economies of scale kick in that prices will become much more competitive, enabling insect protein to compete head-on with soy.

The target of the insect protein industry in Europe is production of a million tons per year by 2024, and that means setting up about 100 new farms, each producing 3,000–10,000 tons a year. “In this industry, 500 tons is nothing, but to get the business going, we need a few early adopters,” says Farrugia, referring to “adventurous” black soldier fly producers who want to try new breeds. Despite the competition from conventional sources of protein, however, investment in insect farms grows every year, with some companies around the world committing £60–100 million for new facilities. Other smaller farms are also being built, creating a virtuous circle of waste, bugs and livestock, and even though they’re only a fraction of the market today, they are tipped to be much more important in future.

Despite the challenges, Farrugia is confident. “Better bugs will be the crops of the future, producing animal feed, food and fuel and driving the sustainable bioeconomy,” he says. “The insect industry has huge potential, both environmentally and economically, and the challenge is to optimise the insects for industrial use, to make them easier to farm and become more efficient sources of protein. We’re taking advantage of tried and tested bio-techniques used in plant and animal breeding – in effect, creating the genetic software (breeds) needed to drive the agricultural hardware (insect farms).”

“Breeding is the scalable bit in the animal,” Farrugia explains. “Insect breeds have not been optimised yet, for feed, food or fuel, but by accelerating evolution and increasing genetic diversity, we can double productivity within the next 5–10 years.” And the new “genetic library” will optimise key factors such as growth rate, protein content, fat composition and temperature tolerance, “to increase revenue, efficiency, performance and quality.”

From Malta to Scotland

As he revealed to last year’s annual Falling Walls Foundation international forum for science-based start-ups, Farrugia’s grandfather was a fisherman in Malta, and the young man was always impressed by the size of the fish that his grandfather caught, as well as the number of small fish which farms used for animal feed – a lesson he’s never forgotten.

After gaining his BSc in Chemistry at the University of Malta in 2012, Farrugia went on to do his Master’s at Imperial College London, “using computational techniques and solid-state physics to conduct research in graphene nanomaterials.” Next, he did his PhD in Chemistry at the University of Bristol, focusing on “producing enzymatically active thin films,” before he got involved with an organisation called Deep Science Ventures in 2017 and set up Beta-Bugs later that year.

The battle of ideas

Farrugia’s experience with Deep Science Ventures has had a big impact on his business as well as his thinking. The investors focus on scalable technology and science-driven companies, and invite people such as Farrugia (mostly PhDs) who are specialists in various branches of science to throw ideas for new ventures into the ring to see which ones will win in the battle for money.

Three months later, Farrugia emerged from this “battle of ideas” with a £50,000 investment (in return for equity); but more than anything he also realised that insects were not just the future of the bioeconomy but also the business for him. Despite his early interest in creating his own insect farm, however, his early investors advised him against this because it would cost too much money. “The idea was to see where we could make the biggest difference in the value chain,” says Farrugia, “and high-performance breeds were the answer.”

The next step was to build a breeding system (the first insectary was small enough to operate in somebody's kitchen), and begin to breed new generations of insects, analysing each new breed for useful traits (e.g., faster growth and larger size) which could be amplified in future generations by careful selection. At this stage, Beta-Bugs recruited its first employee, George Chanarin, who helped design the first insectary.

In early 2017, Farrugia set up a new insectary in Unit DX, a science incubator based in Bristol set up by Dr Harry Destecroix, co-founder of Ziylo – a spin-out purchased by Novo Nordisk for £800 million last year. This was soon followed by a move to Rothamsted Research in Hertfordshire to scale up the colony, keeping the insects in a room about 12 feet by 12 feet, insulated and kept at a temperature of 27 degrees Centigrade.

Soon afterwards, Farrugia had to move the insectary out of Rothamsted, following complaints about high levels of ammonia messing up nearby experiments, including one with pheromones. To house his bugs, he bought a 20-foot container for £200 and cycled around in the area asking local farmers for somewhere to park it, before he moved it back to Rothamsted, spending more on haulage than the actual container itself.

Around this time, Farrugia met John Mackenzie, CEO of the Roslin Innovation Centre near Edinburgh, and Charles Vander Broek of the Knowledge Transfer Network (KTN), who both encouraged him to apply for RSE funding. “It made sense to talk to the people at Roslin,” Farrugia explains, “because it is a centre of excellence for animal breeding.” And now that Beta-Bugs is being hosted by the Roslin Innovation Centre, Farrugia is planning to move all his kit up to Scotland, at the same time as recruiting a Chair for the Board and engaging with both insect farms and end users.

As well as learning from the scientists at Roslin, Farrugia is keen to take advantage of the specialist knowledge of insects built up by researchers with completely different motives – running projects designed to eliminate negative traits. “Instead of trying to kill them,” Farrugia says, “we’re trying to breed better bugs.” Nutritional researchers will also help Beta-Bugs sharpen its knowledge, including scientists in the Institute of Aquaculture at the University of Stirling.

Why invest in insects?

Farrugia believes that insect protein has enormous investment potential, and also thinks that breeding better bugs and selling larvae to farmers is where the returns will be greatest: “Insect protein is a fastgrowing market and we are focused on the scalable part of the value chain, creating defensible assets, rather than getting involved in the commodity market or setting up our own fly farms.”

The unique selling point of Beta-Bugs, according to Farrugia, is “using plant and animal breeding techniques to create a genetic library of breeds which can be developed in parallel.”

Unlike livestock, new generations of insects can be bred in a matter of weeks compared to several years – and Beta-Bugs will be able to protect its own special breeds, “through a combination of biological and commercial approaches.”

Beta-Bugs has also created an innovative business model, starting with a fixed fee, selling larvae to farms, then moving on to a fixed fee plus royalty model. For example, when productivity improves by 50%, Beta-Bugs will earn a commission, based on the increase. Once total production reaches millions of tons, the opportunities for higher earnings will soar. Beta-Bugs has already attracted some funding and plans to seek first-round investment at the end of 2019, focusing meanwhile on building its know-how and industry networks. So far, in addition to the £50,000 investment from Deep Science Ventures, the company has won funding from Innovate UK and the SME Instrument Phase 1 competition, worth a total of £95,000, as well as support from the RSE
Unlocking Ambition programme which included hosting at the Roslin Innovation Centre. "Winning the RSE Fellowship was a game-changing moment,” says Farrugia, “which will help us in the drive to commercialisation.”

Like most other start-ups, investing in insects is not without its element of risk, but Farrugia is confident his business plan has what it takes to succeed. “We’re building a new company in a market which is only just beginning to develop,” he says. “That means we are taking a risk on a risk, but we are confident that our approach is different enough to succeed.”

What's next?

Insects are already being sold in supermarkets, but that's only one market stream. Livestock and fish feed producers promise to be major buyers as they diversify their sources of protein and get into insects, whilst livestock farms and fish farms will also be major end users, buying feed containing insect protein. Fuel and biomaterials will also become more important through time. Because they want to stress their credentials as sustainable suppliers of healthy nutrition, retailers will also be interested, says Farrugia, selling insect-fed produce such as chicken and fish. Governments are also beginning to express greater interest in insects for food and for fuel, because it will reduce waste, increase sustainability and strengthen domestic protein production (the domestic supply chain).

“Insect farms still have a long way to go, but as the industry gathers momentum over the next five years, we'll scale up very rapidly,” Farrugia says.

If all goes well, Farrugia and Beta-Bugs may find themselves the target of a buy-out a few years from now, with feed manufacturers, insect farms and livestock producers the obvious suitors. But Farrugia has other ideas: instead of being bought out by a large corporation, why shouldn’t Beta-Bugs become a global player in its own right, along the way acquiring other companies in the same sector?

No matter what Beta-Bugs does next, however, Farrugia is clear about one thing. “It's all about food on our plates,” he concludes.

 

Advantages of setting up operations in Scotland

Farrugia sees various advantages in setting up his operations in Scotland. One major plus is the number of organisations with related agendas, such as Zero Waste Scotland, encouraging the better use of waste streams. Scientific expertise is another major strength, including the Roslin Institute, Scotland's Rural College and the Innovation Centres for industrial biotechnology and aquaculture. In addition, says Farrugia, the innovative business culture is a major attraction: “Scotland is very good at taking care of small companies. There's a good ecosystem for start-ups as well as investors, and that is why we want to be in Scotland.”

 

The buzz about bugs

With the world’s population expected to reach at least nine billion people by 2050, and consumption of protein increasing by 50% in the last 40 years, demand for animal protein will soon outstrip supply, unless science comes to the rescue. And alternative sources of protein such as insects (1,900 edible species) could be the environmentally-friendly solution – not just for their high nutritional content (fats and proteins) but also as a source of vitamins and minerals. Insects also offer more efficient food conversion, using up less water and land, and produce lower greenhouse gas emissions than traditional livestock.

The market for animal feed is another major source of future revenue, currently worth an estimated $400 billion a year, and the “insects for feed” market is expected to be worth $1 billion a year by 2022.

 



 

 

 

 

 

"Thomas Farrugia - Beta-Bugs". Science Scotland (Issue Twenty-three)
Printed from http://www.sciencescotland.org/feature.php?id=359 on 21/08/19 06:33:02 PM

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