Saving chocolate

Hiya,

Pumped to see many of you soon for drinks + dope fits in Manhattan.

If you’re feeling left out because you’re busy or not in New York, don’t fret. We’ll be in your city soon. Deets on an LA-based event at the bottom of this email.

For today, we’re covering a cool early stage company whose mission & work will let us dovetail seven plus ‘climate’ stories. Today’s newsletter is a deep dive on their waste-to-value approach to bringing alternative cocoa products to market. Think more sustainable and resilient chocolate. Think chocolate forever!

I’ve known Aaron Feigelman, the CEO of Kawa Project, for a few years now and continue to be impressed by his plucky approach to business building and the intersectional impact he and Kawa Project aim for. Excited to hit send on this one.

DEEP DIVE

Sitting here more than 15% of the way through 2024, the culture is awash in long lists of things that people decry as bad for the environment. Planes. Cars. Drying clothes. Watering lawns. Eating beef. Plastic packaging, especially for smaller products, like cosmetics (very hard to recycle ‘mechanically’). [Add your favorite or pet peaves here].

Palm oil is a pretty popular one too. Folks have long resonated with the correlation between palm oil farming and deforestation, especially as said deforestation threatens habitats for animals they may also like. Like Orangutans in Indonesia.

The palm oil story is a complicated one if you wade into the waters of trying to figure out which products that do or don’t contain palm oil are ‘better’ or ‘worse’. Palm oil is in tons of products for a reason. It’s a versatile, cheap fat. Further, the list of problematic food products doesn’t end with palm oil and beef. Even if you’re a vegan and are scrupulous with your palm oil consumption, it’d be harder yet to cut all of the below commodities out of your life.

Nor would I ever suggest that’s your job, as an individual. A lot of the work, really, should rest on the world’s largest producers of these commodities, on the companies that source them as inputs for their products, and on policymakers to incent those efforts with carrots or sticks.

Here’s something that’s less complicated. There are several alternatives to deforestation-linked commodites that are much better for the Earth’s climate and its ecosystems. Across many dimensions. Some of the best examples start with products that normally go to waste, i.e., products the production of which already hoovered up a lot of resources and that would otherwise turn into an end-of-life externality. This aligns with Kawa Project’s mission:

Fundamentally, there's a massive amount of food waste in the world. The headline statistic is that, whether you look at the U.S. or the world as a whole, collectively, we waste approximately one third of all food. That’s a massive waste not just of food that could feed the 10% of people globally who regularly go to bed hungry, but of energy and land use that goes into producing that food. And when that food waste inevitably ends up in a landfill, as Aaron noted, it often decomposes and turns into methane emissions. Landfills are the third or fourth largest source of human-caused methane emissions, accounting for more than 10% of global methane emissions. If food waste were a country, it’d be the world’s fourth largest emitter.

Unfurling one more layer of nested issues here, when forests are clear cut to make room for agriculture, that’s also a drastic loss of Earth’s climate self-regulation mechanisms. Those forests are major carbon sinks. They don’t just release carbon when cleared; it’s the absence of their normal carbon removal and sequestration that really hurts. To boot, they’re also bastions of biodiversity. We’re just starting to get a better understanding of how valuable that biodiversity is, how much we stand to lose by squandering it, and how to start aligning incentives to reverse biodiversity loss.

While it might seem like the world is moving far too slowly to shift production practices or penalize egregiously bad ones, the environmental footprint of these products is increasingly a risk for major international companies. Companies like Nestle and Kellogg come under fire when their suppliers are linked to deforestation. As a recent example, Reuters reported that a supplier of palm oil to Nestle, Kellogg's, and Colgate “has been farming palm oil on deforested land in one of the best-preserved areas of Peru's Amazon rainforest.” Mars also recently caught heat when investigations revealed kids as young as five were harvesting cocoa for their supply chain. Let’s investigate this more deeply.

Who’s it for?

Normally I walk through deep dives by presenting how a company’s solution works and then discussing who it’s for. I think reversing that flow can be important. In some ways “who is it for?” is at least as salient a question for early-stage companies as “how does it work?”

Aaron noted a major driver of interest in alternative cocoa products is to build more resilient supply chains. Companies like Mars or Cargill plan their procurement and supply chain operations out as far as possible. Aaron described how these companies are “beginning to dabble” with alternatives because they’re conscious of what climate change means for commodities, like cocoa. The price of cocoa, whether owing to weather, climate change, or new types of fungi that have decimated cocoa crops globally, has surged nearly threefold over the last few years. The cocoa price is higher than its been since 1977. Farmers can’t always adapt quickly (cocoa crop resilience is another key innovation opportunity area for you). On the legislative front, European countries and the U.K. are also increasingly homing in on ingredient inputs linked to deforestation, complicating buyers’ work.

Aaron quipped that two of the most centralized supply chains in the world are semiconductors (a lot of semiconductor know-how is concentrated on Taiwan) and, well, cocoa (I’d add wafers for solar panels as a third). Most (~75%) cocoa comes from West Africa. Big players in cocoa do care about sustainability. Less so for the environment or climate perhaps than for the sustainability of their margins. They care about predictability and price. A couple cents additional cost can break a business model. Margins for Oreos aren’t as sumptuous as they taste. Companies want to save money and they’re always thinking about their supply chains. 

How it works

OK. Suffice it to say there are better ways to source core inputs for food, whether cocoa or palm oil or something else. And that companies are keenly focused on this idea. 

So, what does Kawa Project do?

When Aaron first started thinking about problems related to palm oil he worked with coffee waste while studying at UCLA (go Bruins). There are fats in coffee waste that are similar to palm oil. That said, when trying to replace fat-related product inputs, you’re competing with very cheap products. What he did learn was that the process of transforming coffee waste into fats also produced a lot of dark powder. This dark powder has remarkable similarities to cocoa. Further, because the process was spitting off so much of the powder, it could potentially make for a better business economically. Cocoa is a lot more expensive–and getting more expensive quickly.

When Aaron pivoted to cocoa alternatives and started Kawa Project, he also had to pivot from the cosmetics and personal care products a palm oil alternative could have lent itself to in order to broach a new customer cohort. 50% of cocoa globally is bought by massive confectionery companies like Mars, Mondelez, and Nestle. Think Nutella. You can sell to players like this directly or via middlemen like Cargill, Olam, and Barry Calabo. It’s not the easiest market to penetrate.

To decompose Kawa Project’s process, here’s how Aaron and I discussed it.

Nick: Let's talk about the input side, and maybe we can create a sort of ‘visualization’ in folks' mind's eye of the full process to transform coffee waste into something valuable from there.

Aaron: It all starts at the coffee factory. You have companies that make bottled coffee drinks, names that you'd be familiar with, like La Colombe. They're one of the largest bottled coffee companies in the U.S. right now. Of course, Starbucks and the like have their own bottled drinks, too. Any company you see in the grocery store that has a bottled drink or an instant coffee has a factory that produces those coffee drinks. Those coffee factories produce coffee ground waste after they brew coffee industrially. What they then do is just pay to landfill it. For other drinks, like with beer waste, sometimes major producers can sell waste to farmers, because farmers are always looking for ways to get cheap calories for farm animals. But coffee has caffeine in it, which is an appetite suppressant, and isn’t ideal for fattening up animals.

Nick: Yeah, it’s better for someone like me that needs the juice to write and read for hours.

Aaron: Right. So yeah, we work with producers of coffee waste. There are of course different scales and sizes to these companies. Nestle has a factory in Mexico that produces something like 3% of all the coffee on earth. We're not ready to work on that scale right now. But we don’t have to. We can take waste from a smaller producer, process it, and produce an alternative to processed forms of cocoa. The specific formulation we want to replace is darkened cocoa powder; you see it in things like Oreos. We leverage various extraction technologies to create similar flavor profiles that are already inherent to coffee waste. We start with those, modify them a bit, but not a ton, and you’re largely good to go. It doesn’t require any, say, fermentation.

There’s a lot to like here. For one, using a waste product as an alternative to a product like cocoa that contributes to a lot of deforestation is closer to a sort of platonic ideal, or at least a much more circular way of doing things. But keeping the waste out of landfills is a boon, both from a ‘climate’ perspective, as we charted in the opening, and from an economic perspective. Landfilling isn’t a great outcome for anybody in the supply chain, save for perhaps the waste management companies that waste producers have to pay. There’s a reason Waste Management, the company, regularly returns 20%+ on equity (and has for decades). Producers of coffee waste definitely listen if you offer to take their waste for free versus them having to pay for it to be carted to a landfill. Some of them pay millions of dollars on waste hauling fees per year. It's a real expense.

Traction & what’s hard 

This space is one that’s increasingly attracting entrepreneurial interest and investor funding. So far this year, Planet A Foods, based out of Munich, raised a $15.4M Series A to make cocoa-free chocolate with precision fermentation processes. They also announced a partnership with Lindt, a major Swiss chocolate producer. Stateside, Voyage Foods, based out of Berkeley, raised an additional $22M (the company has raised $64M in total), to make cocoa-free chocolate using upcycled seeds and fruits.

Still, it’s quite nascent, and while companies are interested in buying cocoa alternatives, there’s a lot that suppliers need to do to bear out that the alternatives are up to snuff, cheap, and that they can produce them consistently and at scale. In discussing the stage of the business with Aaron, he shared that bringing an alternative cocoa product is not dissimilar to working in pharmaceuticals:

Discussing how this process work also led into an intuitive discussion of what’s hardest for Kawa Project in 2024:

The net-net

You could take almost any product in the world, analyze it with your ‘climate’ hat on, and conclude that we collectively need to figure out better ways to source and make it and deal with waste it produces at the end of its useful life. The longer I cover climate technology companies, the more it becomes clear to me that we need thousands and thousands of teams working on basically every imaginable product and process to make the world more sustainable.

Sure, power and transportation dominate headlines. But many products you see, touch, or consume daily fit the bill of a problem in search of a more elegant, circular, efficient solution. Kawa Project epitomizes this approach to me and I’m excited to see what success they enjoy.

OTHER COOL OPPORTUNITIES

Here’s one for all you LA-based folk.

My good friend Mike Lewis is restarting his Santa Monica sustainability meet-up. These gatherings are a social & (very) casual get-together for folks doing climate or sustainability-related work, whether at early-stage companies, as investors, on the policy front, or otherwise. What started as a casual hang on Mike’s rooftop has spawned into a group of 200+ who are passionate about climate work.

This event is spearheaded by Mike, Rowan Post, and Mackenzie Scurka, all of whom are organizing and who will formalize the meet-up moving forward under a brand-new name: planet jam.

If that resonates, mark your calendar for Tuesday, March 12th, from 6-8 pm at Santa Monica Brew Works.

• Tickets are $20 and include a drink

• Capacity is limited to the first 50 people

• Grab a ticket here

Feel free to share with others. I (Nick) will try to make it, too.

Hope you enjoyed this one. Inquiries for Aaron & Kawa Project? Feedback? Simply respond to this email and we’ll make it happen.

– Nick