Scale isn’t always the answer – The collapse of the industrial insect farming dream

The vision was compelling: vast factories buzzing with billions of black soldier flies or mealworms, transforming low-value waste streams into sustainable, protein-rich animal feed. Industrial insect farming companies like Ÿnsect and Enorm raised tens to hundreds of millions of dollars in venture capital, promising to revolutionize agriculture. Yet, today, many industry giants are collapsing into bankruptcy or reporting staggering losses. The industrial-scale insect protein dream is faltering, and the reasons reveal a stark mismatch between ambitious models and harsh economic and regulatory realities.

1. The elusive “Sustainability Premium” failed to materialize

The core assumption was that customers – feed mills, farmers, pet food companies – would pay significantly more for insect protein due to its environmental credentials. This “sustainability premium” hasn’t happened at the scale needed. Livestock and aquaculture feed markets are ruthlessly cost-competitive. While some niche pet food applications command higher prices, the volume required to sustain massive factories targeting commodity feed simply isn’t there at the necessary price point. Buyers prioritize cost and nutritional consistency over sustainability claims when margins are tight.

2. Production costs soared beyond feasibility

Scaling insect production proved far more complex and expensive than anticipated.

Skyrocketing CAPEX: Building large, automated, climate-controlled vertical farms or bioreactors required enormous upfront investment. Costs of industrial insect farming ballooned due to complex engineering, specialized equipment, delays and inflation. This massive debt burden became unsustainable without rapid, high-margin sales.

Operational expenses bite: Energy costs for maintaining optimal temperature and humidity at factory scale can be immense. Sourcing and processing vast quantities of approved feedstock (like grains or food manufacturing by-products) is expensive, negating the “waste conversion” benefit. Labor, even automated, adds significant cost.

The processing bottleneck: Drying, milling, de-fatting and ensuring pathogen-free final product for feed markets adds substantial processing costs. This step is often more energy-intensive than the rearing itself.

3. Regulatory walls blocked the path

Western regulations, designed for safety but often inflexible, became major obstacles:

Feedstock restrictions: The most economically viable feedstocks – like food waste or, crucially, manure (e.g. chicken litter, cow dung) – are largely prohibited in the EU, U.S. and other major markets due to disease transmission fears. This forces factories to use expensive, pre-consumer food-grade grains or by-products, destroying the low-cost waste conversion model.

End-use limitations: Regulations on using insect protein in feed for poultry, pigs, and especially fish (a key target market) are still evolving and often restrictive, limiting potential customers.

Novel food hurdles: While progressing, approvals for new insect species or specific applications add time and cost.

4. The developing world contrast: Small-scale success

Ironically, profitability is being found, but not in high-tech Western factories. It’s happening in small and micro farms in developing countries:

Low CAPEX: Simple structures, locally sourced materials, and minimal automation keep investment tiny.

Cheap, abundant feedstock: Regulations are often non-existent or supportive. Using freely available chicken/cow manure, market waste, or agricultural by-products drastically slashes input costs.

Minimal processing: Larvae are often sold live, fresh, or simply sun-dried to local chicken or fish farms, eliminating expensive processing steps.

Low labor costs: Manual labor is readily available and affordable.

Hyper-local markets: Direct sales to nearby farmers eliminate complex logistics and storage costs. The value proposition is clear: affordable, local protein supplement boosting yields.

The takeaway: Scale isn’t always the answer

The failure of large-scale industrial insect farming factories isn’t necessarily a verdict against insect protein itself. It’s a failure of a specific, capital-intensive, Western-centric industrial model that underestimated costs, overestimated the premium customers would pay, and collided with restrictive regulations. The technology works, but the economics only close under specific conditions: using ultra-low-cost feedstocks, minimizing processing, leveraging cheap labor, and serving immediate local markets – conditions naturally found in many developing economies, not in high-cost, heavily regulated Western environments.

For large-scale insect protein to succeed in the West, it needs either revolutionary cost reductions, significant regulatory shifts allowing waste utilization, or a fundamental rethinking towards smaller, more agile and locally integrated models. Until then, the buzz will remain strongest in the small farms the industrial giants overlooked.

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Read also: Why insect factories fail – a reality check for the insect industry

Cover image by Pete Linforth from Pixabay