Watch out, cows. Yeast is gunning to be the next dairy disruptor

An industry that leaves its mark.
An industry that leaves its mark.
Image: Reuters/Jeff Green
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A microscopic organism is poised to challenge a centuries-old sector of the food industry, potentially putting a lot of cows out of business.

Perfect Day, a Silicon Valley food-technology startup, is aggressively seeking to change how people think about traditional dairy products by reconfiguring some of the key components of how they are made. After raising $24.7 million in Series A funding, Perfect Day is now in talks to sell its newly-patented non-milk proteins to large food brands as a replacement for whey and casein, milk-based proteins. It could change a wide range of grocery-store products as we know them—and be a major help to the health of the planet.

Livestock animals are one of the biggest contributors to global greenhouse-gas emissions, according to the United Nations. Cows, in particular, require more energy than smaller pigs and chickens, which means they eat more grain, drink more water, and emit more methane gas than their barnyard peers. Dairy farming today is no help to the global effort to slow down climate change.

A tremendous amount of cow milk winds up being pasteurized and served up in liquid form, but in many cases, the components of the milk—once run through the industrial process—wind up being used as ingredients. These ingredients, such as lactose, casein, and whey, are then sold to food manufacturers who use them in countless products across the modern grocery store. They’re in yogurts and cheeses, chocolate spreads and potato chips, even some canned tunas and hamburger buns.

Perfect Day wants to flip that model on its head by essentially training yeast to create milk components without ever needing a cow. The company’s protein product is made by altering sections of the DNA sequence of food-grade yeast such that the microorganisms, once fed with certain nutrients, produce several key proteins found in milk, including casein and whey. Perfect Day cofounders Ryan Pandya and Perumal Gandhi have described the process as akin to brewing craft beer. The startup says its proteins have all the functionality and taste of the milk proteins food companies have used for more than a century, but with none of the environmental downsides.

Perfect Day also has a potentially innovative market strategy. Instead of trying to sell its own branded products, the company plans to partner with existing food manufacturers. That gives Perfect Day an under-the-radar opportunity to infiltrate and disrupt dairy from inside major food brands. “What we’re trying to build is too big for an individual brand, an individual category,” Pandya says. The company says it’s in conversations with some of the world’s biggest food companies, but declined to name them. If those relationships come to fruition, Perfect Day’s sustainable alternatives have a chance to become as ubiquitous as milk protein.

Not out to destroy

Though some dairy farmers become defensive hearing about Perfect Day’s mission—some have invoked the term “fake milk” to describe what the company makes—Pandya and Gandhi insist they don’t have aggressive aims.

“We’re not here to destroy the dairy industry,” Pandya says. “A lot of other startups are more militaristic about that.”

It’s an oblique reference to past statements made by CEOs of cell-cultured and plant-based meat startups. But the reality is that even if Perfect Day seeks to set itself apart from the attitudes of other food-tech companies, it also does seek to fundamentally reshape how the dairy industry looks and operates. Pandya and Gandhi say they would like to see dairy farmers consider switching from making milk to creating their newer protein product.

Whatever its intent, Perfect Day has drawn skepticism about how close it is to actually causing much of a stir in the industry any time soon—if ever.

Matt Gould, a dairy industry analyst, says now that Perfect Day is positioning itself more as an ingredient company it needs to be able to deliver on two fronts. First, it needs to prove its proteins are as pure as conventional proteins—that any extra byproducts the company’s yeast create don’t negatively impact food texture, taste, or safety. Second, the company must compete with conventional dairy ingredients on cost.

A report Gould compiled (and shared with Perfect Day’s co-founders) in 2016 estimated the long-term cost of conventional milk protein at $2.50 per pound. “Everyone I’ve talked to has been very skeptical that they can get their cost low enough to compete and outdo dairy,” says Gould. For its part, Perfect Day says it aims to produce cost-effective milk proteins and it will have more specific information to share as it scales up production.

A possible game-changer

If Perfect Day manages to create cost-competitive ingredients, with a formula that doesn’t change taste or texture, it has a real shot at making an impact, says Phil Lempert, a longtime grocery industry analyst who runs The Supermarket Guru. It helps, he says, that by going into ingredients instead of making their own products, the company will save money that would otherwise be spent on marketing and advertising.

“This is not the typical Silicon Valley mentality, and frankly, from my perspective it’s smarter,” Lempert says. It’s not as sexy as being the next Kraft or Nestle, sure, but it’s a formula that could be good for the long haul.

The dairy industry would be wise to take Perfect Day seriously, Lempert says. Consider the growing popularity of plant-based milks and even Coca-Cola’s Fairlife milk products. Fairlife sells a spin on cow’s milk, where the components of milk are broken down and recombined, but with none of the lactose, less sugar, and more protein than conventional stuff. Fairlife milk has been criticized, but it’s still been a market success because more and more people are looking for alternative protein sources that let them still enjoy the foods they’ve been eating for years.

In other words, says Lempert, Perfect Day is exactly what consumers want. “It could,” he says, “be game changer for the industry—and that comes from a dairy farmer’s grandson,”