Horizons July 2017

A monthly newsletter on Australian and international trends, innovation and other insights relevant to the Australian food market

Making news

MDB plans under scrutiny –An ABC Four Corners report has turned up the heat on the Murray Darling Basin (MDB) Plan. The “Pumped” report alleges that taxpayer-funded environmental water is being pumped into cotton storages in the NSW Barwon-Darling region. But perhaps the most damning (pardon the pun) claim is that NSW had sought legal advice about walking away from the Plan.

The program and resulting furore highlights the sensitivity of the MDB Plan – given that billions of taxpayer funds “pumped” into the Plan were meant to protect the entire catchment and ensure there was adequate water for “public goods” including the environment.  While trading rules under the Plan have allowed for more water to be allocated to its highest return, but the more liquid water market also raises the ethical question of whether it’s OK for large irrigators – or even non-irrigators to speculate on a resource as vital as water in the world’s driest continent. The federal government’s response to the report has been muted – focussing on the issue of “water theft” and deferring responsibility to the NSW government to investigate.

The 4 Corners expose has highlighted the tenuousness of this historic water-sharing arrangement, particularly implications that NSW might walk away. It is time for strong federal policy that reinforces the principles of the catchment as a public – not private – resource.

Could a documentary change GMO attitudes? – The documentary Food Evolution tackles the science of food and how to feed a growing population sustainably – in particular, the polarising issue of GMOs. Commissioned by the Institute of Food Technologies, featuring high profile scientists and directed by Academy Award nominated documentary-maker Scott Hamilton Kennedy – the film’s release in the US has been met with largely favourable critical reviews.  The film makers approach – to stick to facts and science – they hoped would help people make a rational evidence-based assessment on the technology.

However, it seems their efforts at a rational discussion may be harpooned by other scientists. Following an early screening at UC Berkeley, 45 academics and students – including nutritionist Marion Nestle and food writer Michael Pollan who appeared in the film –signed a statement that blasted the film as a “piece of propaganda”. While not disputing the facts presented in the documentary – the statement attacked the film’s narrow focus on safety. They also covered the familiar territory of anti-GM activists – of industrialized agriculture and corporate greed – comparing claims of safety made in the film to those of “big tobacco”. Read more.

Documentaries have increasingly become the domain of activists rather than the classical Attenborough-style fact-fest. Will this attempt to put science in front of consumers win hearts and minds?

Sweet toddler food in legal stoush – Heinz’s toddler food Little Kids Shredz is currently on the stand in Federal Court in Adelaide, accused of containing so much sugar, it should be deemed as confectionery according to nutritional experts. The Australian Competition and Consumer Commission (ACCC) launched the legal action last June after a complaint by the Obesity Policy Coalition. The Little Kids Shreds package features images of fruit and vegetables and states it is 99% fruit and veg, however, the berries, apples and veg variety contains 68.7g of sugar per 100g. While the bars do contain dietary fibre and nutrients, nutritionist and dietician Dr Rosemary Stanton who helped devise the Australian dietary guidelines, said the bars more closely resembled confectionary than fruit or vegetables and that confectionery with added vitamins was still confectionery. Heinz is defending the product in a court case which is receiving media coverage, saying “the products had a similar nutrition profile to dried apple or sultanas.”

Heinz has been synonymous with baby food for generations of Australians. Could defending the seemingly indefensible limit, or in fact magnify the damage done by this legal action?

Roadmap to where? – The fourth Roadmap for Food and Agribusiness report by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) recommends Australian food manufacturers and agribusiness innovate now as they can no longer rely on their “clean, green image” to sell the products. The Roadmap calls for more on-shore processing as CSIRO estimates 88% of Australia’s A$40 million in food and drink exports are commodity-based. So far, so bleeding obvious – but what is the solution? CSIRO argues more regional scale processing hubs and being “more innovative” are the way forward. Open access facilities for commercial trialling of products – similar to New Zealand’s FoodBowl were recommended. CSIRO’s innovation fund was targeting $100 million in private investment – noting venture funds had shown limited interest in the sector.

It’s a familiar message “value-add” and process more onshore – but given uncompetitive labour and skyrocketing energy costs and the realities of market access, is this latest roadmap for the future commercially realistic?

Discerning consumers

Inconvenience saps potential – UK magazine The Grocer has polled 1,000 shoppers to learn what Brits really think about convenience stores. They found 42% of respondents would actually prefer to shop in larger stores, even if they are further away, and another 38% admitted they only shop at their local when they are desperate. With only 15% of consumers saying they would prefer to shop at their local store, maybe convenience stores need t0 recognise “convenience” isn’t only about location, but also about having the right products at the right prices. 65% of consumers said they would be more loyal to their convenience store if it had lower prices, 42% wanted better availability and 33% better-quality products. Only 18% would keep coming back if their local store improved customer service. Meal deals, including hot food, private label and coffee-to-go seems to be what the British public crave from their convenience stores according to The Grocer’s survey.

This is a survey of UK shoppers. The UK led the retail world in development of the convenience store, but the model is being challenged. It isn’t simply about location, the offering and mix must be right.

Chipotle struck again – Chipotle has been hit by a food-poisoning outbreak yet again. While isolated to a single outlet in Sterling Virginia, health department officials confirming 60 illnesses were linked to the restaurant, with one patron testing positive for norovirus. The news followed the widespread foodborne illness outbreak in 2015, which hit Chipotle’s better and healthier brand positioning hard.

This time financial markets were quick to react, Chipotle shares fell 13% in five days of trading from its opening price on 17 July when news of the norovirus incident broke. Despite a highly-publicised overhaul of its food safety procedures, Chipotle continues to poison its customers. Announcing positive Q2 sales results, with an 8.1% increase in comparable sales suggesting customers were returning to the chain, Chipotle acknowledged comparable sales were down 5.5% in the days following news of the outbreak.

→ Although an isolated incident Chipotle has been severely punished in terms of share price. Basic food safety issues have still not been fixed – as “a better for you” brand this is unacceptable and consumers and investors are judging harshly.

Ingredient shaming backfires – Having built a brand and a dedicated following on a “better for you’ offering, US bakery-café fast casual chain Panera tweeted that sodium benzoate, which is used in fireworks, shouldn’t be used in food. However, Twitter followers were quick to point out that the message displayed a poor understanding of chemistry and was food fear-mongering as sodium benzoate is naturally occurring in some fruit. Others pointed out that fireworks also contain salt, carbon and can be made from table sugar.

Despite accusations of being misleading and “chemophobic”, Panera didn’t delete their tweet. In a statement, Panera representatives said that “we believe great food doesn’t require artificial preservatives like sodium benzoate,” and that the campaign was created “to spark a dialogue around the pervasive use of artificial food additives.”  Read more

This chemophobia approach may be wearing thin with consumers who are starting to question the validity of calling out ingredients that are harmless and have non-food uses. Fear may not be the way to build customer trust and loyalty.

Dairy “inhumane” – A recent ruling from the Advertising Standards Authority (ASA) in Britain has cleared the way for vegan activists to brand British milk production inhumane in their communications. Dairy farmers took issue with a Go Vegan World advert stating “humane milk is a myth – don’t buy it” was inaccurate and misleading to consumers. While the Advertising Standards Authority (ASA) acknowledged the language used to express the claims was very emotional and hard-hitting, the regulator concluded that the ad was unlikely to materially mislead readers as it described how calves were removed for their mothers soon after birth and “cried piteously’.

Go Vegan World described the ruling as a “landmark decision” and accused the dairy industry of trying to silence it. Head of public affairs at RSPCA David Bowles said the advert was wrong to suggest all dairy farming was inhumane, saying he didn’t believe there was scientific evidence to support a calf or dairy cow had human emotions as implied in the ad. Bowles maintained it was possible to rear, transport and slaughter an animal applying good welfare standards and eat it humanely. According to a Go Vegan World director, it’s pointless to debate animal welfare improvements as the debate has gone on for “a hundred years”, and hasn’t been effective as humans still wouldn’t swap places with dairy cows or calves.

UK dairy farmers fought this campaign from an activist group that still represents a tiny minority of consumers – and lost. When it comes to truth in advertising – anthropomorphism and emotions trump evidence in the UK.

Volatile world

Food chokepoints – Analysts at UK-based thinktank Chatham House have identified 14 critical locations, increasingly vulnerable “chokepoints”, threatening the security of global food supply. The 14 chokepoints are locations through which large amounts of the global food trade pass with more than half of the globe’s staple crop exports – moving along inland routes to a small number of key ports in the US, Brazil and the Black Sea.  According to the thinktank, climate change is likely to see one or more chokepoint disruptions coinciding with a harvest failure, which has the potential to cause heightened political tensions. The report recommends increased global cooperation to plan for food supply crises and further investment in crucial infrastructure. Read more.

This report highlights the vulnerability of global food supply chains. Worsening climate and geo-political conflicts have the potential to severely impact vulnerable populations, leading to greater geo-political conflict.

Qatar blockade a wake-up call – Professor Zahir Irani who is part of the team running the Qatar National Research Fund project, Safeguarding Food and Environment in Qatar (SAFE-Q) has labelled the land, sea and air blockade imposed by neighbouring Arab countries a “wake-up call” for Qatar. Irani calls for an end to wasteful practices and a boost to local food supplies, including policies that encourage “agro-preneurs” to develop agriculture. The professor says the blockade has shown how reliant Qatarians are on food imports. She says there is a mass preference for global brands – which are perceived as higher quality and are a status symbol – over local produce. To encourage acceptance of locally-produced foods, widespread education and a culture change is needed.

These types of blockades feed distrust of trading relationships and encourage moves to food self-sustainability – whatever the cost.

The cost of protectionism – The Productivity Commission has quantified the cost of higher trade barriers to Australia in a world that is becoming increasingly protectionist. Australia would lose over 1% of GDP every year, 100,000 jobs and 5% of its capital stock if trade barriers increased. And while a household with the median weekly income would lose around A$1,500 per year, not all households would be equally affected, with 20% of households – those who consume fewer traded goods and are dependent on social services – least affected.

In its report, Rising protectionism: challenges, threats and opportunities for Australia, the Commission outlines a 3-pronged strategy to achieve better outcomes for Australia and foster community confidence in open markets: first, Australia should continue to work for freer trade through regional and sector-specific agreements underpinned by broader stakeholder consultation; secondly, governments should pursue broader policies that strengthen the economy’s resilience and the workforce’s ability to adapt to economic change. Lastly, the Productivity Commission urges governments to better engage with the community about free trade while strengthening policies to respond to the human cost of technological change.

This study highlight the costs of the world sliding back into a more protectionist stance – they are significant. Policy makers must make the case for free trade and ensure the benefits are clear and costs are more equitably distributed.

Evolving models

Is Nestle exiting packaged food? – In announcing a strategic shift, Nestle SA has promised new investment in its high-growth business like bottles water, coffee, infant nutrition and pet care as well as saying it would consider consumer health-care acquisitions. There was no mention of the core prepared foods sector and with its US confectionery business up for sale along with three of its frozen food brands in Italy, investors and analysts are expecting more divestitures in the medium to long-term future.

The company has said it is targeting acquisitions and investment at faster-growing segments – far from its traditional base in prepared food as the cheap, ready-to-eat brands have been overtaken by competition from healthier options. Last year, Nestle’s prepared dishes and cooking aid business brought in US$12.6bn in sales, 13.6% of overall sales, meanwhile overall sales lagged, delivering 2.7% growth with organic sales up 3.2%. The businesses are still among Nestle’s biggest revenue generators.

It’s becoming a familiar scenario, food multi-national with established brands but with a highly processed offering is feeling the pain. But is it enough for this food icon to seriously divest?

Amazon goes for the meal kit – Amazon Technologies, an Amazon subsidiary has filed a trademark application for “prepared food kits composed of meat, poultry, fish, seafood, fruit and/or vegetables ready for cooking and assembly as a meal” and established meal kit player Blue Apron is feeling it already. Blue Apron listed at US$10 per share at the end of June, days after Amazon announced an offer for niche grocery chain Whole Foods, increasing scepticism about Blue Apron’s prospects. During its IPO roadshow, the company hosed down concerns, telling investors its offering is different from basic grocery delivery.

Now Amazon’s interest in the meal kit business weakens the argument. Blue Apron listed with a valuation of $US1.9 billion, but just 12 trading days later, the company was valued at less than $US1.3 billion. Blue Apron shares rallied in late July following a number of positive analyst recommendation, based on expectation the company will lure household expenditure from grocery and restaurants. Many analysts appear to be putting the risk posed by Amazon to the Blue Apron business out of mind – at least for now.

This is only some of the story about what it will pursue in expansion of its food business. The interesting thing is the power of potential. Amazon merely filed a trademark application, shaving 12% in a day off the value of an established supplier Blue Apron. It has a massive advantage – an existing large customer base.

Can crowdfunding kill 2 birds? – Sydney-based Online Liquor Group (OLG) is taking advantage of the equity crowdfunding legislation which comes into law on 20 September, aiming to be the first to crowdfund equity from retail investors.  OLG founder and chief executive Dean Taylor is converting his business to an unlisted public company ahead of the new legislation, which allows companies with annual turnover or gross assets of up to A$25m to advertise business plans on licensed crowdfunding portals and raise up to A$5m a year.

Taylor was planning to list, but realised equity crowdfunding was a perfect opportunity to bookbuild and “turn your customers into owners and even bigger advocates”. The OLG campaign will use crowdfunding portal Equitise, which will take a 7.5% cut of the funds raised plus costs.  Taylor aims to raise the full $5 million allowable and hoped for an average investment well below the $10,000 threshold for investors to spread the deal as widely as possible.

This start-up is using the opportunity to crowdfund from retail investors as a marketing opportunity as much as a way of raising capital. Is this a way small food and beverage companies can build a more tangible connection with customers?

More from less

Does “Net Zero NZ” spell the end of dairy days? Net zero in New Zealand is a report prepared for GLOBE-NZ – a cross-party group of 35 members of the New Zealand parliament, which investigates scenarios to achieve GHG emissions neutrality by 2050. In New Zealand, agriculture accounts for about half of the country’s gross emissions and dairy farming accounting for a quarter. The report acknowledges that GHG emissions from agriculture and especially dairy farming need to be addressed in order to reach the net zero goal. However, Fonterra chief science and technology officer Jeremy Hill has warned against policies which would produce “perverse outcomes” encouraging both the global and local context (glocal) be taken into account. Hill argues that while the world needs to cut GHG emissions, it’s also required to ramp up food production to feed a growing population and as New Zealand farms are some of the most carbon efficient in the world, scaling back production there, may lead to another less carbon efficient country ramping up domestic production to meet demand. Read more.

New Zealand is a fascinating case study in reducing GHG emissions, as a country that is still heavily reliant on pastoral livestock systems and with limited food cropping options. Can New Zealand’s world-beating dairy industry rise to the challenge and demonstrate its value in a carbon-constrained future?

Less air for lower impact – UK supermarket chain Marks & Spencer’s (M&S)  initiative “Project Thin Air” has slashed the amount of packaging used for more than 140 of its best-selling products, simply by reducing the pocket of air at the top of the bag. The products have been redesigned and repackaged in smaller, less bulky packets containing the same amount of food as before. The M& S range now uses 20% less plastic after switching to a thinner, but strong, type of film – all in all the changes has led to 75t less packaging per year. According to M&S packaging expert Laura Fernandez the changes are a start of a much bigger piece of work, with the retailer looking for savings in other areas of its business. In June, the supermarket chain set out a new Plan A ethical and sustainability programme to build on its original blueprint launched 10 years ago. Along with pledging to make all its packaging “widely recyclable” by 2022 and halve food waste through its supply chain by 2025, M&S introduced avocados with laser-printed barcodes, to reduce paper waste. It is estimated laser labeling will save 10t of paper and 5t of glue very year.

It seems pretty simple but eliminating air from food packages has cut plastic use and transport costs for this major supermarket chain, hopefully consumers will support the initiative and recognise the smaller doesn’t mean less!

Disruptive technologies

Can agtech save Cali asparagus? – In California, technological innovation is needed at warp speed before the state runs out of low-wage immigrant workers. Immigrant farmworkers are ageing and not being replaced as the net flow of immigrants across the US-Mexico border reversed in 2005, a trend that accelerated through 2014. And with no interest in these jobs from locals, despite higher wages, farmers are turning to technology for answers – pronto. Multinational berry grower Driscoll’s is already responding, raising bed and using its AgroBot to pick strawberries, as it has done in Australia and Europe. For others, the conversion to robots is more challenging; for Fresno’s raisin industry to fully mechanise, it may have to change not only its vineyard design, but also the grape variety itself. In the 2000’s, growers altered vineyards so machines could shake seedless grapes onto paper trays, but to eliminate trays entirely it a grape that can dry slowly on the vine before September rains hit is needed.

Produce giant Taylor Farms is using a robotic machine with high-speed water jets cutter to cut romaine heads, but for cutting iceberg lettuce, especially large ones it may require plant scientists to reverse their cross-breeding efforts, going back to a bulb-shaped variety that would make room for mechanised cutters and graspers when harvesting. It may be too late for asparagus, the most labour-intensive crop, with selective harvesting required daily through the 90-day season. The crop is gradually moving to Mexico.

Adapting to the changing labour dynamics in California will require the convergence of mechanization with plant breeding – and in some cases crops won’t be grown at all.

Freshagenda’s Horizons July 2017 newsletter is a free monthly publication on Australian and international trends, innovation and other insights relevant to the Australian food markets.

Our Horizons newsletter describes Freshagenda’s megatrends, describing how tech and innovation is shaping the food industry around the world. Our megatrends are; Discerning consumers, volatile world, disruptive technologies, evolving value chain models and more from less.

Horizons July 2017 decribes our megatrends

Freshagenda identified a set of major megatrends affecting the future of food that combine to provide the key inputs to industry or enterprise strategic planning built on future scenarios.

In a paper outlining these megatrends, Freshagenda explains what they mean, how they are playing out, and how they fit together.  These forces might be nice to know, and great to stimulate thinking, but how do you harness them?

As shown in the process summarised below, understanding these forces, articulating how they are affecting your industry and business outcomes in future, and drawing insights from them to stretch future thinking, are a key component that can provide impetus and context to strategy development

 

Discerning consumers – A diverse set of influences

  • Increasing developing world affluence creating new consumers
  • New channels of influence on behavior and wants
  • More complex segments and preferences affecting value, ethics, health and indulgence
  • Competing demands driving greater needs for convenience
  • Aging demographics in developed world

 

Volatile world – Food markets are more complex and unpredictable

  • Climate change affecting stability of food supply
  • Food commodity markets more prone to price volatility and closely linked as intensification continues
  • Ad-hoc protectionism of farmers and consumers
  • Trade policy becoming more technical rather than fiscal
  • Geopolitical conflicts
  • Lingering economic and financial uncertainty post GFC
  • Resilience of traditional farming threatened by volatile returns

Disruptive technologies – Technologies rapidly reshaping life

  • Digital tools and platforms are changing engagement, behaviour and lifestyles
  • Advances in GE and GM know-how and applications
  • Advances in automation for production and processing
  • New substitutes (3D printing, synthetics)

Evolving value chain models – Redefining how to add and capture value

  • Shift in capital power
  • Risks being reassessed
  • Emerging preferences for capital investors
  • Emerging retail models
  • New forms of value chain integration

 

More from less – Limited resources and capacities

  • Growing populations – more mouths to feed over time from finite natural resources
  • Greater community concern for sustainable production systems
  • Sustainability agendas balancing “3Ps” changing value chain relationships
  • Policy unevenness and short-termism