Horizons June 2018

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

Making news

Beyond Meat goes global – US-based plant protein company Beyond Meat is expanding across the globe through agreements with distributors and foodservice outlets. So far, the California-based Beyond Meat is targeting Europe, Canada, Australia and Mexico among others. The company launched in 2016 and has so far sold more than 13 million of its protein patties, which are also free from gluten, soy and GMOs.

However, the popularity of synthetic and plant protein meats are challenging definitions of meat. In Missouri, the state legislature passed a bill, stating only products from once-living, breathing animals can be marketed as meat. Specifically, something ‘derived from harvested production of livestock or poultry’. Not surprisingly, livestock producers object to the use of wording like beef and poultry as well as imagery of livestock on products that have nothing to do with animals. Opponents of the bill say consumers are wise enough to know what they’re looking for at supermarkets, claiming current market-use descriptors identify the source of the ingredients. While a similar bill is being considered at federal level in the US, opponents of the Missouri bill warn it could potentially create a patchwork of state labelling laws.

  No longer a novel experiment. Beyond Meat is a serious market reality. In the face of this threat, some lawmakers and traditional meat producers are scrambling to define what “real” meat is.

No trace in food poisoning outbreak – The largest US outbreak of E. coli since 2006 which occurred in March this year, has left 5 people dead and sickened almost 200 people. Most have fallen ill after eating pre-cut, packaged lettuce, which is causing a traceability headache for regulators.

While investigators from The Centers for Disease Control and Prevention have determined the E. coli came from contaminated romaine lettuce grown in Arizona’s Yuma region, the FDA can’t link the outbreak to a specific farm, processor or distributor. Most of the reported cases were linked to packaged vegetables that have been passed from suppliers to distributors to processing facilities where they were chopped and bagged. In its update late last month, the FDA admitted it may never to determine the exact cause and source of the outbreak. Read more

It seems incredible that US authorities can’t trace the source of the contamination, however the length and complexity of packaged and pre-prepared lettuce supply chains appears to be a profound risk. How will it be managed in future, or will consumers forgo price and convenience for safety?

UK big grocery: from 4 to 3 – The announcement of a merger between UK retailers Sainsbury’s and Asda will create the UK’s biggest supermarket group. With a market share of more than 30%, the deal will be heavily scrutinised by the UK’s Competition and Markets Authority. Both Sainsbury’s and Asda CEOs said the merger will provide greater opportunity for consumers and suppliers. Consumers get wider product ranges at lower prices, while the development of differentiated product ranges will benefit suppliers.

UK grocery retail has always been an intense battleground with the growth of discounters eroding margins and make market share gains tough. By adding scale, the merged retailer says it will focus on areas that benefit consumers most, such as price.. Submissions to the UK regulator’s initial inquiry have raised concerns about less competition, encouraging tacit price coordination, as well as suppliers being less able to innovate, forcing them to reduce quality standards or quit the market altogether. The knock-on effects to consumers could include higher prices and less choice. Analysts believe suppliers will pay the cost of any consumer savings that result from the merger.

This merger will be closely examined by regulators trying to determine the impact on supply chains and shoppers. It’s likely the players involved are seeking to exert some dominance and seek efficiencies in a highly competitive market that has been ravaged by discounters. It’s unlikely both consumers and suppliers will be better off if it goes ahead.

What US trade deficit? – Deutsche Bank economists have devised a new perspective on trade deficits, in the face of rising US protectionism. Combining trade and corporate data, the Deutsche analysis shows US companies sold more to the rest of the world than other countries have sold to the US in the past ten years. Using this approach, the US surplus is estimated at US$20bn with China and US$1.4tr with the rest of the world. This compares with a “normal” trade balance of US$330bn with China and US$550bn with the world.

According to Deutsche, looking at the good and services trade deficit is misleading and doesn’t capture the true magnitude of US business interests. Including aggregate sales balance including trade plus-in country subsidiary sales reveals a small but growing surplus, reflected by rising demand of Chinese households for foreign good and services.  Not all economists agree with Deutsche’s method, calling it a comparison of oranges and apples, but it does illustrate the point that business supply chains are more complex and global than the Trump administration’s simplistic “winners and losers” approach to bi-lateral trade scoreboards. The sales data also shows that the interest of US firms does not necessarily align with those of US workers.

Deutsche’s analysis and approach is debatable, but one thing’s for certain, picking trade wars won’t benefit US workers, farmers and companies at the same time.

Discerning consumers

Impossible burger cops a grilling – Impossible Foods, creators of vegan Impossible Burger raised US$114m earlier this year and expanded into Hong Kong, but not everything’s going swimmingly. The vegan Impossible burger requires 95% less land and 74% less water to produce than traditional beef patties – so environmentalists should be happy … right!?  Confusion about ingredients, organic- and GMO-status have turned those who would be natural champions of this meat alternative into critics. The Impossible Burger has been rapidly adopted by outlets in the US who describe themselves as ‘organic’, ‘natural’ or ‘100% free of artificial ingredients’, such as Momofuku Nishi, Bareburger, and Mendicino Farms.

The “bleeding” veggie burger invented by biochemist Pat Brown, and contains a protein – soy leghemoglobin (SLH) that delivers the “blood” heme that is abundant in animal muscle and delivers the impressive meat-like taste. SLH is produced in a lab with yeast, so is not organic, and this novel ingredient is also causing headaches with the FDA. Impossible actually asked the FDA to review the burger’s safety in 2015, but the FDA is yet to sign off on safety.  Read more

The furore surrounding Impossible’s non-meat patty highlight the challenge facing some of the more innovative “solutions” to replacing meat. They are often produced using GM technology, are highly complex and processed so not organic or “natural” and so under attack from the very activists that might have been expected to champion them

Doctors weigh in on magic pill – Pete Evans, famous in Australia for promoting the paleo diet as the way to a healthy, well-balanced life, has copped flack for his latest Netflix documentary The Magic Pill. The Australian Medical Association (AMA) recently called on Netflix to remove the documentary, saying it claims a diet high in protein and fat, but low in carbohydrates, helps alleviate or even cure conditions such as asthma and autism. A woman featured in the documentary even correlates changing her eating habits with her breast cancer tumour shrinking.

Meanwhile Dr Eugene Fine, a clinical professor at the Albert Einstein College of Medicine who featured in The Magic Pill has walked-back comments in the documentary that appear to support the cancer claims, saying he should have expressed himself more clearly. “The data on KD [the ketogenic diet] and cancer is very sparse. There is no medical justification at this time to scuttle standard therapies for a ketogenic diet.” AMA president Tiny Bartone said the risk of misinformation was too great with the documentary, and was worried vulnerable members of society would believe some of the documentary’s claims over medical advice. Evans hits back at the AMA in a Facebook post, accusing the association of protecting industries that rely on a large proportion of the population being sick.

Netflix docos are increasingly a source of “knowledge” on food and health, so it’s understandable doctors are concerned. Suggesting vulnerable cancer patients can eat their way to health rather than undergo treatment is simply irresponsible. 

Brocci Coffee anyone? – Australia’s Commonwealth Scientific and Industrial Research Organisations and Hort Innovation have discovered a new way of processing broccoli that could get more veggies into you and curb wastage of unattractive foods. The production process involves pre-treatment before drying and powdering the vegetable, to preserve as much of the original colour, flavour and nutrients as possible.

By grinding ugly broccoli to fine powder that can be applied to food or coffee – as tried at a Melbourne café – Australians can make sure to get their recommended daily dose of vegetables. Hort Innovation’s chief executive John Lloyd says research shows the average Australian isn’t eating the recommended daily vegetable intake and broccoli powder could help address this. It also tackles food waste that is nutritious, but would be unappealing to shoppers.

This could be an elegant solution to reducing vegetable waste and the age-old problem of sneaking vegetables into the diets of young children.

Volatile world

Water sharing gets tough – The Colorado River sustains an estimated 1 in 8  Americans, through irrigation of millions of acres of farmland in the south west of the US. Over the next 40 years another 10 million people seeking warm air will be added to the region, as climate change makes rainfall increasingly erratic.

The Colorado River supplies Lake Mead, and serves as the main water source for growing western US cities, and this year’s dismal snowpack has heated a long-simmering dispute about the way the water is shared – with a schism emerging between those above and below the Lake. The Upper Colorado River Commission and Denver Water are accusing the Central Arizona Project of manipulating the complex system to get more water, and several Colorado cities have withdrawn from the almost 100-year-old water sharing pact. The spat over the Colorado River offers a glimpse of water politics in an era of permanent scarcity. With snowpacks receding in the Rocky Mountains and no single entity in charge of the Colorado, it may all end with federal intervention.

As water dries up, loose and complex sharing arrangements will come under increasing pressure and start to unravel. How many long-standing water-sharing arrangements will cope with the pressures of permanent scarcity?

Let’s not talk about population – When discussions on climate and food production turn to over-population as the root of all ills, environmental journalist David Roberts gets uncomfortable. That’s because discussions about population growth are often conflated with anti-immigration, racism and/or xenophobic rhetoric.

Instead, Roberts argues, population can be addressed through initiatives like family planning and education of girls, which often lead to women opting for smaller families thus curbing population growth. A combination of the two has the most potential to reduce greenhouse gases later in the century. Shifting wealth within populations – reducing wealthy over-consumers and the number in abject poverty – can have as much carbon impact as reducing overall population.

This is an interesting discussion about the sensitive issue of population growth which is often raised as an environmental argument, but masks other agendas. In the end a lot of what is happening in the world such as empowering women.

Short term gain for long term pain? – Farmers around the world are feeling the effects of climate change, but while some write volatile weather off as isolated occurrences, Californian tree crop farmers are taking mitigated risks when farming longer term permanent crops like nuts, avocados and lemons.

Californians have been living through unprecedented drought, wildfires warm winters and out-of-season frosts. While forecasts of 4-degree temperature rises and more common floods and droughts by 2050 seem distant and out-of-focus for many, farmers take a punt today planting trees which they hope will be productive 25 years from now. The long-term nature of California’s tree crops make the state particularly sensitive to climate change, yet saplings are still pushing out of the ground all over the state. For farmers dealing with so many aspects of short term weather, market and execution risk – climate change is just one more worry.

It’s short term considerations rather than longer term climate risk that is driving many farmer decisions when it comes to planting tree-crops that won’t bear fruit for decades, relying on technology and adaptation to survive.

Evolving models

Taking it on the road – Silicon Valley-start up Zume has partnered with food service appliance maker Welbilt to deliver Zume Pizza, cooked in the delivery van, en route to pizza-hungry customers. The ‘baked-on-the-way’ technology is created by Alex Garden, CEO and founder of Zume and eliminates the time cooked foods sit idle while being delivered. Zume optimises baking and delivery to ensure meals are delivered at peak freshness, by making predictions using machine learning, the trucks are optimised to cook and arrive at the delivery location, without using preservatives. Garden says he’s a capitalist who wants to make money, but dubs the idea of improving health by use of technology as a fortunate side-effect. Zume plans to reach 26 additional markets in 2018, all in the US.

This start-up is utilising the down-time of the delivery journey to prepare food and deliver it at it’s absolute best. It improves quality and could reduces food contamination risk. No more soggy pizza!

Kroger recruits UK firm in online fight – Amazon struck fear into retailers all around the world with the roll-out of its online shopping and subscription services – and then buying Whole Foods – but now US retailer Kroger has enlisted the help of a first-mover in the online-shopping fight.

UK-based Ocado started as an online grocery store around the turn of the century, but has developed into an online delivery partner for retailers. Ocado warehouses boast the latest technologies and the company collaborates with scientists around Europe to develop robot hands that can pick products without damaging them. While the company works with scientists outside the UK, the deal with Kroger is its first venture into the US. So far Kroger has agreed to build up to 20 Ocado-designed warehouses over three years – and if the chain doesn’t meet the targets, Ocado gets compensated. Not surprisingly, the announcement of the deal boosted share prices for both companies. Read more

Thinking about what the meaning is to the downstream customer and consumer, what cuts through and what won’t – or doesn’t need to. There is no point putting big investment into a brand because you feel good about your country, if it means nothing to a consumer!

CrowdCow – Seattle-based CrowdCow is taking “craft beef” to consumers by using technology to enable US meat lovers to source their favourite cuts of meat from preferred farm sources – like restauranteurs. Working with small family farms, CrowdCow let users choose the animal and cut, and then ships it to customers. Founders Joe Heitzeberg and Ethan Lowry wanted to crowdsource larger groups to be compelling customers to small farms selling craft beef, previously only reserved for restaurateurs or groups of 5-6 families who had freezer capacity and other logistics in place to source beef. The pair created their app which recently attracted US$8m in Series A funding, and have a broader mission to de-commoditise beef.

This is a tech-enabled way of getting consumers closer to producers and differentiating what has been a homogenous category. Discerning home-cooks can source like restauranteurs and buy into the narrative as well as the product.

More from less

Climate-friendly beef – Planting trees with pasture for grazing livestock may be a key to significantly reducing greenhouse gases emitted through livestock. Through research for Project Drawdown, Yale University lecturer Eric Toensmeier found this practice, dubbed silvopasture, was the ninth most powerful method overall to capture carbon dioxide.

By combining trees, livestock and grazing, silvopasture can double the global impact of managed grazing on only a fifth of the land. And in a world where there’s just not enough land to meet global demand for beef and dairy, it could make beef production more climate-friendly. Furthermore, long-term storage of carbon in silvopasture soil is up to five times higher than managed grazing. Despite the benefits, silvopasture presents its own set of challenges – including high establishment costs, resources to choose the right tree species and a learning curve for livestock producers to learn to care for trees. Read more

Silvopasture offers an opportunity to significantly make grazing livestock systems significantly more climate friendly. In combination with moderating demand and reducing waste it could make “real beef” part of the solution.

Shoppers don’t notice sustainability claims – A recent study using a mobile eye tracking system showed that 92% of shoppers didn’t notice sustainability logos on food packaging.

According to the researchers the results aren’t surprising, considering the number of logos, seals and stamps on packaging, consumers have become numb, hindering penetration of sustainability messages. The study doesn’t mean companies should abandon their sustainability stickers, it instead suggests multi-channel communication is needed to ensure consumers get the message.

It may be disheartening for food companies trying to do the right thing and be recognised for it, but this study isn’t a cause for total despair. It underlines the need to have sustainability messaging in multiple channels, not just on the pack.

Coffee gets sweeter – The husks surrounding coffee beans used to be used for low-grade fertilizer, but now the flavoursome product is having a moment. Known as cascara, has been introduced to north American Starbucks stores as a sweetener – and competitors are picking up on the trend as well.

Thanks to increasing demand, coffee husks are now selling for more than coffee beans, currently priced at US$7/lbs while coffee is selling at US$1.20/lbs due to an oversupply of arabica beans. For farmers the new income stream generated by utilising coffee waste is supporting incomes in a low-price environment.

Can coffee get any better? Even the waste is valuable now, improving incomes and reducing pollution – good for people, planet and profit.

Disruptive technologies

Customers lead tech rollout – US fast-casual chain Shake Shack opened a kiosk only, cashless store in New York City, dubbing it a playground for digital integration and innovation. The chain, which has always been a digital innovator, learned that its customers might not be ready for the cashless future, we’ve all heard so much about.

CEO Randy Garutti said the company had found its customers often want to pay cash. Whether guests want to order via the Shake Shack app, its website or in-store, the CEO said it would be entirely up to customers. Shake Shack plans to bring its US stores to a total of 220 stores by 2020, up from its current 167.

Shake Shack has always aimed at being more than just a trendy burger joint by tapping into customer wants. This time it is rolling out technology based on these wants, not solely on what the technology offers.

Could blockchain make carbon farming work? – Seattle-based start-up Nori is creating a blockchain- based platform that will create a market where companies can offset their emissions and pay farmers directly for carbon sequestered.

This would incentivise farmers to change their land management practices, a hurdle previously standing in the way of widespread carbon farming.  Another challenge to adoption of carbon farming is assessing and authenticating carbon removal, which could be alleviated by ecological data platform Regen Network. Using sensors Regen can measure carbon sequestration allowing Nori to produce carbon removal credits and facilitate a sale.

While carbon farming has been talked about for years, it has had limited traction. If an effective market could be developed using Blockchain, agricultural producers could more effectively be a solution, rather than a problem when it comes to greenhouse gas emissions.

Freshagenda’s Horizons June 2018 newsletter is a free 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 digs into 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