Horizons November 2017

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

Making news

Butter proves slippery – There’s been quite a lot of media coverage recently of soaring butter prices and looming shortages. It’s a global issue that has even earned the hashtag #BeurreGate as consumers contemplate supermarket shelves stripped of buttery goodness.

The issue itself is alarming, butter demand has lifted along with the curse on dietary fat. Consumers are heading back to butter for its superior taste and more natural image, and the fact that it is getting expensive and in some instances unattainable could burn-off some of that hard-won market share. What has also been alarming is the analysis of the cause from some highly credentialed news and research providers. The explanations have ranged from laughable to downright misleading, but the major source of the shortage – the knock-on effect of European Union market intervention which has been building for several months – has been missed in many prominent news items that have circulated over the past month. While not everyone can be an expert, it seems in this case it was too difficult to find a simple story to explain the “crisis”. Read more.

The flawed media and even academic analysis of the butter issue highlights the complexity of food supply chains, and the difficulty of informing the average punter who has limited time and attention.

McDonald’s test McVegan To attract new customers seeking a meat-free existence, McDonald’s is trialling the McVegan at five outlets in Finland to have a foot in both camps. The meatless burger includes a soy patty served in a bun with the usual fillings and trimmings. In its initial trial the burger is sold at its Finnish stores in Tampere and if it proves successful the chain may expand nationally in 2018.

The Tampere shops were previously used to test menu items and according to aspokesperson, first results from the trial were very promising as McDonald’s has responded customer requests. A single burger is priced at €3, and an extra value meal at €6.95 during the test. The McVegan is the next logical step for McDonald’s local menu in Finland that introduced veggie burgers in 2012. McDonald’s has also introduced Le Grand Veggie burger in France and added to McVeggie to its Norwegian menu in May.

McDonald’s is following the meat-free trend, but it widen the chain’s appeal in other regions, where it is synonymous with beef burgers. Or will Maccas fans simply stick to the meat patties?

Vegemite makeover – New owner of Vegemite, Bega has released a new premium version of the spread with its Vegemite Blend 17. Co-host of food podcast Ingredipedia Emily Naismith called the savoury spread “the great equaliser through all of Australia” and was sceptical as to which type of market Bega was serving with its new flavour. Others said they couldn’t really taste the difference, other than perhaps a saltier taste.

Vegemite’s marketing director Ben Hill said those who are generous when spreading yeast extract on toast would be pleased with the higher intensity of the Vegemite taste in Blend 17.  Hill encouraged all Australians to try the new Vegemite, with only 450,000 units available initially with no plans for reissue. The Vegemite Blend 17 launch even got profiled in the New York Times, and there has been significant chatter on social media – not all of it positive as consumers argue whether the higher-priced variant is in fact any different to the original.

Vegemite Blend 17 has got people talking about the brand but it’s a bold move to mess with an iconic brand like Vegemite and not deliver a discernibly different experience for a significantly higher price-point. When it comes to Vegemite, maybe you’re either in …. or you’re out!

Discerning consumers

Health claims to be regulated – later The US Food and Drug Administration (FDA) Commissioner Scott Gottlieb wants to slow down a major review of product label claims and take a closer look at claims made by food manufacturers on their packaging. While delaying Obama-era food labeling rules, the FDA is painstakingly investigating how to define “healthy” and “natural” more uniformly. Gottlieb says he is committed to more informative labels, but wants to give food manufacturers more time to comply.

The slowdown has angered consumer groups, but the Grocery Manufacturers Association has welcomed the delay, and wants clearer definition of the rules from the FDA. The rules seek to help consumers make more informed decisions about calories, serving sizes and added sugars.  Some food companies have already introduced the new labels to meet growing consumer demand for more information. Large manufacturers have until January 2020 to add the detailed labels while smaller food companies have until 2021.

The wheels of government turn very slowly, and it seems food manufacturers have been let off the hook for the time being. Is there political will to address these issues or will the market push for a less orderly solution?

Spreading food fraud A Canadian study shows that 63% of Canadians are concerned about food fraud and 40% already feel they have been victims. Food fraud takes many forms; anything from adulteration, substituting one ingredient with a much cheaper one, or misrepresentation, including selling a product as organic when it’s not.  And the latest Canadian food fraud cases show the most vulnerable food categories are fish, seafood, liquids, spices, fruits, vegetables and meat products. Mucci Farms in southwestern Ontario has been fined UD$1.5m for selling Mexican tomatoes as a product of Canada. Another company, poultry processor Cericola Farms was charged with fraud over allegations of organic mislabelling last year.

The study shows the entire food economy is at risk when food fraud occurs, as it dents consumer trust. While the majority of food companies are ethically sound, it only takes a few cases to damage the reputation of an entire industry. To completely avoid food fraud, measures such has sample-testing of EVERY product and reporting other fraudulent rivals would need to be put in place. While practically impossible, investments in blockchain and portable technologies could be a tool to detect counterfeit products and validate the content of food labels.

This Canadian study is no doubt mirrored in other markets where food is misrepresented, ingredients are substituted, and consumers’ trust is eroded.

Craft sell-out – The Australian craft beer market is growing at around 10% annually, generating almost A$500m in yearly revenue. However, it seems the appeal of craft beer, artisanal products with a unique story created by a small, passionate close-knit team is being challenged as more craft breweries sell out to larger companies. Out of Australia’s 400 craft brewers, global giants Lion and SAB control more than 50% of the market and large corporations own many of the most prominent craft beer brands.

After 12 years of independent brewing, WA-based Feral Brewing recently sold 100% of the company to Coca-Cola Amatil last month, under the conditions that the team would be able to continue what they love to do; make beer they love to drink and have personal respect for.  The heartfelt and detailed explanation of the deal, along with assurance of honouring core values on Feral’s Facebook page was met with a mostly savage response from fans, many of whom suggested they would walk away from the brand.

Four Pines and Mountain Goat are also recent local examples of craft brands being swallowed by larger companies and suffering backlash, and there have been similar experiences overseas. When it comes to craft beer – it’s not just about beer. For fans prepared to pay more for a flavoursome brew – it’s as much about the business behind it. Read more.

The sale of craft brewery brings the inevitable angst for drinkers who supported the brand because it was “different”. Can successful craft brands navigate the corporate takeover without losing their appeal?

Volatile world

Are we done with democracy? – Harvard lecturer Yascha Mounk and political scientist from the University of Melbourne Robert Stefan Foa have gathered and analysed data on the strength of liberal democracies. And their findings show that younger people’s attitude toward democracy has soured over time. Especially, millennials have less faith in the democratic system and are more likely to express hostile views. They also vote for anti-establishment parties and candidates that disregard democratic norms in greater numbers.

Mounk and Foa’s findings are backed up by the World Values Survey.

This survey started in 1981 and studies changing values and their impact on social and political life. The World Value Survey shows that younger generations in long-standing Western democracies not only place less importance on living in a democracy; a larger share of them also openly rejects democratic institutions.  In the US, the researchers found that younger people are more likely to agree with an anti-democratic point of view, with almost half of millennials expression approval for a “strong leader” rather than “parliament and elections”.  The researchers say there’s not much cross-country data about attitudes to democracy, but that new evidence show a continuation of the trend.

Growing scepticism amongst younger people about democracy, and an increasing trend toward support for strong leaders and extremism. It’s a sign that trust in the systems that most developed countries have embraced, and share is being eroded.

Beef transparency when it suits – Australian cattle producers appear willing to forgo timely slaughter statistics to avoid giving export customers intelligence that could negatively affect prices. In a rare show of supply chain unity, producers have supported the processing sector’s boycott of abattoir kill data provision to Meat & Livestock Australia’s (MLA) National Livestock Reporting Service. Through October, MLA’s weekly Eastern States Slaughter Report was published with ‘no quotes’ for parts of Queensland and NSW categories as JBS Australia stopped providing its figures.

When questioned about what this means in terms of price transparency – the subject of recent ACCC and Senate inquiries – Australian Meat Industry Council chief executive Patrick Hutchinson said: “We want to be open and transparent, but we won’t do it blindly.” Peak producer group Cattle Council of Australia says while the market intelligence has certainly been used by switched-on producers to gain advantages in timing cattle turnoff, the current stalemate highlights the need to ask “at what expense?”

It’s an interesting move for an industry that is trying to build transparent supply chains to advocate for less data. Increasing information asymmetry is undoubtedly beneficial for those with more insights, but it also underlines that rather than building a reliable and predictable value chain for premium product – it’s still all about price.

Xi dials up the power – China’s president Xi Jinping has attained the same exalted status as China’s founding father Mao Zedong – with his name and ideas incorporated into the ruling Communist party’s constitution. He effectively becomes the world’s most powerful leader in the vacuum left by US president Donald Drumpf who struggles to create meaningful policies both at home and has retreated from the world stage. Xi has exerted an iron grip on the dominant engine of global economic growth. Is there anything to fear from this for the world?

Xi has promised to be a champion of globalisation, free trade and the Paris accord on climate change. He has already announced his Belt and Road Initiative, investing in vital infrastructure to support world prosperity. That’s all good news.

However, he is also planning unprecedented military power, and while not seen as a global troublemaker like Russia’s Vladmir Putin the president’s instincts have been described “as illiberal as those of his Russian counterpart.” Control over Chinese society has tightened under Xi, enhancing the state’s power of surveillance and keeping the commanding heights of the economy under the party’s thumb. Human-rights abuses have grown worse under Xi’s presidency, with no complaints from other world leaders. Xi is thought to be reluctant to step down in 2022 when precedent suggests he should.

Xi’s ascendency will ensure his ambitious political, economic and trade agendas will proceed in the strategic vacuum left by the US, and with no home-grown opposition. What will it mean for the future of trade and international cooperation?

Evolving models

Future consumer – New York-based creative consultants Lippincott have analysed major tech and sociological trends that will change how consumers shop and interact with brands in the future. The average shopper won’t actually shop – packages will be delivered, there will be no waiting in line, everywhere will be visited in virtual reality first, and everything purchased will be tailor-made.

Applying data from connected devices, smart assistants will deliver products before there is even an acknowledged need, with near perfect predictions. Personal data will increasingly be traded off for greater customisation and AI assistants will need to be won over by retailers. Retailers’ will need to deliver heightened service personalisation or constant evolving immersive entertainment to compel visits to physical retail spaces, as online shopping and automation increase. Consumers will be increasingly mobile, and retailers will be expected to move with them, maintaining a continuous flow within a customer channel. Retailers, who are able to utilise data will be frontrunners as the ability to predict and meet a demand is the future of retail according to Lippincott.

Tomorrow’s consumer is mobile and expects retailers to adapt – immediacy of delivery through prediction of needs, personalised immersive and seamless shopping experiences – how many retailers will be up to the challenge?

Is it the end of the road for co-ops? – The news that the Australian dairy industry’s largest farmer-owned cooperative would be sold to a Canadian company has been a blow for many farmer suppliers. Murray Goulburn (MG) has been a giant of the local dairy sector – accounting for around a third of national milk production, and with a manufacturing footprint spanning the south east of Australia. It’s been a rapid and spectacular fall from grace, with many observers pointing to MG’s partial listing – the 2014 $500 million capital raising through a unit trust as putting the cooperative in the most jeopardy, with the ensuing struggle to appease two masters – farmer and financial investor – urging an overreach in milk price promises.

Access to capital is a familiar problem for many cooperatives – which remain ubiquitous in the global dairy industry. In the US and Europe, dairy cooperatives have been able to generate enough capital from their business and their large supplier-bases. In New Zealand and Ireland other strategies have been developed to raise capital retain farmer control. Read more.

The cooperative has been a mainstay of the dairy industry, where integrated supply chains really matter. However, the trade-off between farmer ownership and control versus capital is changing the model.

Reinventing the pizza chain – In the US, pizza chain &pizza is doing things differently. Its founder and CEO Michael Lastoria opened his first pizza shop in Washington D.C. in the summer of 2012, with an offering that “priced people in” to an area that was rapidly gentrifying. In the five years that since, Lastoria has opened shops in Maryland, Virginia, Philadelphia and New York; and soon he’ll open in Boston and Miami.

But &pizza doesn’t behave like other pizza chains. Each outlet reflects the surrounding neighbourhood, incorporating works by local artists. Lastoria went to Capitol Hill to re-introduce a bill with Senator Bernie Sanders calling for a $15 minimum wage by 2024. &pizza aims to create an environment that promotes bringing the best out in people, which is why workers are hired for personality and style. Pizzas are flavoured by products sourced from small local makers through its “little giants” initiative. In New York, the ethos has seen &pizza partner with FoodCorps – a non-profit that connects local schoolkids to healthy food.

“Pricing people in” and neighbourhood-inspired store fit outs and offerings has proved a winning formula for this ethical pizza chain. Walking the walk on minimum wage has led to a loyal and motivated workforce to drive the brand. Certainly, a contrast to larger competitors, is the way of the future?

More from less

Swimming upstream – Tasmanian salmon has enjoyed a reputation as a sustainable source of healthy protein, with strong environmental credentials. However, an industry that seems to have prospered through innovation, self-regulation and collaboration is less harmonious these days. Founder of Huon Aquaculture Frances Bender is seeking stronger regulation of marine farming through the Supreme and Federal courts of Tasmania. Huon is alleging the Tasmanian government and the state’s Environment Protection Authority (EPA) did not adequately or fairly manage the expansion of salmon farming, making decisions and concessions in favour of ASX-listed Tassal.

It’s a significant breaking in the ranks, which calls the clean and green image of the Tasmanian salmon industry. Is this a case of corporate sour grapes and different risk appetites in a pioneering industry, or has salmon farming gone beyond what is sustainable? Read more.

The legal battles swirling around Tasmania’s salmon industry highlight the fraught territory of corporate imperatives versus environmental responsibility. The outcome of this public feud will only serve to undermine consumer confidence in what was perceived as a healthy, sustainable protein source.

Disruptive technologies

Robo crop Project Hands Free Hectare has achieved a first – a crop planted, tended and harvested completely without human involvement, using only automated machines operated from a control room. The automated farm is a joint venture by Harper Adams University in Shropshire, England and farming specialist company Precision Decisions. Agronomists and engineers used customised tractors and drones to cultivate barley from roughly 2.5 acres – the project concluded with a yield of 4.5t barley. The project used multispectral sensors to take aerial images of the field, live camera feeds to detect invasive weeds or diseases and smaller machines at crop level to take samples and access data on which fertilisers to apply.

The project cost £250,000, drones were programmed through low-cost drone-based autopilots utilising open-source software. Researchers maintain that machinery produced commercially would be priced comparatively to traditional agricultural equipment.  Professor Michael Boehlje from Purdue University said the cost of automation technology is decreasing and with cheaper technology available, farmers can better use their time managing farms and crops without having to do the robotic jobs.

Is this project a gimmick, or is the completely automated crop within reach? The replacement of labour with capital is a long-term trend in agriculture – so this seems the next logical step.

Fighting disease no yolk – Japanese researchers at the National Institute of Advanced Industrial Science and Technology (AIST) have genetically engineered chickens to lay eggs that fight disease. Using gene-editing technology the cocks produce the protein interferon beta. The cells are used to fertilize eggs and create hens that inherent these genes, enabling them to lay eggs containing interferon beta. The disease-fighting protein is related to the immune system that is a powerful tool in treating skin cancer, hepatitis and multiple sclerosis.

Although it’s early days interferon-beta therapy could push back against cancer cell proliferation and reduce the rate of MS relapses by 30%. The drug is currently priced at US$888 for a few micrograms, if successful utilising eggs could reduce the cost by 50%.

Is this project a gimmick, or is the completely automated crop within reach? The replacement of labour with capital is a long-term trend in agriculture – so this seems the next logical step.

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

Our Horizons November 2017 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 November 2017 digs in to Freshagenda’s 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