Horizons October 2017

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

Making news

Latest MLA lamb-basting – Meat & Livestock Australia’s (MLA) latest advertisement for lamb has, as is almost customary, sparked controversy. The ad features Jesus, Moses, Aphrodite, Buddha, Ganesha, Zeus, Obi Wan Kenobi and Ron Hubbard at a dinner party hosted by an atheist. MLA says the intention of the ad is to promote inclusivity; showing lamb as a meat consumed by a wide variety of cultures.

The ad was referred to the Advertising Standards Bureau (ASB) over “its lack of sensitivity in portraying divinities and religious leaders.” However, the ASB dismissed complaints, as a majority of the board found the ad “light-hearted and humorous with the intent to be inclusive in a manner which promotes a harmonious and multi-faith environment.” The Indian government, the Hindu Council of Australia and a Liberal MP have all called for the ad to be banned, stating its depiction of vegetarian deity Ganesha eating meat was very insensitive to the Indian Hindu community. No less than 300 comments were left on MLA’s facebook page with the majority opposing the ad, calling it offensive and insensitive. MLA responded, saying it wanted to “capture how the world could look if people left their differing views at the door and came to the table with open arms and minds.” Read more.

It’s almost a tradition that MLA’s lamb ads provoke controversy, as well as laughs. It’s been an effective strategy to amplify the message, ensuring lots of online sharing and media coverage. This ad claims to promote inclusivity as well as meat, does it matter if religious vegetarians don’t like it?

How bad might Brexit be – As negotiations for Britain to leave the EU muddle on, it’s becoming even clearer that it’s the UK not EU which will be most damaged from the split. Blogger, political commentator and Vote Leave staffer Oliver Norgrove took to Twitter to explain where Brexit would leave the country in terms of trade. Triggering Article 50, according to Norgrove would see Britain becoming a ‘third country’ with who the EU have no Free Trade Agreement. This means EU is legally obliged to impose tariffs in line with those imposed on other WTO members; inferior to tariffs provided by membership which will see prices spike. He warns of shipping breakdowns due to a lack of a harmonised system of regulation. Former EU-negotiator Steve Bullock says those in charge of negotiating Brexit have so mishandled it that “only the most damaging versions are available”. Meanwhile, last year’s fears of a collapse of the union has evaporated with defeats for anti-European parties in Germany, France and the Netherlands following last year’s Brexit vote and a cyclical economic upturn.

Meanwhile, speaking in Ireland, European Commissioner for Agriculture Phil Hogan has said farmers must be protected post-Brexit, and new markets will have to be developed for Irish agriculture. Despite the two-year Brexit transition period announced by the UK Government, Hogan urged UK Prime Minister Theresa May to push to remain in the European Union Customs Union and the Single Market. “Nobody in the UK voted the Single Market or Customs Union. We have to keep trying to show the promised land of common sense.” Hogan said the Brexit narrative from some people had gotten out of control in recent times.

It seems more than a year from the shock vote, the consensus is Brexit will be very bad for the UK, but could have strengthened the remaining bloc as the extent of the pain for Brits becomes more apparent.

Discerning consumers

Is sugar addictive yet? – Another week, another article pondering whether sugar is akin to the most addictive of illicit drugs. A narrative review published in the British Journal of Sports Medicine claims that sugar could act as a gateway to alcohol and other addictive substances. The authors, cardiovascular research scientist James J DiNicolantonio and cardiologist James H O’Keefe from Saint Luke’s Mid America Heart Institute in Kansas, and physician Willian Wilson claim sugar, like cocaine and opium, is refined from plants to yield pure white crystals – a process that “significantly adds to its addictive properties.” The article has come under fire from other researchers, who say that while sugar consumption can lead to problematic health issues it is not addictive.

In a rodent study cited by the researchers, it was shown that only if sugar consumption was restricted to a certain time each day would it lead to addiction-like behaviours.  Hisham Ziauddeen, a psychiatrist at the University of Cambridge, said that the rodent studies the authors relied on, which restrict sugar, had been misunderstood. Ziauddeen observed that when rodents could access sugar whenever they wanted, which is how sugar is actually consumed, they don’t exhibit addiction-like behaviours. Ziauddeen also played down the observation that sugar and cocaine have similar effects on the brain, pointing out that while both interact with the same reward system, unlike sugar, drugs hijack the system and turn-off normal controls.

The likening of sugar to drugs of addiction plays to the fear of consumers, and the feeling for many that they are helpless to control their own consumption. Is characterising sugar consumption this way really helping?

Truth in labelling – Food labelling should give consumers information about nutritional content, but it seems some labels confuse more than they inform. Water that is labelled gluten and hormone free, non-GMO and organic is clearly absurd, but this fake transparency exploits consumer knowledge gaps to extract a premium. Asymmetric information is a well-known concept in economics and leads to sub-optimal market outcomes – such as convincing consumers to pay more by exploiting concerns about processes and ingredients they don’t really understand. Increasingly, products are labelled free-from when they would never contain the ingredient or a use a particular process – consumers are nevertheless convinced to pay more for the assurance provided by the label.

New US GMO labelling laws taking effect in 2018 will compound these problems, providing a “signalling effect”. This effect occurs when a consumer receives an implicit message from an explicit cue – and when the government is involved in mandatory labelling the effect is even stronger. Companies selling products without GMOs will likely include “GMO-free” on the label even though the law doesn’t apply to those foods. Read more.

Food labels are increasingly crossing a line between filling knowledge gaps and exploiting them. The fake transparency and signalling is exploiting consumer fears not allaying them.

The lesser of 2 evils? – KnowTheChain who strive to eradicate slavery and forced labour in supply chains has taken on the sugar industry, where the risk of exposure to these practices is increasing. Why?  The demand for GMO-free sugar in the US has seen companies such as Coca Cola, Nestle, PepsiCo, Mondelez and Hershey look further afield as half of all US sugar is processed from sugar beets, almost exclusively grown from GMO seeds. Companies have turned towards India, Brazil and other smaller sugar producing nations such as Guatemala, Pakistan, Bolivia and The Dominican Republic to meet demand. These are all countries where some producers use bonded or forced labour according to KnowTheChain’s most recent report. KnowTheChain estimates 45m workers worldwide are entrapped in slavery, and has urged large food companies and traders to increase their efforts to improve supply chain transparency and eliminate slavery.

Avoiding GMO sugar has exposed some supply chains to slavery and forced labour. Is it incumbent on these movements that seek to remove GMO ingredients to ensure alternatives are available that do no harm?

Volatile world

Avoiding the populism pendulum

In an opinion piece in the Sydney Morning Herald, economics editor Ross Gittins calls for cool policy heads to prevail against “pushy young punks” in ministerial offices. The “neoliberal” consensus” which had made government intervention in markets a no-no, is collapsing. Now the danger is the pendulum will swing too far in the opposite direction as marginal governments seek to “do something”. Gittins says the challenge for Treasury, Productivity Commission and other advisers is to be less rigid and doctrinal in their approach and instead offer governments politically-palatable solutions. If not, the policy vacuum that ensues if they are not listened to at all will be filled by ambitious ministerial advisers with an eye to government popularity rather than well thought out interventions.

While the neo-classical presumption of self-correcting markets is out of favour, there has always been a valid role for government regulation – intervention is neither good or bad – just tricky.

A hard-line neo-classical economics approach is fast losing favour, but governments needing to “do something” to be popular could make things much worse. A measured approach to market regulation and globalisation is required.

Food insecurity is still a thing – In the US, the national rate of food insecurity fell from 12.7% in 2015 to 12.3% in 2016, according to a report from USDA, which called the slight decline a “continued downward trend”. At the height of the recession in 2011, roughly 15% of the households around the US were – at some point – unable to “provide adequate, nutritious food for themselves or others living with them”. Despite the fall from 2011 heights, the latest year-on-year change represents a statistically insignificant change. Before the recession 11% of the US population weren’t able to provide nutritious food for themselves and their families. The USDA report breaks the stats down to demographics such as marital status, ethnicity and whether those affected live in cities or not. The data shows African Americans, Hispanics and city dwellers are more likely to be food insecure and only 60% of food insecure households have accessed food stamps, supplemental nutrition or food programs. Reasons for not accessing these programs vary, some are due to a simple lack of knowledge, while other reasons preventing people from utilising the programs are shame or  that they are geographically inaccessible. Read more.

It seems inconceivable that in a country as developed as the US more than 10% of people don’t have access to enough food. Despite a recovering economy, the situation hasn’t improved, and is worsening along racial lines.

An ill wind – Hurricane Maria made landfall in Puerto Rico and wiped out an estimated 80% of crop value – making it one of the country’s costliest storms. The prolonged barrage from the category 4 storm destroyed dairies and chicken farms, while plantain, banana and coffee crops were hardest hit. The estimated US$780 million loss in agriculture yields will mean the impoverished country, which already sources around 85% of its food offshore will need to drastically increase imports. Other islands that export food to Puerto Rico, such as the Dominican Republic, Dominica and St. Martin, were also hit, and food supplies could be even more precarious if the island’s other suppliers were also affected. Nevertheless, Carlos Flores Ortega, Puerto Rico’s secretary of the Department of Agriculture thinks the sector can rebuild with more modern techniques. “Agriculture is the most vulnerable sector to natural disasters,” Flores said. “But it’s also the one that can have the speediest recovery, and it’ll be the great surprise in the Puerto Rican economy, because we’re going to come back stronger.”

The devastation caused by events such as Hurricane Maria are likely to become a more regular occurrence in future. How will food production and distribution systems evolve to cope?

Evolving models

Cargill looks to the future – Cargill has a trading network spanning 70 countries, built over 152 years of operation based on agricultural commodities. However, its 2015 purchase of a Norwegian fish-food company, marked the company’s move into higher-value markets and closer to consumers. Head of aquaculture at Cargill Einar Wathne says consumers want to know not only where the salmon comes from, but also what is was fed and where the feed was sourced. However, fishermen of wild salmon want to turn the public against farmed fish, it’s thought handling issues of sustainability and traceability could make Cargill better at dealing with these issues in more established parts of its food business, such as meats. It won’t be easy for Cargill to build trust with consumers, to its critics it epitomises faceless “Big Agriculture.” “I recognise that we are big, and because we are privately owned and because we are primarily business-to-business…it is harder to have that transparency,” says Cargill chief executive David MacLennan. “We want to be more well known.”

Increasing demands from consumers for supply chain connection and transparency are making this agribusiness giant rethink its traditional role as an invisible middle-man.

Alibaba heads to the mall – China’s largest online sales platform Alibaba is building a five-storey More Mall at its Hangzhou headquarters. The mall is part of the company’s new retail strategy, aiming to blend online, offline, logistics and data units across a single value chain. With its launch of unmanned convenience stores and introduction of big-data technology to a million small retailers, Alibaba is moving into offline spaces as it remodels traditional retailing. More Mall is scheduled to open in April and will feature brands sold on Alibaba’s e-commerce platform Taobao as well as conventional retail brands. Brick-and-mortar could boost the company’s growth as Chinese e-commerce comes back down to earth. China’s e-commerce growth has normalized at 20%, compared with the 40% rate previously, according to Arete research analyst Li Muzhi, which means that Alibaba needs to find other ways to grow its business.  The Mall will feature the flagship for its grocery store Hema, introduced in 2015 to revive traditional supermarkets. The first mall will offer Alibaba’s new retail technologies; including high-tech makeup-testing mirrors and virtual fitting rooms.

Alibaba’s new mall will be a flagship for its strategy of melding online and offline channels – allowing it to showcase technologies and brands.

Is convenience always King? – Bodega – new start-up founded by two former Google employees has had a less than spectacular launch in the US. Paul McDonald and Ashwath Rajan have created five-foot wide, wifi-enabled storage boxes, to be installed in convenient locations such as apartment buildings, gyms, and sorority houses. Customers can access the stores by downloading an app, pick up the items they desire and in view of a computer-vision camera, customers are automatically charged for their purchase. The re-invention of what some called a “gentrified vending machine” was widely mocked, while others attacked the pair for misappropriating the name Bodega, which is traditionally used for a corner store owned by immigrants.

While taking human interaction out of transactions may have seemed like a good idea in an increasingly tech-driven world, disrupting neighbourhood convenience stores which are often at the centre of urban communities has proved unpopular. Read more.

This start-up has copped a lot of criticism for solving a problem that isn’t there – at least in consumers’ eyes. In seeking to take people out of bodegas this start-up has missed a key part of their appeal.

More from less

Do Nestle’s sustainability efforts stand up? – Nespresso has fired up its sustainability storytelling in its new global campaign. “The choices we make” tells the story of the economic, social and environmental benefits Nespresso has delivered through the building of a community mill in Columbia. According to Nestle’s chief marketing officer Alfonso Gonzalez, the decision to focus the campaign around sustainability does not truly reflect a change of priority for the brand, which has always communicated its approach to sourcing – it has just been “a little shy” about its ethical credentials in the past. The coffee maker developed its own label Nespresso AAA Sustainable Quality program with Rainforest Alliance (RA). The coffee is not sourced in the open market, but comes directly from farmers –40% is RA certified while other limited editions have been Fairtrade certified. And then there’s the issue of the capsules. The brand’s recycling scheme has 86% coverage but only 24% of capsules recycled at present. Other brands have started using biodegradable capsules, but Gonzalez says Nespresso believes that aluminium is one of the best choices, because it is infinitely recyclable and preserves aroma, quality and freshness.

On the subject of coffee – and particularly when it comes to the pods they pioneered does Nestle have a credible sustainability story? Pod recycling rates are still low, and there is little clarity about how this will be addressed.

Aldi gets ethical – Aldi are asking all its Australian suppliers to enhance their ethical sourcing practices or risk suspension or termination of contract. The German discount chain has a new strategy to develop its reputation beyond cheap groceries across the regions where it operates. By November, suppliers must be a member of one of two corporate and social responsibility groups, provide an internal ethical sourcing policy and share accepted third-party audits of their supply chain with Aldi. Suppliers will need to ‘proactively review social audit reports’ and ‘take corrective action for non-compliance.’ In addition to requiring high social standards throughout the supply chain, Aldi also aims to source raw materials responsibly, lessen environmental impact, support Australian businesses and communities and help make healthy choices affordable for customers.  Aldi has been a preferred customer for many local suppliers, easier and cheaper to deal with than the two major chains. Will this new approach change things?

It seems Aldi is looking beyond low prices at ethical sourcing to win market share. But will stepping up its ethical sourcing efforts attract new customers and make current value shoppers any more loyal?

China closing the loop? – Chinese authorities will pay farmers to turn animal waste into fertiliser and power in a crackdown on agricultural pollution that is leaking into rivers and lakes. The Ministry of Agriculture announced it will subsidise farmers to build animal waste processing facilities to make fertilisers or to treat animal waste so it’s safe for disposal. The ministry will also install biogas plants that can convert methane into electricity. Recycling programs will be set up in half of the major counties that have hog and poultry farms by 2020. Director of the fertiliser department at the ministry of agriculture Zhong Luqing says farmers researching and using organic fertiliser will also get preferential treatment on loans, taxes, power use and land rent. Chinese livestock farms generate nearly four billion tonnes of waste annually, according to the agriculture ministry.

With the weight of government policy pulling in this direction, China could make a massive impact on livestock-generated waste and substantially close the loop on its livestock industries.

Disruptive technologies

Self-destruct bugs – Cornell University professor Tony Shelton is developing a non-insecticidal control for the diamond backed moth, which is responsible for an estimated US$4 to $5 billion in crop damage annually. The moth rapidly develops resistance to insecticides – sometimes in as little as two years. Shelton is developing a self-limiting male moth that carries a sterility gene, which is passed onto their offspring when laboratory-bred males mate with wild females. The resulting female offspring do not live long enough to reproduce, naturally supressing the population. Although this is not the first time sterile insects have been used in this way, Shelton’s use of genetic modification has drawn fire from activists. Results from initial tests in greenhouse and caged fields are promising and may have implications for environmentally sustainable pest control, and after 16 months of intense scrutiny the USDA granted permission for confined field trials.

The use of genetically modified moths to regulate population has the potential to reduce insecticide usage to more sustainable control these pests. But will it be blocked by activists?

Agritech boom – AgFunder’s 2017 Midyear Review on AgriFood investments have identified 27% less deals in the ag tech space when compared to first half of 2016. But while the number of deals may have declined, the funds invested have grown by 6% to US$4.4bn and is expected to exceed last year’s total of US$6.9bn reaching US$8.8bn. The US is still home to most deals and funds, the data indicates investments are moving out of the R&D phase and into products that have been in the planning and development stages. An established and sophisticated angel investing community and robust start-up ecosystem makes early stage support more forthcoming in the US. In comparison, Australia’s agtech ecosystem is relatively immature, although with the launch of accelerator SproutX, Australia has jumped into the top 5 most active countries with 10 deals. However, when looking at the top 20 non-US deals Australia is missing in action. Instead, the list features countries such as China (four deals), India (three deals) while Canada, tops the list with five deals. Australia is well behind Canada, a country that derives just half the agriculture GDP of Australia.

Australia has jumped into the top 5 active countries but still not in the to 20 non-US deals. The lack of investor interest in agriculture generally appears to be constraining investment in agtech.

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

Our Horizons October 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 October 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