Customer demand revolutionizing the food supply chain

(Editor’s note: This is the fifth installment in our seven-part in-depth editorial series where we look ahead at “Farm & Food 2040.” This story focuses on the changing consumer expectations for food and how that’s impacting many aspects of the value chain of the present and future.)

Food industry stakeholders, from farmers, feedlots, and major food companies, to supermarkets and the corner grocery, are re-engineering the supply chain in response to increasingly insistent and ever-changing consumer demand and new technologies.

In one example of major food and ag companies going where the growth is, meat-industry leaders Cargill and Tyson Foods have already shifted operations and new investments toward plant-based meat substitutes and cell-cultured products, produced in labs rather than in feedlots.

Unsurprisingly, the National Cattlemen’s Beef Association (NCBA) calls both plant-based and lab-cultured competitors “fake meat.” Similar to the dairy industry’s lobbying to block plant-based milks like soymilk and almond milk from using “milk” in their labels, NCBA pledges “to make sure that fake meat — both current plant-based products and potential lab-produced products in the future — is properly marketed and regulated.”

At the NCBA’s 2019 Cattle Industry Convention in New Orleans Jan 30 to Feb. 1, NCBA listed its top priority for 2019 as “Fake Meat — Develop regulatory framework that protects health and well-being of consumers, prevents false and deceptive marketing, and ensures a level playing field for real beef products.”

NCBA isn’t alone in its efforts. Last year, the U.S. Cattlemen’s Association petitioned USDA’s Food Safety and Inspection Service to limit the definition of “beef” and “meat” to products made “from cattle born, raised, and harvested in the traditional manner.”

In response to the meat and dairy industries’ labeling or perhaps competition concerns, the Plant Based Foods Association (PBFA) has urged federal regulators to maintain current label latitude, explaining that “Plant-based food producers offer options that consumers want and recognize.”

States aren’t waiting. On January 1, with about a dozen other states considering similar legislation, Missouri became the first state to ban labeling new meat alternatives as “meat” unless the product is “derived from harvested production livestock or poultry.” Enforcement has been delayed while legal challenges are pending, but the law could limit availability of new meat substitutes in Missouri while the issue remains undecided.

Just last week, Arizona lawmakers voted to prohibit sale of “almond milk” because almonds do not lactate. Under the House Bill 2604, it would have to be labeled as “fake milk” or “alternative milk.”

Despite pushback from incumbents like NCBA, dairy interests and some state lawmakers, food industry leaders and venture capital firms are investing aggressively in new plant-protein and cultured meat ventures, as listed here.

Industry analysts look toward 2040

Rabobank’s annual “We Didn't See That Coming” survey of food trends from RaboResearch Executive Director Nick Fereday notes that one respondent summed up the general consensus about 2018 well: “From delivering new products, changing business models, adjusting to consumer shifts, investing in innovation in various forms, and facing tough realities, the world of food is markedly different.”

Pointing out “The breakneck advancement of plant-based food and beverages was easily the biggest surprise to our readership,” Fereday highlighted three responses to his question about last year’s biggest surprise:

• “The continuous growth and enthusiasm behind all things plant-based.”
• “The acceleration of plant-based foods — and the growing acceptance of the products by non-vegan, non-vegetarian consumers regardless if their motivation is for health, animal welfare, or environment.”
• “The rapid growth in interest, investment, and sales of meat alternatives.”

Predicting that the food industry’s future is “Flexitarian,” Fereday stressed the importance of “Tyson’s game changing investment in Beyond Meat in October 2016.”

Investor Bill Joy, a principal and chief scientist at Florida-based Water Street Capital, also sees a bright future ahead for new meat alternatives. In an October 2017 Washington Post Op-Ed, he explained that “We funded the startup company Beyond Meat in 2011 to make substitutes for meat from plant sources ... Widespread substitution would bring huge positive impacts in land use and for forests and human health. We can become much more sustainable by switching to these and other innovative products.”

For the overall food sector, Accenture Strategy’s annual Future of Food: New Realities for the Industry report forecasts “more change in the food industry in the next 10 years than in the last 50.” Accenture foresees “seismic changes in the food production system” thanks to new technology available at every stage in the supply chain.

At the consumer end, Accenture expects rapid-fire impacts from new AI (artificial-intelligence) apps that will plan consumers’ increasingly health-focused menus, perhaps following a doctor’s recommendations. Next, the apps will use new online ordering and delivery services to automatically restock your refrigerator as needed.

At the farm level in the supply chain, the report predicts new technology will create a “reinvented food production system,” have “a tremendous impact on how food is produced,” and “remove uncertainty from growing food, managing the inputs to maximize yield.” These advances, Accenture concludes, are “essential because productivity gains are projected to account for 80 percent of the crop output increase required to meet an increased demand for food.”

Peter Lane is confident there will be significant output gains. He says that ever since growing up on a small British farm and deciding “there must be an easier way to make a living,” he’s been “designing systems to make farming easier, and more efficient.” Today he’s Vice Chair of the Association for Vertical Farming (AVF) and CEO of CEA Research & Development, focusing on urban farming and Controlled Environment Agriculture (CEA).

Lane expects new technology to transform farming and the agricultural supply chain through extensive automation because “People don’t want to do the backbreaking work anymore. Automation is cheaper, it reduces waste, and can work 24/7. It also reduces risks across the board and increases quality and reliability, making true growing-to-order very efficient.”

Focusing on consumer demand

The recent Cargill and Tyson Foods investments in alternative meats signal a dramatic shift with significant impacts not only for meat and dairy. Throughout the food chain, major food companies increasingly focus on satisfying consumer and retailer preferences — and farmers increasingly follow guidance from food companies and major retailers on what today’s consumers want.

Walmart has been a leader in analyzing consumer preferences and advising its suppliers about what consumers want. This major retailer is using its massive buying power to enforce its stringent standards for reducing climate-change impacts, deforestation, water use, and waste by urging its suppliers to comply.

The nonprofit Carbon Disclosure Project recognized Walmart along with 115 other companies with a total $3.3 trillion in procurement spending for collectively reducing their suppliers’ carbon emissions by 633 million tons of carbon dioxide in 2018, saving $19.3 billion for the companies.

Kathleen McLaughlin, Walmart’s chief sustainability officer and Walmart Foundation president, explained that since the company’s own carbon footprint is small, Walmart can only achieve major environmental gains by helping its suppliers reduce their climate impacts.

One example of this strategy is Walmart’s Gigaton Project aimed at creating a deforestation-free supply chain for the products it sells. Walmart’s goal is to have its suppliers, such as Unilever, reduce their carbon emissions by a gigaton (one billion metric tons) by 2030.

Unilever, a major supplier of food and personal care products, sees bottom-line benefits from its own goal of “Halving the environmental impact of our products by 2030.” It notes that “The company’s sustainable-living brands are growing 46 percent faster than the rest of the business and delivered 70 percent of the company’s growth in 2017.”

In another example of how the supply chain is responding to consumer preferences, Ken Dallmier, president and COO of Illinois-based Clarkson Grain Company, isn’t surprised that the farmers he buys from are paying increasing attention to what retailers and consumer research say consumers want: sustainability, traceability, and transparency based on knowing who is providing their food, from where, and with what practices and which chemical inputs.

Dallmier welcomes farmers’ increasing focus on fine-tuning their crops and practices to satisfy new generations of consumers willing to pay premium prices for food they consider better. He also welcomes what he sees as the consequent “shift from a supply-push ag economy into a demand-pull economy.” He said as 2040 moves closer, consumers and, therefore, the supply chain itself increasingly “will demand transparency of production methods for food staples such as grains, vegetables and meat protein.”

Dallmier adds “producers need to be merchants who keenly analyze customer demand and develop markets and logistics to satisfy what the customer wants — not what we think they need because we have a huge pile of product to sell.” What consumers want, Dallmier concludes, are proven health and environmental benefits based on transparent, identity-preserved, traceable and sustainable production.

Cargill & Tyson choices

One bellwether indicator of what could be ahead for the food supply chain as a whole in 2040 is that conglomerate giant Cargill, closely aligned with the traditional meat industry, sold its last two cattle feedlots, in Kansas and Colorado, in 2017. It has invested some of the proceeds in cultured meat pioneer Memphis Meats.

Cargill’s 2017 sale of its last feedlots followed Cargill’s 2015 sale of its entire pork business to JBS USA Pork for $1.45 billion. Perhaps tellingly, Cargill in 2016 changed the name of its protein division from Cargill Animal Protein to simply Cargill Protein.

Signaling company strategy, after the 2015 sale of Cargill’s two Texas feedlots, John Keating, president of Cargill’s beef business, said “Anticipating the future direction protein demand is headed, we believe it is wise to redeploy capital away from feed yard and cattle ownership to projects that enhance our capabilities and provide greater value to our customers and consumers, now and in the future.”

Notably, the sold, low-margin feedlots are continuing to supply higher-margin Cargill beef processing plants under multiyear contracts.

Cargill insists that it “remains fully committed to investing in and growing our traditional animal protein business” despite selling off its feedlots and pork business. Cargill Protein group leader Brian Sikes explained that investing in Memphis Meats enables Cargill “to explore the potential in growing the cultured meats segment of the protein market.”

Sikes said Cargill believes “consumers will continue to choose meat as a protein source.” But to meet this demand, he said, “Our traditional proteins, as well as new innovations like cultured meats, are both necessary.”

Cargill is not alone in jumping aboard the alternative foods train before it’s out of sight. Memphis Meats, launched in 2015, raised $17 million in new funding in 2017 provided by investors that include not only Cargill but Bill Gates, Richard Branson, and venture-capital firms Draper Fisher Jurvetson, Atomico and Kleiner Perkins.

In 2018, Tyson Foods bought its own stake in Memphis Meats. This means Tyson has hedged its bets by investing in both a lab-raised meat leader and a top plant-based-meat contender. The Memphis Meats investment followed what Rabobank’s Nick Fereday calls “Tyson’s game changing investment in Beyond Meat in October 2016.”

Nielsen IDs what consumers want

A 2018 Nielsen study for the Plant Based Foods Association (PBFA) makes it clear why industry leaders like Cargill, Tyson, Unilever, and Walmart are turning their battleships. The consumer research report spotlights what consumers want and why they’re eager to pay a premium to get perceived health and environmental benefits. That’s exactly what food industry leaders are scrambling to provide: look-alike, taste-alike plant-based or lab-created alternatives to traditional foods.

Nielsen’s numbers explain why the food industry is rushing to respond to the already disrupted market. After 8 percent growth for 2017, total plant-based food sales now top $3.3 billion, catapulting 2018 growth (for a 52-week period ending in June) to an eye-popping 20 percent. The Nielsen report compares that with just 2 percent growth for all retail food sales last year.

The Nielsen report highlighted even more dramatic growth for plant-based meats, a growth of 24 percent in 2018 after a 6 percent surge in 2017.

With accelerating demand for plant-based foods including meat and the full range of dairy products such as cheese and soymilk, Nielsen’s earlier 2016 Global Health and Ingredient-Sentiment Survey drawing from 63 countries explained that not just U.S. but the world’s consumers are increasingly health-focused for four reasons:

• “Global graying: The world’s population is aging rapidly ... and living longer.”
• “Chronically ailing: Chronic diseases ... are on the rise globally.”
• “Food as medicine: Consumers are taking a more active role in their health care, which includes following proper nutrition guidelines.”
• “Educated and connected consumers: Technology gives consumers access to a wealth of health information and products they can use to exercise greater control over their health.”

Tyson is eager to be a leader in the race to satisfy consumers’ rapidly growing taste for new alternative foods seen as health-promoting, transparent and sustainable. Tyson Foods President & CEO Noel White clearly is determined to lead, promising his company’s “Green Street” high-protein alternative meats will be in supermarkets this year. In his Feb. 7 earnings call, White said Tyson is shifting into selling “great tasting protein alternatives that are more accessible for everyone.”

Pointing out “global protein demand has been increasing at a steady rate,” Tyson Corporate Strategy Executive VP Justin Whitmore adds “We continue to invest significantly in our traditional meat business, but also believe in exploring additional opportunities for growth that give consumers more choices.”

If White is right, Tyson alternatives will fill consumers’ shopping carts soon, joining forces with the meatless Beyond Burger from Beyond Meat, a 2009 California startup that Tyson bought into in 2016 and 2017, giving Tyson a 5 percent stake.

To ‘Completely transform the food industry forever’

As part of its strategy of offering consumers more new-food choices, Tyson has followed up on its Beyond Meat and Memphis Meats investments by investing in MycoTechnology, a 2013 startup selling mushroom-based food ingredients that reduce sugar content while promising to enhance taste, nutrition and value.

MycoTechnology, whose stated goal is to “Completely transform the food industry forever,” raised $30 million in January from investors that include food-industry leaders Tyson, Bunge, Continental Grain, and Kellogg’s. This latest $30 million brings a total of $82.6 million that MycoTechnology has raised in its seven funding rounds since 2013.

MycoTechnology’s $82.6 million compares with other leading fundraisers in the alternative meats sector: Impossible Foods’ $387.5 million, Beyond Meats’ $122 million, and Memphis Meats’ $20.1 million.

Alastair Cooper, senior investment director at ADM Capital Cibus Fund, explains the intense food industry interest in MycoTechnology this way: “MycoTechnology’s fungi fermentation platform solves a number of the biggest challenges in the food industry, including: producing a high value, complete protein alternative to animal-based products, increased sustainability, and the ability to drastically reduce sugar content in foods. MycoTechnology is driving the growth of a new and disruptive product range, and we are thrilled to colead this investment round and fund the next stages of development.”

Tyson’s and Beyond Meat’s new foods seem well ahead of lab-grown alternatives from Memphis Meats that has wrestled its production costs down from $18,000 per pound in 2016 to under $2,400 today. That still means lots more research and scaling ahead to bring lab-grown, cell-cultured meat down to a realistic price and meet the Memphis Meats goal of launching its retail sales in 2021.

New demand driving innovation

Memphis Meats co-founder and CEO Uma Valeti, a cardiologist, says Memphis Meats has “a ‘big tent’ philosophy," working with "consumers, regulators, mission-oriented groups and major meat companies to help feed a growing planet in a sustainable way.” Valeti and his fellow co-founder Nicholas Genovese broadened the same point in a Foreign Policy article in January, writing “Memphis Meats was born from the belief that humanity needs creative new ways to sustainably scale food production to feed future generations.”

Valeti and Genovese argue that far from disparaging or wanting to displace traditional meat, they’re introducing alternative meats both to limit environmental impacts and to keep pace with increasing demand. The drivers are global population growth coupled with income growth that’s accelerating global demand-pull for either “real meat” or equally tasty plant-based, high-protein alternatives.

Food industry leaders push for sustainability

It’s not just newcomers like Beyond Meat, Memphis Meats and Impossible Foods responding to consumer desires and concerns.

Last July, Danone North America CEO Mariano Lozano, Mars Wrigley Confectionery Americas President Tracey Massey, Nestlé USA Chairman & CEO Steve Presley, and Unilever North America President Amanda Sourry launched the Sustainable Food Policy Alliance (SFPA). Heading four of the largest U.S. food companies, the four noted that SFPA “was founded on the principle that food companies can and should be doing more to lead and drive positive action for the people who buy and enjoy the foods and beverages we make, the people who supply them, and the planet on which we all rely.”

They added that in their commitment to lead by example, their four companies have already “independently proven a willingness to advocate for the long-term interests of the people who farm and supply our raw materials, and people who make and consume our products.”

SFPA’s plans show that the four companies want to encourage farmers and ranchers to transition to more sustainable practices through a combination of financial incentives and regulatory push through the Farm Bill. Specifically, SFPA intends to “work to advance policies that are impactful for the environment, while accounting for the specific business imperatives of supply chains, including farmers, ranchers, and other producers.”

Diving into farm-level issues in ways that could extend food company involvement across the entire food chain, the SFPA plans include:

• “Urging U.S. policymakers to ensure that the Farm Bill and other farm policies reflect the pressing need to increase the scale of actions to address water quality and water conservation issues, focus on improving soil health, and expand the deployment of renewable energy, particularly wind and solar. The Farm Bill should leverage all available tools, including research and public-private partnerships such as the Regional Conservation Partnership Program (RCPP), to make smart investments in conservation and sustainability.”
• “Exploring the economics of sustainability, including financial incentives to reduce emissions and transition to low-carbon alternatives, with a particular focus on ways to create value for farmers, ranchers, and others who are implementing leading edge practices to cut greenhouse gas emissions.”
• “Advocating on behalf of smart, comprehensive energy and environmental policies at the state, national, and international levels, including the Paris Climate Agreement, the Clean Power Plan, or other commitments that result in change necessary to reduce greenhouse gas emissions in line with what evidence-based science says is necessary.”

Committed to making the supply chain sustainable & transparent

The SFPA’s four founding members make it clear where they stand on controversial issues and how far they are willing to go to transform the food supply chain to prepare for 2040. Reaching into every part of the supply chain, from farmers’ fields and feedlots to consumer-facing product labels, here are four revealing statements from the companies’ reams of research and reports:

• Unilever: “Part of our Vision is to grow our business whilst decoupling our environmental impact from our growth. We consider the reduction of our greenhouse gas (GHG), water and waste impacts across our value chain, from sourcing our raw materials to within our own manufacturing and operations and consumer use. We also aim to source our agricultural raw materials sustainably.”
• Nestlé: “In addition to our own employees, we work with hundreds of partners, thousands of suppliers and millions of farmers around the world. Our collective aim is to help develop thriving and resilient communities as part of a secure, long-term supply chain. Our programs and commitments are designed to support rural development, promote and respect human rights, and ensure fair employment and diversity.”
• Mars: “Looking beyond our operations, we are also tackling GHG emissions in our extended supply chain. Three-quarters of our full value chain carbon footprint comes from agricultural and land-use-change emissions associated with the ingredients we source to make our products. We are working to transform key supply chains by working with suppliers, farmers, and other partners to prevent deforestation and produce ingredients more efficiently and effectively for a lower carbon footprint. Sustainable agricultural practices, such as efficient irrigation techniques, resistant and resilient crop varietals, and increased soil health, will not only improve environmental impacts, but can help farmers thrive.”
• Danone: “Danone North America requests the EPA to preserve the Clean Power Plan to combat climate change ... Danone North America requests that Congressional Farm Bill leaders support the National Organic Program and National Organic Standards Board to maintain strong organic standards and integrity ... Danone North America supports Congress passing legislation to combat climate change.”

Those statements point to a growing determination among major food companies to lead the entire food sector into combating climate change. To do the job, the companies propose increasing conservation efforts, expanding renewable energy, and reducing greenhouse gas emissions from not only their own processing plants but from the entire supply chain, including farmers’ fields and feedlots.

Brett Sciotto, president & CEO of global marketing research firm Aimpoint Research, expects food companies and retailers to exert increasing pressure on the farm sector. He tells Agri-Pulse that “As we look ahead to 2040 through our Farmer of the Future study and consider the escalation of supply chain competition for the attention of the consumer, it is not unreasonable to believe that the management practices prescribed to growers by food companies and retailers will be far more stringent than those necessary to comply with state or federal regulations.”

Kansas wheat farmer Tim Raile, as quoted in part two of this series, sees benefits from this new trend of food companies and retailers advising production agriculture about consumer demand. For Raile, the choice for producers increasingly will be between watching their grain pile up under tarps at the local elevator — or preselling their crops at a premium price by providing the sustainability, traceability and transparency that consumers and the supply chain increasingly seek out.

For more news, go to www.Agri-Pulse.com.