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The beginning of the end of ‘Big Food’

| Economic factors

These past two years have been some of the toughest ever for SA agribusinesses hit by supply constraints due to drought. These businesses have also been affected by cheap imports, low commodity prices, and the effect of the lacklustre economy on consumer spending behaviour.

But SA agribusinesses are not the only ones to suffer; the far-reaching implications of global shifts in food demand are now becoming apparent.

Time magazine recently reported that 17 CEOs of public ‘Big Food’ manufacturers and retailers in the US had departed, or announced their intention of doing so, in the past 19 months.

Some of these CEOs had left because they were approaching or had reached retirement age, but CEOs in the country’s nearly US$1 trillion grocery industry had also been under enormous pressure due to “unprecedented change” facing these companies.

One former industry executive said that the rash of departures was clearly linked to the “deterioration in the broader Big Food climate”.

Many of the large food companies, the article argues, made their mark at a time when what Boston Consulting Group partner Jim Brennan calls the “model for winning” came simply from economies of scale and an annual boost from population growth.

The rise of conscious consumerism has seen shoppers favour products they consider fresh and healthy over the boxed, canned and bagged goods typically produced by large food companies.

Poultry World reports that in his keynote speech at the opening of the International Egg Commission’s Global Leadership Conference in Bruges in September, Peter Freedman, managing director of the Consumer Goods Forum, said recent research had revealed that 71% of consumers were concerned about the health impact of artificial ingredients.

Freedman said 67% wanted to know all the ingredients that were going into their food, 61% believed that the shorter the ingredient list, the healthier the product, and 68% were willing to pay more for foods without undesirable ingredients.

The demand for fresh, healthy food, and the willingness from consumers to pay more for it, could be good news for farmers, who stand to benefit from shorter value-chains, direct marketing models, and premiums on sustainably and ethically farmed produce.

But, while one consumer group is willing to pay more for better produce, another is demanding low prices. According to the Time article, pressure from retailers has forced food companies to cut the cost of their products too often unsustainably low levels.

As smaller food companies are forced out of business, mega-food businesses are offering products at such low prices that yet more companies are being forced out of the market.

This drive to ensure the lowest possible price, regardless, may have disastrous consequences for farmers, who are often price-takers at the mercy of food companies.

In the long run, the perpetual war on price by retailers and food companies will hopefully see farmers turn to alternative forms of marketing where they can earn their fair share of the consumer rand. And this will perhaps deal the final blow to ‘Big Food’.

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