Driving the protein economy: unprecedented challenges and opportunities
The global population is inexorably moving from its current 7.2 billion towards 9 billion plus with the lion’s share of the additional 2 billion expected over the next 30 years coming from emerging countries. The combination of more people with higher incomes will bring changes in diet with demand continuing to burgeon for animal products – meat, eggs and dairy – albeit at a reduced level from the frenetic rates experienced between 1980 and 2010. Poultry, pork and eggs will see the fastest growth to 2030, with farmed fish and seafood expansion more than compensating for the decline in wild caught aquatic species and the premium minority meats, beef and lamb, advancing but more sedately!
So, for those in meat, eggs and dairy businesses, should they sit back and enjoy the ride? Not exactly, as recent evidence from the global dairy industry has shown, the longer-term demand picture may be rosy but, in the short-term, prices can be extraordinarily volatile (e.g. second quarter 2016 global milk prices plummeted to close to half those experienced in halcyon 2013). A toxic coincidence of farmers expanding milk production in response to higher prices, changes in the EU dairy policy environment, softening demand occasioned by slower economic growth in major emerging countries, and previous over-purchasing resulted in a collapse in global milk prices. And, who’s to say that the American mid-West drought which induced a spike in food and feed grain prices in 2011 and 2012 will not be repeated because of further unforeseen and unpredictable climate events with consequential damage to profitability in the intensive livestock sector? In short, businesses should be positive about the future but ensure that they have the resilience to cope with increasing volatility in international commodity prices.
The demand picture for meat across the globe is distinctly polarized: strong growth in most emerging countries contrasts starkly with static or declining per capita consumption, particularly for beef and pork, in the developed world (e.g. USA, UK and France), although chicken seems to buck this trend. This “Peak Meat” status can be explained by high absolute levels of meat consumption in some developed countries (e.g. +100 kg per capita in the USA). But, also, contemporary research from the UK shows that some consumers are reducing meat consumption because of health concerns (58%), to save money in difficult financial times (21%), because of concerns about animal welfare (20%) and food safety (19%), and worries about the environmental impact of livestock production (11%). Meat reducers are more likely to be female, and/or older consumers (NatCen Survey of British Social Attitudes, 2016).
The “processed meat and red meat is bad for your health” lobby is controversial – and includes the UN WHO identifying consumption of hot dogs, ham, sausages, etc., as being particularly prone to increase colorectal cancers, and red meats (i.e. beef, lamb and pork) being “probably carcinogenic to humans” (October, 2015). Such admonishments are widely ignored by consumers confused by the cacophony surrounding conflicting media stories on what is good or bad for us to eat. However, special interest groups representing “meat reducers” are relentless promoting such events as “World Meat Free Day” (June 13th, 2016). For them, the Doomsday specter is where consumers in emerging countries adopt the meat-rich diets of the developed world to the detriment of their health but most particularly the health of the global environment.
Food trend watchers in high income countries note the growing interest in “flexitarian” diets – i.e. where consumers elect to eat an increasing number of meals and snacks that are fruit- and vegetable-based rather than meat-based. In effect, they become part-time vegetarians and this is reflected in the huge growth in interest in plant-based protein foods and drinks. This year (2016) is the UN-sponsored International Year of Pulses and their protein content, and sustainability and nutrition credentials are presented front and center in the strap line – “nutritious seeds for a sustainable future”. In the “flower power” 1970’s, vegetarian fare was dire – gritty soyburgers and dull nut roasts. Now, there are ample tasty main meals and snacks that are “meat-free”: e.g. in the UK, BOL brand Sri Lankan Lentil Sambar is advertised as being “super food for super people”. This should be no surprise as the core diet of the Indian sub-continent is meat-free and has been serving up delicious vegetarian meals for millennia!
Well-financed start-up companies, largely based in California, present a more direct threat to the global meat industry through their launch of meat and egg analogue products:
- Impossible Foods and Beyond Meat are on the cusp of full-scale commercial launch of plant-based burgers in the USA. Their selling proposition is that they are tasty, mimic the mouth feel and experience of eating meat burgers, and have comforting environmental credentials superior to beef.
- Quorn is a fungal mycoprotein that very effectively mimics chicken meat products. Now with over 30 years in developed country markets, the brand has been purchased by Monde Nissin of The Philippines (for US$831 million) and the company clearly believes that Quorn has potential in the vast growing Asian market. In the UK, Quorn meat substitute products are sold directly next to chicken in the meat departments of supermarkets.
- Hampton Creek, with its pea protein-based Just Mayo eggless mayonnaise has had commercial success in American retail and food service markets – prompting Unilever (owner of the Hellmann’s brand) who, initially, sought to sue Hampton Creek for misnomenclature, to launch its own version of an eggless mayonnaise product.
In mature developed markets, the major meats from animals will face increasing pressure from non-meat proteins which will be capable of competing on taste, price and their “green” credentials (e.g. environmental impact, sustainability, etc.). Factors driving food purchasing behavior are becoming more complex. Price, taste and convenience have been overwhelmingly the principal drivers but, now, shoppers increasingly want values in addition to value. Product attributes might include:
- place and method of production and even farm of production;
- provenance and the background story of the product;
- care for the local economy;
- animal welfare;
- worker welfare;
- environmental impact and overall sustainability.
Producers and processors often express skepticism about the genuine interest of consumers in some of these more esoteric attributes and whether they are willing to pay more for them. Survey results suggest “a willingness to pay” for products which have strong environmental credentials. But the reality is that consumers increasingly expect food producers to respond to their emerging social concerns about the growing, processing and selling of food in a socially-responsible manner. There is no premium to be earned for doing so but there is certainly a discount if consumer wishes are ignored! In short, the “green bar” is going up and the challenge for the food industry is to meet, indeed, exceed consumer expectations and thereby earn their longer-term loyalty.
The burgeoning concerns about social values associated with food production are not exclusive to élite Western consumers. For example, Nielsen research (2016) identifies that Asian consumers look for and reward with their custom companies that are environmentally-friendly (on, say, packaging waste and recyclability), concerned about social values such as health of the local community and, critically, health of their customers.
Of course, a country market (e.g. USA, China) is not a homogenous entity – it comprises distinct segments with consumers within a segment sharing similar wants and needs for their food products. “Ability to pay” is key and income level is an important factor determining food choice. Anywhere in the world, low income consumers will seek the lowest cost products if they are adequately to feed their families but, irrespective, they can aspire to higher quality products and more treats! For those that can afford to pay a premium, there is clear market evidence that consumers in developed countries are electing to eat less meat overall, but when they do eat meat they want to eat better. What an opportunity for the meat (and egg) industry!
The big challenge for meat, egg and dairy producers is to work out exactly what attributes consumers value in their food and drink products and are willing to pay extra for. The germane question is: “what do you want with your meat?” and the responses might include:
- free-range ...
- slow-grown ...
- happy/contented ...
- grass-fed ...
- vegetarian-fed ...
- Aberdeen Angus ...
- rare breed ...
- produced by Farmer Smith ...
- organic ...
- Omega-3-rich ...
- local ...
Chicken, pork, beef, fish are the nouns of the meat world and essentially represent their respective commodity groups. These nouns earn commodity prices which may provide a decent return for the lowest cost producers. But the attractive margins are in the adjectives (and adjectival phrases) that embellish the nouns – e.g. from the above list, first the adjectives Farmer Smith’s Scottish, grass-fed, Aberdeen Angus then the noun beef!
Continuing the adjectival theme, and coining a phrase: consumers want their food free and show a distinct preference for adjectives to be added not additives to be added! Specifically:
For most of the above, the expectation is that these will be provided as a matter of course and without a price premium. The routine use of antibiotics in animal feed to improve growing efficiency is under particular attack at present. The fast food market leaders McDonald’s and Yum! Brands (owner of KFC) are, currently, responding to shareholder and special interest group pressure to remove routine usage. It is indicative of the global interest in this issue when the leading article in the prestigious current affairs magazine The Economist (May 21st, 2016) carries the headline “When the Drugs Don’t Work” and the global livestock and meat industry is identified as a particular culprit in the over-use of antibiotics.
Around the globe, big food companies (“Big Food”) are accused of over-processing their products and using ingredients that might pose a health risk to consumers. Worrisomely, Big Food is sometimes characterized as Big Bad Food! Consumers seek food products with few, simple, “natural”, not artificial ingredients (“ingredients I can pronounce”!). In some emerging countries (e.g. China), food safety is a huge issue and there is pervasive concern about the integrity of food supply chains. This cocktail of consumer concerns (“we want adjectives not additives”!) and consumer demand for food with compelling stories (adding adjectives to nouns) presents substantial commercial opportunities for companies who understand consumer wants and have high integrity processes and closely-managed supply chains with trusted partners.
In a market environment where consumers show a willingness to pay a premium for product attributes that they cannot see or taste (so-called credence attributes), then, inevitably the incidence of food fraud will increase – criminals will seek to exploit lack of transparency. Consumers cannot “taste” a story, provenance, or method of production – they take it on trust. The more promises producers make about their products, the more important it is to deliver on these promises. Corporate reputations are made over decades but can be destroyed in minutes! The 2013 “HorseGate” scandal in Europe badly damaged the reputation of Tesco, a global retailer. Consumers quickly recognized that the horse meat in Tesco beef burgers was not a safety issue but it was a food integrity issue. If a company says on the packet that its burgers are made of beef, then, this better be true! Delivering on your corporate promises is as vitally important as doing so on your family promises at home!
In the hustle and bustle of producing meat, eggs and dairy products in a food industry which is intensely competitive, the raison d’être for the industry’s existence is often forgotten – delighting consumers with our food and drink products! On alternate years, SIAL in Paris and ANUGA in Cologne host major international food fairs for the trade. As a backcloth, market research is tabled showing the principal attributes of food and drink products which have been successfully launched across the world in a given year. More recently, those that succeeded offered products that were:
- really tasty, in fact, "more-ish"!;
- convenient – to buy, prepare, present, consume and dispose;
- with strong health and well-being hooks. An important caveat is that convenience trumps health – i.e. the product could have hugely compelling health advantages but this comes to naught if it is difficult to prepare/consume, etc.;
- wrapped up with strong social values;
- made from natural, few and simple ingredients (see earlier);
- linked with a "super ingredient" - e.g. Omega-3 in oily fish and, now, chicken fed on an Omega-3 rich diet;
- indulgent but affordable;
- and in a format that can be eaten as a snack.
Products must be consonant with changing consumer demographic trends. For example, one consequence of both increasing consumer incomes and urbanization is the growth of smaller households, more eating outside the home, more “solo” eating (eating alone) and, even when we eat as a family, we don’t necessarily eat the same – e.g. the daughter is a vegetarian, father is gluten-intolerant, the son has hockey practice and has to rush out mid-way through supper with a sandwich! Further, to the concern of many dieticians, the traditional 3 meals a day eating pattern is fragmenting – some consumers prefer a series of mini-meals or a succession of snacks. The result is that consumers, increasingly, look for meal and snack solutions, not problems. Chunks of meat are problematic – what do I have to do with this to produce a meal that will feed, nourish and delight my family? In history, the answer to the question “What shall we have for dinner?” might have been “Beef”; now, it is more likely to be “what about Chinese, Italian or an Indian meal?” The choice of protein no longer comes first and the meat industry tends to find this threatening.
Of course, the reality is that this change brings substantial opportunity to add value to lumps of commodity meat. Arguably, the chicken industry has responded quickest and best to this new consumer reality. The pork industry has long had a value-added orientation and, in many pork-consuming countries, half the pork consumed is processed (e.g. into bacon, ham, fresh sausages, salami, etc.). The global salmon industry has a strong commodity streak but the universal attraction of sushi brings value-added opportunities. It is the minority, albeit premium meats, beef and lamb that have most immediate need to embrace a consumer view of their product portfolio. However, the meat industry overall is firmly on the commodity side of the spectrum and must learn quickly from the best consumer-driven fast moving consumer goods companies on how to meet and exceed consumer expectations for safe, tasty, nutritious and exciting food products.
One of the enigma’s of the global meat protein industry is that fish and seafood producers rarely consider that they compete with land-based meats and vice versa! Yet, from a consumer perspective, meat, fish, eggs and plant-based proteins are all substitutes for each other. Globally, fish and seafood are in prime position, with pork and poultry sharing second place. Take out the dominant China from the overall meat equation and fish and seafood share primacy with poultry. Within much of Asia and Africa, fish are a hugely important source of protein for consumers. The big global battle for affordable meat protein in emerging markets is between “industrially-produced” chicken and fish. Farmed fish such as tilapia and pangasius are highly efficient in converting fish feed into fish meat, with chicken the next most efficient converters. The challenge for pork and, particularly, beef and lamb producers and processors is to distance themselves from the intense commodity battle between “the white meats”. In the future, all meats will have to keep a keen eye on the emerging meat analogues (faux meats) that seem to be establishing a toehold in, particularly, developed markets. Their much-improved taste and “mouth-feel” similar to meat plus perceived environmental credentials may well portend a bright future and a serious competitor to “real” meat!
The global meat industry has a great future strewn with considerable challenges and offering exciting opportunities:
- Prices for the principal inputs of intensive livestock production which, often, account for more than 50% of total costs are inherently unstable. Climate events will create havoc in global feed grain and oilseed markets and obfuscate business planning for the meat industry.
- Meat demand is more predictable albeit polarized globally - buoyant in emerging markets and subdued, even static in developed country markets.
- Vocal and influential special interest groups stress the need to reduce meat consumption on health and environmental grounds. This has resonance with some consumers and is disproportionately covered by media.
- “New wave” meat analogues, based on plant proteins, with strong financial backers are beginning to have market traction and may be substantial competitors in the future.
- Across the globe, middle income consumers want more from their meat, although they may buy less! They want more taste, more stories, more social values and, for some of these “credence” attributes, they may even pay more. Although, in general, consumers expect the meat industry to raise its game on social aspects of production at no extra cost to consumers.
- The more intangible, credence attributes promised that command a premium price, the more likely there will be food fraud. This will be threatening and, potentially, very damaging for brand owners.
- Chicken, pork, beef, lamb and fish are the commodity nouns with extraordinarily thin margins. It is the adjectives supporting the nouns where the profits lie for the consumer-centric meat business.
- All consumers want safer meat with high integrity supply chains and their great preference is to have meat free of antibiotics, hormones and scary additives irrespective of the scientific rationale for their use.
- Building trust with consumers starts with understanding their values relating to meat and, then, aligning the industry’s values with those of consumers.
- In urbanized middle class societies with small households, selecting the meat species for the center of the family meal is old-fashioned! Finding a quick and easy solution for the family’s meal problem is the most pertinent issue. Will it be an Indian, Chinese, Italian or Mexican meal? Whether it be chicken, pork or fish will be a secondary decision.
- The future looks bright for the global meat industry. Its biggest challenge is to move at pace from being production-orientated/supply-driven to a consumer-facing/-friendly meal and snack solution provider.