State of the Food Industry 2011: End of Recession Changes Everything … or Nothing

U.S. food industry faces a tough road ahead.

By Diane Toops, News & Trends Editor, and Dave Fusaro, Editor in Chief

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If you thought 2010 was a year of challenges, hang on to your hat. Get ready to deal with a revised and more stringent food safety bill giving more powers to the Food & Drug Administration (FDA), more encompassing food guidelines to combat obesity, a child nutrition reauthorization bill mandating healthier school meals, higher commodity prices, stronger private-label competition and new consumer behaviors. Whew! And that's just the beginning.

Two of the biggest changes to the food industry in 70 and five years, respectively -- even though they were in the works for more than a year -- went right down to the year-end wire.

The biggest revision to the country's food safety rules since 1938, the Food Safety Modernization Act was approved by both houses of Congress in December, with the House approving it – for the third time – on Dec. 21. President Obama promised to sign it into law.

It will strengthen the nation's food safety systems and will give the FDA for the first time the authority to recall foods. It also should result in the hiring of 2,000 additional FDA inspectors over the next four years, with its $1.4 billion in new costs being picked up by the larger food industry.

And the every-five-years rewriting of the Dietary Guidelines for Americans, which was not published by our pre-Christmas press deadline, is all wrapped up except for some final signoffs by USDA and Dept. of Health and Human Services (HHS) officials.

The Dietary Guidelines' effect on diet and the processing industry is slow but undeniable. While they haven't (yet) reversed our obesity epidemic, the regular revisions may claim some of the credit for decreasing cancer rates, and past recommendations for folic acid may be reducing neural tube defects in newborns. They've increased our awareness of fiber, whole grains and probiotics and turned the whole populace away from trans fats, saturated fats and cholesterol.

But more on those landmarks in a minute.

"There are seismic shifts going on in consumer habits, and that is one of the greatest challenges for food processors in 2011," says Dexter Manning, partner and national food & beverage practice leader of Grant Thornton LLP, a Chicago-based accounting and advisory firm. "They must try to figure out what changes, what R&D spend, they need to make in order keep up with, or to get ahead of, the changes in consumer preferences being driven on several fronts.

State of the Industry Trends"During the recession, consumers were challenged in the way they shopped and whether they went out to eat," he explains. "In the last two years, there has been a battle at the supermarket between ‘How do we save money and reduce our spend on food?' and ‘How do we get better-for-you food?' "

Manning points out that during 2008-2009, private label sales were very strong. "At the same time, sales of some of the higher-priced organics and healthy foods bucked the trend for lower prices; growth slowed during that period but did not turn negative," he says. "Overall, in supermarkets you see more variety of organics and healthy foods than ever before."

Frugal spending habits consumers developed during the recession appear to be deeply ingrained, as shoppers continue to be careful with food spending, according to the third annual consumer spending survey by New York-based Booz & Co., a global management consulting firm. In 2010, 28 percent of the 2,000 respondents reduced food-at-home expenditures, up from the 23 percent who reduced their food spending in 2009.

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