We've been publishing Industry Outlooks for the last five years, and they continue to be one of our most popular articles on FoodProcessing.com. We've taken a cue from our loyal readers and compiled five years' of reporting into this handy PDF for your viewing pleasure.
Congratulations, food processors, you made it to 2016, which was no easy feat, considering 2015's trials and tribulations. But this is no time to sit back. Get ready for even more challenges in 2016. Here are five of the critical issues processors will deal with in the year ahead.
2015 Dietary Guidelines
As we write this a few days before New Year's, it looks like USDA and the Dept. of Health and Human Services have again missed the deadline of publishing the Dietary Guidelines for Americans (in 2010, they missed the Dec. 31 deadline by a month). What will be the eighth edition of the Dietary Guidelines could have an impact on heart health, diabetes risk and obesity reduction, if adopted as expected. Issued every five years, the DGAs also rewrite school lunch standards, government agricultural subsidies and research priorities at health agencies, in the process affecting nutrition labels and generally raising the pressure on food processors and foodservice venues to provide healthier products.
We got a glimpse at what the guidelines could be when the 2015 Dietary Guidelines Advisory Committee (DGAC) gave its Scientific Report in February. Much was expected: the promotion of vegetables, fruits, whole grains, low- or non-fat dairy, seafood, legumes and nuts, and warnings against sugar, sodium and refined grains. Surprises included reconsiderations of fats and dietary cholesterol and particularly strong warnings about red and processed meats. The committee also said the environmental impact of food should be considered when choosing foods.
The committee recommended capping added sugar to 10 percent of the daily diet. It's more sugar than the American Heart Assn. recommends, but is still considerable.
The advisory report set off months of criticism from food's special interest groups and members of congress, and USDA and HHS said back in October they won't include environmental considerations in the final guidelines.
Whenever the 2015 Dietary Guidelines are issued – we hear mid-January – we'll certainly report on them immediately on FoodProcessing.com.
Something's gotta give on GMOs
The clock literally is ticking on the issue of labeling foods if they contain genetically engineered ingredients (genetically modified organisms or GMOs). Vermont passed a law requiring labeling back in 2014, and it will go into effect this July 1 unless blocked by court challenges or a federal labeling law that pre-empts it.
Just this past November, the FDA repeated its convictions about GMO food and ingredients: they're safe and no different than conventional food. That month the agency approved the genetically engineered AquAdvantage salmon developed by AquaBounty Technologies as safe to eat; and the same day the FDA denied a 2011 petition from the Center for Food Safety that would have required the agency to create regulations for GMO labeling. FDA did release two guidance documents about its current thinking on GMO labeling, one specifically for the AquAdvantage salmon and the other for other foods with (or without) genetically engineered ingredients.
The decisions brought praise from food & beverage processing organizations and associations, most of which favor working with Congress to create a national food labeling framework instead of having numerous state labeling mandates. But they're unlikely to quell the groundswell of consumer (and some state legislature) demands for knowing if their foods contain GMOs.
Perhaps as a pre-emptive strike, the Grocery Manufacturers Assn. on Dec. 2 revealed SmartLabel, an on-package QR code that could indirectly provide consumers with tons of information about the food product, including if a product was genetically engineered. Shoppers would need to scan the QR code with a smartphone to find the information. Critics say less than 20 percent of the population has ever used QR codes. Regardless, GMA estimates that within five years more than 80 percent of the food, beverage, pet care, personal care and household products that consumers buy will be using such codes.
Last summer, the bipartisan "Safe and Accurate Food Labeling Act" (HR 1599) passed the House of Representatives, but the Senate has yet to take action. The bill would require the FDA to review genetically engineered ingredients intended for food and to decide on a case-by-case basis if a "contains GMOs" label is necessary. Perhaps more importantly – and more contentious – the bill also would prevent individual states from creating their own GMO labeling laws.
USDA Secretary Tom Vilsack in late December told the Des Moines Register he will summon food industry members, consumer groups and other stakeholders this month to debate how to label products containing GMOs and try to resolve the contentious issue.
Business consolidations, brand buyouts
The recent mega mergers of major food companies like Kraft with Heinz and AB InBev with SABMiller have been striking and are growing. Fewer companies constitute more of the business. It's a sign of consolidation (with the promise of cost-cutting) of established companies but also an opportunity for new entrants to the market.
Top 100 Food and Beverage Companies for 2015
The Food Processing Top 100© is the definitive list of the top companies in the North American food and beverage industry.
Acquisitions can go too far. ConAgra is a prime example. It bought Ralcorp for its private label leadership in 2012 for $6.8 billion, only to sell it to TreeHouse for $2.7 billion (the closing is still pending). And as a result of years of questionable acquisitions, ConAgra itself is splitting into two companies, probably this coming fall.
"Big food companies are being forced to rethink their business models," says Julian Mellentin, director of New Nutrition Business and author of "10 Key Trends in Food, Nutrition and Health 2016." It could bode ill for innovation or ignite it, though better-for-you opportunities keep bubbling up. Consumers will seek more variety and novelty, according to Mellentin's report. "Products that typically appeal to a broad audience will become more rare, and large companies will look to bulk up their portfolios with smaller brands. Fragmentation also will continue to foil traditional food and drink markets."
Tangential acquisitions are practical. Enjoy Life Foods catapulted Mondelez to the front of the "free-from" category. Hillshire Brands gave Tyson Foods leading brands in further-processed meat products. Earthbound Farms stretched WhiteWave's organic dairy business into produce.
But don't bite off more than you can chew.
Such mergers raise the concern that reduced competition could lower farmer prices and boost prices at the supermarket, as well as narrow the product options.
Consumer packaged goods companies are losing market share to private labels and smaller, healthier companies, reports Carl Jorgensen, a director at global retail consultant and research firm Daymon Worldwide, Stamford, Conn. One statistic reveals that the major packaged-food companies lost $4 billion in market share in 2014, as shoppers chose more fresh and organic alternatives.
As big food companies hang onto legacy brands while adding healthy products, some say the only way to grow is to combine. "Increasing numbers of consumers are seeking authentic, genuine food experiences," Campbell Soup's CEO Denise Morrison said in a Fortune article last year. "And we know that they are skeptical of the ability of large, long-established food companies to deliver them."
Concern over the treatment of farm animals has been growing with consumers for years, and in 2015 it seemed to reach a tipping point with food processors. Unilever, General Mills, Kellogg and others are committing to using cage-free eggs in their products; McDonald’s said it will move to cage-free eggs for its nearly 16,000 restaurants in the U.S. and Canada over the next 10 years.
McDonald's also said its 10-year plan, "which was developed with input from its suppliers, pork producers and animal welfare experts, is to source all pork for its U.S. business from producers that do not house pregnant sows in gestation stalls by the end of 2022.” Other foodservice companies as well as Tyson are following suit.
Part of the motivation may be that it gives consumers one more reason to remove meat from their plates, embracing a more vegetarian diet. Consumers have more access to information about animal abuse and animal treatment via the internet, so the fact that there are such phrases as "cage-free," and "humane certified" reinforces the escalating concern for the welfare of animals raised for food. While this brings up ethical treatment questions about what really is humane treatment of farm animals and the paradoxes associated with it, ethics will only become more important to food companies' reputations as public opinion can go viral in an instant.
Mintel reveals 56 percent of Americans stop buying from brands they believe are unethical, even if there's no substitute available, and 27 percent stop purchasing even if they think the competitor offers lower quality. More than three in five feel ethical issues are becoming more important (63 percent). Some 34 percent of these consumers will mention when they think a brand is making ethical actions or honest, fair and responsible moves, Mintel adds, and they tell others. Another 29 percent goes to social media to share support of ethical companies.
Mintel adds that half of Americans feel marketing products as ethical is just a way for companies to manipulate consumers (52 percent) and many companies behave ethically in one area while behaving unethically in another (49 percent).
How will this change in the future, if at all? England's Food Ethics Council posed this question to farm animal welfare experts in the U.K., and the main sentiment was that farm animals should have the opportunity to live a "good life, one of significantly higher quality than a life worth living." This could provide better jobs in animal husbandry, new types of farming equipment that accommodates the new housing and barn styles and other needs that deal with improving operations.
The Clean Label Challenge
There is no bigger issue in the food & beverage industry right now than cleaning up labels. Related issues are simplifying ingredient statements and proving your transparency to consumers. It's all a part of a bigger problem of improving consumer trust in our food system.
Clean label and a 'natural' definition
The clean-label movement is inspiring a significant back-to-basics approach in product development and has refined itself into the "clear label" trend in 2015, taking clean label to the next level. We'll see more foods with clean labels because consumers view them as both healthier and less processed, meeting two consumer trends at one time. Chefs will source more food locally and sustainably, and brands will go above and beyond natural, as consumers check their smartphones if there’s something they don't understand on a label.
Mintel reports more than three quarters of clean-label purchasers seek free-from claims out of a desire for more natural/less-processed foods, and this interest is contributing to a boost in items free of GMOs, high-fructose corn syrup, preservatives and growth hormones.
The big surge is in fresher, organic products, NPD Group reports, and those will be major platforms going forward, although the challenges involved could erase some farmers and specialty grocers. Organic and clear label items may come at a premium, but with the proliferation of options reaching the masses, consumers will pay more for quality they trust. Marketers, therefore, must build more trust and answer more questions online, via smartcodes or QR codes.
In a surprising move, the FDA decided to ask for public comments on use of the term, natural on food labels. In efforts to determine an applicable definition, the agency opened the dialogue in November in response to consumer complaints and a flurry of litigation against consumer packaged goods (CPG) companies using the natural moniker. The FDA questioned if it's even appropriate to define the term, and if so, how it should define natural and how it should determine appropriate use of the term on food labels.
"The FDA’s request for comments on 'natural' claims is a big issue, and could affect ongoing class action litigation for food marketing claims," states Leslie Krasny, a partner at business law firm Keller and Heckman LLP, San Francisco. The deadline to file comments is Feb. 10. We'll keep tabs on just how that plays out.