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2015 Food and Beverage Industry Outlook

Jan. 13, 2015
Processors are up against four very big and very real consumer-related issues in 2015.
5 Years of Food and Beverage Industry Outlooks

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Looking both forward and backward from the vantage point of New Year's Eve, 2014 may well be remembered as the calm before the storms of 2015. Several big issues loom for the food and beverage industry. All of them went begging for solution in the old year but look to be headed for some degree of resolution in 2015:

  • Ban on partially hydrogenated oils
  • 2015 Dietary Guidelines
  • National policy on GMOs
  • Greater transparency

All are strongly consumer-oriented and all have the potential to profoundly change the way you formulate your products ... and do business. Some old adage says every challenge also carries opportunity, but these look to be purely challenges, forced changes for many food and beverage processors. The last one, of course, does carry great opportunity if it improves your image or communication with consumers.

A ban on PHOs

Most food processors have seen this coming for a few years, and many already made the switch. The FDA in November of 2013 declared it no longer considered a key functional additive, partially hydrogenated oils (PHOs), a "generally recognized as safe" (GRAS) ingredient. The "preliminary determination" kicked off a four-month comment period that dragged into 2014 and set the stage for an expected phase-out to be unveiled this year.

A spokesman for the FDA in late December said the agency still is "in the process of reviewing comments and [has] no additional information on the timing of any future action." But most observers expect an announcement to come early in 2015. Most also expect a gradual phase-out that could take several years.

The unusually long comment period, which ended March 8, 2014, elicited 1,587 comments. There were interesting divisions among them. Several large and important food processors wrote in opposition to the agency's stance, and many questioned the ultimate wisdom or safety of replacement oils. Several oil suppliers said they already have replacements available. Citizens and public health groups were unanimous in their support of a ban. Nestle said it's already planning to remove all PHOs in 2016 – and is likely to meet that goal before the end of 2015.

Partially hydrogenated oils and their resultant trans fats seemed like healthy replacements for saturated fats when they were introduced early in the past century. They gave foods taste and texture and they increased oil life and also the shelf life of products such as baked goods.

But it was discovered they are just as bad as saturated fats in raising LDL "bad" cholesterol and, unlike saturates, they also lower HDL "good" cholesterol, perhaps doing more damage than saturated fats. Trans fats are produced by a side reaction with the catalyst in partial hydrogenation.

Small amounts of trans fats occur naturally in beef, lamb and full-fat dairy products. But most come from partially hydrogenating liquid vegetable oil to become a solid fat.

In 2006, the FDA required food processors to declare the amount of trans fat in their products on the Nutrition Facts label. With public awareness growing of the health threat, many food processors already reformulated to reduce or eliminate trans fat in their products, but a substantial number of products still contain PHOs.

Some of the biggest offenders include anything deep-fried, baked goods that use shortening, some frozen dinners and oil-based products that use PHOs to make them solid at room temperature, such as margarines and cake frostings.

Citing scientific evidence, the FDA said removal of PHOs from the food supply could prevent up to 7,000 deaths from heart disease each year.

Dietary Guidelines

It happens only once every five years, and its effects on the food industry and the consuming public are questionable, glacially slow at best. But the Dietary Guidelines form the basis of nutrition education programs, federal nutrition assistance programs, such as school meals and Meals on Wheels programs for seniors, and dietary advice provided by health professionals. And the new edition is scheduled to be announced this year, with the first draft unveiled any day now.

Even before any revelation, anxiety began growing in several food and beverage industry segments. Based on discussions at the committee meetings and current tradewinds, groups are concerned the 2015 guidelines will de-emphasize meat and encourage some degree of vegetarianism, will red-flag added sugars and in general try to incorporate environmental and sustainability concerns.

"If the committee's proceedings and its [interim report] are any indication, the 2015 'MyPlate' will feature supersized portions of … activism and food-nanny nagging. We should expect to be lectured on the need to eat sustainably, the imperative for mandated 'added sugars' food labeling and the importance of imposing market restrictions on certain foods," wrote the Washington Legal Foundation, an advocacy group committed to "a sound free market economy, a reasonable legal system, competent and accountable government, and a strong national defense." "It will be sadly deficient when it comes to actual nutrition assistance."

The Healthy Nation Coalition called the expected Dietary Guidelines for Americans "a failed policy." A letter signed by 600 people, including concerned scientists, nutrition professionals and consumers, says the committee's recommendations "are not sufficiently grounded in science, not compatible with adequate essential nutrition, and do not respect the diversity of food traditions in America."

A spokesperson for the American Meat Institute said the Dietary Guidelines Advisory Committee in its final meeting showed a slide that included lean meat among "dietary patterns associated with positive health outcomes." After lunch, which included a private session, lean meat was deleted from the same slide.

One undeniable fact is the committee is comprised of 14 academics – university researchers or doctors associated with university hospitals. "There is not a single business owner, family physician, working nutritionist, foodservices executive or federal nutrition program director in the mix," says the Washington Legal Foundation.

The advisory committee held its final meeting on Dec. 15 and any day now will issue nonbinding recommendations to the federal agencies.

The 2015 Dietary Guidelines for Americans is a joint production of USDA and the Dept. of Health and Human Services, which includes the FDA. The final report is based on the best current science of nutrition and health and follows more than a year of public meetings of an advisory committee, consideration of public and federal agency comments and no small amount of lobbying by interest groups within the food industry.

The 2010 guidelines – which ironically were not released until Jan. 31, 2011 – put obesity front and center, with smaller mentions of less sodium and more vitamin D and potassium. Past editions emphasized fiber, whole grains and fruits and vegetables and the elimination or reduction of trans fats and saturated fats. Eventually the average shopper catches on.

A national GMO policy

Last year, Vermont became the first state to require labeling of foods with genetically modified organisms (GMOs) or genetically engineered ingredients. However, the law's effective date is in 2016, and already there are legal challenges.

Several smaller municipalities, cities and counties, also have done so. And while every one of a handful of state ballot initiatives requiring labeling has failed, the most recent one, last November in Oregon, failed by just 812 votes out of 1.5 million cast (just 0.06 percent).

Simultaneously, voluntary certification and labeling of non-GMO foods by such organizations as the Non-GMO Project is growing.

So there certainly is evidence that many Americans -- maybe not a majority but a significant number – want to at least know if the food they buy has GMOs. Even though there is no credible scientific evidence that GMOs are harmful, food processors know a rising tide when it's about to inundate them.

Believing that one national regulation, which they had a hand in creating, is better than 50 different state ones, the industry's association, Grocery Manufacturers Assn., has thrown its support behind bipartisan federal legislation. The Safe and Accurate Food Labeling Act, HR 4432, would require a label on foods containing GM ingredients only if the FDA determines there is a health or safety risk, according to GMA.

What is the future of GMOs?

Witness the debate first-hand in one of the sessions at the Food Leaders Summit April 27-29 in Chicago.

Learn more at www.thefoodleaderssummit.com

The law would essentially create a process similar to the Generally Recognized As Safe (GRAS) system, in which the developer of a genetically modified organism would have to show the FDA scientific evidence the bioengineered ingredient is safe before it's used in a food. The FDA would be required to conduct some sort of a safety review, and the agency would mandate the labeling of the ingredient if there is any doubt about health, safety or nutrition issues.

HR 4432 also would require the FDA to establish federal standards for companies that want to voluntarily label their product for the absence of or presence of GMO food ingredients. It also require the FDA to define the term “natural” – something the agency has avoided for a long time.

How, or at least how quickly, could an already overburdened agency create such a process? This issue may not be fully settled this year, but there are several balls in motion that will require at least some progress on the topic.

Greater transparency

This last issue encompasses all of the above in one way or another and many more. It also can encompass animal welfare issues, sustainability, fair trade, even product quality. The answer to all seems to be greater transparency and better communication with consumers.

Marketing agency Ketchum performed a survey of more than 1,000 consumers in mid-2013 for the U.S. Farmers & Ranchers Alliance. It found science and logic don't help sway consumers. Arguments such as "Research shows it's safe," "Better for the environment," "Keeps prices low," even "Helps feed the world" are losing propositions if there's any hint of messing with Mother Nature. See our article Transparency as a Growth Engine

Consumers are more concerned with their long-term health than immediate health effects, or even benefits, including obesity. Whereas "Transparency 1.0" was the removal of bad information, especially suspect ingredients, Transparency 2.0 calls for more information, whatever can be said about a food's origins or processing, the Ketchum researchers concluded.

In addition to making the cookies "Simply," General Mills promises no high-fructose corn syrup, artificial flavors, colors or preservatives.

As we said in our September 2014 cover story, Why Is Big Food Bad? the food and beverage industry and consumers have drifted apart. Major food companies are bigger than they have ever been – Cargill and Nestle have more than $100 billion in global sales and PepsiCo and Unilever are close. And big is suspect.

Such size comes with baggage: Executives are preoccupied with managing the stock price or with mergers & acquisitions. "Your CEO makes how much?" Maybe you bought someone's favorite little company.

Transparency and establishing consumer trust are the primary themes for Food Processing's Food Leaders, even a dialogue, with consumers.

See the full agenda of The Food Leaders Summit 2015 at


Also, consumers are further removed from the agricultural sources of their food than ever. Has anyone in this generation killed a chicken for dinner? Milked a cow? And while there's talk of "urban gardens," how many millennials have time to grow some veggies? There's always the farmers market…

Farming is hard and risky. Animals get killed to provide us with food. Both sides of that agriculture business are messy.

But consumers take for granted food that is cheap, plentiful and safe. U.S. and Canadian consumers, anyway. Consumers in nearly every other part of the world accept some qualification in one or all of those things.

The answers are cleaner, simpler labels, more/better communication with consumers and a proactive approach on any issues that could get contentious.

Our own back-page columnist, John Stanton, exhorted in one of his columns: Be a Myth Buster "I just saw a video [on the Internet] comparing the effects of sugar on the brain to cocaine’s effect," he wrote. And later in that column: "Many of the consumers I speak to think retail chickens are given hormones and antibiotics [but] government regulations prohibit the use of such hormones. So any brand of chicken can be labeled 'Raised without hormones.' … I applaud the FCC for requiring a statement on 'hormone-free' milk explaining no significant difference can be found."

The marketing folks at food and beverage companies have no problem promoting "new" and "improved" – it gives them a chance to trot out all the superlatives. But they get cold feet when challenged – if their superiors do challenge them – to confront the negative perceptions about the food industry.

The Corn Refiners Association has been fighting such a battle on behalf of high-fructose corn syrup since 2010. All the scientific evidence except for one questionable study indicates HFCS is no better but no worse than sugar for your waistline, yet somehow some consumers elect to blame the corn sweetener for their obesity. CRA's battle has been as much with food processors, who are giving in to the hype. It's a fight that continues.

Could a well-crafted, proactive campaign have saved "lean finely textured beef" – famously known to consumers as "pink slime"? Maybe not. It is lean, it's 100 percent beef, but it was a waste product until Eldon Roth figured out a way to wring the last useful meat out of trimmings. The needed "puff" of ammonia" didn't help either. But a lot of school lunch programs were better off with lean animal protein than with its substitutes.

Maybe that was a case of consumers opting – consciously or not -- for a more expensive, better quality product. Give them some credit.

Last fall, McDonald’s embarked on a bold campaign on TV and in social media that meets head-on the suspicions about its food products. In “Our Food, Your Questions,” the big fast food chain asks people, especially skeptics, to submit questions via Facebook, Twitter, YouTube and other social media. McDonald’s will respond on the web, in social media and on TV about how the company’s food is created.

One of the first responses was a five-minute video, apparently produced by Time magazine with McDonald’s assistance, about the McRib sandwich. I covered this campaign and we've posted the video in my November column Editor's Plate: Changing One Mind at a Time.

Consumer Wes Bellamy once retweeted a photo of the patties, which really do look like a tire tread in their frozen state, and he encouraged people to not eat them. McDonald’s flew Bellamy and Grant Imahara of the TV show Mythbusters (who also was fearful of the McRib) to a Lopez Foods plant in Oklahoma City to see how the McRib is made.

Despite looking high and low for the hidden horse meat or unsanitary conditions, the two guests saw quality pork being ground and seasoned with just four ingredients (water, salt, a sugar compound and preservatives) and then saw the forming and cooking processes. At the end, the two tasted the finished product as it would be made in a McDonald’s and they loved it.

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