This blog is based on comments made to a workshop organized by Azucarera in Madrid in May 2019
Over history, market power—or pricing power—has shifted along the agricultural supply chain, first from farmers to merchants, then from merchants to processed food companies and now, ultimately, to the consumer.
The shift in power from farmer to trader began as food became more plentiful. The discovery of the Americas and the opening up of vast new agricultural areas, accompanied by efficiencies in ocean freight, along with refrigeration, dramatically increased food supply. This reduced the market power of farmers, particularly among the great land owning families in Europe.
In the UK, the repeal of the Corn Laws in 1846 was a pivotal event in the history of food production. It removed tariffs on imported grains, lowered food prices, encouraged farm efficiencies and led to the surplus food and labour that powered the industrial revolution. And since then, despite rising population, increasing agricultural yields, as well as gradual area expansion, have reinforced this trend.
As farmers and landowners lost market power, traders gained it. The pricing power moved to the people and the companies that could finance, store, transport and process these vast quantities of food.
But over the past few decades the tectonic plates have moved again. It has been the turn of merchants to lose their market power to the food companies. It is difficult to pinpoint when that process began. Perhaps it was with the gradual introduction of processed foods and the concentration of commodity purchasing power into the hands of a reducing number of large processed food producers.
More recently, the democratization of information, particularly the rise of social media, has dramatically shifted market power from the food companies to the consumer. Social media can both build and destroy a brand, even a company. The consumer may be a lonely individual in front of his or her computer screen, but he or she has found strength in numbers on Facebook, Twitter, Instagram and the like.
But if it is the consumer that now has the market power, what does the consumer want?
The answer, of course, depends on the consumer. Broadly speaking, a consumer wants to be able to choose between a variety of convenient, cheap, safe and healthy products which haven’t damaged the environment, or infringed on human rights in their journey along the supply chain. But let’s break down that sentence a little.
Convenience—There was a time when many of us grew at least some of our own food, stored it throughout the year, and then spent long hours in the kitchen preparing it. Now, we have neither the time or the inclination—nor even the space—to invest in our food. Instead, we pick up something for dinner on the way home from work.
Variety—According to the author Michael Pollan, there are 45,000 different food items in an average US supermarket. Go to any French supermarket and you will see huge variety of yoghurts. Go to the UK and you will see a huge variety of soft drinks.
Of course, most of those different food items are made out of the same things. More than 25 percent of the 45,000 items in a US supermarket contain maize. And, according to the FAO, more than 40 percent of all human calories come from just three crops: rice, wheat and maize. So maybe, even if the consumer wants choice, what he really gets is only the perception of choice.
Safety—In the Western World we largely take it for granted that the food we eat won’t kill us. In the developing world, food safety is still a big issue, particularly in China.
Health – The consumer is shifting from tradition- or culture-based consumption to science-based consumption. Consumers no longer eat what their parents ate, or told them to eat; they eat what science and the media tells them to eat. Unfortunately, for all the reasons we know, food and nutrition science is difficult. There are often as many studies showing that a particular food is bad for you as there are showing that it is good for you.
As a result, consumers have to form their own beliefs, and they do that within their own new—and ever shifting—tribes, tribes that are usually formed on social media. These beliefs can be extremely strong; in that sense, food has become “the new religion.”
Food now defines you. Are you vegetarian, vegan, or flexitarian? Are you gluten- or lactose-intolerant? Do you mind eating GM foods, or eating animals that have eaten GM feeds? Will you only buy organic produce—or will you go for the cheaper options? Are you sugar-free? And if you are, does that include the “natural” sugars in fruit and fruit juices? (As if the sugar in sugar beet is somehow not “natural”, but that is another story.)
Sustainability—The Boston Consulting Group recently did a survey in the fashion sector that found that 75 percent of consumers said that sustainability was “extremely or very important” in their purchasing decisions. However, on closer questioning, only 7 percent said that sustainability influenced their purchase decisions. More important factors included low prices, high quality, convenience and “trends”.
BSG came to the conclusion that sustainability is a prerequisite rather than a driver of purchasing decisions. Consumers expect and demand now that everything they buy is “sustainable.” It is not an add-on, a nice-to-have thing. It is a prerequisite. But because it is a prerequisite, consumers are not willing to pay more for it. And as you all know, sustainable production has to be certified, tracked, and separated. This pushes up costs and reduces margins all along the supply chain. But at least in this, you—we—now have no choice. We have to be sustainable.
Human rights—Consumers want to know that farmers and suppliers have received a fair return for their labours, but they also want—and expect—the cheapest price possible. There is an obvious contradiction here. In many cases, perhaps in most cases, price wins.
Price—The first priority for most consumers in developing countries is to feed their families with the small amount of income that they have. Food is a major part of the family budget. In Nigeria, for example, consumers spend 64 percent of their income on food. Compare that to the UK where we spend 8.2 percent of our income on food. In the US the figure is 6.4 percent. Nearly all of us in the developed world could all pay a little more for our food without it impacting our standard of living.
However, we are all products of our evolution. We may go to the supermarket to buy an organic, certified product, but we end up buying the two-for-one special offer supermarket-own brand. After all, we have a family to feed, and the wellbeing of our family comes before the health of the planet, or the safety and wellbeing of the workers who produced it.
But there is hope in our own selfishness. Our first responsibility may be the health and wellbeing of our families—the survival of our genes. However, we know that we have to provide farmers with a living if we want them to provide us with food. We also know that our genes won’t survive for long if we don’t look after the planet. As such, sales of SOFT (Sustainable, Organic and Fair Trade) foods are increasing.
Maybe we consumers do know what we want, and maybe we are indeed sending the right signals back down the supply chain.
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