Our Food Future: How to Create Value from Commodities case study

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Looking out to 2050 what are some of the mega-trends that will impact on our food and beverage landscape as growers, processors, manufacturers and marketers of consumer packaged goods. …

Looking out to 2050 what are some of the mega-trends that will impact on our food and beverage landscape as growers, processors, manufacturers and marketers of consumer packaged goods.
Global population growth past 9b by 2050 combined with increased urbanisation, changing diet patterns in the developing world and water shortages and climate change will impact detrimentally on food supply and exacerbate demand for protein and sugar and other soft commodities.
Food manufacturers will continue to consolidate as they attempt to extract efficiency from farm to shelf and retailers will grow globally, albeit with greater changes due to localisation challenges in global retail.
Fonterra case study on how an integrated supply chain from farm to shelf has increased returns to shareholder returns from cow to shelf using highly segmented nutritional products marketed to life stage needs segments.

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  • Welcome everyone. I am here to talk to you a little bit about globalisation of food and beverages. Hopefully I might also encourage you as I talk for the 55 minutes, to not write off food; in terms of where you go with your own careers in international business. It’s not Apple or Google, and it’s not BHP or Rio or the other large companies that you will see and hear about a lot in the media. But what I am hopefully going to do today is talk to you about an industry that is omnipresent. We eat every day and we see it everywhere we go and wherever we shop. However, we often neglect it. It is neglected in the media as it is seen as a bit of a boring industry and it is neglected a lot by the Australian Government, and yet we have some enormous potential I would suggest - global potential, and you all have great potential to make an impact in this vital industry.
  • We need to create conditions for  innovation  and then invest so that innovation moves from the lab to the farmer’s fields.” – Rachel Kyte, Vice President of the World Bank “ Trade makes consumers less vulnerable to local shortages and the higher prices caused by bad weather, disease or civil disorder.  Free trade  helps feed a hungry world.  …Governments must encourage open trade and a fair, transparent, rules-based system to everyone’s gain, including the environment. And companies that are directly or indirectly in the business of feeding the world have a responsibility to promote trust-based free trade .” – Greg Page, Cargill Chairman and CEO Now, why would do I say it is an important industry? Purely and simply because, if you think about it these are two very, very powerful leaders of two very large multinational corporations (Paul Polman, CEO of Unilever a 51 Billion Euro business and Daniel Servitje is the CEO of Grupo Bimbo a 14 Billion USD business) saying that if you can imagine today as we sit here today [this was in Rio at the G20], all of the food that has been produced over the past 8,000 years, now needs to be produced again but in the next 40; to feed the growing world population of an estimated 9 billion people at 2050. So, you hear a great deal about technology trends, but one fundamental thing about humanity is that we all need to eat. The other fundamental thing that I am going to talk to you about in this presentation is that humanity is – and all of us as humans - are so successful at what we do that we are starting to overrun the planet and that is going to create some huge global challenges and issues, however, we must also not become too anxious and nervous as crises and challenges create opportunity.
  • So, just a little bit about my background and where I have come from and why I am here talking to you about food. I started my own business consultancy a year ago specialising in innovation and international business and my career background is very much from the fast-moving consumer goods or consumer packaged goods industry and it is very much at an international business background. Some of my students today were asking me what country I came from because my accent sounds so twisted. I was born in New Zealand, which is predominantly an agricultural economy, and I joined Fonterra as a graduate marketing trainee post my tertiary education. Fonterra is a world leading multinational dairy co-operative with a very solid graduate marketing program. The New Zealand Dairy board as they were known back then quickly sent me to Asia about 9 months into my career firstly to Singapore and then onto Taiwan. After 3 years working for Fonterra in Asia I moved to the UK and worked in licensed retail marketing for a couple of years and then I migrated to Melbourne in 2003. I spent 3 years working for Foster’s Brewing International marketing their beer brands across Asia Pacific and then I spent another 7 years at National Foods, now known as Lion Dairy & Drinks P/L leading the marketing of their international business for 5 years and 2 more years leading their Stage-Gate idea-to-innovation process. Why have I set up my own consultancy focused on the innovation and international business? Because I have a passion for innovation having studied the Masters of Entrepreneurship and Innovation here at Swinburne University Australian Graduate School of Entrepreneurship. In addition, the food industry is going to need an enormous amount of innovation. Historically it does not make the headlines for innovation like IT or other related tech industries, but we are going to need to be more innovative about how we produce food, make food and what food we serve up to future generations and I will tell you a little bit about why we need to be more innovative in the food industry.
  • So basically there’s a thing called the green revolution in the 60s and 70s, and I am not referring to the happy times where people were smoking pot in the Height Ashbury, San Francisco while listening to Jimmy Hendrix and Janis Joplin. The Green Revolution I am referring to was really a revolution that took place in global agriculture. So what happened was we were seeing a significant lift in the productivity on farms as a result of tractors, harvesters, fertilisers and what you would see everywhere nowadays in terms of modern start of the art farming processes and technologies. If you venture out into any of the big grain belts in Western or South Australia or Northern Victoria or you went to a large scale professional dairy farm you will see firsthand, how farmers are extracting significantly more grain out of an acre of farmland or more milk from a dairy cow than they were 30 or 40 years ago. That green revolution started predominantly in the post-world war II era and exploded in the 1960s and 1970s lifting global food production by about 150% in 50 years. This was good because our global population was growing very dramatically in tandem since the 1950s. However, we are going to have to lift it again by another 75% by 2050 as the population grows to 9.5 billion. Why this is significant is because as you can imagine, one thing in the world is finite and that is land, and the other thing that is more finite is good arable land. And a lot of the arable land we use for farming – and Australia is a really good example - is very close to the coast and major urban cities and populations. I was off visiting my web design guy in Werribee and driving down there and Werribee is a great place for growing vegetables and it has also now one of the biggest residential developments going on in outer Melbourne called Manor Lakes. So all of the places that used to grow our food are being encroached upon by increasing urbanisation, and then we’ll dig down a little bit more and talk about how climate change is having an impact. You would have to have your head in the sand not to hear every day about a drought or a cyclone or something like that. This is a little statement here from Anthony Pratt, who is son of the late Richard Pratt and he owns a very big packaging empire, he’s saying that “Australia at the moment is feeding 50 million people more than their own needs”, so he is saying that we are feeding 70 million people”... however we could quadruple that and feed up to 200 million people”. The reason Anthony Pratt was saying this at the Global Food Forum in April is because there is a booming middle class emerging right next door in Asia where effectively we will see the middle class swell, and that’s the reason Prime Minister Gillard and the rest of the country are all busy writing white papers on Australia and the Asian century. The Asian middle class is forecast to grow from 400 million to 3 billion. With that economic and wealth growth will accompany a major change in dietary behaviours. But the diet of our neighbours throughout places such as Indonesia and China and countries like that, Thailand, there has been traditionally a more starch based diet and maybe with a lot of seafood and a little bit of Pork and Chicken. But as they increase their wealth they will want a nice red steak and they will also like a nice glass of red wine to go with it, and with the sheer volume of people that are coming into the middle class, that is going to create a huge demand and opportunity.
  • Notes:  For undernourishment, data for 1990 in this graph are the same as data reported by FAO for period 1990-92; data for 2002 in this graph are the same as data reported by FAO for period 2000-2002; and data for 2008 in this graph are the same as data reported by FAO for 2008-10. FAO defines prevalence of undernourishment or chronic hunger as the status of persons whose food intake regularly provides less than their minimum energy requirements. The average minimum energy requirement per person is about 1,800 kcal per day (FAO [2013]  Hunger Portal ). Ironically, at the same time as we’re facing a hunger crisis or a need for the word to increase its food productivity we are seeing this... a surge in obesity. We are confronted with the headlines in the media everyday about obesity and undernourishment. So obesity and undernourishment are starting to go hand in hand. When we talk about the changes in dietary behaviours from traditional diets -which we are eating at home and which are very much raw foods picked up from the wet markets to people going to fast food which is processed and it doesn’t have the same goodness in it, so we are seeing a surge in obesity. So we are probably going to face the two crises hand-in-hand #1; how do we feed the feed the world? And #2 how do we slim the overweight and obese?
  • There is another elephant in the room that we do not hear talked about much but it has been talked about by countries like India and China with fervent discussion. We will probably soon start to reach global chit-chats between all the leaders and that’s population growth. Underpinning a lot of our problems on the planet is population growth and it is something that governments do not really go out and talk about, because as you can imagine population growth is good for economic growth. There was a strong debate going on during the Howard government in the later years between Dick Smith the entrepreneur and John Howard who was saying ‘Let’s plan for a big Australia’ which is 50 million people at 2050, and Dick Smith was saying hang on, can we feed 50 million people sustainably at 2050? And you know, all of those people were going to be migrants and the reality is that population growth feeds economic growth. But population growth also causes stress, stress on the planet. Here is a short clip, it is probably out of date now but it was done by The Economist back when the world just ticked over 7 billion people explaining a little bit about how population growth has surged and what they predict for the future because of course no-one could really predict the future and what’s going to happen but this little clip if it works might shed a little bit of light on population and the world and where it has been. [ Video clip ] That was done a while ago, like I have mentioned, that was done before we hit 7 billion so I think that video was from the back end of 2010. I am seeing a lot of comments now that we are going to hit 9.5 billion by 2050 so, you know, these are just predictions but you saw too how it really surged recently from the 60s to now. And you see now why it is really crucial for countries that have high birth rates, obviously trying to control it by law but it was always vital to countries like India to lift them economically because we know there is a correlation between economic wealth and how many children people have. The oldest insurance policy in the world was that if you were born really poor in India or Africa you would have 10 kids and hope that one of them might make it and they would look after you when you were old and could not work in the fields. So the world has an interest in economic growth and getting people up to a level of relative wealth but also there has got to be a clear interest in how the world can control population and how everyone can feed each other and share the food. International trade will be really vital. In the G20 Rio Climate Summit the CEO of Cargle from America spoke about the importance of free and unrestricted trade to try and smooth the bumps in the commodity road and to make sure that everyone shares their food in the future. So you can see there are some underlying causes here behind the crises and opportunities in food. Population growth is the key driver, it’s the driver behind everything, and it’s the driver behind climate change. The world will talk about carbon emissions and a lot of that comes down to just the sheer volume and number of people who are on the planet and the use of energy. Also, the growth and GDP will cause dietary changes, more protein so people will switch from carbohydrates to protein diets. We have got limited food productivity growth so a lot of productivity gains have been (the easy ones have been) made so it’s going to get a lot harder to increase productivity on the existing land, and then we have got that reduced land supply, and then we have also got thrown into the mass water shortages. So we’ve seen that in Australia with drought and it’s occurring in places like China. We’ve got water in the North, not so much in the South. China has water in the South and not so much in the North. So you will hear about water –not water wars-, but water will become a topic too.
  • One company worthy of a top 10 spot but difficult to find out its food assets from its industrial assets is Cargill with US$134b sales. Cargill has diverse commercial interests and food interests from farm to shelf. Additionally P&G is an $84b CPG company but predominantly non food & beverages but does have some big food brands e.g. Pringles Now in the middle of all of that in the land of global business and opportunity, we have seen some really big companies keep getting bigger; so global business certainly operates in food. However, the biggest food company, you could argue is not even on this list, I have put nestle at $98 billion, last year they were at $90 billion. I refreshed the charts since last year and they have jumped by another 8 billion. Cargill , which is a privately held company from the United States, is a US$134 billion business and they are into everything. They do a lot of food commodity purchasing and processing, and are also into other businesses. I do not know if anyone has heard of Archer Daniels Midland Company from America? Has anyone heard about them in the news in Australia recently? They just swooped in and bought a business in Australia? When I was doing this research for this lecture last year, I had never even heard of these guys I was like ‘Who is Archer Daniels Midland? And how did they become a $91 billion company?’ And I started looking and they process soy beans and food commodities and things like that and they have just flown over the last 12 months and scooped up Graincorp , which is one of Australia’s last listed big grain businesses which they purchased for several billion dollars. So they clearly see the value in agriculture, and these guys up the top ten of the global food companies like Archer Daniels Midland and Cargill and JBS and Tyson; they really look long when they buy. They are coming into countries like Australia and buy into industries where nobody in Australia would be investing because they cannot see the opportunity over the horizon. Graincorp has major grain silos and facilities at about 6 of Australia’s ports and processes a lot of Australia’s grain for export.   Unilever from Holland, Pepsi from the US, some of the usual suspects that you would have heard of. Coca Cola, ABInBev (The world’s biggest beer company), some companies like JBS from Brazil which is the world’s biggest beef grower and Tyson and other businesses in America. They are down around the $30 billion mark but they are still pretty impressive sized businesses. I was looking at something on YouTube for this and there was something by a Food futurist talking about ‘As China increases it’s consumption of red meat’ which they are doing as their wealth increases. What he said was that if every person in China just eats 10 pounds more red meat per year, which is not unforeseeable because they are eating such a low percentage compared to the countries that are doing well economically, that would be the entire American beef production. So these small increases in quantity, with large populations that are economically growing like China, really create a surge in demand. Not so much happening in India because of the vegetarian nature in their diet and they are not so interested in eating beef for religious reasons. You will see these companies keep getting bigger and you will see them keep buying, and if you look at most of the Australian brands on the shelves, a lot of them are owned by the top 20 global food multinationals.
  • And in on the flip side it’s interesting in Australia we think about retailers as being really, really big. You know behemoths like Woolworths. You know, like ‘Woolworths is so big, and they are such an evil supermarket chain. And Coles is always Down, Down, and all their suppliers are out and they are so big and oppressive’. They are actually not that big on a global scale because they are so focused in Australia. They are big companies here and they are highly profitable companies and they are very good at what they do. But they are not big internationally. When you compare them to Wal-Mart which is nearly ten times bigger, Carrefour from France, which is again twice as big, and then you have Metro from Germany. Some interesting companies like Aldi, a store privately held and hard to find numbers on, is very successful and growing very fast both here and in the UK with their cost effective food operation and setup. I love it as a shopper going into Aldi when you scan your items if you are not at the end of the checkout catching them they just fall on the floor and then you ask them for bags and they say they are going to charge you for them. I mean the whole thing is just built to strip out costs; and they have been highly successful at it.
  • No grocery retailer today operates in all five of the world’s biggest markets. Retailers face serious obstacles in going global: It takes time to break into foreign markets, returns accrue only over time, and foreign entrants have to take on well-established local incumbents. Some retailers’ experiences suggest that to succeed abroad, firms must bring new things to market; focus on differentiation, not synergies; and enter at the right time. The Retailer’s Golden Rules of Globalization First explore all options for profitable growth in your home market. Continued success in the home market is necessary, but not sufficient, for success internationally. Unless you enter by acquiring a strong local player, make sure you bring something new to the market. Focus on local success and differentiation in each new country before exploring and leveraging synergies across your portfolio of countries. Don’t enter too early; you will fail. Don’t wait too long. Opportunities dry up, and competitors may become unassailable incumbents. Ref: HBR, Apr 12. But what is noticeable and interesting and different is when you look at food suppliers and food brands and then you look at food retailers, is that it is not that easy to dominate the world in retail. And each of those top ten retailers has got a bloody nose somewhere in the world of retail, possibly with the exception of Woolworths and Coles in the sense that they have not really ventured outside Australia too far and wide. But if they venture outside Australia and up into Asia and start throwing their weight around and telling all of the other Asian supermarkets ‘we’re going to beat you up and we are going to do a great job and become the Woolworths of Indonesia’ you might find they leave with a bloody nose like Carrefour have. Carrefour was in Indonesia and it sold out, they sold out of Malaysia, they sold out of Singapore. They could not make any money. Carrefour is doing well in China. Wall-mart went to Germany to teach the Germans how to do retail and got a bloody nose from Aldi. So retailing is very much a global game, but by the same token it’s a local’s game. If you are really good and strong locally and someone comes in and tries to knock you around it is quite hard and that’s why you probably haven’t seen a hell of a lot of retailers come in and invade the Australian shores. We have seen Costco come in and have a go and it has taken them a long time to get a foot hole. And we have seen Aldi come in and it has taken them a good 10-20 years to start getting some critical mass because it is quite hard to unseat the incumbents. And there is a great article on The Economist if you are interested in reading about retailing in China called ‘ Walmart versus Wumart’ . It talks about the big wide aisles of Wal-Mart and the professional nature of their shopping strategies and their staff, versus Wumart where it is sort of chickens piled high and dishevelled shelves but everyone is still shopping at Wumart because it’s low cost and it’s well run and the products are fresh and it’s tailored to local tastes. I am not saying that Wal-mart is doing badly in China but they may not necessarily be doing brilliantly. And this article was written in the Harvard business Review last year in April where it talks about retail doesn’t cross borders and why. And it’s pretty interesting because out of those top 3 global retailers: Carrefour, we have got somebody here from France who could probably tell us that they are very dominant in France are they not? But as they have grown out into Asia and they have gone out to China and Indonesia and Malaysia and things like that, they have also jumped across to Latin America and done very well in places like Columbia, they have sort of taken their eye off the ball at home and all of a sudden they have started losing share at home. Tesco shares a similar story. I do not know if you guys have been following their exploits but they have sold their supermarket chain in the US and they are concurrently saying they are underinvested in the UK which was their stronghold where they were number 1, Aldi is now rising up, Sainsbury has gotten better, Aldi is here and those guys are doing a great job so we had better retreat and defend home base. So sometimes you will see Retailers go out, go into other countries with their systems but that does not necessarily mean that they will succeed. Whereas, when you look at the number of countries that the grocery suppliers are in, like Coca-Cola, you would be pretty hard pushed to not find a Coke anywhere in the world now, maybe with North Korea the last remaining outpost. Likewise Procter & Gamble with the Gillette razor blade or with their shampoos and things like that so you tend to find the food brands and the consumer goods brands will get there quicker, obviously they can be sold by any retailers whether they are foreign owned or local. But the foreign retailers when they go into international territories find their formula and processes from home will not necessarily always work. Also there are some interesting case studies about how those retailers have entered those markets. I am more familiar with Asia that with any other part of the world but some retailers has done a great job at getting in there and carving out a space for themselves. Some have done a pretty ordinary job and ended up selling out to the locals and leaving with a lot less money in their pocket than when they arrived.
  • Give priority to achieving a large market share in a small number of markets over a small market share in each of many markets. Tesco spread its resources too thinly across many markets. This approach slowed it down in building local market share and scale within China. 2) if helpful in acquiring local knowledge and building local scale at a faster pace. 3) including in such key areas as store size and format, product mix, and even store branding 4) to lead most activities, including sourcing, store operations, and marketing. The mix of local-to-expatriate managers within the top team, however, should be closer to 90-10 rather than 60-40.
  • Can achieve a 40x value add from start of commodity processing cycle as fresh milk off the farm at approx. 40cpl to a highly functional nutritional beverage at $7.60 per litre (Anlene concentrate).
  • ANLENE CONCENTRATE HIGH CALCIUM FAT FREE MILK - ORIGINAL 4S 110 MLQuantity: Usual Price: S$3.95 With total brand sales of US$300 million (€205 million), it’s the biggest brand of its kind not only in Asia but worldwide. Anlene is available in 17 countries across Asia, Africa and the Middle East. First launched in Taiwan in 1991, Anlene can today be found all across Asia. Its core target is women aged forty-plus, to whom bone health is very relevant. To date, Fonterra has spent more than US$50 million on bone health research and US$15 million directly on the development of Anlene, increasing our understanding of osteoporosis and the role of dairy in its prevention. The experts behind Anlene have funded, and been involved with 18 clinical trials relating to bone health. Sources: New Nutrition Business, 2008 & http://www.fonterra.com/global/en/our+products/our+brands/anlene viewed on 22.7.13
  • Be persistent, patient and play the long game. Go there, get on the ground, build strong partnerships, recruit and nurture local talent, adapt your business processes and products to the marketplace. In summarizing, if there’s anything that I wanted to give you guys to take away – I didn’t want to sort of put too much in the presentation on theories and trade and that- I think just sort of have a really brutal grassroots, you don’t need to be a rocket scientist level of analysis. We have a global hunger challenge coming so the awareness of it is there through the charities and through the initiatives like Bono going to Africa and Live Aid concerts around feed the world, and the reality is that there is enough food to feed the world at the moment but unfortunately most of it gets wasted in the West. But by the same token there is an emerging global hunger challenge in the sense that the population just keeps growing and we’ve got a finite amount of land to produce food. The other thing is, as the wealth grows those very populous nations like China and populous parts of the world because that’s also where the economic growth is at the moment it’s Asia, Latin America, Africa... and there is a lot of people there. Their diets change so they’re going to need more food. That actually creates a massive opportunity; global opportunity for Australia if they want to position themselves here. We would certainly hope that once Australia has finished digging all of the sand out of the sand pits and selling that to the Chinese and Indians to build the bridges and the buildings that they think a little about doing something with all of the grass and the goodness that comes out of the soil, because the guys are going to have to eat while they’re kicking back in their nice new apartments in Shanghai and Mumbai while they are watching their DVDs on their 40 inch plasma TVs. They are going to want to eat and drink good food. And I’m guessing that they’re not just going to want to eat a bowl of rice. They’re probably going to start having dinner parties like Master Chef and wanting to slice up a pork belly and a beef steak and glaze it and wash it down with a beautiful red wine or craft beer. So there is mass of opportunity. The future is uncertain. I think that’s the classic one that everyone likes to throw around in innovation and entrepreneurial scenes right now as people say ‘The world is so uncertain now and everything’s happening at light speed and if you’re not on an iPad or a hover board you’re going to be left behind’. Well, yeah to a certain degree we know that technology is going to keep coming at us at increasingly faster rates. But we also know with certainty that population will keep growing and humans will keep breeding. And we also know with certainty that climate change will keep coming at us; so the famines, the floods and the droughts are going to keep coming. We also know with certainty that the manufacturers are going to keep consolidating faster, because they’re going to have to do that to survive. They’re going to have to process more efficiently and they’re going to have to stand up against these bigger retailers. So with all of that internationalisation there is immense opportunity. Although I only used one example, it has its challenges. So when all of the Aussie businesses wake up tomorrow and the next day and start to think, we really should get going and start selling some food to Asia. You know we really should follow Julia Gillard’s lead and go to China. And you would notice that when she went to China she had miners with her, and bankers with her, but she didn’t have any food producers with her which was one of the criticisms which was made by Anthony Pratt at the Global Food Forum in April, where was the food delegation? Why hasn’t Australia signed this deal with China for the free trade agreement? But when you go to your nearest neighbours they are different places to what we call home, and the people are wonderful, the people will welcome you with open arms but there will be challenges. They will need international business students like you guys, particularly if you have come from overseas. The other thing about international business that I always like to encourage people to look at it as a career choice is that it’s a bit like if you follow football or soccer, depending on where you were born. You can play in the local leagues, you know like your local club league and you can get a promotion and you can go and play in your regional league and you can get another promotion and you can play in the premier league and then you can get a promotion and play champions league Football and then you can go and play World Cup Football. International business is like World Cup Football. If you don’t get your pass on to the next guy or the next girl in front of you and you don’t slot that goal in the back of the net you can be downright sure that the guys on the other side are going to be really swift operators. Whether they are the crack local team, wherever you are, or they are some international powerhouse made up of superstars. So if you enjoy business and you enjoy moving fast, thinking fast, navigating rules, operating with limited information, you will probably really enjoy a career in international business. I encourage you to keep pursuing your knowledge journey and when you’re ready to give it a nudge, jump into the work force.
  • Here are all my references if you want to read more about all of this as well.
  • Anthony Pratt (18-Apr-2013 Global Food Forum, Melbourne) Even with our large expanses of desert, over the next decade and beyond, Australia will have almost 20 times more arable land per head of population than China, India and Indonesia, and 60 times that of Japan. Overall, that’s 20 times the potential productivity of the arable land available to some 3 billion people in Asia. So in the most fundamental way, and well into the future, Australia is uniquely placed to produce surpluses of valuable commodities. The middle class in Asia is forecast to grow from 500 million to 3 billion consumers. Australia as Asia’s “clean, green food bowl” can be more than a marketing slogan. But for that to happen, we need imagination and innovation. Australia’s food manufacturing exports are still very strong: they’re worth $17 billion a year, more than education and tourism. The food industry as a whole supports 317,000 direct jobs, and a flow through of about 1.6 million jobs. Yet the food producing and manufacturing sectors have struggled to receive the recognition and support they deserve. High-profile industry disruptions, such as steel or car plant closures, make the news and attract political attention. They tend to attract subsidies -- because if a car factory closes, it makes an “atomic” impact, whereas food industry closures are more scattered. Today I’d like to highlight six proposals that can help us turn aspiration into implementation. Number one: we need accelerated depreciation for new manufacturing investments in food. Two: we need a massive boost in food and beverage sector innovation. Governments can’t create innovation. But they can help drive it by providing financial incentives, partnerships, and much greater R and D support. A third proposal: Australia needs to follow the American example in anti-dumping practice by putting the burden of proof on the offending party to prove that they are not doing it. Rather than the current situation in Australia, where the onus is on “the dumpee” to prove that he is not being dumped on. Fourth: Let’s find a way to suspend – not abolish-- payroll tax for food manufacturers. Fifth: Competition policy should be more relaxed to allow food companies to consolidate under certain conditions, thus enabling greater profitability and so encouraging companies to stay here. And sixth: As a matter of urgency, we need to get more young people into agricultural science. We’re only producing 750 graduates a year, and there are over 4,000 vacancies in the food industry.

Transcript

  • 1. Our Food Future & Creating value from Commodities case study HBI550 / HBM250 TRENDS IN MARKETING Dermott Dowling Wed 11 Sep 2013
  • 2. Source: Brian Robins (June 29, 2013) http://www.theage.com.au/business/genetically-modified-crops-crucial-graincorp-chief-20130628-2p2rg.html viewed on 21/7/2013 With estimates that the global population will expand by 2.7 billion by 2050, …, pressure is mounting for farmers to lift yields by 50 per cent to keep abreast of growth in global demand. ''Therefore yields have to double to around three tonnes a hectare, yet they've been flattening. 'This increase would have to occur against the backdrop of climate change and declining soil quality, ''which will make it more difficult to achieve this''. Alison Watkins, GrainCorp Chief Executive, June 2013)
  • 3. Introduction  Director @Creatovate Innovation & International Business Consultancy  16 years Food & Beverage 12 years Asia Pacific  Corporate experience Lion (National Foods) Foster’s Fonterra
  • 4. The Global Hunger Challenge • The Green Revolution in 1960s lifted global food production by 150% over 50 years • We need another Revolution, to feed 9.5 billion by 2050, increasing food production 75%. • ANZ Bank estimated an additional $710b in Australian agri-exports to 2050 on Asia- led growth. (Cornell, 2013) (Anthony Pratt, Global Food Forum, Melbourne, 18-April-2013) http://www.youtube.com/watch?v=XdBPZ9we4rk&feature=youtu.be Australia’s Hunger Challenge 9b by 2050
  • 5. Global Irony - An Obesity Epidemic Figure 1. Global Prevalence Rates of Undernourishment and Obesity Source: FAO for prevalence of undernourishment; G. Stevens, G. Singh, G. Danaei, et al., "National, Regional and Global Trends in Adult Overweight and Obesity Prevalences," Population Health Metrics 10 (22): 1-16 (2012). • Conservative projections predict: 2.2 billion adults might be overweight and 1.1 billion obese by 2030 (Kelly, et al, 2005)
  • 6. Dairy Commodities Source: Dairy Australia Spot Price Report – Aug 13 International Market August 2013 •Early signs of a promising season in NZ and Australia, … have not dampened buying in a market that simply cannot get enough product. •The biggest mover in price terms has been WMP, up a further US$200/t this month largely on the strength of heavy Chinese demand, but also as South-east Asian buyers act to secure requirements in the absence of long-awaited price relief.
  • 7. Higher Income diets more resource intensive • Taste for protein and sugar • As average earnings grow diets change and it puts pressure on soft commodities which will increase in price (Chunn, 2012, AFR) Source: ANZ Bank (2012) ANZ Focus: Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, P.2
  • 8. Summary causes & shifts in global Food & Bev in future years  Population growth  From 7b to 9.5b by 2050  Climate Change  Growth in GDP in developing world changing diet (more protein)  Limited food productivity growth  Fixed/reducing land supply  Water shortages
  • 9. Top 10 Global F&B Companies Sources: Company websites & http://www.rediff.com/business/slide-show/slide-show-1-worlds-biggest-food-an retrieved on 23/9/12 Rank Company Est. 2012 US$b Revenue Country of Origin 1 Nestle 1866 $98 Switzerland 2 Archer Daniels Midland Company 1923 $91 USA 3 Unilever 1930 $67(€51b) UK/Holland 4 PepsiCo 1965 $66 USA 5 Kraft 1903 $54 USA 6 Coca-Cola 1886 $48 USA 7 ABInBev 1852 AB 1366 InBev $40 USA 8 JBS 1953 $37 Brazil 9 Tyson 1935 $32 USA 10 Mars 1911 $30 USA
  • 10. Top Global Retailers Top Retailers Country of Origin Turnover 2012 US$b 1) Wal*Mart USA $444b 2) Tesco UK $112b 3) Carrefour France $101b 4) Costco US $99b 5) Kroger US $97b 6) Metro Germany $87b 7) Lidl Germany $84b 8) Aldi Germany $73b (2011) 17) Woolworths Australia $54b (2011) 18) Wesfarmers (Coles) Australia $52b (2011) Sources: Company Websites http://www.insideretailing.com.au/IR/IRNews/Top-25-retailers-5718.aspx and http://www.deloitte.com/assets/Dcom-Australia/Local%20Assets/Documents/Industries/C Viewed on 6/5/2013
  • 11. Global retailing is not easy Number of Countries Operating •Grocery retailers – Carrefour 38 – Wal-Mart 15 – Tesco 13 •Grocery suppliers – Coca-Cola 200 (approx.) – Danone 120 – P&G 180 • Source: ‘Retail Doesn’t Cross Borders, HBR, Apr 12, p.109
  • 12. Foreign Retailers Stumble in China Within any particular country, such as China, what matters is local— not global—scale. Guidelines for Success 1) In global retailing, depth will beat breadth. 2) Be open to local joint ventures 3) Go heavy on local adaptation 4) Lean toward relying on local managers  Anil Gupta and Haiyan Wang (2013) Retailing is a Multi-Domestic Industry
  • 13. Value Creation in Commodities NZ$6.12 KgMS US$5/Kg HK$99/900g A$5.43 KgMS (0.40cPL) $A5.31/Kg A$15.05/Kg Milk is Milk is Milk isn’t it? SGD$19.40/800g SGD$18.45/800g Y 27.90 / 1L P 410/900g A$18.30/Kg A$17.40/Kg A$4.80/L A$11.20/Kg S$3.95 / 4x110ml A$7.62 Raw fresh milk Commodity Ingredient Branded Consumer Good Branded Consumer SegmentedFormat Value addLife Stage Functional Segmented value addFormat Value add Processing value add
  • 14. Anlene – Expert bone health brand From bulk milk powder in bags to highly concentrated value added milks… • First launched in Taiwan in 1991, • US$300 million sales (2008) ++ • Anlene is now the established market leader in over 10 countries across Asia, and the Middle East. • Core target: women aged 40+, bone health is very relevant. • Fonterra spent > US$50m on bone health research and US$15m directly on Anlene • Funded & involved with 18 clinical trials relating to bone health. Sources: New Nutrition Business, 2008 & http://www.fonterra.com/global/en/our+products/our+brands/anlene viewed on 22.7.13
  • 15. Conclusion  The future is “uncertain” and certain  We all need to eat and by 2050 that’s 9.5b of us!  Consolidation of manufacturers (faster) and retailers (more challenging)  Internationalisation brings opportunity but has its challenges  Must glocalise  It is a significant step up from the home market  Australia has significant productivity challenges to overcome in global food manufacturing & processing vs. NZ & Asia  Expect more competition, faster innovation and new rules and regulations to navigate Global Food Challenge = Australia’s International Opportunity
  • 16. References 1. ANZ Bank (2012) http://www.anzbusiness.com/content/dam/anz-superregional/AgricultureInsightsGreenerPastures.pdf , Issue 4, retrieved on 21 July 2013. 2. Chunn, Jeremy (2012) Hard returns from soft commodities PUBLISHED: 25 SEP 2012 16:01:00 | UPDATED: 27 NOV 2012 03:56:46; AUSTRALIAN FINANCIAL REVIEW, http:// www.afr.com/p/hard_returns_from_soft_commodities_XIKM0mM6eLppdpUT79EjiK viewed on 3.5.2013 3. Cornell, Andrew (2013) Our next boom. Australian Financial Review Magazine, 31 May, pp: 18-21. 4. FAO for prevalence of undernourishment; G. Stevens, G. Singh, G. Danaei, et al., "National, Regional and Global Trends in Adult Overweight and Obesity Prevalences," Population Health Metrics 10 (22): 1-16 (2012). 5. T. Kelly, W. Yang, C-S. Chen, K. Reynolds, and J. He, "Global Burden of Obesity in 2005 and Projections for 2030 ," International Journal of Obesity 32: 1431-37. 6. Marcel Corstjens and Rajiv Lal (2012) Retail Doesn’t Cross Borders: Here’s Why and What to Do About It Harvard Business Review, April, pp.: 104-111. 7. Marcel Corstjens and Rajiv Lal (2012) Retail Doesn’t Cross Borders: Harvard Business Review, April, pp.: 104-111. 8. K. Dunstan (2011) The Age “Our lost heritage is enough to drive a person to drink” http ://www.theage.com.au/opinion/society-and-culture/our-lost-heritage-is-enough-to-drive-a-person-to-drink-20110922-1kn4u.html#ixz viewed on 23.9.12 9. The Economist (2011) We are 7 billion http:// www.economist.com/blogs/dailychart/2011/10/world-population retrieved on 23/9/12 10. http ://www.rediff.com/business/slide-show/slide-show-1-worlds-biggest-food-and-beverage-companies/20120416.htm retrieved on 23/9/12 11. http://www.globalharvestinitiative.org/index.php/2012/06/notable-food-security-quotes-from-the-rio20-and-g20-conferences/ viewed on 1.10.12 12. http://www.insideretailing.com.au/IR/IRNews/Top-25-retailers-5718.aspx and http://www.deloitte.com/view/en_AU/au/industries/consumerbusiness/e2781160f279d210VgnVCM3000001c56f00aRCRD.htm viewed on 2.10.12 13. Nielsen top 100 brands report 2010 viewed on AFN website 26.9.12, Company Websites, Google 14. Pratt, Anthony (2012) Global Food Forum, Melbourne, April http://www.theaustralian.com.au/business/in-depth/australia-the-clean-green-food-bowl-of-asia/story-fni2wt8c-1226623265405 view 23.4.13
  • 17. Bibliography • Company websites: Major Retailers & Consumer Packaged Goods companies as listed • Dairy Australia, J. Droppet (2013) Spot Price International Commodity Report, August • http://siteresources.worldbank.org/EXTPOVERTY/Resources/336991-1311966520397/Food-Price-Watch-March-2013 • http://www.theaustralian.com.au/business/in-depth/australia-the-clean-green-food-bowl-of-asia/story-fni2wt8c-1226623 • Stevens et al., "National, Regional, and Global Trends.“ http://www.pophealthmetrics.com/content/10/1/22 viewed on 29.4.2013 • http://www.fonterra.com/global/en/Our+Products/Our+Brands viewed on 22.7.2013 • https://www.new-nutrition.com/ viewed on 22.7.2013 •  Anil Gupta and Haiyan Wang (2013) Why Foreign Retailers Stumble in China, 6 September, http://www.businessweek.com/articles/2013-09-06/why-foreign-retailers-stumble-in-china#r=hpt-fs viewed on 9.9.2013
  • 18. Dermott Dowling Director T: +61 400 040 195 dermott@creatovate.com.au www.creatovate.com.au