Funds for capacity and new labelling rules in US bid to shake-up meat industry
The US government has said it is to spend US$1bn on meat processing and issue new rules on labelling as part of moves to create “a more competitive and more resilient” supply chain.
President Biden yesterday (3 January) provided more details on his administration’s plans to shake up the country’s meat sector, an industry he believes is too concentrated to the detriment of farmers and consumers.
The announcement, which also includes funds for R&D and lower inspection costs for small processors, follows the Biden administration’s arguments in recent months the US meat industry is not as competitive as it should be and has been a notable factor in rising food prices in the country.
It also comes six months after the US government outlined measures – including more than $600m of funding for processing capacity – to invest in production and “revitalise” trading rules.
Meat industry associations questioned the new announcement. Mike Brown, president of the National Chicken Council, said: “While we haven’t seen any proposals, for the chicken industry, this looks like a solution in search of a problem.”
In a lengthy statement ahead of a virtual meeting between Biden and farmers, ranchers and what the White House called “independent processors”, the administration set out plans for “a more competitive, fair, resilient meat and poultry sector, with better earnings for producers and more choices and affordable prices for consumers”.
Biden’s team has consistently pointed to the market share of the country’s largest processors, citing, for example, the 85% of the beef market divided among four companies.
The White House believes competition needs to be increased and, through the US Department of Agriculture, grants totalling $375m will be made available to build capacity.
Access to credit will be improved through a $275m scheme for independent processors while there will also be USDA funds for innovation “to help independent business owners” and reduced inspection costs for smaller plants.
On labelling, Biden wants to bring in new “Product of USA” rules. Under current regulations, meat can be labelled Product of USA “if it is only processed here – including when meat is raised overseas and then merely processed into cuts of meat here”, the statement read. “We believe this could make it hard for American consumers to know what they are getting. USDA has already begun its top-to-bottom review of the current labelling rules and consumers’ understanding of the labels, with the goal of new rulemaking to clarify Product of USA standards.”
The USDA will also work with the US Department of Justice to set up a way “for farmers and ranchers to report complaints of potentially unfair and anticompetitive practices in the agricultural sector to them”.
In July, the administration said it would look to strengthen the country’s Packers and Stockyards Act, a law passed a century ago to protect farmers from unfair trading practices. The USDA has started work on three proposed rules to “provide greater clarity and strengthen enforcement under the Act”, the statement added.
At the National Chicken Council, Brown said the White House was using the meat industry “as a scapegoat for the significant challenges facing our economy”.
He added: “This administration should be looking at the chicken industry as a model of success, instead of creating a boogeyman to justify an unnecessary and expensive foray into our meat supply.
“The chicken industry is the least consolidated in all of animal agriculture and the market share of the top four companies has been virtually the same for the past 20 years.”
A spokesperson for trade body The North American Meat Institute said: “The market has already begun to balance itself. All of the government spending announced again today is too late for consumers and producers. According to USDA data, cattle producers are getting the highest prices on record since [the] record prices they received in 2014. This is because packers have begun to clear the backlog of cattle created by the pandemic. The herd size is shrinking while demand remains high.
“Labour remains the biggest challenge. Our members of all sizes cannot operate at capacity because they struggle to employ a long-term stable workforce. New capacity and expanded capacity created by the government will have the same problem.”
She added: “There are many questions and few details about this government intervention in the market: How much extra capacity does the Administration think is needed? How high should cattle prices be right now? How long will the government-sponsored processors receive government money? How much will the government-sponsored processors be required to pay employees? “
On the plans to change labelling regulations, Brown said US rules “already require that chicken sold at retail clearly and accurately identify the product’s country of origin”.
He said: “Consumers seeking USA chicken can already find the ‘Hatched, Raised & Harvested in the U.S.’ label on American chicken. More than 99% of the chicken we consume is of domestic origin and can easily be identified. We hope that this trusted and accurate label is not diminished for the American consumer.”
35 YEARS OF SPACE IN 2022
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Testing times – another tough year on horizon for US food industry
The US packaged food industry faces a challenging 2022 as numerous major issues, many of which are hangovers from the last half of this year, will create uncertainty across the board, from manufacturing and operations to marketing and sales.
Topping the list of major issues facing packaged foods companies is, of course, of Covid-19. The Delta strain has driven up case numbers and hospitalisations in hot spots like the Mountain West, the North, and even in many parts of California, which until recently was steadily reducing the percentage of new cases and hospital stays.
The lingering effects of Covid-19 due to Delta – and with Omicron now having the potential to make the situation worse – along with low vaccination rates in many parts of the US, will cause significant uncertainty for packaged food companies well into 2022, making it difficult to adequately plan manufacturing and supply chains.
The two key concerns
Two other major current issues, inflation and the breakdowns seen in parts of the supply chain, which will continue to exist well into next year, will add to this uncertainty for food makers.
On the supply chain, industry experts and trade groups like the Consumer Brands Association, which represents packaged food companies, and the Food Marketing Institute, the major national trade organization representing grocery retailers, don’t expect any significant improvement to the mess until mid-2022 at best.
If the current increase in Covid-19 cases continues into next year, it’s possible we could see increased consumer stocking-up behaviour at grocery stores like was the case in 2020. This would play havoc for the US food industry, which is already struggling with a shortage of everything from ingredients to packaging supplies. Even without a rise in pantry-loading, the challenges and uncertainty for food makers from supply-chain issues is going to get worse before it gets better, particularly in the first quarter of 2022, coming off the busy fourth quarter holiday shopping season.
On inflation, the price of nearly every necessity, from groceries and rent to gasoline and heating oil, is going up in the US.
Prices for US consumers jumped a whopping 6.8% year-on-year in November, the largest 12-month increase since the period ending June 1982, the US Labor Department reported on 10 December.
The data showed food prices have climbed 6.1% in the past year, with prices for food-at-home up 6.4%, the biggest 12-month increase since the period ending December 2008. The Labor Department said all its six major indexes monitoring grocery store food prices increased over the period. The index for meats, poultry, fish, and eggs was up 12.8%, with the index for beef rising 20.9%. In fruit and veg, the index was up 4%. The index for dairy and related products posted the smallest increase, rising 1.6% over the last 12 months.
The increase in grocery prices is a direct reflection of the across-the-board hikes in the cost of ingredients, packaging, fuel, transportation, labour and more that food manufacturers have been experiencing all year.
Most major, as well as many smaller, packaged food companies held the line and didn’t increase wholesale costs to retailers and distributors earlier in 2021. However, they’ve had no choice but to raise prices in recent months due to frequent and unpredictable cost increases that have been the case throughout the year. Many food makers haven’t increased wholesale costs enough to cover margins. As such, expect to see more wholesale price increases in early 2022, which is going to add fuel to the inflationary spiral the US economy is experiencing.
Staffing squeeze
The worker shortage in the US is also affecting packaged food companies in a negative way and will continue to do so in 2022. This will particularly be the case when it comes to increasing transportation costs because there’s a severe shortage of truck drivers in the country. There will be little, if any, improvement in the situation next year.
Packaged food companies are also experiencing worker shortages in their manufacturing plants, which is a situation that’s going to get even worse during the first two quarters of 2022.
For the first time in decades, the labour shortage is also emboldening food manufacturing workers and their labor unions to demand higher pay, better benefits and stronger job guarantees from major food companies like Kellogg, where workers have been out on strike since 5 October.
The Kellogg strike includes roughly 1,400 workers at four plants that make all the company’s cereal brands. Major packaged food CEOs are watching this contentious strike closely and are worried their unionized manufacturing plants could be next in line for a dispute, adding yet another headache to the list of problems they will have to face in 2022, as well as adding more uncertainty to a business already plagued by uncertainty.
Causes for optimism
All is not gloom and doom, though, for packaged food execs as we get ready to turn the page on a challenging 2021 and usher in what is also going to be a challenging 2002.
The 2020 shutdown taught food makers to be more resilient and the supply chain breakdown, inflation and other challenges this year have added to the experience they have accumulated.
Therefore, coming out of the last two challenging years, packaged food companies are far more agile and adaptable than they were as recently as 2019.
For example, major companies have advanced their technological capabilities in the manufacturing and supply chain areas more in the last two years than they have in the preceding decade.
The food sector’s hiring for industrial automation is on the rise – GlobalData analysis
The same is true when it comes to digitalisation. Prior to 2020, most major food makers were doing very little selling online. In the last two years, this has changed dramatically. Nearly every packaged food company, from the giants to start-ups, is not only selling products online but have transformed into omnichannel players, making clicks (online marketplaces and direct-to-consumer) a part of their selling mix along with the bricks (physical retail stores).
The worker shortage is also already serving as a catalyst for food manufacturers making major investments in plant technology. Robotics is booming and I expect to see major investments and initiatives by companies in manufacturing and transportation technology in 2022.
The truck driver shortage is accelerating the adoption of autonomous or self-driving truck usage by probably a decade and the lack of plant workers, which is going to be a long-term trend, is pushing food manufacturers to automate their plants at a highly accelerated pace.
2022 will be a challenging year fraught with uncertainty for packaged foods companies. The key to meeting those challenges, as this year and 2020 have taught us, is resiliency.
Equally important in such times is to create a company culture and environment that attracts the best and the brightest. Team still matters in the age of technological innovation.
Challenging times – and 2022 is going to be a challenging year – can bring out the best in people, companies and industries, as well as lead to innovation that would never be attempted in less-challenging times. So, despite the major issues facing packaged food companies in 2022, I expect it to also be a year filled with innovation and positive surprises, along with the difficult challenges and uncertainty. Stay tuned.
MeatEx Canada is around the corner
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Revealed: The exact point at which shoppers will consider a product to be too expensive
Consumers will stop buying a product when its original price has risen by an average of 40%, according to a new survey commissioned by specialist PR agency Ingredient Communications and conducted by SurveyGoo.
Just over 1,000 US and UK consumers answered a series of questions designed to reveal just how price-sensitive they really are.[1] As many as 94% of participants said they had noticed their food shopping bills going up in the previous three months, with 79% stating they believed supply chain problems such as driver shortages were to blame.
Respondents were then asked to select the point at which they would stop buying a selection of food,
beverage and nutrition products due to price rises, using a scale of +5% to ‘I would buy this product whatever the price’.
Overall, the results indicated that shoppers were more immune to price increases for low-cost staple goods. For example, the category in which consumers were least price sensitive was milk (dairy), which could increase in price by an average of 65% before respondents would stop buying it. This was followed by bread (62%) and fresh vegetables (60%).
Conversely, there was greater resistance to cost increases in nutrition categories, where the base price of products tends to be higher. For instance, respondents said they would stop buying protein powder once the price had risen by an average of 17%. The corresponding pinch point was 23% for probiotics, 26% for dietary supplements, and 28% for Omega 3 fish oil supplements.
High quality ingredients are key
The survey findings also indicate that consumers are happy to shop around in order to offset the impact of upward price pressures. Nearly half of respondents (48%) said they had switched to a cheaper brand in the previous three months as a result of price rises, while 26% said they had changed to a retailer’s own-label version of the same product.
Richard Clarke, Managing Director of Ingredient Communications, said: “For basic goods, even a large percentage price increase might still only be a matter of cents or pennies. By contrast, a small percentage increase in the cost of a premium nutrition product might be measured in dollars or pounds.”
He added: “In such challenging market conditions, brands will need to work hard to retain consumer loyalty. An effective way to achieve this is to demonstrate added value by using high quality ingredients that provide clear differentiation and command high levels of trust, whether that’s through proven efficacy, sustainability, strong co-branding, or a combination of these. These values, communicated effectively, will tie a consumer to a brand more closely, mitigating the impact of price increases on purchasing behaviour.”
eatmaker@list.ru