The food business blog from Dean Best
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UK, US reignite biofuels debate
25 Mar 2008 11:33
To those of you who enjoyed a break over Easter, welcome back.
In the UK this morning (25 March), we have seen the return of one of the more burning issues on the food industry’s agenda – biofuels.
The rise of biofuels – and their impact on the food industry – has provoked fierce debate in scientific and campaigning circles. Governments on both sides of the Atlantic, however, have pushed on with biofuels projects in the name of combating of climate change – despite concerns that the so-called greener fuels could, in fact, damage the environment. Moreover, biofuels have been blamed for pushing up food prices around the world.
However, in recent weeks, there has been some disquiet over the issue among the political elite and today, in The Guardian newspaper, one of the top scientific advisers to the UK government warned that pressing ahead with biofuels without more research into their impact on the environment and agriculture would be misguided.
The UK government is in something of a bind. The EU has been a vocal supporter of biofuels and has set a target of 5.75% of petrol and diesel coming from renewable sources by 2010. The European Commission wants to almost double that amount by 2020 and has swatted away claims that using more corn for biofuels has led to higher food prices. UK Prime Minister Gordon Brown, however, is said to be ready to resist plans for the 2020 target. A showdown on the issue, at least in the UK and Europe, looks likely.
Food industry executives in the US, meanwhile, would share Brown’s caution. President Bush has bet big on biofuels, handing out financial assistance to encourage biofuel production, in a bid to break American reliance on fuel from the Middle East. However, Washington’s push has hit sections of its food industry hard, with rising grain costs forcing cuts across meat processors and leading to bakers even marching on the US capital in protest.
And last week at the Reuters Food Summit in Chicago, senior management at the likes of Sara Lee, Kraft Foods and ConAgra Foods expressed their unease at government policy on the issue.
"We certainly as a society want to decrease our dependence on foreign oil," Rick Searer, president of Kraft’s North American operations, told the summit. "Unfortunately, the biofuels mandate is having unintended consequences in terms of its impact on the price of food."
Those unintended consequences are concerning many throughout the food industry. However, it seems that biofuels, in some form, are here to stay. Nevertheless, there are a myriad of issues that need to be ironed out – and a full and frank debate that needs to be had – before a definitive conclusion on their merits can be drawn.
20 Mar 2008 16:19
A bit of just-food housekeeping – we are closed tomorrow (21 March) and on Monday (24 March) for the Easter break.
For those of you also looking forward to a well-earned break – enjoy.
No doubt, like me, you’re also looking forward to getting stuck into those Easter Eggs…
We’ll be back – probably sick of chocolate – on Tuesday (25 March).
Why soaring grain costs are helping General Mills
19 Mar 2008 15:24
General Mills boss Ken Powell has every right to be upbeat today (19 March).
Powell, CEO of the US food giant, described the company’s third-quarter results as “terrific” – profits jumped 43%, with sales up 11.5%.
The company looks to be managing the rise in commodity costs better than some of its peers and its results beat Wall Street estimates.
However, a little-known fact is that, alongside such kitchen cabinet staples like Cheerios cereals, Nature Valley snacks and Pillsbury bread, General Mills also buys grain to sell to the rest of the industry.
With grain prices soaring, this part of the business has had a buoyant third-quarter.
"Grain inventories are usually immaterial, but with the recent run-up it's become material," Powell said on a conference call with analysts.
"We purchase more wheat and oats than we use. We have some excess inventory that we can sell into the market."
Metro Group boss taking all roads East
18 Mar 2008 17:14
Metro Group, a titan of the world’s retail scene, is going through a period of transition. A new chief executive has got his feet under the table and is making changes right across the business.
Much of today’s (18 March) headlines from Metro’s HQ in Dusseldorf rightly centred on the admission from CEO Dr Eckhard Cordes that the company’s hypermarket business in Germany could be scaled back in the coming months.
However, perhaps more telling were signs of Metro’s moves to expand internationally. As indicated on these pages last autumn, Metro may once have been at the forefront of globalisation in the retail sector but now, with growing competition from the likes of Wal-Mart, Carrefour and Tesco, the German giant needs to reassert itself internationally.
Look behind the headlines of Metro’s domestic business and you see that the company is looking to expand its Real chain further into Eastern Europe, with Ukraine the next port of call.
And today on these pages, we bring you news of Metro’s plans even further east as the company plans to spend some US$75m expanding its cash-and-carry business in India.
With Cordes, a former DaimlerChrysler executive at the wheel, it will be nothing but an interesting ride ahead for Metro.
The chips are down at Sainsbury's
17 Mar 2008 13:26
Sundays are generally quiet for the national business press here in the UK. Articles tend to be comment and analysis on the hot financial stories of the last seven days, while column inches are also given to previewing the week ahead.
Yesterday (16 March), however, there was a bolt from the blue that served to cast the eyes of City hacks onto the retail sector.
A buyer at Sainsbury’s, the UK’s third-largest retailer, has been arrested on suspicion of accepting some GBP3m (US$6.1m) in backhanders from a potato supplier. The news raises inevitable questions about whether such alleged illegal payments are made elsewhere in the system and whether suppliers have to resort to those kinds of measures to gain shelf space. It also puts the spotlight – once again – on the relationship between supplier and retailer.
Last month, the UK’s Competition Commission outlined a series of measures it hopes will help protect suppliers from any abuse of power from the country’s larger retailers. The Commission wants to replace the existing code of practice between retailers and suppliers with a new code. It has also mooted the establishment of an independent ombudsman to enforce the new arrangements. Some have questioned whether these measures would go far enough to regulate the buying power of supermarkets; the allegations of bungs will only add to concerns over whether an ombudsman would be strong enough.
Elsewhere, last week, Nestle displayed its strength with a surprise trading update. The world’s largest food group raised its organic growth forecast for 2008 after successfully raising prices to offset soaring commodity costs. The news proved a popular topic of debate on our forums but, ultimately, it serves to allow outgoing Nestle chairman and CEO Peter Brabeck-Letmathe to bow out in a blaze of glory next month.
Commodity costs, unsurprisingly, are continuing to be the dominant theme right across the food industry. Bakers in the US marched on Washington to draw attention to spiralling wheat costs, which, according to some estimates, have tripled in recent months.
The rising cost of corn has caused Pilgrim’s Pride, the largest poultry producer in the US, to scale back its operations, with the disposal of its turkey unit and cuts to its core chicken business. It has proved a baptism of fire for recently-appointed CEO Clint Rivers and it seems he will have to make more tough decisions in the weeks ahead.
Unfortunately for much of the food industry, it also seems likely that Rivers will not be alone in facing some tough choices throughout 2008.
The ten best-selling new US food and drink products
14 Mar 2008 22:51
The list of the ten best-selling new food and beverage products in the US for 2007 has proved a must-read for many of our readers in recent days.
This week, we interviewed Sheila McCusker of IRI, the analysts behind the list, and found out more about the brands that succeeded last year.
For an opportunity to find out more detail on IRI's New Product Pacesetters report, please click here.
Innovation is an issue that goes right to the heart of any successful business, not just those within the food industry.
Sir Ken Morrison takes his bow
14 Mar 2008 13:25
Business and sentiment are not natural bedfellows.
However, Sir Ken Morrison’s departure after 55 years at Morrisons, the UK’s fourth-largest retailer, has shown that there is room for some emotion in what is a fiercely competitive business.
Sir Ken has built Morrisons from a stall in the northern English city of Bradford to a multi-billion pound national retailer and one that is now again beginning to flex its muscles in UK grocery.
The 76-year-old faced some criticism after Morrisons struggled to digest its 2004 acquisition of UK rival Safeway but the company has recovered and in recent months has gained ground on rivals including Tesco, Asda and Sainsbury’s.
Morrisons chief executive Marc Bolland said Sir Ken is a “unique person” and praised his chairman’s role in building the business.
“The journey from a stall to a GBP13bn (US$26.3bn) company is a large step to make. Most people can make one or two steps but he managed the whole flight of stairs.”
For his part, Sir Ken said he planned to have “a little rest” in his first weeks of retirement. There is though little sign that he will take things completely easy.
“I’ve got a farm that struggles to make a living but it will be intriguing to see the other side of the fence,” Sir Ken said.
Even some of the more hard-nosed UK financial media broke into applause as Sir Ken left the podium. It’s unlikely his kind will be seen again.
Pilgrim's signals more cuts in US meat
12 Mar 2008 18:54
So, more rationalization in the US meat industry. This year, we have already had Tyson Foods announce plans to cut its beef operations and Smithfield Foods sell off its own beef business to focus on pork.
Brazil-based meat giant JBS, the buyer of the Smithfield business, has played a key role in the consolidation of the sector, with the acquisition of another US firm, National Beef Packing Co.
Today (12 March), we saw poultry giant Pilgrim’s Pride unveil plans to wield the axe and close a chicken processing complex and six of its 13 distribution centres in the US.
Like Tyson, Pilgrim’s Pride is looking to revive margins hit by the soaring costs of corn.
However, recently-appointed president and CEO Clint Rivers saved most of his ire for Washington, blaming the US government's "ill-advised policy" to subsidise ethanol production for the soaring cost of corn.
News of Pilgrim Pride’s cuts sent shares in other US poultry groups soaring. Wall Street sees rationalisation as vital in improving industry margins.
However, as Rivers warned, further cuts in the poultry industry are inevitable as processors are forced to readjust to food inflation and weakening demand.
All of which means more job cuts in one of the key food sectors in the US.
Counting the real cost of soaring food prices
12 Mar 2008 11:12
The price of wheat has soared 130% in the past year and with a global population expected to top 9bn by the middle of the century, pressures on the world's resources such as land, water and oil show no sign of abating.
Yet it’s not just the price of wheat that has risen in the last year. Other staples such as corn and soya are trading at well above their 1990s averages, with an 87% rise in soya and a 31% increase in corn.
As we have discussed on these pages before, a large cause of this is the rising price of oil and fears over climate change which have seen a tremendous uptake in the use of maize to make bio-fuels, which in turn has pushed food prices right up.
There is little doubt that food inflation has become an emotive topic in the world's media and the subject has the potential to be hijacked by any number of interest groups. It's useful then to be able to fall back on some hard facts every now and then.
That's just what the BBC has done this week as part of its look at the subject and these tables - the link is below - are worth bookmarking.
Innovation - it does work...
10 Mar 2008 12:00
Innovation, innovation, innovation. It’s an issue that goes right to the heart of any successful business, not just those within the food industry.
But innovation is hardly an exact science, is it? Trying to get it right must consume many of your working hours. In today’s economic climate, getting it right can seem as perilous as ever. Only a small proportion of new products last on supermarket shelves after a few months – and with consumer spending shaky and the financial outlook somewhat uncertain, can your business afford to waste thousands of pounds on a product that won’t last past the summer?
For some, taking that risk is a necessary part of business. Big or small, it pays to be ahead of the game when it comes to NPD and investment into niche segments or emerging markets.
Last week, innovation was the central theme running through our news pages. In the US, two of the country’s biggest brands joined forces in a bid to tap into one of the fastest-growing segments in the food sector – premium chocolate. As demand for upmarket chocolate continues to grow, Starbucks and Hershey have decided to launch a range of “artisan-style” products to try and carve their own niche in the category.
Hershey is playing catch-up to the likes of Mars and Lindt, who have stolen a march in high-end chocolate. On the face of it, the alliance with Starbucks looks a wise move. However, there will be no let up in the competition, with Cadbury Schweppes set to launch its organic chocolate Green & Black’s in the US this year.
Another US firm betting big on innovation is Hormel Foods, the sausage-to-spam group. The company is aiming to achieve US$2bn in sales from products created this decade by 2012. It might seem an ambitious target but Hormel would beg to differ; the company said it had met its previous goal two years early. Last month, Hormel also opened an innovation centre in China in a bid to develop products to appeal to consumers in that market. The meat maker, it seems, is banking on NPD to bring home the, er, bacon.
Innovation that has justified a heap of faith and investment was lauded last week in a league table of the top new products sold Stateside in 2007. According to industry analysts IRI, Campbell's reduced-sodium soup topped the list of the best-selling new food and beverage brands last year with sales of US$101m. Products from General Mills and Sara Lee also made the list and beat what IRI labelled the “abysmally low” odds of success for a new product.
This week, we’ll be talking to IRI to ask why it believes low-sodium soup and functional bread were winners in the US last year and for its forecast for the NPD trends to watch in 2008. It will make for interesting reading…