The issues that dominated the food industry last year – the enviornment and obesity – are likely to be high on the agenda as we head through 2008. But will the continuing rise in commodity costs lead to a wave of consolidation throughout the industry? just-food gazes into its crystal ball.


Rising commodity costs – and the ongoing tension between suppliers and retailers over passing those costs on to consumers – dominated the food industry landscape in 2007. And 2008 will be no different.


Hefty raw material bills, caused largely by droughts affecting key commodities, and by soaring demand in the emerging markets of the East, affected almost each and every food processor on the planet last year. While some, like Heinz , were able to weather the storm behind strong and well-loved brands, others, including the likes of US dairy giant Dean Foods suffered, prompting profit warnings and job cuts.


In some quarters, suppliers succeeded in getting retailers to raise prices but grocers, faced with concerns over consumer spending, have been reluctant to fully pass on those costs to shoppers. And in fiercely competitive markets like the UK and Germany, 2008 will be a tough year of negotiations for suppliers.


That outlook has prompted the growing view that 2008 could be a year of consolidation in the food industry. With commodity costs continuing to rise this year, some may see joining together as crucial in protecting margins and boosting their negotiating power with retailers. Late last year, the dairy industry, which has been one of the sectors most affected by rising commodity costs, began to see the first signs of this wave of consolidation. UK farmer co-operatives First Milk and Milk Link announced plans to merge, as did their Dutch counterparts Friesland Foods and Campina . More moves like this are likely to be on the cards as we head through 2008.


Concern over the environment has also been a key factor behind rising costs for some food manufacturers. The US and the EU have pushed for more grain to be used in the production of biofuels, which has led to this key commodity becoming more expensive for food processors. Green issues – and shopping ethically more generally – will continue to gather momentum in 2008. There were signs last year that such issues were starting to gain traction outside the UK, the market where environmental concerns have resonated most with consumers up to now. In October, Casino became the first French supermarket chain to introduce a form of carbon labelling on its own-brand products. Further initiatives are likely to be on the horizon as retailers battle for the green consumer.


As well as seeking to help the environment through their shopping basket, consumers will continue to look to help themselves. For many, the New Year is traditionally the time in which we look to make up for those festive excesses. However, eating healthily will be just as important to consumers throughout the whole year. Salary seems to be no barrier to a growing desire across the socio-economic scale to eat more healthily and the manufacturers and retailers that react most quickly to this trend will reap the benefits. This month in the UK, retail giant Tesco will unveil its latest moves in health and nutrition with the revamp of its Healthy Living range and the launch of a Light Choice stable of products for dieters. Where Tesco leads, expect others to follow.


Tesco’s recent foray into the US is likely to provoke reaction from the country’s home-grown retailers. The UK retailer’s Fresh & Easy business received a cautious welcome upon its opening last autumn and industry watchers have predicted it will shake-up the US retail environment. Nevertheless, the Fresh & Easy brand will take time to stick with consumers and local competitors like Kroger and Wal-Mart will hope to lure back shoppers initially curious at the new concept from their trans-Atlantic cousins.


And expect more moves into the world’s emerging retail markets. 2008 has already kicked off with upmarket UK retailer Waitrose inking its first overseas agreement with a venture in Dubai but this year could see further larger-scale deals, including Carrefour ’s long-touted entry into India. The year ahead promises to be a hectic one.