Sustainable Foods Summit North America
MBA Student Jennifer Hebets shares her insight and experience at Sustainable Foods Summit North America in San Francisco.
The power of cross-sector collaboration in solving some of today’s most complex and pressing issues in feeding the world were marked recently with a significant milestone announced by UC Davis and Mars, Inc. I shared my thoughts on the launch of the UC Davis Innovation Institute for Food and Health, which will seek solutions to global issues in food, agriculture and health and involve many academic and industry partners.
Following on the UC Davis-Mars kick-off event, I’m back with an update on more activities in the area of food and sustainability.
I recently attended the Sustainable Foods Summit in San Francisco. Hosted by the industry magazine, Organic Monitor, the Summit convened over 100 influential players in the area of food sustainability and transparency. More than 40 speakers presented on pressing topics ranging from changes in consumer trends, regulatory developments and advances in technology.
Highlights included an opening keynote by Gary Hirshberg, founder of Stonyfield Farms, which has been a bold leader in organic, non-GMO food products. Hirshberg is also the chairman of the “Just Label It” movement, which is a public campaign to push for stronger FDA regulations for labeling of genetically engineered food ingredients.
Hirshberg explained the ugly truth behind the stalled movement to enforce stricter laws for labeling GMO (genetically modified organisms) and other harmful ingredients on food products. This is due in large part to the colossal lobbying power of major brands like Pepsi, Coca-Cola, Kraft, Nestle and Hershey, which are adamantly opposed to the passage of these laws.
From a consumer perspective, I sympathize with the sentiment that we deserve easy access to information about the food we buy and consume. With so many questions surrounding the long term health and environmental effects of genetically modified ingredients, it seems rational that the consumer should be able to choose whether or not to use these products.
However, as a business student, I am also conscious of the cost and reputational risk that such legislation would have on food companies. For many processed food products, it is extremely difficult to trace the exact origin of each ingredient and even more difficult to determine if the products include genetically modified ingredients. As the scientific debate regarding the harmful effects of genetically modified ingredients is still inconclusive, I wonder if state regulation is premature. We cannot forget that these costs would surely be passed on to the consumer.
Another speaker, Amarjit Sahota, president of Organic Monitor, summarized the landscape of eco-labeling in the food market, an important way to market product to green-minded consumers. Shockingly, there are over 200 eco-label schemes in the food industry. This represents a market size of about $72 billion. Despite this impressive number, only 21 percent of North American and European food consumers are eco-label consumers. In fact, the eco-label market is only four percent of the U.S. food market. These numbers amount to what Sahota referred to as a “green ceiling.” The discussion begged the inevitable questions:
- How does the industry expand and broaden for the products?
- Does the market need to consolidate in order to achieve greater market penetration?
- How will the market respond to higher demand concentration in the U.S. and Europe even as the growth in consumer packaged goods is coming from the rise of middle class consumers in BRIC countries?
These questions do not have clear or easy answers, but clearly must be addressed if the eco-label segment is to remain successful in the coming years.
Other speakers included the head of sustainability from WhiteWave Foods, Raley’s supermarket chain, Guittard Chocolate Company, Conscious Food natural sweeteners and Andean Naturals super-food brand. Each of these companies emphasized a deep commitment to uphold high standards of transparency, traceability and product quality across their supply chains. And, each firm emphasized the importance of sustainability for their business models. As Deanna Bratter from WhiteWave Foods commented, “We’re not in the business of sustainability, we’re in the business of food and we are lucky to be in an industry that has a sustainability lens … We need to use sustainability to support and influence our business decisions.”
In addition to consumer-facing businesses, we also heard from key companies that support the industry. A sobering summary was presented on the state of FDA regulations and recent litigation surrounding eco-labeling. We learned of the somewhat ambiguous laws that dictate when a company can claim to be “natural,” “GMO-free” or “Sustainable.” Several court cases have resulted in significant fines against companies for misleading consumers through inaccurate labeling. These cases were encouraging from a consumer standpoint, and served as a ominous warning for companies to take caution with their product claims.
Lastly, we heard from two panels on the myriad certification and technology schemes available for helping companies and consumers gain greater transparency into their supply chains. The aim of certification (USDA Organic, Rainforest Alliance and over 200 more) and transparency enabling technology (QR codes, barcode scans, etc.) is to inspire consumer confidence in the product. However, the risk of overwhelming the consumer with information is real. Despite the impressive advances in technology and methodology, I believe that the saturation of support services for the sustainable food industry is quickly leading to diminishing returns.
Overall, I came away from the Summit with a several interesting insights.
First, the sustainable food industry is an increasingly sophisticated with growing demand, but businesses seem to be overly focused on high-end, developed economy consumers. I wonder how much untapped demand exists in burgeoning economies such as Latin America, China and India. For that matter, how much untapped potential exists in lower price point consumers in North America and Europe. In speaking with representatives from the fast-food chain Chic-Fil-A, which is in the processing of launching a major sustainability initiative, I realize that more Americans than ever are concerned with how and where their food is produced. The massive success of the Chipotle burritos sustainability campaign is a clear example that the Lululemon wearing, Whole Foods shopping segment of America is NOT the only group interested in sustainability anymore.
Secondly, despite the impressive advances in the past 10 years, the industry is highly fragmented. On the one hand, competition is good. As long as companies have multiple options for B2B service providers, they can control the costs of implementing sustainability and transparency, ultimately benefiting the consumer. On the other hand, an overly competitive market leads to duplication of efforts and confusion for the consumer. Tried-and-true marketing studies have proven that consumers make purchase decisions in just a few seconds or less. We know that the majority of consumers in the sustainable food segment care little about seeing some form of an eco-label on food packaging, and the difference between two, three, four or five certifications will have very little effect on the purchase decision. It seems that many companies run the risk of drowning in preoccupation with “keeping up with the Jones” of the latest trends in eco-certification. This is a risky distraction from staying focused on the cost of certifications. It is also a deterrent from remaining focused on important purchase drivers such as quality and convenience. I recognize the tension between firms that are genuine about the integrity of their products versus those using sustainability as a marketing tool (i.e. “greenwashing”). Consumers often cannot tell the difference and therefore less willing to pay a premium. For that reason, I predict that there will be a consolidation of brands over the next few years as companies that rely solely on high prices - without carefully managing their margins - begin to exit.
I look forward to learning much more about this industry as I move ahead in my studies and career. Many thanks to the organizers of the Sustainable Foods Summit for putting on a fascinating conference. Many thanks to the UC Davis Graduate School of Management for sponsoring my participation in the event.
Next time: live updates from the Nespresso Sustainability Challenge. Get ready to talk coffee sustainability in a BIG way!