Various studies indicate that feeding the world in the next few decades will strain resources, calculating to 1.7 - 2.0 “Earths” being needed to feed the planet in 2030. Some other astonishing facts affecting the food supply chain include:
Need to feed: World population will reach 8.3 billion by 2030 and require twice as much food.
Waste: Approximately 30 percent to 50 percent of food is wasted in the food chain, from farm to fork.
Natural disasters: The US had an average of only two “billion dollar disasters” per year in early 1980s; by the end of the 2000s, it was over 10 per year1.
Safety: Over 94 million people in China become ill from bacterial food-borne diseases each year; about 8,500 deaths occur from the same2.
Fresh water: Agriculture is responsible for 70 percent to 80 percent of fresh water use3. Water access is a hurdle for developing region farms (markets).
On top of all this, consumer preferences are changing, in favor of more convenient, healthier and trendy foods. Clearly there are many challenges in the food industry supply chain.
However, time has proven that industrial initiative has solved and continues to solve these issues. A recent survey we undertook with ICIS Chemical Business indicates that 75 percent of chemical industry professionals believe that technology will provide the answer. Our own patent research shows that approximately half of patents in the global food industry are based on chemicals and packaging technology. The chemical industry has a big role to play in the future of world food supply. I picked a few aspects of this to discuss below.
What’s on the menu?
We estimate that chemical and plastics use in the world food industry, in the broadest context (including within agriculture, food processing and packaging) is about a US $250-$350 billion dollar/year market, depending on what you include (GMO seeds, for example, which are primarily made by chemical companies, can be counted in or out). In addition, chemical use in this industry has been growing at 1.4 to 1.7 times the growth in food production, using the US as an example.
Chemicals play a role in many parts of the food chain, such as those listed below:
Getting a seat at the table
Food and some chemical companies are positioning for the growing opportunity here: witness China-based Shuanghui International Holdings Ltd.’s recent record-breaking bid (for a Chinese producer buying in the US) for US-based Smithfield Foods Inc. Figure 1 shows the relatively higher M&A activity happening in the food market versus Figure 1 other chemical customer/downstream industries. The food industry also represents higher average margins than most chemical segments.
Most of the food industries’ growth is in emerging markets, not because of population growth as much as income growth. As affluence increases in emerging regions, so does food consumption. By our estimates, about 73 percent of new food consumption by 2030 will be related to income growth in developing regions and only 12 percent will be due to world population growth. This means that emerging markets, especially China and India represent a significant opportunity for agricultural producers and food processors, as well as for their chemical and plastics suppliers.
Raw food trade continues to grow based on regional competitive advantages, such as scale, climate and technology, where the Western Hemisphere dominates as a net exporter. Less certain is where food processing (converting food to final consumer use form) will be located. The United States’ processed food trade position has been improving, indicating a growing advantage, which bodes well for domestic chemical/plastics suppliers. However, food processing plants that are not as capital and technology intensive are likely to be built at the consuming market. Also, due to poor distribution, utilities and storage infrastructure in emerging markets, certain processed foods will continue to be imported to varying extents, with packaging occurring in some cases at the country of origin.
Waste not, want not
It has been estimated that 30-50 percent of food is wasted across the food supply chain, from farm to fork. Consumers in North America and Europe waste about 230 lbs. /year/person in food, excluding almost double the amount at the pre-consumer level (production to retail)4. Most of developing country waste is at the production to retail level. Just resolving food waste issues can solve half the gap of new food demand by 2030!
Recipe for success
Just focusing on the packaging segment alone, there are significant opportunities for chemicals companies. Figure 2 shows packaging solutions which address the food industries’ megatrend-related issues. Food companies are viewing sustainability holistically and finding that “more” packaging can improve the carbon footprint. Take multi-cup coffee brewing as an example. About 20 percent-25 percent of brewed coffee is typically discarded due to loss of heat/flavor as it stands in the pot.
That means that 20-25 percent of the resources (land, energy, labor, distribution, etc.) used to make coffee is poured down the drain. K-Cup®(one-cup, single portion) coffee brewing systems, go a long way in solving this problem, not to mention reducing the water, detergent and energy needed to clean coffee pots, as well as eliminating the energy used for hot plates. The materials opportunity in the typical K-Cup® includes a biodegradable filter, a recyclable plastic container (made up of three plastics)5, polyethylene coated aluminum foil6, adhesive and nitrogen used to flush air during packaging.7 This is a boom market, with single serve coffee makers going from 4 percent of the U.S. market in 2010 to 12 percent in 2012.8
Improving food safety and shelf life link to several needs, including the reliable storage and delivery of food to consumers in emerging populations and supply assurance during natural disasters (including droughts). Aseptic retort packages (where food can be treated at high temperatures during packaging), such as pouches and Tetra Pak® cartons, allow greater shelf life and safety, as well as afford reduced distribution costs across the supply chain, from raw package (e.g., folded cartons) to shelf space. For example, countries like Brazil and Thailand are shipping aseptic packed coconut water (by the way, functional/health drinks are another food megatrend) to the developed regions. Another benefit is that no preservatives are required with these systems.
Consumers in developing regions have a higher awareness of food safety issues and, therefore, are tending to favor branded items, which have a higher trust factor. Also, the Millennial Generation, across regions, favors trendy print schemes. Pouches and Tetra Paks® provide extra space for branding and Quick Response (QR) codes. The QR code refers viewers to contests, websites, videos and apps, encouraging social media advertising (through Facebook, etc.).
Tetra Paks® are typically a mix of paper, low density polyethylene (LDPE) and aluminum.9 Pouches are typically made from polyethylene terephthalate (PET), bi-oriented polyamide (nylon), aluminum foil and polypropylene (PP).
We estimate that about 25 percent of all thermoplastics use is in the food supply chain (farm to consumer). Therefore, chemical and plastics producers should stay tuned to final consumers’ needs. While emerging markets represent the most growth potential, producers in developed regions should not neglect the needs of their base volume and higher margin domestic customers, which have led in the development of packaging technologies. These technologies have been ultimately leveraged in emerging regions as well. However, patent filings in the food business have been growing fastest in emerging markets and, as the food supply chain develops there, new innovation opportunities will continue to sprout.
Some actions for chemical companies include:
Work to raise brand value and trust to the level that it becomes an asset to food processors for achieving consumer preference.
Establish alliances with agricultural institutes, government, universities and food producers across geographies to bring technologies and know how to help meet future needs.
Increase intimacy with customers across the food supply chain, not just packagers, but also food processors and retailers.
Stay tuned for future blogs on megatrends affecting the chemical and materials industry.
1National Climatic Data Center, Asheville, NC
2“China's Corrupt Food Chain,” by Yanzhong Huang, New York Times, August 17, 2012
3Source: Food & Agriculture Organization of the UN (FAO), http://www.fao.org/nr/water/docs/waterataglance.pdf
4Global food losses and food waste,” Food and Agriculture Organization of the United Nations, Rome, 2011
8“Brewing up market share”, by Rhoda Miel, Plastics News, April 17, 2013