FOOD & BEVERAGE Archives

04/08/2017by EOS Intelligence EOS Intelligence No Comments

China Beefs up Meat Consumption Guidelines, but Chickens out of Action

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Several decades ago, meat consumption was seen as luxury by the Chinese. Fast forward to today, meat (especially pork) has seeped into the diet of the everyday Chinese man to such an extent that today China consumes 28% of world’s total meat, including half of its pork. While this showcases immense income growth, the flip-side are the escalating environmental and health issues attributed to meat consumption. This has prompted China’s National Health and Family Planning Commission (NHFPC) to issue new guidelines which ask the Chinese people to reduce meat consumption from about 60-63kg/year to about 14-27kg/year by 2030. However, without any actionable initiatives from the government (be it in the form of investments or taxes), these recommendations are not likely make a strong dent in the surging meat consumption levels.

China has witnessed a steep growth rate in meat consumption, which soared from a mere 13kg/person in 1982 to about 63kg/person in 2016. If the current trends continue, it is predicted that by 2030, the average Chinese man will eat close to 93kg/person if suitable measures are not taken to halt this growth. Owing to these consumption levels, China is one of the largest contributors to livestock agriculture-created greenhouse gases. The predicted rise in meat intake in China (by 2030) is likely to add another 233million tonnes of greenhouse gases to the atmosphere on a yearly basis. Moreover, China’s growing love for meat has also contributed to an exponential rise in the number diabetes and obesity cases, with more than 100 million Chinese suffering from diabetes at present.

To combat these growing concerns, NHFPC issued new guidelines in 2016, urging the Chinese population to reduce their meat intake to 40-75 grams per day, which translates to about 14-27kg/year from the current rate of 63kg/year, thereby aiming to reduce the meat intake to less than half by 2030. Along with these recommendations, the government has also undertaken some measures to achieve the recommended consumption levels, however, a few of them seem rather shallow to lead to the desired change.

The government, along with few NGOs such as WildAid, are trying to create awareness regarding the new guidelines. International celebrities, such as Arnold Schwarzenegger and James Cameron, have featured in videos hailing this government action and urging Chinese people to adopt vegetarianism. Moreover, the government has introduced health education in school curriculum and is promoting “health as a habit” to push life expectancy from 75 years to 79 years. A part of this campaign is to promote healthy eating and eating less meat and more vegetables.

At the same time, however, the government has been cutting down subsidies for small-scale pig farmers as well as formulating stricter environmental regulations, in order to push backyard pig farmers to either expand and clean their operations or exit the market. However, instead of curbing the industry growth, this may only result in strengthening the operations of larger players and may also lead to market consolidation.

While the government’s latest recommendations seem necessary, albeit ambitious, given the level of current actions, they seem far from sufficient to realistically curb demand for meat in the growing economy. As per local experts, NHFPC’s guidelines have received limited coverage by the media, especially in livestock-heavy regions of Shandong, Liaoning, and Inner Mongolia. China has strong cultural traditions attached to meat-eating (such as the Yulin Dog Meat festival and the Double Ninth festival), which makes it difficult to initiate change in eating habits. Moreover, at the time when the government should initiate import restrictions and taxes to curb supply of meat (which may lead to price rise and in turn probably contract demand and consumption), the government has recently re-allowed beef imports from the USA, which is clearly a counter-productive move.

This is not the first time the Chinese government attempts to deal with the issue of rising meat consumption, and if the authorities follow the same approach as before, those past efforts might be a strong indicator that the new guidelines will have a very limited impact. In 2007, the government issued similar guidelines restricting meat consumption to 50-75g a day (i.e. 18-27kg/year), however, the government failed miserably in achieving these targets, as apart from publishing the guidelines, it took no real action. Unless the government moves away from this passive, and evidently failed, approach, meat consumption is likely to continue to soar.

China Beefs up Meat Consumption Guidelines, but Chickens out of Action by EOS Intelligence

EOS Perspective

NHFPC’s guidelines seem to be a step in the right direction, however, in the absence of a larger and more concrete government action, these recommendations do not come across as anything more than a formality undertaken by the country’s government to please global climate campaigners. While the government announced an infusion of US$450 billion into the country’s agriculture system in September 2016, its seriousness towards these guidelines will be determined by how much of this sum will be apportioned (if any) to programs encouraging vegetarianism.

Since meat (pork/beef/poultry/sheep) farming is a large industry in China, providing key dietary ingredients for the population at large, a sudden increase in taxes or a cut down of major subsidies may not be possible. However, the government can work to fuel the desired dietary changes in a phased fashion, e.g. by starting to reduce meat imports by imposing restrictions, while simultaneously working on reducing people’s dependence on meat by promoting vegetarianism as a healthier as of life.

Although these actions may seem far-fetched, few local and large players are strategizing their future plans, mindful of these recommendations and the increased health awareness as a potential outcome of these initiatives. Since pork is the most widely used type of meat, it is likely that the intake of traditional pork dishes would be impacted the most by any actions taken by the government. Keeping this is mind, WH Group (a leading pork processing company) has already started expanding its focus to western-style products such as ham and sausages. The company expects a growing demand for such American-style foods that come with much higher margins, allowing to compensate for the potential loss of sales volume of the unprocessed, traditional cuts. The company is also diversifying into other meats, including leaner beef and lamb in their product mix, in anticipation of the growing health awareness trend.

On a final note, these guidelines alone definitely do not seem enough to stir a change in the Chinese population’s eating habits but the fact of the matter is that a change is required. It may take another decade and much greater initiatives from the government’s end to reduce the local people’s meat intake, but considering the global trend towards meat consumption reduction and the growing environmental and health concerns, it is likely that sooner or later, China will get there too. Now it remains to see if the meat farming and processing companies employ a wait-and-watch approach or proactively start investing and working towards change.

30/11/2016by EOS Intelligence EOS Intelligence No Comments

Mobile Cuisine in Mexico and Brazil: Are Food Trucks Ready to Roll?

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Food trucks, a new trend in food service combining gourmet cuisine and low cost establishment, have been increasingly rolling around the world. The concept originated in the USA, where feeding consumers from trucks has been gaining popularity with the market CAGR expected at 17% between 2012 and 2017. Around 2012, this business model reached Mexico and Brazil, appearing as an attractive option for entrepreneurs to invest in the eatery business. But no matter how promising this niche may appear, inadequate regulations, lack of licenses, and poor infrastructure represent major roadblocks for the mobile cuisine business to pick up in these geographies. Do food trucks stand a chance to become the new wheels to the Mexican and Brazilian gastronomy industries?

In 1974, an ice cream truck was converted into the first taco truck in east Los Angeles in the USA, and by 2010, food trucks became a prospering industry spreading across almost all major cities in the country, as well as in other large cities globally. But it is Mexico and Brazil which seem to be promising markets with an increasing amount of investors venturing into cuisine on wheels as a prosperous and flourishing business.

Mexico, where over five million people ate on the street every day in 2014, has witnessed a remarkable growth of the food truck sector, boosted mainly by the country’s increasing unemployment rate and economic slowdown. A similar situation has been happening in Brazil, where since 2014, a deepening crisis has hit the country’s economy allowing food truck businesses to become increasingly successful. In both these countries, an increased demand for cheap food has been driving the growth of food truck businesses, which are proliferating due to the low initial investment required to start such an endeavor.

Despite the fact that food trucks businesses seem to be profitable and low risk, their growth is challenged by deficient regulatory frameworks, poor street infrastructure, and inadequate scope of licenses to operate. Both in Mexico and Brazil, food trucks can only circulate and sell their food in a private circle, i.e. specialized fairs, events, concerts, food parks, pre-assigned parking lots, and in some cases, business owners have to pay high fees just to park in these events.

EOS Perspective

Food trucks markets in Mexico and Brazil show an immense potential due to a growing appetite for low-priced food options from the expanding price-sensitive consumer segment. This demand, paired with low investment required to enter the food truck business, makes the food truck concept an attractive option for investors and entrepreneurs looking for profitability in food service businesses.

However, the issues of inadequate regulation and lack of government encouragement for the industry in both markets continue to hamper the industry growth. An introduction of appropriate legislation would likely push the sector up on its growth trajectory. For instance, if regulations allowed food trucks to circulate anywhere in Mexico, it is estimated that the business could triple its earnings up to US$19,000 a month. Further, if dedicated laws were developed to regulate food trucks operations, business owners would be likely to pay a set fee to obtain permits and licenses to function, instead of paying varied high fees to work in a private space (which currently makes it more expensive and less transparent to operate such a business). In Brazil, some prefecture authorities have sanctioned regulations allowing food truck owners to operate in already assigned slots, however, not allowing food trucks to circulate on the city streets. Many of these assigned spaces are usually occupied by private cars, since they are not properly marked, making it difficult for food trucks owners to reach new customers, which in turns hinders the industry growth.

There is no doubt that authorities in both countries need to update and implement proper regulations and permits designed specifically for food trucks sector, as only regulation that clearly establishes operating fees and free circulation for food trucks is likely to translate into a growing market. Further, only by setting proper regulations specific to the food truck sector, local authorities would be able to guarantee consumers all sold food is safe for human consumption. Moreover, government investment in street infrastructure (e.g. electricity, running water) is required to attract new entrants, who are likely to be lured to business concept due to the low initial investment, also boosting market growth. Considering the economic situation in both countries, it is clear that the authorities should be motivated to look for any possible avenue of revenue and employment growth, taking advantage of consumers’ demand for good quality low-priced food.

26/11/2015by EOS Intelligence EOS Intelligence No Comments

The West vs. Russia: Will Russia Really Survive The Impact Of Sanctions?

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Russia trampled international laws with annexation of Crimea (previously part of Ukraine) to its territory and is reeling under wrath of sanctions imposed by the EU, the USA, Australia, Canada, Norway, and Switzerland, among others. Over a period of time, the sanctions have expanded to inflict economic damage to Russia by targeting its financial, energy, and military sectors. Even though the ball has always been in Russia’s court, the country has only deepened the damage by retaliating with food embargos and standing adamant on its decision to hold on to Crimea against Ukraine’s sovereignty.

The sanctions are intended to limit trading relationships with Russia, which in turn have adversely affected both the EU and the USA. The economic impact is more intensive on the EU member countries and Russia, as they were engaged in high volume and value trading relationship.

Russia’s economy is suffering under the contracting GDP, growing inflation, capital flight, as well as Ruble depreciation. Economic turbulence has been further intensified with plunge in global oil prices — as Russia’s is one of the world’s largest oil producers, with oil and gas exports accounting for 70% of its export income.

The sanctions also had a crumbling effect on the Western companies operating in Russia. Several luxury and consumer goods companies had previously flocked into Moscow to capture the growing middle class market, however, Russia lost its attractiveness and image to being a ‘malignant country’ post Crimea annexation. After the sanctions were imposed, several consumer goods companies shut down their operations — Zara, a Spanish fashion brand, closed flagship store in Moscow in 2014. Wendy’s (an American international fast food restaurant chain), Esprit (China-based clothing brand), and River Island (British fashion shop) are also planning to end their operations in Russia. Consumer spending and retail sales reflect the economic sanctions with retail sales falling 7.7% y-o-y in February 2015.

In August 2014, Russia devised a strategy to retaliate against Western countries by banning agricultural import of certain products from the USA, the EU, Canada, Australia, and Norway. Presently, the Russian government is encouraging domestic production to reduce reliance on imports. However, it will take at least five years, if not more, before import substitution starts yielding real impact on domestic food availability and the Russian economy.

EOS Perspective

There is no doubt that sanctions along with falling oil prices have damaged Russian economy. Decline in oil prices strained the availability of domestic liquidity, which could normally be compensated with foreign debt market borrowings. However, borrowing has been prohibited by the ban on Western debt and credit, which intensified the situation and put crushing pressure on the Russian economy.

It is expected that the sanctions are not going to be lifted any time soon, which is projected to bring absence of foreign loans, which in turn is likely to be paired by significantly reduced of foreign investment. This could be a major challenge for Russia, as the FDI tends to be one of the key sources of capital and technologies in emerging nations. With this isolation, Russia might not be able to keep the necessary pace of growth due to lack of capital and limited trading relationships.

Under the pressure of sanctions, Russia can be expected to undergo a transformation to rebalance its economy — with Western companies exiting Russia, their place could be taken by Asian counterparts or domestic companies. For instance, in October 2014, Russia signed 40 agreements with China spanning energy, financial, and technology sectors. Further, Chinese banks agreed to offer credit lines valued at US$ 4.5 billion to Russian banks and companies. These recent agreements clearly show that Russia has been seeking to deepen its strategic ties with Middle Kingdom, intending to improve trade between the two countries to double it to US$ 200 billion by 2016 end.

Sanctions are likely to continue to deeply impact Russia’s key choices in its internal policies as well as the international arena, with expected focus to increase domestic production and choosing Asian allies over Western partners to establish trading relationships.

11/04/2013by EOS Intelligence EOS Intelligence No Comments

Horse Meat Scandal That Has Nothing To Do With Horse Meat. Have We Been Fooled On Our Own Request?

In early 2013, an uninvited equine guest was found on several European beef-only plates, giving way to a series of accusations, finger-pointing and investigations. Meat adulteration scandal has now spread to allegedly involve slaughter houses, suppliers and meat-based food producers from across Europe, with names of France, Ireland, Romania, Poland, Germany and the UK popping up on the news. Regardless of the authorities’ investigation outcome, one thing stays for sure – the consumers’ trust in the meat processing industry, already not very strong, has been further shaken.

While DNA tests confirmed horse meat presence in several beef products (in some cases even 100% horse meat in supposedly 100% beef dishes), there is no certainty yet on how horse meat entered the food chain. And the problem is not just with horse meat, as pork was also found in beef-only products, with further investigation for donkey meat as well. Horse meat, as well as pork and donkey, are edible, and does not cause harm to humans per se, but the problem is big – it is consumer misinformation as well as the fact that since horse meat should not be found in beef products at all, we don’t know whether it met any safety standards. The scale and spread of the scandal may suggest that it was not a one-off case of a dishonest supplier, but rather a silent, probably not infrequent industry practice of deliberate product mislabeling.

Consumers are outraged at the ‘evil meat producers’ responsible for the malpractice. They announce their shaken trust in meat processing industry (and food industry in general). But this smells of hypocrisy on the consumer’s side as well. Majority of consumers across most markets (apart from a small health-conscious group) have long taught food producers one fundamental truth – price is the most important factor in their purchasing decisions, driving producers to take shortcuts wherever possible. While there is no justification for the malpractice and deliberate fraud, food producers and suppliers are oriented at cutting costs to deliver products at the demanded price yet still maintain margins. Same is true across other industries – we openly condemn child and underpaid labor in several Asian manufacturing centers, yet continue to demand extremely low prices on electronics, apparel, etc., knowing where and how it’s been produced (or conveniently forgetting about it at the time of purchase).

The consequences of the scandal around meat products are likely to go beyond a temporary dip in processed beef products sales. Early surveys in some of the European countries, such as UK, indicated that close to 1/3 adult consumers said they want to buy less processed meat (not only beef), indicating potentially harder times for producers across meat segments. This is likely to spike consumer interest in fish and seafood products. However, the changed meat demand dynamics might not necessarily lead to the lowering of meat prices, as more stringent safety and control procedures might allow prices to remain stable. The rapid, and in some cases unfair, finger-pointing towards suppliers from Central and Eastern Europe will continue to damage meat exports of these countries, unjustly affecting farmers and suppliers. Consequences will also include added effort by supermarket chains to rebuild the shaken trust in meat products, i.e. Tesco, Morrisons and Asda, for instance, will re-test meat products to ensure compliance and launching widespread reassurance campaigns; these will add to cost burden to the chains – costs that are eventually going to be passed onto the consumers.

It will be a difficult time for producers and suppliers found guilty of introducing horse meat to the human food chain, as under the pressure of public opinion, authorities aren’t likely to be easy on them. But meat producers who are able to be transparent and honest about their procurement and processing procedures, can actually benefit from the scandal, as more and more consumers will look beyond price and start to value quality (at least temporarily till the memory of the scandal is fresh).

So as the scandal unfolds, there are a few important questions here: Will it improve transparency of the supply chains in meat processing industry? Will it improve the quality of meat products we purchase and feed our families with? Will it force the authorities across Europe to improve control measures? Will it enforce correct labeling of products? And finally, will it make us, consumers, permanently shift our focus from price only to quality-oriented purchases? If the answer to these questions is ‘yes’, perhaps there is a silver lining to this scandal after all.

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