Where does our food come from? The answer is from farms and fisheries, but as consumers in our developed urbanised society we know the reality is from a retail outlet. In other words; we shop.
In my youth, shopping meant a trip on foot to a variety of small retailers, stocking post-war English commodities, some of which were rationed. I first saw a banana at age about five, and developed a passion for exotic pomegranates in my teens. My mother spent at least 25% of her waking hours preparing meals for the family.
On the other hand, my children drive to a supermarket where everything is to hand, they complain if the mangoes aren't fresh and buy international cuisine, microwaveable within minutes. How did this change occur within one generation? The answer is 'progress and success' in the development of the food supply chain. To map its history, we must first understand the 'players' and the factors driving change. The dominant driver is easy to identify.
Since the whole chain is in the hands of the private sector, the motivation for all the players is profit and survival against competition. The stories of growth, survival and decline of the various players relates to their ability to provide benefit to their customers, and eventually to us, the consumers. That some are financially successful is beyond doubt. Table 1 gives the data on the performance of the major global players, several of whom have turnover and profits comparable to the GDP of nation states.
Hunting, gathering, fishing and farming
We begin with primary production. Developments in this sector go hand-in-hand with the rise of human civilisation. Certain forms of biological materials are ideal for human consumption. Nuts, fruits and berries can provide nutrition without any processing. Milk is similar and most meats, fish and vegetables, can either be consumed raw or with minimal processing, providing they are eaten fresh. Horticulture and animal farming can be seen most simply as a labour-saving method of keeping the food source immediately available to the producer, avoiding the need for tedious and possibly dangerous activities in their harvesting. For land-based production, hunting has largely died out, probably because of man's incredible efficiency and advanced hunting 'tools'. (The seemingly inexhaustible supply of bison meat in North America was decimated in less than a generation with the arrival of the rifle.) Fishing remains as a hunting activity but the factory ship, with sonar detection and enormous nets, is such an efficient device that global fish stocks are now threatened. Aquaculture is becoming economically competitive even with its higher input costs of feed and species management.
The types of food mentioned above require distribution and consumption to be rapid, or dangerous microbial contamination or chemical degradation will occur. Originally this meant short distance in the supply chain; the hunter could eat at the site of the kill, or simply walk back to camp. Now airfreight, fast land transport, temperature control and sophisticated packaging allow operation internationally. The producer can also be the distributor and retailer (a vertically integrated business). Modern specialisation usually means that produce will go through several business partners. Nonetheless, we can identify the 'fresh chain' (Figure 1).
The unstable nature of this produce requires speed of distribution unless preservation techniques are employed. Traditionally, drying and fermentation were used, adding value by providing safety, reducing losses, utilising by-products and creating variety in sensory impact. Dried meat, fish and fruit, fermented milk, meats and fish products are to be found in most cultures and throughout history. These food technologies, which have now become international businesses, developed from the obvious advantages of storing food safely and successfully controlling microorganisms, even though the latter were not discovered until centuries later. Recently food science has understood the principles by which these technologies can be practised and has systematised their use (Leistner & Gould 2001).
Arable farming is different. The rise of cereal crops and pulses in the 'Fertile Crescent' marked a major event in human civilisation but the crops produced are not food. We do not eat unprocessed seeds of the Graminacea in large volumes, even in breakfast cereals. These seed crops, however, have the major advantage of biological stability so that seasonal cycles can be damped out by grain storage, and they contain a concentrated form of macronutrients which can be transported at ambient temperatures and manufactured into finished foods closer to the market. The foods we make from them require the process steps of milling, mixing, fermentation and baking. All of this was originally done by hand, but it was soon realised that these energy intensive processes could be optimised by the engineering rules of economy of scale. For example, operations such as milling were soon optimised at a large scale with long production runs, whether the energy source was human slaves, draught animals, wind, water or electricity. Likewise, the baker's skill has both been upscaled and automated to factory processes, giving economy of scale; or incorporated into the modern hypermarket for its nostalgic appeal.
Oilseeds have similar mandatory requirements for crushing, and separation, to which the more sophisticated chemical engineering processes of hydrogenation, fractionation, and crystallisation have been added.
In most cases, therefore, the products of arable farming require a processing and manufacturing industry between themselves and the wholesaler or retailer of finished foods (Figure 2). The success of modern civilisation owes much to engineering and cheap energy sources.
Processing, manufacturing and the rise of technology
We have identified several reasons for the presence of processing and manufacturing within the chain. These include the practice of food preservation and safety, separation and refinement of raw materials, and finished product assembly. Like any other manufacturing and processing industry, the impact of the Industrial Revolution was huge. Instead of reliance on animal or human muscle power, or even unreliable wind and water, the advent of the industrial engine driven by fossil fuels allows the development of very large scale factories and the consequential economies of scale that translate down the chain as cheaper and more plentiful supply. However, operations at large scale require greater understanding of how raw materials interact. The chemical industry, with its higher added value products and processes lead the way, but all the techniques of unit operation engineering, materials science and product assembly have been adopted by the food industry. Our materials are much more complex and annually variable, so it is not too surprising that the control of fabrication of a plastic bottle is better understood than an extruded starch-based snack, even though the science and engineering principles are the same.
Further, identification that continuous rather than batch operations are more efficient, also requires the conversion of a food factory from a 'big kitchen' to a streamlined, low labour input, continuous automated unit. This is still occurring in our modern industries, and those that do not convert will fail or have already disappeared. In many cases, the brand name of the original product survives, but the process of its fabrication would be unrecognisable to the original inventor.
The particular processes of fermentation and preservation are peculiar to the food industry. It has independently developed starter culture techniques, sterilisation, pasteurisation and critical control point (HACCP) technology, not just out of interest but as competitive weapons in the market place, producing variety and enhanced safety for its customers. Such exploration is still continuing, with the use of high pressures and pulsed electric fields to wage war on microbes. These processes were not developed for the food industry, and so need to be adapted and understood. The opportunity to achieve safe stable foods, nearer in colour and texture to the fresh material, is the technical and financial target.
As in other manufacturing industries, new process developments and novel products can be protected by patent, giving an even greater exclusivity to successful companies. Although there are few genuinely novel foods, the processes by which they are fabricated and the materials from which they are constructed are now very different from those of the artisanal product from which they were derived.
Many global manufacturers begin their operations in foods where major processing input is mandatory (eg Nestlé - milk; Unilever - edible fats; Kraft - cheese). Their company culture of increasing profits and volume sales by technology, upgrading globally sourced primary produce, and branding the final product allowed them to acquire businesses in other food sectors and apply this approach in a similar way, with varying degrees of success. Initially, they were vertically integrated - contracting their producers, performing their own processing, refining raw materials and fabricating finished products. Recently, the higher margins and direct consumer appeal generated from branded finished products and the advantage of sourcing raw material and ingredient supplies world wide has led them to focus only on finished product manufacture, assembly and marketing. Primary processing has gone into the hands of other specialist global players, eg Cargill, ADM.
The international reach of these very large companies accelerated dramatically in the 1990's as international trade barriers were lowered. Growth occurred by acquisition based on the significant borrowing power of these capital and revenue rich companies. Major acquisitions by Nestlé, for example, were:
1997: San Pellegrino (Water)
1998: Spillers (Milling and bakery)
2002: Ralston Purina (Pet foods)
2002: Dreyers (USA ice cream)
(Regni & Gehlhar 2005)
Likewise, Unilever acquired Bestfoods USA for an estimated US$ 23 billion and was required to sell Batchelors Foods to avoid a monopoly position in some food products in Europe.
These companies are now quoted on several international money exchanges and figures from their Annual Reports show just how global these companies have become. For example, in 2005, Unilever figures for employment and turnover are given in Table 2.
In 2005 Nestlé showed only 39% of sales in its home continent of Europe, but 44% in the Americas (Nestlé Annual Report 2005).
As supermarket sales increased as a fraction of total sales, the advantage of a few big global brands became vital to achieve market survival. By focussed marketing, consumers are prompted to demand these products, assuring their 'shelf space' in most retail outlets. Products now are developed with direct consumer input - the Kansei process (Jordan 2000). Understanding the psychology of consumer choices has become a key skill for manufacture and marketing (Figure 3).
As manufacturers moved their attention to finished product sales, vertical integration waned, and primary processing to produce added value ingredients has been spun-off to dedicated ingredient producers (see Figure 4).
The ingredients business
Biological raw materials contain a complex array of chemicals and nutrients, which when extracted and purified can be used to create a whole variety of fabricated foods. The technical skill base required is comparable to that used in creating added value from crude oil by fractionation and refining. Indeed, this capability of finding value in all the refined fractions of a biological system has led to the term 'biorefining'. Initially, manufacturers tended to do these operations themselves as part of their vertical integration. However, a number of factors have changed this approach. Firstly, the increase of manufacturers' focus on finished products and brands has been mentioned in the previous section. Secondly, companies realised that a portfolio of ingredients is required and sales optimisation is best achieved by offering them to any manufacturer rather than using them only inhouse. Also, many of these food additives can be fabricated synthetically, a natural skill of fine chemicals and drug companies. Examples are vitamins, colours, flavours, emulsifiers and thickeners. Therefore a quite separate industry has developed, delivering smaller volume, high added value ingredients to finished food manufacturers and for use in food supplements. There are global companies now in existence that are particularly forward in exploring the new biotechnologies, such as:
* National Starch & Chemicals Company
* Dutch State Mines (DSM)
The ability to genetically engineer microorganisms, plants and even animals, to produce high yields of novel molecules with health benefits or special functionality in processing is an extremely attractive technology.
These companies do not market directly to the consumer and are usually much more driven by technology, yet their ingredients can be found in most processed food. The net result has not always been positive. The consumer tends to regard this technology as 'unnatural' and additives have been cast as an indication of over-processing and possible danger, despite the rigourous safety testing of most ingredients. A case study of this tension between the consumer and this business was the challenge to E numbers in Europe (Hanssen 1988). These codes were originally designed to provide reassurance of safety, but are now recast by some commentators as an indication of unnatural and potentially risky additions to foods, so much so that finished products can now claim marketing edge if described as 'containing no E numbers'.
Post-war rise of the retailer
The supermarket is a post-war phenomenon and has gained a dominant position in all the supply chains of the developed world. The concentration of sales power in the hands of a few companies is remarkable, as indicated in Table 1. Their postwar growth rates are even more astounding. For example, Walmart recorded its first year of US$ 1 billion sales as recently as 1980. Its turnover in 2006 is estimated at US$ 524 billion (www.walmart. com). What has allowed this dominance to develop? There are a whole host of factors, not least highly efficient management. Several others are worth specific attention.
First is the efficiency of scale. Early supermarkets simply provided convenience, a one stop shop for all food requirements. The engine for growth, however, is the financial power of large sales and turnover, even if the profit on individual items is low. This allows the retailer to bind suppliers to low cost manufacture whilst offering in return a commitment to purchase against which manufacturers can plan production. This allows improved operational efficiency in their factories and allows their own suppliers to be tied down by contract. Now, issues such as seasonality of produce can be planned out of the chain. Woe betide suppliers who fail to deliver either regular large scale supply or products out of specification! Good retailers are the masters of transport logistics, allowing them to plan for short term fluctuations in demand, due to the weather, food fashions or changing demographics. The advent of computer aided stock control and point of sale figures means that product can be moved rapidly to meet demand and that suppliers are forced to carry the expense of buffer stocks rather than the retailer themselves. These data also provide immediate feedback on consumer preference at the point of sale and allows the allocation of shelf space to preferred products. Even governments see advantages in large organisations.
Standardised practices in quality assurance and safety assessment allow the health and safety of the consumer to be managed by auditing a few large retailers rather than a multiplicity of smaller ones with different local operations. It is ironic that the obvious advantage to large food production facilities of fewer, larger retailers, has fed back the requirement for even lower cost production. Only those capable of fulfilling their tighter and tighter supply contracts can survive, and this explains the continuous focussing of production and downstream processing, distribution and retail into the hands of fewer, larger companies. The consumer benefits because of increased convenience, a greater access to a variety of foreign and exotic food types, and greater quality assurance, but harmonisation can bring less rather than more choice of product offerings and the selection of ingredients and processing is not part of the consumers obvious choice.
The competition between suppliers to reach the supermarket shelf would not occur if primary produce and manufacturing facilities were in short supply. How is it that with malnutrition in large parts of the world - increasing in some countries - there appears to be a surplus of supply over demand? (FAO 'Foodcrops and Shortages', October 2005).
The reasons are rather straightforward. It would appear that the productivity of agriculture in the developed world is quite adequate to fulfil consumer demand. The developed world has created its own wealth through industrial activities other than food supply. Food remains primarily a service industry, and there is no shortage of primary produce to high income consumers, whilst subsidies are provided by rich, developed nation states. Commodity prices are a political issue. Secondly, there was, and still probably is, a surplus of food manufacturing sites in the developed world, all of which were designed and built to operate at lower efficiencies than they can now deliver.
As consumers, we all enjoy eating but few of us enjoy the chores of food preparation. Catering outlets offer the ultimate convenience. All we have to do is make the purchase and eat the food. This is now the fastest growing sector of the food chain in the developed world and many of these businesses are truly global. Backed by powerful advertising, the consumer recognises the offering of convenience and reliability, whether at home and abroad. These companies now have the same massive volume turnover as global manufacturers and retailers. (The largest provider of ice cream is probably not Unilever or Nestlé, but McDonalds.) Whether the caterer is a global or local player, growth in the developed world is assured, since food is a reducing proportion of household expenditure and modern societies are 'cash rich, time poor'. Eating out or buying take-away food offers a solution that is reaching the point where the time spent in the home in food preparation is reducing to zero in affluent societies. Home cooking (like hunting) has become a hobby or pastime rather than a necessity (Figure 5).
We have examined the individual industries within our modern supply chain, but there is one upon which they all depend, that of the delivery of raw materials, ingredients and finished products to the point of sale. Here too, an enormous amount of research in food materials science and engineering has been employed. A classic case is the development of the frozen chain. We began this analysis by examining the supply of perishable foodstuffs such as meat, fish, fruit and vegetables. The knowledge that freezing them can preserve their quality has been known for centuries, but the capability to move them long distances in this state is a relatively recent innovation. The first refrigerated ship landed Argentinean meat in France in 1877, but even this depended on short steam powered sailing times. This meat was then thawed and handled through existing ambient or chill distribution. International trade in frozen commodities grew rapidly, but frozen products as consumer goods had to await the invention of commercial food freezers, and domestic refrigerators were not a common household item until after the Second World War.
Once these were established, techniques of electrical stimulation of meat, to remove 'cold shortening' and control of freezing rates and limited temperature cycling were routinely introduced because of their eating quality benefits. Vegetables were specifically bred for their post-harvest performance in the frozen chain. The freeze thaw stable strawberry remains one of the Holy Grails of the food technologist, but even this is almost irrelevant in the days of low airfreight costs. All this occurred because agricultural production costs were lower in locations away from the consumer market, and energy costs of processing and transportation were low. As in many other parts of the food supply chain, we see that innovation can arise from advances in science and engineering well outside the food industry itself. The winners are the ones that spot the market opportunity.
Supply chains: Where we are now?
Figure 5 shows the complete elements of our modern food supply chains. Notice that each of the participating activities were in operation centuries ago. It is the scale and reach of individual companies that has changed. Indeed, a UK analysis came to comparable conclusions 10 years ago (Office of Science and Technology 1996). At that time, the added values (potential profits) within each part of the chain in the UK was quantified (see Figure 6).
Since then, returns to businesses furthest from the consumer have declined rather than increased. In particular the structure of farming, in the hands of many relatively small and independent operations, means that the dominance of downstream industry has reduced their return to a critically low level. Even in the developed economies this is a political issue driving subsidies to farmers. In the developing world, access by farmers to added value markets is restricted, not only by tariffs and trade, but also by less obvious restrictions, developed by the supply chain itself. Large scale downstream players now put such tight restrictions on the safety of production processes and timelines of delivery, that small farmers, wherever they are, are excluded from these supply chains due to lack of knowledge or capital for investment. As a result, with raised standards and the concentration of financial power in fewer hands, access to trade has been limited and some players are excluded, (just as in the board game of Monopoly). It seems inevitable that agriculture will also be concentrated in the hands of the cash and technology rich, squeezing out many of the smaller stakeholders. For the poorer economies, where agriculture represents a high percentage of GDP and is a major employer, this is a bleak scenario and drives much of the anti-globalisation argument (www.actionaid.com).
Supply chains: What next?
More of the same? The food industry and its supply chain are showing the effects of global industrialisation, just like any other manufacturing industry. Those 'players' who have fulfilled consumer needs for convenience, reliability, value for money and variety of product, and have used sciences and technologies from engineering, distribution logistics, IT management and consumer science, are winning. The concentration of business operations in fewer companies has already occurred in automotive, shipbuilding and chemicals and happened almost instantaneously in the modern industries of computing hardware and software. We should not be surprised at these trends and the likelihood that they will continue in the food industry of the immediate future at least whilst the current paradigm of unlimited raw materials and global market growth is in place.
What does this mean for the immediate future? By analogy with the trends in other industrial supply chains,
1. Primary production will be concentrated. Those with current best practice and capital will move their operations to whichever region provides the best climate and soils for yields. GM technologies, which provide reduced agricultural input costs or increased consumer convenience or health benefits, will be practised if downstream acceptance is forthcoming.
2. Manufacturers of ingredients and finished foods will move their operations to regions where labour costs are cheaper and markets are growing.
3. Retailers will select growth regions where their distribution and stock management skills are appropriate, probably following investment by manufacturers so that supplies are assured. The major world players have their strategies in place.
4. It is likely that strategic alliances between major players will strengthen, to their mutual benefit (eg Walmart and Nestlé).
5. Global players will use best practice and be less technically innovative, relying on their scale to allow technical innovations to develop elsewhere and choosing when and where to apply them in their 'core business'.
6. Supply chains for regional and 'niche' products will grow. These fulfil consumer requirements for variety and quality but are not of sufficient scale to interest global players.
A new paradigm
We are all consumers of food and attitudes are changing in the developed and developing worlds where individual consumers with purchasing power are the market. For example, in Europe the organic food movement has more supporters than those in favour of GM foods, despite the power of the latter technology. Fair trade issues are widely discussed. More processed foods are regarded as 'junk', and the harmonisation of branded foods is seen as a reduction of choice. Whilst food itself produces biodegradable waste and the excessive amounts of packaging are regarded as an unsupportable load on the environment. For most of us food is plentiful and relatively cheap compared to other consumer goods, and obesity rather than starvation is an issue for the future. As a result, the food chains of the future will have to pay attention to:
1. Diet and health - we already see producers' attempts to discriminate between products on the grounds of health provision and this offers new market opportunities for all the 'players' in the chain.
2. 'Naturalness' - there will be a drive to eliminate synthetic chemicals and prolonged or extreme preservation processes from the chain. New ingredients will be rare unless they deliver a health benefit or a major effect on safety or palatability.
3. Biotechnology - will continue to be highly contentious. Safety testing requirements will be extreme, both of the food itself but also of the impact on the environment of large scale introductions. Most importantly the consumer will demand that a demonstrable benefit accrues to them rather than to food suppliers.
4. 'Food miles' - the consumer is aware that much of the food they purchase is not local. Lack of traceability, the environmental penalty and costs of long distance transport will be factored into their value judgements.
5. Sustainability - though not clearly quantified, the modern consumer is now aware of climate change, reducing sources of fossil fuel, exploitation of Third World primary producers, and waste production, both domestically and upstream in the food supply chain. Some will take local action themselves, but the majority will require governments to legislate and private industry to respond on their behalf. They will not willingly accept major increases in food costs or reductions in convenience and choice, but their attitudes will continue to drive innovation throughout the chain.
What of the underdeveloped world? Here national GDPs are low and agriculture is still a major factor, yet we find most of the world's undernourished (Food and Agriculture Organization of the United Nations, Economic and Social Department 2006). There is an argument that lowering of trade barriers would improve their economic position. However, in the early days of the European Common Agricultural Policy, analysis showed that liberalisation would only benefit the developed economies whose strength in agriculture was already established (US, Canada and Australia). The effect on undeveloped countries would be a net welfare loss of 0.4% of GDP (Koester 1982).
It is obvious that compared with the developed world, GDP in developing countries is low in activities other than agriculture. Aid is routinely provided in the form of food commodities, yet it would appear that better and more stable progress would be made if best practice in primary production, manufacture, and distribution could be made available. Even these depend on a developed world style of infrastructure requiring capital investment, notably a potable water supply, a modern food manufacturing industry and efficient transport systems. Who will make the necessary investment?
One solution is inward investment by the existing food industries, but why should this occur whilst lack of individual consumer wealth excludes most of the population in developing countries from the cost structures of the developed markets? If history is anything to go by, wealth will be created first by other routes and inward investment by existing food companies will follow.
The alternative is self help and establishment of local supply chains. There are pockets of rural societies even in the developed world where agriculture is small scale and not utilised by national or global players. Successful innovators have observed that our attitudes to food are far more personal than to other consumer goods. This is allowing the growth of organic production, 'place of origin' labelling, the benefits of traceability, and revival of local and regional dishes. Local supply chains have all the advantages to survive against increasing energy costs which will impact first on international food raw material and product distribution.
The equivalent in developing countries is first to establish the capability to fulfil local supply and demand at the economic level of the community itself, where labour costs are extremely low by international standards. This would require an increase in their isolation from international trade, until at least competent local and national supply chains can be developed internally. Rather than concern over international trade barriers, political pressure to have access to the knowledge, training and facilities necessary to develop best practice in local production, storage, safe manufacture, downscaled manufacturing processes and food preservation might be more effective (Regni et al 2005).
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Receved 17 October 2007 Accepted 26 March 2008
PETER J LILLFORD
Honorary Chair in Public Understanding of Science, CNAP - Department of Biology, University of York, York, UK
Director, National Non-Food Crops Centre, Innovation Centre, University of York, York, UK