Rural Marketing: A Diversion

WELCOME YOU ALL

Global Agribusiness Trends

Session 2Emerging Issues and Challenges

Ranjan Chaudhuri

Rural MarketingMost marketers realize that India is on the cusp of momentous change. The economy is vibrant, incomes are rising; and the habits, preferences, and attitudes are changing rapidly.

But nowhere is this more evident than in rural India.

There is thus an emerging need to build expertise in Rural Marketing.

Agribusiness Management

Agribusiness Management

Definition

The making of business decisions that tend to maximize net farm income consistent with the operators objectives.

What decisions need to be made?What do produce?

How much to produce?

What kinds and amounts of resources to use?

What technology to use?

When to buy and sell?

How to finance?

Who makes the decisions?Farm Operator

Farmer’s Spouse

Landlords

Farm managers

Farm Advisors

Government

Financers

Reviewing Major Concepts Food for thought

Key players in the global agri-food markets

Key drivers of food supply and demand

Food quality and safety issues

Climate change and sustainability of agriculture

Sustainable Supply Chain Management (Carbon Footprinting)

Impact of ETechnologies/EReadiness

Need for education/training at all levels

Food for thought (1)There are now 80 million+ new mouths to feed every year3.

By 2030, the United Nations estimates that demand for agricultural products will be about 60% higher than today4.

Rising income in developing markets is creating an increase in annual protein intake of 11%-15%5.

In 2030, China’s meat consumption will be more than double the 1997 levels of 41kg per person6.

We now have about half the arable land per person that we had 40 years ago7.

3. Population Reference Bureau (PRB) World Population Clock 2006 Datasheet4. http://www.fao.org/english/newsroom/news/2002/8280-en.html5. CBA, Commonwealth Research, 20056. SOW-VU website (http://www.sow.vu.nl) (Centre for World Food Studies Amsterdam),Brief: China’s rapidly growing meat demand: a domestic or an international challenge?7. United Nations Food and Agricultural Division: Dimensions of need: An atlas of food and agriculture.Rome, FAO, 1995. p. 16-98

Food for Thought (2)Consumers in the modern world are no longer satisfied with the simple food their ancestors ate for day-to-day survival.

Today’s consumers seek added value and interest from their food and drinks

as a result, innovation is essential within the food and drinks industry of the 21st century.

The industry has become increasingly commercial and new product development is now supported by significant investment in R&D, advertising and marketing

leading to exploration of ever more diverse and unusual product concepts.

Where does this leave us?

Agribusiness

the industry that feeds the world

What is Agribusiness?The Agribusiness sector is a large, multifaceted industry sector comprising businesses that are involved as:

Input Suppliers (e.g. Chemical and Fertilizer companies such as Cargill, Bayer, Incitec/Pivot etc)

Service Providers (e.g. Banks, R&D, DPI, Consultants etc)

Producers (Growers)

Traders (e.g. Mitsubishi, AWB, Bohemia Nut Company, ConAgra, Queensland Cotton)

Processors (e.g. Weston Flour Mills, Peanut Company of Australia, Parmalat)

Manufacturers (e.g. Food processors such as Krafts, Mars, Cadbury Schweppes, Unilever)

Retailers (e.g. Small traders and supermarkets such as Tesco, Woolworths, Carrefours, Aldies, Krofers)

Logistics (e.g. Transport and storage companies e.g. TNT, ABB Grain)

Food generally, is of major interestQuality, Quantity, Variety, 24hrsx7daysx12months availability

i.e. Agri-industry chains are thus highly CUSTOMER driven

Businesses need to know what the customer is wanting as soon as they want it (or before)

• Information Feedback down chain• Food Integrity / Security (Identity Preservation)

They need to Be AGILE

Have transparent Product TRACEABILITY• Good record keeping, information management

Main Issues for Agribusiness (1)1. Part of, and comprise, ‘Food Chains’

Main Issues for Agribusiness (2)Deal in low margin commodities

Cost of Production very close to value created

Geographically distributed & Variable Climate

Directly affects creation/availability of raw product & subsequent product flow through the chain

Commodity availability has a direct impact on prices

Ensuring constant volume, high quality product is a major driving force in agri-industry chains

Value Chain Analysis has become a valuable tool

Key Players in Global Food MarketsFood Markets

Meat and Meat Products (including Poultry)• World Meat Exchange -

https://www.secure1au.com/meatnet-com-au/new_aginfo/about_us.cfm

Fish and Fish Products• Global Fish Site - http://www.thefishsite.com/

Fruit and Vegetables• Produce Marketing Association – PMA - http://www.pma.com/

Dairy & Products, Eggs, Oils and Fats• International Dairy Foods Association - http://www.fil-idf.org/

Bread, Cakes, Biscuits and CerealsAsia is experiencing the strongest volume growth in the biscuit market, at almost 7% per annum.

Miscellaneous Foods• Confectionery, ice cream, alcoholic drinks, hot and cold beverages

(including fruit juices, tea and coffee) • Snack Foods

Key Players (Countries)Meat (Beef, Pork, Broilers)

Exporting - Brazil, EU-25, China, India, Argentina, Canada, Australia. (USA)

Importing - Japan, Korea

Fish and Fish ProductsExporting - China, Norway, Thailand, USA, Denmark, Canada, Spain, Chile, Netherlands, Viet Nam

Importing - Japan, USA, Spain, France, Italy, United Kingdom, Germany

Fruit and Vegetables

Dairy ProductsWestern Europe

Eggs, Oils and FatsAsia-Pacific, EU, USA

Bread, Cakes, Biscuits and Cereals$30.3bn by 2013, a 19 per cent increase from $25.5bn in 2006.

Europe accounts for 64.3 per cent of the global bread and rolls market value, while accounting for 50.5 per cent of the global biscuit market.

Key Players (Food Companies)Size, degree of product diversification, and ownership structure are important characteristics of food companies. Some companies are;

publicly owned

privately owned, or

cooperatives, which are owned by producers of raw agricultural commodities.

The three largest Food companies are:Nestlé, Kraft and Unilever

Food companies typically expand by acquiring existing brandsUnilever acquired the U.S. ice cream manufacturer Ben and Jerry’s Homemade Ice Cream in 2000

• http://www.unilever.com/ourbrands/foods/

Smithfields Foods - Global Food Supplier US$12B and an active acquistioner – Bought EU branch of Sara Lee in 2004

• http://www.smithfieldfoods.com

OthersOthers include:

Meat - Tysons, Swift, Hormel, AMH

Dairy - Parmalat, Fonterra (National Foods), DairyCrest Pty Ltd, Bonlac

Cereals Kelloggs, Westons, Goodman Fielder

Fish & Fish Products - Albert Fisher, Amalgam Group of Kerala, Dongwon Group, Faroe Seafood, Fishery Products Intl, Inc., Hansung Enterprise, Lyons Seafoods, Princes Ltd., Rybarstvi Trebon, Sajo Industries Co., Stolt Sea Farm, Surapon Food Public Co Ltd, The Seafood Company, and Tri-Marine International, Inc. Fruit & Vegetables - Del Monte Foods, Cadbury Schweppes, Mott’s LLP, Minute Maid Company, Odwalla, Inc., Nestle SA, Ocean Spray Cranberries, Tropicana Products, Inc., and Welch Foods

Confectionary - Mars (Wrigley Jr Co), Cadbury Schweppes, Hershey Foods, Barry Callebaut, Ferrero, Haribo, Perfetti Van Melle

Processed Food - PepsiCo, Coca Cola, General Mills, Annheuser-Busch Companies, Groupe Danone (Kraft) & Diageo, Frito-Lay (40% share of the international snack market), Procter & Gamble, (Pringle), Starbucks, Xinjiang Chalkis Co.Ltd, United Biscuits Holdings, Yamazaki Baking

Food Ingredient - Danisco Ingredients, Rhodia Inc, Associated British Foods

Retail - Walmart, Carrafour, Metro, Tescos

Traders - ConAgra, Mitsubishi,

A Few Interesting FactsJapanJapan remains the largest food processing market, but is expected to grow at a slower rate in future compared to China & India due to saturated market.  Rising per capita income, a growing working class & the popularity of ready-to-eat food are expected to drive the food processing industries of China and IndiaChina and India.

Most of the economically developing countriesMost of the economically developing countries in Asia have a low level of processed food as compared to western countries, but this is changing.Trade liberalization through multilateral & regional trade agreements is helping the Asia-Pacific food processing industryhelping the Asia-Pacific food processing industry to grow and will lead to greater market access for players operating in the food processing industry. Biggest problem for Asia-Pacific companies is to gain trustgain trust as a producer of safe & high quality products in compliance with international standards.

Australian processed food industryAustralian processed food industry has emerged as one of the most technically advanced in the world.  It produces products of international standards at prices comparatively lower than the western world.

Japan & South KoreaJapan & South Korea are the leading meat importing countries in world.  In future, processed food industry is expected to remain strong with rising meat consumption in these countries.

Growing Global Population

Key Drivers Food Supply & Demand(Agribusiness)

Rising Income

LimitedResources

• Geographic mismatch of Supply & Demand• Climate Variability• Bio-Fuel development• Oil Prices

Food Quality & Safety Issues

We are what we eat!

Sophisticated consumersSophisticated consumers are demanding more information about wherewhere the food they are buying comes from and whatwhat has been done to it.

Major animal health scaresMajor animal health scares such as foot-and-mouth disease and BSE (bovine spongiform encephalitis or Mad Cow disease) outbreaks in recent times have highlighted the need for systems to be in place along the food production chain to enable full tracking and traceabilityfull tracking and traceability of a product from paddock to plate.

As a result, both governments and the commercial sector have focused, and continue to focus attention on the development of processes, standards and regulationsprocesses, standards and regulations to ensure that food safety within production systems is a key issue in ensuring economically, environmentally, ethically and socially sustainable food production.

Three Main Issues for Agrifood IndustryBiosecurity

Bioterrorism,

Bio-Safety

Quarentine

Food Safety

Product Tracking and Traceability

including Identity Preservation

BiosecurityBiosecurity refers to the policies and measures taken policies and measures taken for protecting a nation’s natural resources including for protecting a nation’s natural resources including its food supplyits food supply, from biological invasion and threats both from accidental contamination and/or deliberate attacks of bioterrorism (i.e. ensuring a nation’s bio-safety).

Bioterrorism includes such deliberate actsdeliberate acts as introducing pests intended to kill food crops; spreading a virulent disease among animal production facilities, and poisoning water and food supplies or purposively contaminating the environment.

Bio-safetyBiosafety

Reducing the risk of viral or transgenic genes, or prionsReducing the risk of viral or transgenic genes, or prions such as BSE/Mad Cow and reducing the risk of food bacterial contamination.

By international agreement, bio-safety involves the application of the precautionary principleprecautionary principle which is the idea that if the consequences of an action are unknown, but are judged to have some potential for major or irreversible negative consequences, then it is better to avoid that action

Major IssuesEmerging infectious diseases, e.g. new, previously unrecognized diseases such as Severe Acute Respiratory Syndrome (SARS),Severe Acute Respiratory Syndrome (SARS), or known diseases which have increased in incidence, virulence or geographic range over the past two decades (e.g. Foot-and-Mouth diseaseFoot-and-Mouth disease), as well as diseases which threaten to increase in the near future (e.g. Avian influenzaAvian influenza).

Pathogen pollution, which is human-mediated introduction of alien pathogens such as pests.

Livestock disease surveillance, which is a systematic series of investigations of a given population of animals to detect the occurrence of disease for control purposes.

Food Safety

Protecting the food supply from microbial (e.g. Protecting the food supply from microbial (e.g. listeria, salmonella), chemical (e.g.. rancidity, listeria, salmonella), chemical (e.g.. rancidity, browning) and physical (e.g. drying out, browning) and physical (e.g. drying out, infestation) hazards or contamination that may infestation) hazards or contamination that may occur during all stages of food production and occur during all stages of food production and handling – growing, harvesting, processing, handling – growing, harvesting, processing, transporting, preparing, distributing and storingtransporting, preparing, distributing and storing

Food SafetyMicrobiological risks

Chemical risks• Biotechnology (GMO) issues• Food Standards• Food borne diseases

• STANDARDS– The Codex Alimentarius– HACCP– ISO– BRC (British Retail Consortium)– IFS (International Food Standard)– IKB (Integrated Chain Control)– EurepGAP– etc

What are the Asia-Pacific Standards?

Food Tracking & Traceabilty• The International Standards Organization (ISO) defines

traceability as:

– The ability to trace the history, application or location of an entity by means of recorded identifications.

• The European Union (EU) definition is more precise and has enshrined in law in Article 3 (15) of EU regulation 178/2002, that traceability is defined as:

– The ability to trace and follow a food, feed, food producing animal or substance intended to be, or expected to be incorporated into a food or feed through all stages of production, processing and distribution.

• i.e. it is tool that allows something to be tracked.

– It is about collecting information on a particular attribute of a product and recording it in a systematic fashion from its creation through to being sold to the consumer.

Traceability and Tracking Systems

• Traceability systemsTraceability systems are record-keeping systems that act as a tool for making information available either within an organization or between organizations.

• RecordsRecords– Traditionally regarded as documents in paper files or bound

volumes • they can also exist in any physical format, eg photographic prints, video

cassettes, microfilm and/or any of the many current electronic formats.

– Records have three distinctive characteristics:• Content Content (the information associated with the attribute being recorded)

• StructureStructure (the format and relationship between the elements comprising the record)

• Context Context (why the record was created, received or used, which includes when and by whom and under which circumstances, and what links there are to other documents making up the total record).

Food Miles• Core Issues

– Environmental and social concerns relating to the impact our food choices are having on the environment

– A growing interest in the safety, ethics and origins of the food we eat

– Spiraling costs in relation to energy usage

• Valid to talk about Food Miles in relation to Agrifood chains but need to be aware of what creates the problem

• E-Technologies– All those technologies that have been developed around

communication and networks• Impact in business in general has been massive

• Increases efficiencies, improves information flow which produces better decision-making and reduces time

• Internet in particular has essentially removed the issues of time and distance from business transactions

• E-Readiness– Term used to describe and quantify

• The extent to which a The extent to which a country’scountry’s business environment is conducive to business environment is conducive to Internet-based commercial opportunitiesInternet-based commercial opportunities

– Can also be used to describe and quantify • The extent to which an The extent to which an individual business or organisation’sindividual business or organisation’s

environment is ready to conduct electronically enabled businessenvironment is ready to conduct electronically enabled business

Impact of E-Technologies/E-Readiness

• Connectivity• Business Environment• Ecommerce & Consumer adoption• Legal & Regulatory Environment• Supporting e-Services• Social & Cultural Infrastructure

• Leaders - USA, HongKong, Western Europe, Australia, Singapore• Followers – South Korea, Japan, Ireland, Southern Europe, China• Contenders – Slovenia, United Arab Emirates, Malaysia, South

America, South Africa, Thailand• Laggards – Some African nations, India, Russia, Indonesia, Philippines,

Iran

E-Readiness

Need for education/training at all levels• Declining student numbers for all aspects of Agri-

anything in developed world – Particularly bad in USA, EU, Australia

• Reason?– Image

• Linus U. Opara, 2003, Image is everything: Undergraduate students’ contributions towards a better understanding and improvement of public attitudes and perceptions of agricultural engineering. World Transactions on Engineering and Technology Education, UICEE Vol.2, No.3, 2003

• A MAJOR concern for ongoing health and success of the Agri-food Industry in a highly competitive global market

– Particularly as it gets more technologically driven

MOTIVATION TO INTRODUCE AGRIBUSINESS IN RURAL MARKETING CLASS