The food and drink industry is booming, but it is facing significant challenges. Changes in global trade, global warming impacting farming practices, price pressures and changing trends and tastes all contribute to a rapidly evolving market. Globalization of trade means that consumers are enjoying increasingly eclectic and international cuisine and that presents a great opportunity for producers to branch out across the world. We take a bite out of the food and drink industry and examine some of the opportunities for import and export across the world.
Changes in global trade
Two of the key concerns of food producers at the moment are the dual impacts of Brexit and the US-China trade war. The US-China trade war is causing ripples in trade across the world. Surpluses are building in the US which may mean that US producers need to seek out different markets across the world. 60% of all British food and drink exports are to EU countries; additional tariffs and changing standards may present a risk. However, departure from the EU may provide an opportunity to negotiate deals with other countries across the world with a taste for British produce. There are some concerns that these changes in import and export markets may lead to changes in food standards but any new standards should take consumer tastes into account. There is a growing market for organic, ethical, high quality food which means that the current shake up of the status quo does not necessarily mean that standards will fall.
Tariffs are a larger concern; import and export costs may rise, putting additional price pressures on the industry. The rate of inflation in March 2019 was 1.9%; this was slightly above the 1.8% forecast and up from a 30-month low of 1.5% in February. Much of the rise was attributed to a fast pace of price increases in food. The rate of inflation for food alone was 2.1% (compared to 2% in February) and this was reflected in both food bought at home, which is up 1.4% compared to February 2019 and inflationary costs for eating out also inched upwards, from 2.9% in February to 3% in March.
Hot or Not? Barometer
Conscious consumption: from ethical production to organic products, consumers are becoming more aware of the impact of the food and drink they eat and the packaging it’s wrapped in.
Embracing fat: after years of low-fat diets, healthy eaters are embracing the idea that not all fats are bad. Keto, paleo, grain-free and pegan (paleo/vegan) diets are all introducing the idea of “good fat”.
Flexible hemp: although nothing new, suddenly hemp seeds and hemp oil are now being added to a wide range of foods and with CBD oil growing in popularity, it’s likely to continue to increase.
Is the avocado toast? Consumers are tiring of the price premium as well as the ethical implications and may be in search of a new trend, although the versatile fruit is still found on many menus.
Doing it for the ‘gram: with a growing focus on reducing waste and a trend for hearty food which doesn’t make for the best picture, restaurant patrons are ditching their phones at mealtime.
Sugar isn’t so nice: a focus on healthy eating has seen consumers cutting the amount of refined sugar and additives that are acceptable in food, in favour of healthier fresh options.
Toasting the success of the alcohol industry
The US has competitive vineyards thanks to the heritage and renown of the industry which is on a par with the major vineyards of Europe and Australia. Craft breweries are springing up across the UK although these are largely local markets but major brands in beer and spirits both continue to export across the world. The fastest growing markets for alcohol are India and China, so the current trade war may be limiting some of the current growth opportunities. The US also imports alcohol from across the world; Scottish whisky has long been a premium product for American drinkers but figures show that the UK is also importing more and more wine, and British beer brands such as Newcastle Brown Ale has become a fashionable choice with younger drinkers.
Veganism grows around the world
Statistics show that the number of vegans and vegetarians is steadily growing. With high-profile celebrities including Beyoncé, Benedict Cumberbatch and sporting legend Serena Williams all advocating a plant-based diet, interest in Veganism is growing across the US. The trend coincides with an increase in awareness of the health benefits of cutting out animal products and ties in also with the growing awareness of the environmental impact of consuming meat. As a result, meat substitute products are growing in popularity and new favourites are emerging. For example, jackfruit, a fleshy fruit grown in south-east Asia, Brazil and Africa, is becoming a popular ingredient in vegan meals and can be cooked as a great alternative to pulled pork.
Plenty more fish in the sea
The seafood industry is undergoing a period of innovation. Climate change has been a key driver, and has led to the development of new tools to track the effects which also aid the management of fisheries. A new “seatech” industry is emerging, providing data capture, analysis and visibility tools that support the industry in tracking environmental changes and keeping track of new traceability mandates. This isn’t the only area of the industry embracing innovation; biotech companies are developing fish feeds that don’t come from other fish and deplete stocks and that alone is fast becoming a multi-billion dollar industry. Biotech firms are also finding ways to prevent disease and improve operations to ensure that the industry can keep up with the growth in demand. Every aspect of the food industry is aware of the need to reduce waste; in the seafood industry more use is being made of every part of the fish, creating new markets for products including leather from fish parts that have previously been thrown away.
Smart labelling and technology advances
The technology boom has raised consumer expectations; now producers need to consider whether they can add value using smart labels, which inform consumers when a product should not be eaten. This can help to reduce waste, which is a growing priority, but it comes at a cost. Some manufacturers are developing their own technology in-house while others are partnering with major technology firms to gain an edge on their competitors. When it comes to food production, robotics and AI are transforming the industry. The initial investment may seem prohibitive, but it can lead to cost-reductions in the long run. Again, partnerships are proving a powerful way to overcome the issue of the initial outlay and companies gain the knowledge and expertize to leverage these tools to their advantage and reduce food production costs.
Changes in the supply chain
Globalization has increased the market for food production and also expanded consumer tastes to encompass a broad range of international cuisine. This in turn requires effective supply chain management and shipping to facilitate servicing growing markets. Some industries are even cutting out the middle man and investing in direct-to-consumer sales which require a fresh approach to logistics. This is a growing, high value market and can be a way to deliver sustainable, fresh and healthy products that the market demands in new ways.
Global warming heats up the industry
Ditching plastic costs producers in the short term
Recent campaigns have brought the issue of plastic waste to global attention. A whale found dead in the Philippines this year had 40kg of plastic in its stomach. It’s clear that plastic waste is taking over the planet and choking wildlife and consumers are looking to companies to find a solution. For many companies, this will require a change in production and processes that could increase costs in the short term and new practices could mean that revenue takes a hit. UK Coffee Chain Boston Tea Party recently reported a loss of £250,000 in revenue due to the removal of disposable coffee cups; this may not be great news for the bottom line but it’s a positive for the environment in being at the vanguard of taking action against waste. The actions of the company will enhance the brand and help to encourage a change in consumer habits that is likely to pay dividends in appealing to ethical consumers who are willing to pay more for a company that matches their values. This issue puts additional pressure on the bottom line, but it’s one that companies can’t ignore.
Green farming and manufacturing
As ethical consumers start to make their presence felt at the supermarket checkout, green farming practices and manufacturing processes are becoming increasingly important. From a reduction of plastic packaging to organic goods and a reduction of waste, there are multiple demands being made of the industry. This also brings some good news; there is a rising trend for selling “ugly” fruit and vegetables which are not of the uniform size and shape of standard supermarket produce. This reduces waste, which is good news for the world, can be a cheap way for consumers to eat more fresh fruit and vegetables and it provides a new revenue stream for the industry when previously those goods would have been discarded or sold cheaply for mass produced or tinned goods.
Certain fresh produce have come under new scrutiny because of growing awareness of environmental and ethical issues. For example, the growing popularity of avocados was brought to a halt as consumers became aware of the level of deforestation caused by farming and areas of pine forests being illegally razed to grow the fashionable “superfood”. In addition, the avocado boom brought more issues after crime cartels seized the crops, leading to stories of bullets embedded in avocados and an awareness of a “blood avocado” trade, worth £150m a year to Mexican drug lords.
Honey is another area under scrutiny due to the importance of bees in the ecosystem. In some cases, farmers are helping to increase the population of bees by planting wildflowers but they are facing challenges from pesticide use. As the population of bees has declined in the US, there has been a rise in commercial pollination. This provides a short-term solution for crop pollination, but it is putting further pressure on bee populations as the stressed bees have less of a varied diet and are less resilient, meaning a shorter lifespan. Drought has also depleted the plants from which bees can forage, and honey production has dropped in recent years. The US honey industry is responsible for more than 20,000 jobs in the US, including packers, processors and importers and there may be a shift to imports if a better solution to the current challenges cannot be found. Another factor is that if consumers push for change to more ethical honey production, it’s likely to accelerate any changes.
Like all innovation, green farming and manufacture requires investment, but as the industry continues to feel the heat from climate change and consumers seek ways to reduce their carbon footprint, it’s likely that it will become an essential aspect. Technological growth should accelerate a change to greener practices, but it’s likely that partnerships and alliances will develop to reduce the cost of implementation.
Extreme weather causes chaos in agriculture
The change in the climate is proving to be a significant challenge to farmers. Extreme cold, heatwaves and flooding caused by climate change have played havoc with planting schedules and crop yields. Across the industry, there is growing recognition that this is more than simply a bad year or two for agriculture; climate change is having a demonstrable impact on the weather, which in turn is having an impact on farming. The change in production patterns and unpredictable yields are pushing up prices and it’s clear that climate change is an issue that agriculture cannot ignore.
Price pressures weigh on the industry
All the current changes are increasing the pressure on prices. Changes in consumer behaviour may be leading the change in more ethical, greener consumption but it’s also clear that people are very cost-conscious. Rising inflation and increased prices mean that many people have less disposable income which means that producers are stuck in the middle, with a need to innovate pushing up costs while falling demand may suggest a need to cut prices. The end result is squeezed margins, and for producers importing ingredients from overseas, this is compounded by currency costs. The value of the US dollar is currently making American exports less attractive to overseas buyers, but other factors such as the trade war are also impacting all areas of food manufacture so it’s not all down to the dollar. Currency values fluctuate which can lead to reduced margins or some goods becoming priced out of the market.
Understanding currency fluctuations
There are so many factors that impact a currency – situations such as Brexit and the US-China trade war are major examples, but currencies fluctuate due to economic statistics, political changes and business confidence. As they fluctuate in relation to each other, a major change in another country will have a knock-on effect on other currencies. The biggest challenge is that given that there are so many factors, and that it involves areas such as politics, the currency market is difficult to predict. This in turn makes it difficult to set prices with overseas partners. In addition, there are some suggestions that the current economic situation may lead to a shift in buying patterns. The overall approach to your company’s currency exposure will depend on a number of factors, but here are some key steps to take when planning ahead in uncertain times.
Managing currency risk
STEP ONE: UNDERSTAND THE NATURE OF YOUR CURRENCY EXPOSURE
Take a look at your balance sheet and consider what fraction they are of overall incoming and outgoing funds because this will indicate your measure of risk. If it’s only 10% of your business, you may think you have less to worry about than if it’s currently 70% but the issue isn’t quite that simple. Of course, a company with higher currency exposure bears more risk due to currency fluctuations, but you may want to look beyond the numbers at your strategic plans. You should consider where the market may be growing or shrinking and where the future opportunities lie. In trying economic times, whatever the percentage of your overall profits and losses are consumed by currency, you should aim to make the most of every cent.
STEP TWO: UNDERSTAND THE CHOICES AVAILABLE
There are a number of currency tools which can help you make the most of your company’s resources and still expand into further overseas markets. A forward contract allows you to lock in a prevailing rate of exchange for a set period of time. (Please note, a forward contract may require a deposit.) This can help with forward planning and provide some certainty but it carries its own risk. Currency can go up as well as down, and it depends on what is going to work best for you. In addition, there’s the fact that this works best when you have a clear pipeline and this isn’t always possible in some areas of the food and drink industry, which relies on the weather and other uncontrollable environmental factors. If you have definite commitments then a forward contract may be the best approach. However, you can also set up a market order; this allows you to specify your target rate and the funds are transferred if that rate is reached. There are no guarantees with a market order but you can pair this with a stop-loss order which specifies the lowest limit you are willing to accept. This allows you to protect your profit margin while also having the opportunity to take advantage of movements in the market. These are both longer term strategies that require some planning, but if you operate a more agile business, you may feel like the best approach is to wait and see what the market brings and adapt accordingly. This does carry some risk, but if you work with a specialist who can keep you updated on the latest changes in the market then it could allow you to maximize your profit margin and help protect against too severe losses.
STEP THREE: SPEAK TO A SPECIALIST
All of the above products and services are available via a currency specialist but that isn’t the only advantage. Currency specialists typically offer better rates and lower fees than high street banks. You also get the benefit of expert guidance from someone who not only understands the foreign exchange market but also the challenges of producers and manufacturers within the food and drink industry. Whether you’re just starting to consider your currency exposure or are simply looking to review your current approach, the additional expertize can shed light on the opportunities and risks of different approaches – and you can get all this extra help for free when organizing your international payments through a specialist.
Controlling currency costs
Fluctuations in the exchange rate have an impact on the cost of international payments, but it isn’t the only factor. Different providers offer different rates of exchange, and even a fraction of a percentage point can make a big difference. In addition, if you’re working with multiple partners, perhaps working on innovative new production processes or smart labels, exchange fees can soon add up and can further erode the profit margin. If you’re working across multiple markets around the world, then it may be time consuming to set up and deliver the broad range of currency transactions required and to keep track of cash flow when working in multiple currencies.
Managing international payments
Working in partnership with a currency specialist like moneycorp can improve the process of managing international markets and partnerships. As well as expert guidance on the currency market and available currency tools for managing risk, moneycorp provides clients with an online platform for managing international payments. Features of the platform include live statements, progress updates on international payments and the facility to make payments in multiple currencies and management controls. This approach doesn’t add too many additional layers of administration or require staff with specialist expertize, but does provide the transparency and checks and balances that allow for the close management of currency costs.
Currency support for the global food and drink industry
For many organizations, a global approach can help to offset some of the challenges of shrinking domestic markets, political changes such as Brexit and changing consumer tastes and priorities. Wherever the market is expanding, the cost of international transfers and the risk of currency exposure are likely to be a key factor in whether your plans succeed – after all, there is no point in tripling your sales through overseas markets if you find that you didn’t make a single dollar of profit. The corporate foreign exchange service from moneycorp helps companies to manage their foreign exchange risk. Our expert team works directly with the food and drink industry and provides guidance on the foreign exchange market and insight into currency tools and market developments and how they might impact individual businesses.