Shelf Talk: Food and tariffs, changing Chinese tastes, industry stats, and more
Food & International Trade
"A 15-year fight over airplane subsidies is going to raise the cost of Parmesan cheese, French wine and Scotch whisky." The U.S. argued that the EU's subsidies and financing for Airbus has allowed it to sell products at unfairly low prices, hurting Boeing. "So the Americans brought a case against the Europeans at the World Trade Organization.... [which] handed down the final decision in that case, giving the Trump administration the green light to impose tariffs on up to $7.5 billion of European products annually." There will be a 25% tax at the border on European items, including a lot of food: "French wine. Olives, virgin olive oil, cherries, oranges and lemons from Spain. Pork sausages and roasted coffee from Germany. Italian cheeses like pecorino, Parmesan and provolone. Stilton cheese, sweet biscuits and Scotch whiskies from Britain.” (NYT)
Even before these food tariffs were announced, a JPMorgan analysis showed that last year's tariffs would cost the average American household $1000/year, with one other trade proposal estimated to add another $500/year. (WaPo)
Supporting this is a paper showing that "the U.S. tariffs were almost completely passed through into U.S. domestic prices," at a total consumer cost of $69B in 2018. The Centre for Economic Policy Research paper said, "The entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters." (WSJ $)
And China is imposing tariffs on American goods, notably agricultural exports. “U.S. soybean exports to China were at their lowest level since 2002 in the January-June period, according to U.S. government data. Pork exports are at a nine-year low, and shipments of U.S. sorghum are down 96% from a 2015 peak” (Reuters). Soy bean exports to China are 1/3 of what they were last year (CNBC). Dairy exports to China have dropped more than 50% (NYT).
Also: Chinese shoppers are starting to favor Chinese brands over American imports. "China was once eager to spend on U.S. brands. Then citizens of the world’s biggest country shifted their allegiances.” Mondelez introduced special flavors to China to curry favor, like Oreo Wasabi and Oreo Spicy Chicken Wing. But that regionalization alone hasn’t been enough to allow it to compete well against brands like Three Squirrels, maker of nuts, seeds, and dried fruits, which has plans to open 10,000 stores in the next five years and an amusement park. The playbook for American CPGs to expand internationally seems to be getting an update. Mondelez’s CEO said “that the company spent too much energy focusing on legacy brands that had worked well elsewhere." Instead it “has recently switched strategy by focusing on boosting the local brands it has acquired in China," which has resulted in new products like a "rice wafer snack with purple yam and black rice flavors." (WSJ $)
All of this has hurt American farmers. The administration approved $28B in subsidies ($12B in 2018 and $16B in 2019) as a result, with potentially more on the way. "The bailout was created by the Trump administration as a way to try to calm outrage from farmers who complained they were caught in the middle of the White House’s trade war with China." (WaPo)
Meanwhile, food stamps (SNAP) are set to be cut by $4.5B (over 5 years) of its $68B annual cost. This comes after cutting 3M recipients in 2018, leaving 40M people on the rolls. Some product categories are heavily influenced by SNAP sales, and there may be an unintended consequence of piling hurt on top of existing trade concerns. It’s an interesting policy juxtaposition. (NYT)
I often hear people express business interest in a new food trend before having a sense of how big the segment is or how well it's performing. Here are a handful of stats I came across recently.
Starting with a big slice, specialty food hit $149B in sales in 2018. About 3% of that is sold via e-commerce. (Prog Grocer)
Organic products hit $53B in 2018, with organic food making up 91% of that total. This represents "[a]lmost 6 percent of the food sold in the U.S..." Organic produce and dairy dominate organic food sales, making up 36% and 14% of sales respectively.
is $17B, or 36% of organic food sales. (Nat Prod Insider)
The global gluten-free market is expected to hit $5B by 2021. "Even if Nestle, for example, captured this entire market, the gluten-free sector would still represent under 6% of the company’s total sales." (CB Insights, 50 page PDF report)
Half of CPG growth from 2013-2018 came from sustainably marketed products, with growth rates 5.6x faster than those not marketed as sustainable (though I suspect there is some cross-correlation with the growing preference for small, authentic brands). (HBR summary, NYU study PDF)
Sort of related and heartening
Food fads are politically universal. Despite our differences, conservatives and liberals are just as likely to avoid gluten. (PsyPost)
🎲 Unrelated and very reassuring
If you've taken a psychology class, you might have learned about the idea of the bystander effect. It's "a social psychological claim that individuals are less likely to offer help to a victim when other people are present; the greater the number of bystanders, the less likely it is that one of them will help." (Wikipedia)
One example is Kitty Genovese's murder in Queens, New York. Supposedly, 38 strangers watched and did not intervene or call the police. But it wasn't true. The Witness is a documentary that unravels how the myth came to be, following Kitty's brother as he investigates for over a decade (Indiewire summary, watch on Netflix). It turns out that the story told in psychology classes is completely false. In Genovese's case, quite a few people actually did intervene. One yelled at the attacker, which caused him to flee, and another neighbor held Genovese in her arms as she died.
Recent experiments confirm that bystanders are very likely to step in, completely contrary to the popular narrative. "Instead of more bystanders creating an immobilizing 'bystander effect,' the study actually found the more bystanders there were, the more likely it was that at least someone would intervene to help." Strangers step in to help 90 percent of the time. (CityLab, MSN)
Until next time,