Global trade talks sponsored by the World Trade Organization (WTO) came to a halt earlier this week as the key parties were not able to resolve disputes over agricultural subsidies and tariffs.  The primary differences of opinion were between emerging market countries such as China and India and the more developed markets of Europe and the United States.  Experts state that this is the first multilateral trade agreement that has failed since the 1930s.   The trade talks’ failure has led many to question whether we will see a reversal in international trade patterns.  Some suggest that we are entering a new era of trade in which nationalist interests will prevail over open, globalized markets.  If true, it could mean that there are fewer food imports/exports and more in-country production. I think it is too early to predict the long term impacts of this week’s events, but there is no question that more of the food we eat will be harvested and produced locally.   However, in my opinion this changing dynamic will not be the result of government trade regulation or the WTO.  It will be driven by the consumer population’s growing interest in “locally grown” products.  

What is Local Food? 

While there are no constraints on the types of food that can be produced locally, the highest consumer interest is in the perishable categories of fruits and vegetables; dairy and cheese; meat and poultry; bread and eggs.  Other local categories are emerging quickly such as alcoholic beverages - think regional wines or microbrews.  

The interest in local foods is growing quickly as an increasingly broad segment of the consumer population is actively seeking out locally grown products.  The highest concentration of spend is from a group of consumers called locavores.  A locavore is someone whose diet consists of food grown or produced within their foodshed or a determined radius from his or her home.

You might ask what constitutes local versus remotely sourced.  A devout locavore would argue that only food produced within 30 miles of where they live is truly local.  However, others might accept a broader definition as food from my county, state or country of residence. 

Why buy Local? 

My research finds that there are eight characteristics of local food that are attracting record numbers of consumers.  Shoppers find local food to be:

1. Fresher – Consumers perceive that local foods will be fresher and taste better as they have not travelled as far to reach the store.
2. Healthier – Consumers expect local foods to contain fewer artificial colors, flavorings and preservatives.  Many local foods are organic.
3. Cheaper – Consumers perceive that local foods are cheaper due to the reduced transportation and storage expenses.
4. Greener – Less energy is consumed to transport local foods therefore less pollution is created.  Terms such as “food miles,” “farm to table” and “farm to plate” are becoming common metrics for evaluating local sourcing efforts.
5. More Neighborly – Local food supports farmers and merchants keeping jobs in the area.  In the case of rural markets, the primary consumers of the food may be the producers or neighbors within the community.
6. More Trustworthy – Consumers gain a sense of confidence by understanding where the product has come from.  The benefit is compounded in areas with a strong reputation for producing high quality foods.
7. Safer – Recent salmonella outbreaks and other safety issues from adjacent consumer product segments have led to a crisis of confidence in foreign products.  Consumers perceive lower risk with foods produced in their own country.
8. More Fun – Many consumers find it fun and interesting to shop for local foods.  The products offer a variety unobtainable from many of the popular, mass-market national brands.  Some consumers purchase local foods for special occasions or to support heritage.

Not everyone buys Local 

Not all consumers are agreed on the benefits of local sourcing.  Some consumers complain that local foods are:

• Expensive - Many consumers perceive local food to be in higher demand and therefore priced at a premium. 
• Inconvenient - Busier consumers do not have the time to visit specialty retailers or compare the place or origin when shopping.
• Lower Quality – Particularly in areas which do not have a strong reputation for local agriculture or high quality food products, quality is viewed to be substandard.
• Inconsistently Available – Due to the seasonal nature of fruits and vegetable harvests, many foods cannot be locally sourced year-round.

The Changing Food Industry 

The food industry is in the middle of period of radical change that could affect market dynamics for the next few decades.  Rising prices for commodities, restrictions on international trade and new preferences from consumers are changing the game for food producers worldwide.  This is a significant trend that will not only impacts food products and prices, but also the business models and supply chain processes of the industry overall.  More thoughts on this topic in a future post…

I was not able to post any blog entries in June as it was an unusually busy month for me.  In some respects I expected to be busy as I had planned some vacation time.  However, I also had a few unexpected events that kept me out of the office.  In the early part of the month, I had the pleasure of contracting a fairly nasty stomach illness, which kept me confined to my bedroom (and bathroom) for about 48 hours.  I had just suffered from a stomach virus in late March so my initial assumption that I had caught another strain.  Although the illness was not pleasant, my bigger concern was that I was going to pass on the stomach virus to my 18 month old son and my wife who was six months pregnant.  However, my illness proved not to be contagious as my son and wife never became sick.  As I read the newspapers over the following week it occurred to me that perhaps my illness was not a stomach virus, but salmonella poisoning instead. 

The US has been the victim of a fairly serious outbreak of salmonella in raw tomatoes throughout the past two months.  The latest reports from the Centers for Disease Control have identified 810 salmonella cases in 36 states linked to raw materials.   The tomato salmonella outbreak is the largest fresh produce contamination issue in US history.  In early June, many of the top food service establishments such as McDonalds, Burger King and Chipotle all stopped serving tomatoes for a short period of time.  Grocery retailers suspended sales of tomatoes as well.  One of the unfortunate consequences of food safety issues is that an entire product category is often penalized for problems that may be isolated to a particular SKU.  Regulators, retailers, distributors and manufacturers have learned to be overly cautious in the case of public food safety matters.  No retailer or manufacturer wants their brand name tarnished by a series of public health issues.  Such was the case with tomatoes in the US throughout the early part of June.  For example, Roma tomatoes were identified to be the source of the poisoning.  Cherry, grape and other variants of tomatoes were not affected.  Public health officials were able to isolate the geographic source of the outbreak as well.  Tomatoes harvested in California, Texas, Georgia and many other states were deemed to be safe for consumption.  Nonetheless, grocery and food service retailers were not discriminatory in efforts to remove tomatoes from their product lines.  The National Restaurant Association claims the salmonella outbreak has cost the industry $100 Million to date.

The source of the contamination has still yet to be identified.  Experts state that the root cause may never be determined.  Given the advanced technology and extensive resources in the US, I find it fascinating that after 60 days public health officials have not been able to pinpoint the source of the outbreak.  The Centers for Disease Control (CDC) seems to have the primary responsibility for researching the root causes of food safety issues.  The Wall Street Journal published an article titled “Anger Rises over Salmonella Probe” on the front page of yesterday’s newspaper.  Also on the front page was a story about how the US government is forcing UBS to divulge account holder information for several of its customers.  I thought the point of having a Swiss bank account was to keep the ownership information private!  In any event, I am pleased to see that the government has plenty resources to violate privacy rights and prosecute tax evaders even if they cannot resolve long-standing public health issues…

But let us suppose that the CDC had been able to quickly identify the source of the outbreak amongst the various tomato growers.  How quickly would the agricultural and retail community have been able to respond?  The easy part would be to contact the affected tomato farmers to request suspension of all future shipments.  The more challenging exercise would have been to pinpoint the location of all the contaminated tomatoes already stocked in various warehouses, grocery stores and food service establishments throughout the country.  Which types of supply chain applications and e-commerce technologies could be leveraged to rapidly identify and recall contaminated food products?

The retail industry has developed a set of standards for the traceability of food products.  The efforts have been led by the GS1 organization based in Brussels and its various member organizations throughout the world.  Specific traceability models have been developed for fresh produce products as well as beef, fish, wine and bananas.  More information can be found at www.gs1.org/traceability.  The food traceability processes depend upon a few key e-commerce technologies such as EDI, data synchronization, barcode labels and RFID.  Unfortunately, many of the underlying e-commerce technologies, particularly data synchronization, suffer from a lack of critical adoption by major retailers and agricultural product manufacturers.  As a result, the GS1 traceability models would be relatively ineffective in efforts to accelerate the recall of unsafe food products from the supply chain.

I find the lack of a technology infrastructure to rapidly isolate and recall unsafe food products somewhat disturbing.  What if the tomato salmonella outbreak was much broader in scope, affecting 8,000, 80,000 or perhaps even 800,000 people?   What if there was an intentional effort to sabotage the food supply (i.e. bioterrorism)?  How many lives would be impacted?  What economic impact would occur?  Should the retail industry and government regulators be more aggressive in efforts to promote food traceability technology?  More in a future post…