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April 1, 2021April 29, 2022

Passing the Test of Time

By Dan Malovany

April 2021

Passing the
Test of Time

For a legendary family business, embracing change while respecting its heritage remains the secret to longevity and ongoing success.

Baking & Snack

Sometimes it takes an unwavering hand for family bakeries to persevere through the best and worst of times.

In 1920 during the Spanish flu, German immigrant Herman Seekamp purchased a little Chicago bakery called Clyde’s Delicious Donuts. Fast forward to last year, when the Addison, Ill.-based company and one of the nation’s leading donut producers celebrated its centennial, this time again in the middle of another pandemic.

Now Kim Bickford, chief executive officer and third generation owner, took his turn to guide the bakery through another tough patch in the company’s storied history. He thought of his grandfather, who led the bakery through the Great Depression by maintaining an optimistic attitude and a cautious approach to the business. That’s a proven formula that’s worked so well over the years.

“When the pandemic hit last year, one of the important things that I said to the organization was, ‘This company has been through a lot in the past 100 years, and we’re going to get through this as well.’ That’s a steady message that I tried to share with our team,” noted Mr. Bickford, who’s been with the company for 44 years.

“I’m not patting myself on the back, but that’s the thing you have to do when you’re in a position of a family business where you care about the people who helped make you successful, and you have to reassure them that you’re going to be successful going forward,” he added.

“We’re conservative in our business, and we take care of our customers and our employees. Those are the things that help a family-owned business survive.”

Maintaining a sense of history and addressing new challenges allow family-owned bakeries like Clyde’s Delicious Donuts to focus on tomorrow, noted Josh Bickford, executive vice president, strategic initiatives and fourth generation family member.

“Even though we’re a family business, what’s best for the business comes first,” he explained.

“Having a lot of mutual respect in the family has made that conversation easier at any given point. We have never been afraid to pivot or change with industry trends.”

Breaking the rules

Too many legacy businesses, however, get stuck in the past.

“You’ve heard of the 100-year rule that says, ‘We have always done it that way.’ We try to get away from that type of thinking,” Josh Bickford said. “We have to have new ideas.”

This mindset is one of the many reasons why some family bakeries succeed and others do not, especially when faced with one of those many watershed moments in a company’s history. For Clyde’s, the latest turning point came just a few years ago, when the donut producer pivoted from fresh to frozen distribution to serve the shifts in the in-store bakery channel.

“That’s allowed us to grow dramatically because we reached new markets,” Kim Bickford said.

Pivoting is not a catchy phrase that suddenly became popular for Neri’s Bakery Products. Anthony M. Neri, general manager for the Port Chester, NY-based bakery, said it has been a key for survival for this family business that was founded in 1910. He’s a member of the fourth generation involved in the family business with Brett Neri-Ferraro, head of human resources; Anthony Frank Neri, plant manager, and Salvatore Neri Jr., manager of the sweet goods department.

“You always have to keep evolving and keep up with the industry,” Anthony Neri observed. “With everything that’s going on, we shifted to a lot of individually wrapped items, which weren’t as big in demand five years ago as they are today.”

One of the company’s pivotal moments came in the early 2000s, when his father Dominick, now president, and uncle Paul Neri, vice president, shifted the business to contract manufacturing for major food companies from fresh independent deliveries to delis, diners and pizza joints at night.

“We never stopped providing those normal route jobbers at night,” Anthony Neri recalled. “We diversified. We no longer had all of our eggs in one basket.”

That decision paid off in a huge way during last year’s pandemic-driven shifts in the market.

“There are a lot of smaller family-owned players that might not be around now,” he said. “If you are solely surviving on those pizza places and diners, you may be in trouble today.”

For Flowers Foods, which celebrated its centennial in 2019, the transformational moment came in 1968 when the family’s second-generation owners took then-called Flowers Baking Co. public.

“It gave Flowers a way to finance growth and acquisitions as well as make capital investments needed to stay competitive,” said Brad Alexander, chief operating officer of the Thomasville, Ga.-based company. “Looking back, going public was the one action Bill and Langdon Flowers took that all but ensured the company would survive the coming consolidation in the baking industry.”

As a publicly held company, Mr. Alexander added, Flowers became answerable to its shareholders, resulting in a renewed emphasis on accountability and professionalism. It began to actively mentor and promote younger employees into management positions and hire people with a business education and experience.

“Talking to people who worked for Flowers at that time, you will hear that the ‘Flowers family’ culture created by Bill and Langdon did not change when the company went public,” Mr. Alexander said.

“Fortunately, they were able to keep that strong sense of teamwork, commitment to hard work and the values of integrity and respect. Employees were offered the opportunity to purchase stock and many of them did.”

During the flurry of industry consolidations through the next few decades, Flowers made more than 60 acquisitions. Several factors came into play during this period.

“One is that many family-owned bakeries did not have the capital to modernize their operations, improve efficiencies or grow their businesses,” Mr. Alexander explained. “Another is that some owners had no viable succession plan, no one to take over the running of their companies.”

Additionally, he noted, consumer food preferences began changing more rapidly, and family-owned bakeries often didn’t have the money to invest in developing and launching new products. The retail food business also started consolidating at this time. As grocery chains expanded, bakers were forced to serve larger geographic areas, which was difficult for some with limited direct-store-delivery systems.

“For many family-owned bakeries looking to sell their businesses, Flowers Industries was the company of choice,” Mr. Alexander said. “While Flowers’ growth, culture and experienced management were attractive, the real draw was the company’s stock, which was performing very well. Many of the acquisitions at this time were either all or partial stock transactions.”

For some companies, long-term survival relies more on managing the family than operating the business.

“There is an expression that I heard a long time ago that the first generation starts the business, the second generation grows the business, and third generation either sells the business or blows it,” Kim Bickford said. “I’ve been here long enough. I guess we haven’t blown it.”

History is littered with dozens of reasons why family businesses fail, including family squabbles, sibling shareholders who want to cash out or heirs apparent searching for more exciting careers. Industry veteran Bill Zimmerman Sr. comes from a family of bakers where his father, part of the third generation, didn’t want to run the Colorado Springs, Colo., business.

Today, he noted, some companies face unfunded pension liabilities, which make it difficult, if not impossible, to sell. Inheritance taxes have ended bakery dynasties. Regional family bakeries have gotten squeezed by the demands that national, big box retailers put on their suppliers. And then once-in-a-lifetime events like the pandemic have forced bakeries to sell or to fold.

Perhaps the main issue involves the lack of skilled labor coupled with an aging workforce.

“From an operations perspective, we continue to kick the can down the street about educating our workforce to understand what manufacturing is about,” Mr. Zimmerman said. “We are in dire straits, in my opinion, about educating people and replenishing the vast amount of knowledge that we’re losing because people leave the industry. It’s not so much about the family but finding people who can support the company as it goes forward.”

Leaving Legacies

By Joel Crews

April 2021

Leaving
Legacies

Looking back at a century of icons, innovations and industry giants

Meat+Poultry

Denver Post/Contributor via Getty Images

Sosland Publishing Company’s coverage of the food industry started out focusing on the grain, flour milling and baking industries for the first 50 years after its founding in 1922. During that same era, the meat-processing industry began a government-mandated transition away from being dominated by a handful of companies that developed an integrated infrastructure that made it almost impossible for outside cattle producers, feedlot operators, livestock transporters or processors to survive unless they were part of what was then, an insurmountable machine. There has always been an important link between the grain industries and commercial livestock production as feed quality and availability determines price, which is passed on to meat processors and the quality, availability and price they could demand for products on the market. A century ago, and still today, the constant has been the meat and poultry processing system’s reliance on grain-based feed to finish and sustain the herds and flocks needed to produce food for a dynamic, growing and migrating population. What has changed and continues evolving are the names in the game today versus 100 years ago.

Few if any of the pioneering companies, brands or descendants of the industry’s legendary leaders of 100 years ago are relevant or involved in today’s industry, evidence of the constant evolution and change that has made meat and poultry processing’s history a long and winding road dotted with plenty of peaks and valleys. Volatility has been a constant challenge for the meat processing industry as it has been for all segments of the food supply chain. Factors ranging from weather to labor issues to regulatory compliance to economic instability to international relations can have profound impacts on the degree of business success or failure any segment might experience.

Since Sosland’s founding, the company has expanded its portfolio of publications and websites to include a wider swath of food and beverage industries, including commercial and retail baking, global grain, meat and poultry, pet food, dairy and the supermarket perimeter. Looking closer at some of the names and companies that were prominent in the meat industry from a century ago sheds light on how the pieces complete the puzzle that is today’s industry.

Gimme’ Five

When considering the iconic meat companies and legendary leaders of a century ago, most historians would agree the five most famous names would include Philip Armour (Armour and Co.), Gustavus Swift (Swift & Co.), Thomas Wilson (Wilson & Co.) Edward Morris (Morris & Co.) and Patrick Cudahy (Cudahy Packing Co.).

Maureen Ogle literally wrote the book on the history of the meat industry. Her book, “In Meat We Trust,” published in 2013, documented how the dominating influence of these and other companies and icons for much of the late 19th century was all but snuffed out in the early 1920s. It was then that a US Federal Trade Commission investigation concluded that the vast majority of all livestock was slaughtered by one of the “Big Five” firms. The companies’ stakeholders were forced to surrender the control they previously had over the transportation infrastructure they relied on to achieve domination of the meat industry for decades by agreeing to sign the FTC’s Meat Packers Consent Decree of 1920. This muted the integrated system of stockyards (established in Chicago initially and later in Kansas City, Texas and westward); cold storage facilities; and the vast network of strategically routed railroads serving the country’s population centers the companies had relied on for many years of success. The decree was a result of an antitrust investigation ordered by then-President Woodrow Wilson. Congress went on with the passage of the Packers and Stockyards Act of 1921, to prevent consolidation and avert the threat posed by a meat monopoly. That power of consolidation was epitomized in the early 1900s by the “Beef Trust,” also known as the National Packing Co. that was formed in 1902 by Armour, Morris and Swift and was broken up about 10 years later. During its reign, the Beef Trust gobbled up scores of stockyards and slaughtering plants in the United States and grew its fleet of refrigerated railcars to thousands in route to controlling the lion’s share of US meat production.

When asked how the “Big Five” forged the path for future meat companies and laid the groundwork for today’s dominant companies and industry leaders, Ogle’s answer is simple.

“They didn’t,” she said.

That was because the consent decree and the Packers and Stockyards Act reshuffled the deck.

“Federal oversight was added to both the stockyard operations and the packing operations,” Ogle said. “All of those old companies really took a serious beating because in effect they had to dismantle a huge part of their corporate infrastructure and kind of start over again.”

The situation was made more challenging because World War I
had just ended and the United States was reeling from almost a half-decade of turmoil resulting from a boomeranging transition from peacetime to war and then back to a focus on domestic civilian life, all between 1914 and 1918.

New Blood

One post-war casualty that resulted was a collapse of agriculture as demand for grain diminished along with Americans’ appetite for beef. The 1920s was also the decade when refrigerated trucks challenged railroad shippers as a means for transporting meat to the growing population bases of the United States. This opened doors of opportunities for many smaller meat companies to break into the meat trade without being hamstrung by the new regulations facing the former industry behemoths.

Additionally, the new packers in the industry also held an advantage over the old guard because they were not bound by labor unions or old ideas that hindered the previous regime. Newcomers to the processing industry boldly forged completely different relationships with cattle feeders and ranchers who would sell directly to them and not be dependent on stockyards.

“Those big packers never again had the lock hold that they once did,” Ogle said. “So, for them, everything was scrambled and by the 1940s, what kept them going was really just the sheer demand (for meat) of another war,” thanks in part to canned meat being used to feed US troops overseas.

But after World War II, a new generation of investors and pioneers, like Warren Monfort and his son Kenneth, created a new model of feeding commercial cattle on a large scale for packers, who would contract directly with Monfort’s company and challenge the Corn Belt in/out feeders. For years, those feeders thrived by specializing in producing grains and when corn prices were low, purchasing and finishing range cattle with corn-heavy diets, cashing in on beef when it was worth more than corn. Monfort’s approach took the seasonality out of feeding and eliminated stockyards from the equation, which hit the Corn Belt hard.

“The stockyards just kind of fell to pieces in the 30s and 40s because there just wasn’t a place for them anymore in the system,” Ogle said.

Feeding Frenzy

Kenneth Monfort would grow his operations to eventually include processing facilities for lamb and beef as well as adding a distribution and transportation company. Monfort was also a pioneer in the industry for first introducing the concept of shipping boxed beef to customers, another departure from the previous era of meat processing. Monfort Beef ultimately became publicly traded and was renamed Monfort of Colorado Inc. ConAgra would go on to acquire Monfort in 1987.

In the post-WWI period feeding operations, like Monfort’s and others, the packing operators were doing business directly with each other, eliminating the once crucial role of the stockyards. Reliance on the railroads was replaced by trucking, which was unregulated for shipping of agricultural products at the time. The former heavyweights that once ruled the industry, no longer were factors and even asked to have the consent decree lifted because they could no longer compete in the new business.

“All of this had a big impact on the Corn Belt and the way people raised livestock and how they calculated the value of grain,” Ogle said.

Most of the legacy companies went through numerous ownership changes in hopes of finding their way back in the industry like the good ol’ days, to no avail.

“They were these big entities that were built for another time and place,” Ogle said. “They were really out of date especially because they had built so much of their infrastructure around railroads and stockyards and by the 1950s, they were just begging to be released from this consent decree.”

Some of the former giants, like Swift and Armour, attempted to survive other ways, including becoming poultry feeders when the broiler industry became a growing segment.

Inside the Box

After the 1950s, newcomers to the meat and poultry processing industry benefitted from the extinction of the top-heavy structure and big names that dominated 40 years earlier. They were not limited by the consent decree and didn’t have to operate under the scrutiny of labor unions, which wielded significant influence in meat plants starting as early as the 1880s and for most of the next 30 years. Add to the equation that well after World War II and especially starting in the 1950s, the US Department of Agriculture was charged with the mission of pushing beef production as much as possible, peaking when cattle production topped 132 million head in 1975. US per-capita consumption of beef would peak the following year.

One example of the next era of meat industry giants was Iowa Beef Processors (IBP), which was founded in 1960 by Andy Anderson, a pork processor, and Currier Holman, a cattle buyer. The duo opened a beef plant in Denison, Iowa, in 1961, with a modest operation that processed about 800 cattle per day. Their philosophy of building plants in rural areas where livestock already were being produced was an attempt at making the system more efficient by cutting transportation costs, securing cheaper, initially non-union labor and processing carcasses into smaller cuts, making boxed beef its focus.

With an industry background working in California and Idaho during the ‘20s and ‘30s, Anderson established IBP using a new and different lens, which didn’t include accommodating labor unions. That first plant was evidence of the new approach and was based on a single-story facility design to be as simple as possible and use as little physical labor as possible without union oversight. Like Monfort, IBP purchased livestock directly from feeders, pushing feedlots further into obsoletism.

“There was no way he was going to build according to the old model,” Ogle said. “He wanted to do exactly the opposite of the old model because that’s the kind of business he’d grown up in, on the West Coast. And so, Denison, Iowa, got this very state of the art and very different kind of operation than Armour and Swift had started.”

IBP’s model of building new-school, non-union processing plants and utilizing an unregulated trucking industry to ship its fresh products paved the way for others.
“Anybody who was a new packer by then, was trying to build a plant that didn’t involve union labor,” Ogle said. “It didn’t mean the union wasn’t going to show up and try to organize the workers, but the unions just didn’t play a part in the mindset of anybody who was thinking about opening a packing plant from say 1930 on, whereas Swift and Armour and Wilson were just stuck with them; they couldn’t get rid of them.”

After several rounds of corporate reorganizations, ownership changes and numerous lawsuits brought by the old guard, they were finally allowed to run some operations without union labor by the 1970s. By then, Swift had built a new beef plant in Grand Island, Neb., that started up in 1965 while investment companies were buying up the fledgling remaining properties of Swift, Armour and Wilson and terminating union contracts as part of many of those deals through the 1970s.

“And of course, by then, they’re still saddled with all those old facilities,” Ogle said, many of which were multi-level operations that were labor intensive and lacking efficiency.

With Anderson’s sole focus on operating packing plants, companies like Swift and Armour were forced to diversify and shift ownership with strategies focusing on a variety of foods, which put them at a disadvantage.

“I think the industry just kind of started over again,” Ogle said. “The business [by then] was so hyper-efficient by comparison. Many people have criticized current packers because their success was predicated on the idea that there would be no union constraints.”

She said what could be considered the “new era” of packers becoming prominent by the middle of the 20th century were located almost exclusively west of the Mississippi River and proudly operated as mavericks compared to the juggernauts that had dominated the industry before them. Monfort led the charge in that regard.
“Those guys saw themselves as breaking all the rules,” Ogle said. “They understood exactly how different their operations were from Swift and Armour. Monfort was pretty blunt about it.”

Part of the success of the newer generation of packing operations was due in part to the emergence of grocery store chains.

“I cannot overstress how important chain grocery stores were to the packing and feeding industry for livestock in the 20th century,” Ogle said. “Andy Anderson, for example wanted to deal with a big chain store with one central buyer.”

Meanwhile, for most of the new plants that didn’t ship across state lines, food safety wasn’t highly scrutinized by USDA inspectors, who were only required to inspect slaughter operations that were doing interstate shipping of products.

Poultry Minded

While pork and beef were king for most of the second half of the 19th century and the first few decades of the 20th century, poultry processing was steadily emerging as a protein competitor. Jesse Jewell, who was credited with making Gainesville, Ga., the “poultry capital of the world,” was a pioneer in the industry for introducing vertical integration to poultry producers. He joined his family’s feed business in 1922 and in 1930 he took the helm, just in time for the Great Depression. Jewell pivoted by supplying economically challenged producer-customers with chicks and the feed needed to raise them at his expense. After the birds were grown to market weight, he bought them back at a price that reflected his feed costs plus a predetermined profit for the effort of those early contract growers.

His family business, J.D. Jewell Inc., expanded its integration efforts in the late 1930s with the addition of a hatchery in 1940 and a processing plant the following year, just in time to reap the benefits from demand spikes related to World War II. Jewell then added a company-owned feed mill and rendering facility in 1954, completing its vertical integration, which served as a business model for future poultry companies. The company, which was known as the world’s largest integrated chicken producer of its time, was recognized for its signature frozen chicken and for being one of the region’s first employers to hire Black workers to staff its plants. Like its red-meat counterparts, J.D. Jewell resisted efforts of the unions to represent its workers in the early 1950s and violent protests to the unions squashed the organization effort. Jesse Jewell was an active poultry industry leader throughout the 1950s and sold the company to an investment group in the early ‘60s.

Ogle said Jewell learned quickly that the road to profitability in the poultry business was not in selling whole birds, but instead selling chicken meat as a value-added item and an ingredient in products such as frozen pot pies.

“Poultry was more of a processed food from the beginning,” she said.

Ogle said chicken, beef and pork peacefully coexisted in the 1950s and ‘60s, largely because steak and pork were abundant and especially after the war, when steak was no longer an aspiration for consumers and became affordable for the masses. In fact, poultry was for a time, viewed as a loss leader used by chain grocery stores to lure bargain shoppers with low-priced chicken to the meat department, where they would be tempted by higher-priced red meat items. Beef was, indeed, king until the 1970s, when rising prices and new questions about the healthiness of red meat began circulating. Soon, fast-food chains began to take notice and started marketing chicken as a healthier option that happened to be less expensive. Between the peak of 1976, per-capita beef consumption bottomed out for the next four years, dropping from 94 lbs per year to 77 lbs per year, the lowest point in a decade. Chicken’s competition didn’t affect the red meat producers until the late ‘70s and ‘80s when production practices like the use of hormones and antibiotics were called into question and consumers looked to poultry as a more wholesome alternative. It was just another in a series of challenges the meat industry has negotiated.

“The beef industry in particular has had kind of a tortured history,” Ogle said.

Leaders with legacies

Some longtime industry leaders from decades past recalled some of the shifting tides in the meat industry. Rosemary Mucklow, the 88-year-old director emeritus of the North American Meat Institute (NAMI), spent most of the second half of the 20th century leading industry trade organizations and lobbying for its stakeholders. When the industry began to make the transition to boxed beef after its introduction in the 1960s, Mucklow recalled the symbolic significance of Miller Packing Co., then based in Oakland, Calif., removing its rail system used to move carcasses. She estimated it was in the 1980s when its owner, Frank deBenedetti realized meat shipments would soon be exclusively made via vacuum-packed primal cuts, making carcass deliveries obsolete. She credits deBenedetti for his vision.

“He took the rails out of Miller Packing before other people were recognizing the change [to vacuum packaging] was coming,” she said.

Mucklow also said the company that pioneered vacuum-packaging technology, Cryovac, the food packaging division of Sealed Air, deserved more credit for the shift to boxed beef.

“Because of Cryovac, we were able to ship vacuum-packaged meat, which has a longer shelf life, and that development drove enormous change in this industry,” Mucklow said.

Barry Carpenter, the retired chief executive officer and president of NAMI who also served as Deputy Secretary of the US Department of Agriculture’s Agricultural Marketing Service, dedicated his 45-plus year career to agriculture.

In the early 1970s, Carpenter supervised meat graders in the Northeast, for processors in Boston, New York and Philadelphia, where railcars and trucks delivered “swinging beef.” However, when boxed beef became the norm in the early ‘80s, graders were cut drastically.

“The whole industry changed,” Carpenter said. “They no longer could come close to competing,” as more cattle were sent to big processing plants. “Since the early ‘80s, I think the percentage of the ‘big four’ was somewhere in the high 70s and it’s probably still there right now, it really hasn’t changed,” he said.

March 1, 2021April 29, 2022

A Century of Grain Trade

By Susan Reidy

March 2021

A century of
grain trade

Volume changes have been seismic, while origins and destinations have fluctuated and will continue to do so as new disruptors emerge

World Grain

©Olha Afanasieva – stock.adobe.com

S ince man began producing grain many centuries ago, there has been a need to trade it — with a neighbor, a neighboring village or a nearby region. As technology improved, infrastructure built, communication refined and crops burgeoned beyond demand, nations started looking beyond their borders for trade partners.

While there was global trade here and there a century ago, significant amounts of trade started in the 1960s and have continued to ramp up into the billions of dollars and millions of tonnes that move about the globe in today’s marketplace.

“Trade, in general, has moved from a regional relationship to a much more global intercontinental relationship that’s been facilitated by technology and transportation,” said Gary McGuigan, president of Archer Daniels Midland’s Global Trade group. “It’s just the globalization of what we do; it really is interconnected fully. While the formal tariff-free agreements have increased as well in those 100 years, we’ve also seen governments wanting to get involved either to limit exports or to buy imports into government reserves.”

The global trade of grain has increased exponentially from 1921 to an estimated 576 million tonnes in 2021, according to data from the Foreign Agricultural Trade of the United States (FATUS).

“We’ve had strong growth in trade, particularly for the last 20 years,” said Stefan Vogel, head of commodities for Rabobank, UK. “That trend will continue because production of all crops is increasing in regions that have land but not the most population. Other regions in the world where the population is growing, land and water resources are scarce.”

Along with the amount of global trade, the flow of commodities in and out of countries has fluctuated. Technological advances, along with protectionist policies and domestic subsidies starting before World War II and accelerating in the early 1970s after food price spikes, changed the geographic distribution of trade flows. Population growth in developing countries and the availability of cheap food encouraged reliance on imports, according to a Food and Agriculture Organization report on global trends and challenges.

Brazil emerged as a major exporter in the 1970s and continues to play a significant role in today’s global marketplace, one that likely will continue in decades to come. While the United States remains a key exporter, its No. 1 position has been supplanted by Russia in wheat exports and by Brazil with soybeans, most of which are destined for China.

China has become a major grain importer as it tries to feed 22% of the world’s population with only 7% of its arable land. Imports first surged in the 1970s, following economic reforms, and continued in the 1980s and 1990s as the nation emerged from isolation. In the first decade following its 2001 accession into the World Trade Organization, China’s imports were led by soybeans and sorghum.

Now, as it looks to rebuild its hog sector following an African swine fever outbreak and supplement tight domestic corn supplies, the nation is expected to import 24 million tonnes of corn, 10 million tonnes of wheat and 100 million tonnes of soybeans in 2020-21.

Looking ahead, while some factors that influenced changing global trade patterns over the last 100 years will remain, such as trade policies and population growth, several new disruptors are on the horizon that could permanently alter the flow of agricultural commodities. These include climate change, an increasing focus on sustainable production, the rising popularity of plant-based protein and a push for electric over fossil fuel use in vehicles.

China, Brazil soybean trends

(in 1,000 tonnes)

Globalization

Following the first wave of globalization, led by steam and the telegraph, world market prices started to drop in the 1920s. At that time, nearly 90% of the world’s wheat trade came from four countries — the United States, Canada, Argentina and Australia. But only 18% of global wheat production entered international trade. Nations started pushing for increased tariff protection and world trade plunged, according to the 20th Century Transformation of US Agriculture and Farm Policy report by the USDA’s Economic Research Service.

In the United States, agricultural exports fell by more than 20% from the previous decade. Agricultural exports remained flat until the 1960s and began to rise dramatically in the 1970s, fueled by adjustments in exchange rates and demand from the Soviet Union for imported grains and oilseeds, the ERS said.

Following World War II and into the 1990s, the United States was the world’s grain superpower, the ERS said, by leading in corn and wheat production as well as exports. Before the start of the 21st century, the United States annually exported one-third of the globally traded wheat and 70% of corn.

Two major disruptions in the 1970s led to lasting changes in global trade patterns: the Russian grain “robbery” and the US embargo on soybeans, said Dan Basse, president of AgResource Company.

“We’ve become a global agriculture market and it started with Russia (Soviet Union),” he said. “They were massive buyers because of the failure of the collective farming system. It really changed the landscape in the 1970s and it lasted until the Berlin Wall came down (in 1989).”

Prior to that, the Soviet Union had purchased some wheat from the United States in 1963 and in the 1970s implemented a policy of importing grain every year to feed its increasing livestock herds. In 1971, the Soviet Union bought some feed grains and the following year, faced with shortages, it quietly bought one-fourth of the US wheat crop in what has become known as the Great Grain Robbery. The United States subsidized the purchases, causing domestic prices to rise, and lost revenue while spending $300 million in public funds.

Top possible future trade disruptors:

- Plant-based protein
- Climate change
- Sustainability concerns
- Drop in biofuels usage in favor
  of electric

The shortage in the Soviet Union turned out to be part of an overall grain production shortage. As a result, wheat prices sky-rocketed and stocks were decimated. Global food prices in 1973 increased as much as 30%. But a new trade flow was created, and the Soviets would continue for decades to be a major importer of grain.

Over the next 20 years, the Soviet Union continued to import large amounts of grain, growing from 27 million tonnes in 1975 to a record-high of 47 million tonnes in 1985.

As food prices continued to rise in the United States, then-President Richard Nixon announced in June 1973 an export embargo on grains, including soybeans. This led to a huge surplus in the United States and dropped the price of soybeans by almost half. Farmers were not pleased and by October, the restrictions were gone. But the market already had responded.

Japan, which relied heavily on the United States for its soybeans for feed as well as use in tofu, was shocked by the embargo and realized it needed to diversify its supply to insulate against any future events. It turned to Brazil, which at the time had a small soybean industry.

Introduced to Brazil in 1882, soy was mainly used as feed for pigs. By the end of the 1940s, it started to be used as a feedstock and for cooking oil, according to the Land journal article, “Soy Expansion and Socioeconomic Development in Municipalities of Brazil.” In the 1960s, soy was cultivated in two states and the harvested area was 300,000 hectares.

As buyers sought out Brazil for their soybean needs, production expanded so that by the end of the 1970s, it had reached 8.5 million hectares.
In 1980, Japan and Brazil initiated the Japanese-Brazilian Cooperation Program for the Development of the Cerrados. During the 21-year program, Japan financed the expansion of farming into the cerrados, the tropical savanna region, while Brazil covered the cost of infrastructure improvements. Japan also helped finance the development of soybean varieties and pest management. Brazil, now the world’s leading soybean exporter, is expected to harvest 38.6 million hectares of soybeans in 2020-21.

Starting in the 1990s, a second wave of globalization was in full swing and the agriculture market was seeing significant increases in imports and exports. New competitors were emerging as nations reformed policies and adopted new technologies that lowered the cost of production and increased yields.

International attention turned to China’s demand for agricultural imports as the country emerged from isolation and allowed economic forces to allocate resources, said the ERS in its report, “China’s Growing Demand for Agricultural Imports.”

China’s accession to the WTO also generated additional projections, based on the principle of comparative advantage, that China would import more land-intensive crops and export labor-intensive products, the ERS said. Rising income and living standards, increasing urbanization and food safety concerns fueled China’s imports. It has been a major source of growth in world demand for soybeans since the 1990s, the ERS said, but the nation also brings significant volatility to the market.

“Sudden and dramatic policy shifts, and their subsequent effect on China’s international trade profile, make the country a relatively volatile player,” the ERS said. For example, in 1994 and 1995, China abruptly increased its grain imports and cut off corn exports as concerns about grain shortages and inflation became widespread. Then, from 1997 to 2003, China stopped importing wheat and boosted grain exports.

Overall, the value of agricultural goods traded tripled from 1995 to 2014 and the estimated inflation-adjusted value roughly doubled, said the ERS in its report, “The Global Landscape of Agricultural Trade, 1995-2014.” Trade grew to accommodate an increase of more than 25% in global population and a 75% increase in real gross domestic product.

In that 20-year timeframe, developing countries started participating more in global agricultural trade, particularly imports. The share of import value by developing countries increased from 28% in 1995-99 to 42% in 2010-14, the ERS said. Vietnam, India and the United Arab Emirates became more substantial importers during that time, as did Saudi Arabia and Iran.
The sources and destinations of agricultural trade also became more diverse in that 20 years, with the top five countries accounting for 63% of total imports in 1995 but only 48% in 2012-14.

The top five exporting countries — the EU, the United States, China, Russia and Japan — shifted positions slightly in the 20-year span but they remained at the top of the list. The share of the top five exporters fell from 85% in 1995 to 75% in 2012-14, the ERS said.

With new low-cost producers and exporters, the global grain trade was set again for transformation. Traditional importers now had excess product to move and nations started looking for new trading partners, resulting in the global grain trade flows of today.

Russian wheat imports/exports

Today’s trade flows

Perhaps one of the biggest transformations in the recent past and into today is Russia’s, and to a lesser extent Ukraine’s, move from major grain importer to exporter. Russian grain output started increasing in 2000, creating substantial surpluses for export. The nation moved from a net grain importer of 3 million tonnes per year on average from 1996-2000 to a net exporter of an estimated 49 million tonnes of wheat and coarse grains in 2020-21.

In the last 30 years, grain production in Russia and Ukraine has increased 66%. While new land was brought into production, it was higher yields that fueled the increase. Average yield in the two nations increased by 76% over 30 years.

After the Soviet Union broke up, new technologies were available and production incentives changed. When meat production subsidies stopped, output dropped significantly and therefore so did the amount of grain fed to livestock.

Russia is now the world’s largest wheat exporter and is expected to produce 85.3 million tonnes in 2020-21. While its recently announced wheat export tax and grain export quota is expected to temper exports later in the marketing year, the USDA is still expecting Russia to export 39 million tonnes of wheat.

“The Black Sea will continue to be significant exporters for the foreseeable future,” Basse said. “They’re having problems with domestic food inflation, but they will continue to produce crops of 90 million tonnes or more. We’re still looking at a substantial ramp up in production. They’ll accomplish this through the weak ruble. Plus, there’s still another 27 million acres of the collective farming system that can be brought into production.”

All eyes are on Russia given its massive crop, Vogel said. But an export duty on wheat means farmers and grain handlers will not be able to participate much in global wheat price advantages.

“It opens up ways for other regions to take some more market share in the future away from Russia, if prices would remain really high,” he said. “Russia’s on a level playing field if prices are low. With prices above $200, Russia is at a disadvantage in the future.”

Ukraine is replacing barley with corn and is not only increasing the area of grains, but also the yield per hectare, Vogel said. It made the change after the government liberalized the export market for corn. In the last 10 years, exports have increased from about 5 million tonnes to 25 million tonnes today.

Throughout the last century, and particularly in modern times, government policies have had a siginificant impact on the the flow of grain around the world.

“Trade policies, protectionism, tariffs or barriers to trade, whatever you want to call it, ultimately they have caused disruptions in the trade flows,” McGuigan said.

Government policies in China, and the continued volatility of how and when they are applied, has swayed the market for decades. The United States continues to feel the strain from its trade war with China that dropped soybean exports by 70% in 2018 and now Australia is reeling from an 80.5% tariff on its barley exports to the nation. In the 2018-19 marketing year, more than half of Australia’s barley went to China.

“Disruptions like these are opportunities for bigger players,” McGuigan said. “Ultimately the grain will flow, the traditional route may change, but the grain will flow. So, China will buy more from the US, Ukraine, Argentina and less from Australia. Australia is still producing the same grain so it will have to ship it somewhere else, to Africa, other places in Asia.

“It just comes back to the global connectivity of all these trade flows. I don’t think anybody can really manage those trade flows 100% anymore. They may have been able to do it 100 years ago, but not anymore.”

While China did increase its imports of US soybeans as part of the phase one trade agreement, it did not reach the first target, which called for the purchase of $36.5 million in farm goods. Estimates showed China would have had to import 40 million tonnes of soybeans to reach that target, but only imported 25.89 million tonnes. That was still higher than 2019, when it imported 16.94 million tonnes of soybeans from the United States. Brazil stepped in as China’s top supplier, exporting 64.28 million tonnes of soybeans to China in 2020, up from 2019 and will export an estimated 57.67 million tonnes in the current market year.

In addition to soybeans, China likely will remain an importer of corn for a few years and has the potential to be the No. 1 corn importer in the world very soon, Vogel said. In fact, the February World Agricultural Supply and Demand Estimates showed import demand from the EU at 19 million tonnes, Mexico at 16.5 million tonnes, Japan at 16 million tonnes, and China at 24 million tonnes.

“That’s not driven by politicians,” Vogel said. “They’re having to supply those corn needs for the livestock sector. At the same time, it has reduced corn stocks over the last five years, so there’s not much they can easily bring on to calm down the market. China needs a high number of corn imports, and the US is a good supplier. South America will always play a role in that also.

“It will take a few more years for it to recover from African swine fever. It’s a positive sign for the future that the country will have very strong import numbers going forward.”

Along with losing a major share of soybean exports to Brazil, the United States has felt pressure from other regions in corn and wheat exports. Competition from Russia, Ukraine and Australia has weighed down wheat exports, while Brazil, Argentina and Ukraine are driving down its corn export share. The trade war with China boosted Brazil into the No. 1 export spot for soybeans.

The emergence of new low-cost producers and exporters in global, wheat and soybean markets are transforming global grain trade, the ERS said.

For example, Indian wheat exports are returning to the global market in a significant way for the first time in several years, the FAS said in its February “Grain: World Markets and Trade” report.

“India’s ample supplies are poised to reach additional markets as stocks tighten among many of the top exporters,” the FAS said. “India’s domestic support programs have a history of periodically expanding wheat production and burgeoning government-held stocks.”

Even with record consumption, stocks are at record levels. Several years ago, when stocks reached a high level, relatively high Russian export prices opened opportunities for India to supply Asia and Middle East markets, the FAS said. In recent months, Indian export prices have eased while prices for major suppliers have risen,
“This will afford India the opportunity to seize greater market share in Bangladesh and expand to additional markets,” the FAS said. “However, the scale of exports from India is not likely to match that of several years ago, since a larger Australian crop will provide formidable competition in Southeast Asian markets.”

McGuigan agrees India will be more present in global trade flows, which likely will include pulses of which India accounts for 25% of global production. As people’s diets change toward more vegan or plant-based protein, he said pulses will be more present in global trade flows.
“I do think India will be very important in those trade flows,” he said. “There is a big potential for much increased trade in pulses globally. The industry is set up for it. They use the same transportation, both across the sea and going in and out of ports.”

Africa could also become a bright beacon for trade in the years ahead, Basse said. Some believe Africa is moving toward self-sufficiency while others say because of a failed political system, the region will be importing more.

“Africa agriculture could improve; they have potential,” he said. “Somewhere there is an opportunity on the demand side, looking at 2025 and beyond.”

North Africa is a big importer of grain and oilseeds and will continue to be, McGuigan said, while sub-Saharan Africa has the potential to be a huge producer of grains.

“For whatever reason, they’ve not been able to harness that potential,” he said. “Fifty years ago, Zimbabwe was the breadbasket of the continent and now it’s not. The land is still there, the soil is still some of the best in the world but unfortunately it hasn’t been harnessed and I don’t see that happening anytime soon.”

Future disruptors

History has shown that grain flows can shift, sometimes rather quickly, and impact global trade for years and even decades to come. While it’s not possible to precisely identify what the next disruptors may be and how flows may shift, analysts see a few potential issues on the horizon.

One factor that Vogel said grain and oilseed producers should be worried about is the uptick of alternative proteins. Much innovation is happening in that field, whether it’s plant-based or through a fermentation process or cell cultured meat, and there is significant investment.

“If it got to the point where those proteins are accepted by the population, are considered safe and are price competitive, it could be a big disruption,” Vogel said. “We would still have protein isolating concentrates and capacity expansion of pulses and so on, but that is a scary picture if we can produce meat without using a lot of grains. It’s going to get very challenging for those producers of soy and corn. But who knows if and when, and to what extent that occurs?”

McGuigan said alternative proteins may displace wheat and corn because of less demand for feed, but growers could pivot to growing more soybeans and pulses.

“It’s still agriculture,” he said. “The overall demand for protein would continue to increase, the mix will just change.”

Falling demand for biofuels in the future, as governments push electric vehicles over fossil fuel, could also cause a major shift in corn and soybean markets. In the United States, California has banned the sale of new gasoline-powered vehicles by 2035 and other states have legislation pending. Other countries have their own initiatives, such as Sweden, which has pledged to stop using fossil fuels by 2050 and Norway, which plans to ban the sale of fossil fuel cars by 2025.

“It will be a transition,” McGuigan said. “It depends on how quickly we ramp up on the electric side. The market share will grow over the next 10 years, and that will lead to a reduction in the demand for fuel. But you may see governments then mandating for more ethanol and biodiesel. So, you may have less fossil fuel going in and more ethanol and biodiesel, to keep the demand for those products the same overall.

“From the political point of view, the farm lobby from North and South America is pretty strong and they won’t want the mandate of biofuels to go away.”

Climate change could push soybean production northward, opening up further opportunities for regions such as Canada and the Black Sea, Basse said. Shorter variety soybeans are already making it possible to grow soybeans in Canada and encouraging construction of crush facilities in the Black Sea.

“Those kinds of things will keep happening,” Basse said. “Climate variability is something that will be with us. We’re only understanding a little bit of it today.”

Data has shown that severe climate events, whether it’s flooding, drought, or something else, seem more robust than the world has experienced in the last three or four decades, he said.

Hand-in-hand with climate change is the increasing focus on sustainability. Countries and regions are setting targets, as are individual companies, so it’s not a one-size-fits-all policy, Vogel said.

“Sustainability will remain a very important piece of global agriculture in the future,” he said. “It will have an impact on certain regions in the world.”
ADM has made serious commitments around responsible land use, no deforestation and no employee exploitation, said McGuigan, noting that the company launched its Strive 35 plan to reduce greenhouse gas emissions by 25%, energy intensity by 15%, water intensity by 10% and achieve 90% landfill diversion rate by 2035.

“We’ve already committed to not buying from deforested areas,” he said. “I do think that will have an impact on the land use in areas like South America where potentially people think there may be further expansion.”
Increased production will have to come from increased yields from the land already in use. Yields, in general, over the last 100 years are off the chart in terms of efficiency, McGuigan said.

“We’ve got to continue to look at that in an agronomic way to improve yields going forward,” he said.

March 1, 2021April 29, 2022

The Rise of Fresh

By Andy Nelson

March 2021

The rise
of fresh

Where the grocery perimeter’s been, where it is now,
and where it’s headed

Supermarket Perimeter

ClassicStock / Alamy Stock Photo

In the 1970s, when Rick Stein was in the early years of his career in retail grocery, perimeter sales made up about a third of total sales for the East Coast chain he worked for.

Meat and produce were big. But many stores didn’t even have what we would consider retail foodservice today. And the instore bakery was still a gleam in most retailers’ eyes, if that. Deli prepared? Sure, but it might be fried chicken (but no rotisserie), a few sides, maybe livers and gizzards, and not much else. And forget about grab ‘n go.

When Stein left the company in 2013, perimeter’s one-third share had risen to more than half.

“Not only has fresh expanded its contribution to the total, it’s also expanded the footprint,” said Stein, vice president of fresh for Arlington, Va.-based FMI – The Food Industry Association. “In our annual Food Industry Speaks report, members tell us what’s going on. And what’s happening is stores are differentiating themselves in the perimeter. It’s a part of their key strategy.”

And there’s no reason to think that, once the pandemic is in the rearview mirror, it won’t continue to rise.

“I believe the fresh perimeter will continue to thrive, for a number of reasons,” Stein said. “For one, many items in the perimeter are key ingredients to making meals.”

Even if people don’t cook an entire meal from scratch, Stein said, chances are they’re getting a good number of those ingredients from the perimeter. Maybe they buy the steak from the meat case, then add a salad kit from produce and a prepared side from deli/prepared.
Another reason is health.

“Health and wellbeing have never been more in the forefront,” Stein said. “The virus is hurting people with underlying conditions. When you’re cooking at home, you’re thinking about the foods you eat day after day, and health is often affiliated with the fresh departments.”

Building the perimeter
of the future

A to-do list for retailers from IDDBA’s Eric Richard

Cater to specific dietary needs
Engage, engage, engage: find ways to turn visits to the perimeter into experiences
Get cooking: hire chefs and have them on the floor educating consumers
Diversify: find new ways to combine brick-and-mortar with surging ecommerce

Are you experienced?

Several years ago, Eric Richard and several of his colleagues at the Madison, Wis.-based International Dairy Deli Bakery Association read an article about the “experience economy” and the ever-greater role it would play in luring consumers into retail stores and keeping them there.

That emphasis on consumer experiences went on to inform IDDBA’s What’s in Store Live displays at its annual conventions, and it’s one of the first things Richard, IDDBA’s industry relations coordinator, thinks about when the topic of the evolution of the grocery fresh perimeter over the decades comes up.

“The importance of experience in the fresh perimeter is especially important, with all of the new channels competing with grocery,” he said. “When I was growing up, people shopped at ShopRite, or Pathmark. They didn’t shop for groceries at the convenience store or a club store.”

With so much more competition in the market now, creating experiences consumers will remember is more important than ever, Richard said. And supermarkets, while facing intense competition, still have built-in advantages the other channels can’t hope to match.

“You’re not going to smell fresh bread being baked, you’re not going to see sandwiches or pizza being made, or the variety of cheeses, or sampling,” he said. “Fresh departments have greater roles now than they had decades ago.”

Produce butchers preparing just-purchased whole fruits and vegetables for consumers is one of the many types of experiential upgrades likely to be seen more frequently in the new normal, Stein said.

In retail fresh seafood, which has exploded during the pandemic, expect seafood mongers to play an ever-greater role, helping consumers with cooking and pairing advice.

The same goes for butchers in the meat department. And technology will continue to play a big role. Stein said some retailers now have screens in their departments with videos showing how to prepare and cook certain cuts. Sales for those cuts have soared accordingly.

There’s no denying the explosion of ecommerce in the retail grocery space, particularly in the wake of COVID. But at the end of the day, Richard said, shopping online is not the same as shopping in the store, particular in the store’s fresh perimeter departments.

Ecommerce’s growth will obviously continue apace even after the pandemic has finally passed, but Richard is optimistic about brick-and-mortar’s future, particularly when it comes to the perimeter.

In the know

Hand-in-hand with that, Richard said, is supermarkets’ growing role as a hub of information for shoppers — something else that evolved in recent decades. IDDBA, for instance, is currently working on implementing a charcuterie certification program that will help retailers explain a complex industry to a consumer base that is ravenous for information on the topic.

The same goes for cheese, for entertaining in general and for countless other aspects of the perimeter experience where education could open a world of opportunity to grocery retailers.

“Trending flavors, foods consumers haven’t tried but want to try — the supermarket can educate people about what they’re selling and tell those stories – the grocery store becomes the storyteller,” Richard said.

Another huge change that has affected the perimeter, and grocery stores in general, over the decades has been demographics-based, Richard said. Namely: households, on average, aren’t nearly as big as they used to be.

“Forty to 50 years ago you’d be shopping for a family of four or five. Now it’s a single person, or someone and their partner. The size, the quantity, how it’s packaged has all changed.”

That’s definitely true in the instore bakery, Richard said. Not everyone is looking to buy an entire loaf of bread these days. Maybe they want half a loaf, or even just a few slices.

“Demographics have impacted how products are merchandised,” he said. “It’s true in the deli, too. Not everyone wants a pound or a half pound of turkey. Maybe they want a quarter-pound instead.”

“When we get back to normal we’ll see all these trends that were emerging before the pandemic, plus new innovations. There will definitely be continued growth on the fresh perimeter. At the end of the day, when it comes to supermarkets, the fresh perimeter is really the draw.”

Looking ahead

One change in the perimeter that is more recent, Stein said, is the emphasis on locally grown and sourced foods and on assortment.

“Think of a produce department in, say, 1979, or 1983. In the mid-Atlantic, where I grew up, if it was January, you’d see a lot of hard goods —apples, pears, onions and potatoes —but not soft fruit. You’d have to go to frozen for that.”

Now, with imports, it’s easy to find almost whatever you could possibly want in the way of a fresh fruit or vegetable, year-round.

Stein also expects retail foodservice to continue making the huge strides it was pre-pandemic.

“Stores’ culinary capability has really blossomed in the last 10 years,” he said. “They’re competing with restaurants.”

Some things could permanently change due to COVID, however. Donuts from the instore bakery are more likely to be marketed packaged. Hot bars will return, but for now, instead of consumers serving themselves, a clerk will dish up their foods to avoid too many hands touching the same serving spoons and ladles.

Salad bars may be repurposed as grab ‘n go premade salad areas. (Repurposing could be a necessity for many retailers who have invested in expensive equipment, some of which isn’t easily moved.)

Retailers can look to capitalize on that repurposing by adding other cold grab and go deli prepared items. Some, for instance, have already seen success marketing cold chicken wings in repurposed bars, Stein said. Retailers may worry about the added labor expense, but Stein said volume can make up for that if consumers see value in it.

“One retailer put their wing bar into full-service, and they sold through the roof,” he said.

The star of the store

Dollar sales growth: 4-year CAGR

Hy-Vee: What’s changed, what’s stayed the same

We asked Dawn Buzynski, director of strategic communications for West Des Moines, Iowa-based Hy-Vee, to share her thoughts on how the fresh perimeter has evolved for the retailer.

Supermarket Perimeter: Looking at the perimeter as a whole, what have been some of the big changes over the years?

Dawn Buzynski: For Hy-Vee, the perimeter has evolved from your more traditional offerings – meat, dairy and produce – to the very best selection of those items, plus things like artisan breads, prepared meals, fast-casual dining options, charcuterie, cheeses and more. While much has changed with what we offer our customers over the years, our commitment to quality produce, fresh-baked breads and a variety of meat and meal options in our perimeter is still a focus.

SP: What about produce?

Buzynski: Hy-Vee’s produce section has always been a colorful point of entry greeting for customers. It’s changed over the years in both quality and offerings, and the selection has evolved with the availability of specialty items to offer our customers. Over the years we have added organic and specialty items, adding to a much wider selection. Country of Origin Labeling (COOL) is important for customers because they want to know where their produce is coming from. Advancements in shipping and technology allows us to procure quality produce across the global as well as locally. When we are not able to source items locally, we have invested in technology – from the warehouse, to transportation and in-store, to keep produce from around the world – such as bananas – fresh. We’re proud of our Hy-Vee Homegrown initiative, where we partner with local family farmers within a 200-mile radius of a particular store to provide customers with local options. This not only supports local communities, but it provides our customers with the freshest produce from farm to store.

SP: What other perimeter departments have seen big changes over the years?

Buzynski: Over time, we’ve incorporated coolers into the perimeter at the front of the store for quick grab-and-go options, including take-and-bake prepared foods. As we move forward, we remain committed to staying on the forefront of trends and offering our customers the best experience in fresh. We offer a large selection of artisan breads, charcuterie, a world-class meat and cheese selection, and many prepared food options. Prepared foods include our Hy-Vee Mealtime-To-Go selections, which are made fresh in-store and allow customers to take pre-made meals home to feed their families. Fast-casual departments, such as Hy-Vee Chinese, Nori Sushi, Hickory House, and Italian round out the prepared meal options with something for every palette.

SP: What role has technology played in the evolution of the perimeter at Hy-Vee?

Buzynski: Data has been a critical factor in changing the offerings, variety and price points of fresh foods offered throughout the perimeter. By using consumer purchase behavior data, along with focus groups and secondary research, we’ve been able to continuously evolve our perimeter to meet the needs of our diverse shopping population. As we’ve seen the interest in fresh food increase, we’ve also had the data to support growing the footprint of the fresh perimeter, to allow for greater product selection and variety.