ERS sees challenges in processed food market

- Last updated on GMT

Related tags: Food industry, Food, Trade

Global processed food sales are today worth $3.2 trillion, but
according to a report published this month by the Economic Research
Service, this trade has been stalling since the 1990s forcing food
manufacturers to look at new ways of operating.

The report​ is entitled New Directions in Global Food Markets​ and has been written by Anita Regmi and Mark Gehlhar, two economists from the market and trade economics division of the ERS/USDA.

They say that although processed food sales are a major component of global food markets and account for about three-fourths of total world food sales, only 10 percent of processed food sales are traded products.

"Consumer demand for processed food continues to grow globally, but growth in processed food trade has generally stalled since the mid-1990s,"​ said Regmi and Gehlar. "While trade policy may contribute to this disparity between trade levels and market performance, many other factors are at play."

It is therefore imperative that food manufacturers understand changing consumer preferences, technology, linkages between members of the food supply chains and prevailing policies and business environments to take advantage of the global market.

The authors of the study state that developing countries are expected to largely account for future increases in food demand, resulting from increases in population and in per capita food consumption. Annual growth rates of retail sales of packaged food products in developing countries range from 7 percent in uppermiddle- income countries to 28 percent in lower-middle-income countries, much higher than annual growth rates of 2-3 percent in developed countries.

Meanwhile, in mature developed-country markets, product differentiation, value added, and consumer trust are important considerations for those seeking to retain market share, according to Regmi and Gehlar.

"In all markets, market forces are expected to push the evolutionary process toward increased efficiency, higher quality products, and more integrated food supply chains,"​ they said.The authors single out increased private label products and more integrated supply chains as key trends.

"The quest for efficiency and cost reduction has encouraged investments in new technologies and joint ventures with marketing intermediaries and producer associations able to meet big volumes and high private standards,"​ they said.

In a food industry driven by consumers' retail pull, food manufacturers have to continuously reorient themselves to remain competitive. Firms that respond to market signals are better able to adjust and maintain their positions in the industry. Flexible organizational structures that enable firms to make adjustments at various stages of the production process in response to consumer demand are better suited for the current industry.

"Such a business structure is possible if firms operate in close coordination with producers and other sectors of the supply chain,"​ believe Regmi and Gehlar.

They concluded by stating that expansion in foreign markets is contributing to the growth of large multinational food manufacturers. But, although significant concentration may exist in certain individual product markets at the local level, at the global level, even the largest food company accounts for less than 3 percent of total world food sales.

"The diversity of consumer demand creates opportunities for smaller firms to successfully compete in the marketplace."

Related topics: Suppliers

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