Dispatches from IFT

Take advantage of recession, says former White House director

By Jess Halliday

- Last updated on GMT

Food firms can benefit from the downturn by taking advantage of lower advertising and input rates and positioning for recovery, said economic expert at IFT.

In his keynote speech last weekend Todd Buchholz, author and former White House economic policy director, talked about the shifting building blocks of the world economy, and the changing era of competition.

“These are, we all would agree, revolutionary times,”​ he said. But lessons from the Great Depression of the 1930s can provide signposts for food firms to prepare for recovery.

“Now is the time to take advantage of lower advertising and input prices to prepare for the future.”​ Buchholz used the example of cereals giant Kellogg, which saw 33 per cent growth in the first years of the depression.

Moreover, treating customers and business partners well can help strengthen businesses for the future. For instance Ray Crock, who built the McDonalds burger empire, was in the habit of telling franchise holders that “they would be millionaires before he would be”.

His approach contrasted with other fast food entrepreneurs, who extracted high rents from their business partners.

“Don’t look at trading partners as enemies,”​ Buchholz urged. “Look at customer base and the industrial world base.”

Global opportunities

While protectionism can be a natural reaction to economic challenges, Buchholz cautioned raising tariffs on produce as this will lead to retaliation by trading partners.

“Protectionism is beginning to grow,” he said. When it comes to trading between the US and Europe, he referred to the long and ongoing anti-GMO and ‘Frankenfoods’ discussion.

Combine this with economic protectionism and you have “a combustible situation for trying to feed people and make money in business”.

“Now here is a globalised backlash against free enterprise and capitalism. Free trade is under assault.”

A more sensible approach, in Buchholz’s view is to “look at the global economy as shaking things up, challenging us and opening up new opportunities”.

“Multiculturalism and globalisation give tremendous opportunities,”​ he said. “Populations are changing, got to take adapt and take advantage of changing tastes.”

Causes and recovery

Buchholz looked at the causes of the current recession, and concluded that the housing collapse is only one underlying factor. Its effects were compounded by the commodity explosion of 2007-8, which “robbed the last dime of buying power from consumers around the world” ​and “robbed the confidence of the middle class”.

There have been some interesting changes in consumer taste in the last 18 months as consumers have “hunkered down”.​ For instance in the US there as been a 5.3 per cent increase in hot dog sales after years of stagnation, as consumers return to a cheaper product that is seen as inferior to best meat cuts.

Sales of running shoes have gone up as people exercise to improve health, and seeds, as they try their hand at growing their own food.

As for recovery, Buchholz was confident that it will happen – maybe just before the back to school spending in August.

But he said: “We are not going to have a Keynesian recovery​” – that is, with the government buying up stocks. Rather, he expects the way out will be in line with Pigou, Keynes’ teacher.

“Ninety per cent of Americans will keep their jobs, and have more buying power as everything is on sale.”

Todd Buchholz is the author of Market Shock: 9 Economic and Social Upheavals that will Shake our Financial Future.

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