Food and agriculture are among the sectors most affected by changing demographics. The world’s population is growing, as is the proportion of older people, while urbanisation is accelerating. The agriculture sector is required to produce more food using less land and, in some parts of the world, less water as resources dwindle and the use of pesticides and antibiotics is no longer deemed acceptable.
This scenario is challenging from various perspectives. Firstly, boosting food production volumes will be difficult. “In recent decades there has been a revolution in terms of yield, especially for grains,” says Marco Gulpers, sector head Consumer & Agri, Corporate Finance at ING. “There are no new opportunities to further improve yields, at least not in developed markets.”
Secondly, the environmental conditions for agriculture are worsening. “Another challenge for the industry has been to adapt to global warming,” says Gulpers. “It will be difficult to supply large quantities of the high-quality, low-priced food consumers want.” This challenge is exacerbated by higher incomes in many parts of the world. With more spending power, people invariably consume more nutritious food, such as meat. This increases the burden on agriculture given how much grain is required to produce meat.
“One solution is to use every part of the crop: not just the grain but also the leaves and stems. To convert these into food fit for human consumption, you need livestock. Similarly, residuals from food processing (commercial and domestic) could replace grains in the production of animal feed. Finally, organic waste can be used as a breeding ground for insects that can be used as animal feed,” adds Gulpers.
With consumer demand on the rise, food producers will have to intensify production and adopt new technical capabilities to meet the need. More people may turn to private-label foods as they seek lower-cost products, while discount retailers are expected to continue to gain market share.
At the same time consumers are likely to focus more on premium, aspirational foods that are seen as status symbols.
“More consumers want to buy local food that has travelled fewer food miles,” says Gulpers. “They want authenticity, natural (often organic) ingredients and – perhaps most importantly – clean labelling (which indicates that a product is natural or free of chemicals). This presents a challenge for the food industry because of the pressure on resources: free-range cows have a clearly lower milk yield and higher carbon footprint than industrial cows.”
Even in developing markets, consumers are buying the best-quality products they can afford. “In countries like China, where there have been concerns about the quality of food production, consumers are willing to pay more for baby food, for example, than consumers in Europe,” says Gulpers. “Indeed, people with lower incomes often focus more on the quality of the products they buy because their choices carry more weight.”
In the past, people had physically demanding jobs which meant they needed nutritious food. “Our diet has largely remained the same even though our working lives have become more sedentary,” explains Gulpers. “Consumers and the food industry need to focus on cutting salt, fat and sugar content and increasing protein. As a result, there is more emphasis on food fortification.”
Food companies are under increasing pressure, not just from consumers but also from governments and other regulators. “Obesity and diabetes are growing problems in many countries,” says Gulpers. “Food producers are making improvements themselves – for example phasing out trans fats and replacing sugar with natural substitutes such as stevia – but this takes time.”
Sugar taxes have been introduced in some countries where health problems are placing a significant burden on public finances, for example in Mexico, which has high levels of diabetes due to its huge consumption of soft drinks. The UK and France will soon follow suit and a fat tax has been introduced in Scandinavia. “Governments are also expected to introduce rules on how and where food can be sold. For example, sales of sugary drinks and sweets could be banned near schools,” adds Gulpers.
As lifespans increase, healthy food choices will become more important for the food and agricultural industry. “Over the last decade, the food industry has effectively expanded the specialised food market for the early years of life: manufactured baby food is now a huge industry. But it has failed to make much headway at the other end of the demographic spectrum,” says Gulpers. “There is a window of opportunity for products aimed at the over-50s, with a higher protein content and enriched with calcium and vitamins C and D, for example.”
The scope for such products could be enormous. In the US, the baby food market is worth approximately $14 billion while the nutritional drinks market is valued at around $1 billion. “Society now has many more people in older demographics than infants or athletes,” says Gulpers. “However, to date this group has remained largely untapped. Consumers need to be educated: people in this demographic may not appreciate that as we age we need to change what we eat in order to remain healthy.”
A parallel trend is medically-enhanced foods, which are sometimes used to shorten a patient’s stay in hospital and are usually high in protein, vitamins and minerals. This market is expanding, according to Gulpers. “Ultimately this high-tech food will trickle down to the retail market, although it could take two decades. A good analogy with the anti-aging skincare industry: virtually non-existent 20 years ago, it is now worth $30 billion. The lesson is that if you get your positioning and marketing right, consumers will accept the product.”
Millennials focus on transparency
Millennials are different from previous generations because they have grown up with technology and social media. “They have also been born into a world of celebrity chefs and identify with the food they eat: it’s a lifestyle choice,” says Gulpers. “They are willing to spend more on food that is good for them. But they want to understand how it has been produced: transparency is crucial. This means that labelling will become more important.”
Millennials are concerned about the environmental cost of food production. “Partly in response to these concerns, Walmart in the US has committed to double its volume of locally-grown food by 2020 and to improve sustainable sourcing,” says Gulpers.
How do new disruptive technologies affect consumer behaviour? Martin Scholten, managing director of the Animal Sciences Group at Wageningen University & Research, says the food system is changing: “Disruptive technologies can accelerate the shift in consumer demand in relation to the food system. On the other hand, we are reluctant to adopt technologies in the food system. We are comfortable communicating via our smartphones and new technologies are launched and adopted every day. But when it comes to food, people respond differently.”
Consumer engagement is an important factor in behaviour and food perception. People want to know more about the food they eat. “They don’t want an encyclopaedia of information; they want to be educated to make the right choices. Trust in food is key," says Scholten. Smart devices empower people to lead a healthy lifestyle by giving them control over their individual nutritional preferences. They help people make choices about what food to buy, how to prepare it, and when to eat and drink.”
A holistic approach
As well as being concerned about the ingredients in their food people are focused on the environmental impact of the food packaging. “Both the older generation and millennials believe packaging is crucial,” says Gulpers. “We are already seeing an increase in the use of bioplastics, and the way we take our groceries home has changed dramatically: disposable plastic bags have been phased out in many countries or are no longer provided free of charge.”
Gulpers believes that environmentally unfriendly packaging will be driven out as food companies appreciate the impact it has on their brand. “For example, Coca-Cola uses plant-based plastic bottles which reinforce the brand’s commitment to lowering CO2 emissions,” says Gulpers. “These changes can impact the overall perception of brands and are therefore being taken more seriously.”
Food and agricultural companies should recognise they face significant hurdles in terms of both packaging and products. “Trust is a major issue, especially for large processed-food companies,” explains Gulpers. “Consumers are sceptical of company claims and suspicious of their motives and how they operate. Overcoming that scepticism and building trust will be a major objective for companies.”
Another trend is the move towards circular food production whereby 100 per cent of a crop is used for food production, rather than just the 30 per cent represented by the grains. “Using the ‘wasted resources’ for animal feed contributes to a zero-waste agriculture system,” notes Scholten. “This will enable us to feed the growing population while using less agricultural land and water and will reduce our environmental footprint. The system is brought full-circle by using high-quality animal manure as organic fertiliser on productive soil, replacing mineral fertilisers. And let’s not forget that 70 per cent of the surface of the Earth’s surface is covered by water. Seaweed-based products for animal and plant care could be used as substitutes for antibiotics and pesticides in agro-production systems.”
Finding ways to collaborate across the value chain is vital if we are to proactively recognise disruptive trends at an early stage and adapt accordingly. Scholten believes that collaboration in the food chain paves the way for ecologically sound solutions based on circularity. New partnerships between science and society will help bring about this radical change and translate the disruption into responsive innovation. As a result the main focus in the food and nutrition industry will shift from sustainability to sustainability, trust and responsibility.