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by EOS Intelligence EOS Intelligence No Comments

Is Sustainability Just Another Buzzword in Food Packaging Industry?

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Sustainable food packaging has recently received an increased attention within the food & beverage sector. Most players try to make sure not to miss any chance of communicating their concern over plastic waste to the general public, showcasing their initiatives taken to curb the waste. Are such initiatives taken out of actual concern or are they just a move to position the brands right in the ‘environmentally-concerned’ market?

It is assumed that packaging is considered sustainable, if it meets three criteria of sustainability. First, it should be economically viable for the consumers as well as the manufacturers. Second, it should be socially acceptable in terms of ease of use, transporting, sorting, and storing. Most importantly, third, the packaging must be eco-friendly through the use of materials that are responsibly-sourced and reusable/recyclable, to reduce the environmental impact of the packaging.

Change fueled by multiple triggers                 

Food and beverage (F&B) and related packaging industry players have been under a growing pressure to be more transparent and to introduce changes to the way food products are packaged. Considering that a significant share of non-sustainable, non-biodegradable waste, especially plastic, comes from food industry, improving the packaging and transitioning to more eco-friendly solutions is becoming imperative, rather than optional, for increasing number of F&B companies.

At the same time, the pressure to reduce waste and protect the environment from non-biodegradable substances is creating new opportunities for the packaging materials producers and for F&B companies with regards to more relevant brand positioning in this highly competitive industry.

While a lot has been changing in the packaging sphere under the heat from environmentalists and legal requirements introduced by regulators, the role of an aware consumer exerting pressure through product scrutiny and shopping choices should not be underestimated in this process.

According to a report published in April 2019 by Globalwebindex, a market research company, there has been a rise in the number of consumers globally who are willing to pay more for eco-friendly/sustainable products (including their packaging), from 49% in 2011 to 57% in 2018. Consumer awareness is growing fast thanks to governments’ initiatives, educational media, and activists’ social media efforts, all of which have triggered an increased sense of responsibility amongst many consumers, who start to understand the importance of switching to eco-friendly and sustainable packaging.

Increasingly, consumer awareness is going beyond just passive understanding and translates into actions which have a real power to change F&B sector’s approach to food packaging. Consumers vote with their spending dollars and exert pressure by switching their loyalty to other brands, both of which approaches appear to be quite effective. According to the same survey by Globalwebindex, 61% of consumers are likely to switch from their currently-used brands to more environmentally-friendly ones if the latter score better on the environmental friendliness front. This shows that F&B companies really do need to re-think their product and packaging choices and start putting money and effort in sustainable solutions, if not from real concern over the environment, then for retaining consumer trust and maintaining brand values.

Big F&B brands appear to show initiative

The increased scrutiny over F&B companies’ packaging choices has already started bringing some results. Several major players are looking to invest in transforming their packaging materials to sustainable ones. Despite the challenges in bringing innovations into packaging materials and designs, and altering their supply chain, several F&B players are claiming to strive for their sustainability goals. Some claims may surely be genuine but some could possibly be a strategy to get the ‘sustainable company’ tag to stand out from the competition in the F&B industry.

Understandably, players are very vocal about their initiatives targeted at improving their eco-friendly standing to appeal to the environmentally-concerned consumers. F&B brands such as Coca-Cola, PepsiCo, Unilever, Nestle, to name a few, have already announced time-bound plans to revolutionize their packaging models.

For example, in January 2018, the beverage giant Coca-Cola announced a goal to collect and recycle the equivalent of every bottle it sells globally by 2030. The company with its bottling partners started an initiative with a plan called “World Without Waste” that is focused on entire packaging cycle from designing and manufacturing of bottles to their recycling. For the execution of this plan, the company plans to educate the public on what, how, and where to recycle, teaming up with local communities, NGOs, industry peers, and consumers. Furthermore, under the plan of “World Without Waste”, the company aspires to create packaging from at least 50% recycled materials by 2030 and continue pursuing the goal to make all consumer packaging 100% recyclable by 2025.

Is Sustainability Just Another Buzzword in Food Packaging Industry? by EOS Intelligence

In addition to this, in October 2019, Coca-Cola European Partners (CCEP), the largest independent Coca-Cola bottler, announced it would switch the carriers on its multipacks from shrink wrap to paperboard to reduce packaging waste. The company claims that with this switch it will remove about 4,000 metric tons of single-use plastic per year from its current supply chain. The paperboard packaging is planned to be certified from either the Forest Stewardship Council (FSC) or the Program for the Endorsement of Forest Certification (PEFC). Similarly, in January 2019, Coca-Cola packaging partner, Coca-Cola Amatil Australia, announced to cease the distribution of single-use plastic straws and stirrers, and distribute biodegradable Forest Stewardship Council accredited recyclable paper straws.

According to a report by Packaging Gateway, Coca-Cola claims to have made 88% of the consumer packaging recyclable, while its packaging used 30% of recycled material by the end of 2018. Also, about 58% of the equivalent of bottles and cans introduced by the company into the developed markets were refilled, collected, or recycled during 2018. Overall, the company’s recover and recycle rate was said to be 56% in 2018 as compared to 59% during 2017 or 61% in 2014. This proves that with growing sales, Coca-Cola’s efforts might not make as much impact as the company would want the public to think.

Nevertheless, the company is undertaking further initiatives to improve its environmental score. It committed to invest US$15 million in Circulate Capital, an investment management firm dedicated to incubating and financing companies and infrastructure that work upon curbing the plastic waste thrown into the oceans. Further plans of the company include increasing the use of recycled plastic in Australia by 2020.

In another example, PepsiCo also talks about becoming an environment-friendly company, announcing to use 25% of recycled content in its plastic packaging by 2025. In order to meet its target, in September 2018, the company announced its participation in the World Economic Forum’s Global Plastic Action Partnership (GPAP). The partnership focuses on stakeholders located in coastal economies, such as those in Southeast Asia, and its purpose is to help businesses, communities, and local governments redesign waste management to create circular models that include collecting waste and recycling or composting it to reduce waste streams to the oceans or landfills.

PepsiCo also announced other targets for improved sustainability to be achieved by 2025. These include to re-design all of its packaging to be recyclable, compostable, or biodegradable, to reduce virgin plastic content by 35% across its beverage portfolio, and to amp up investment to increase recycling rates in key markets.

Apart from individual targets, another initiative was also launched in October 2019 jointly by a few beverage players. As reported by a publishing firm, William Reed, three beverage companies, Coca-Cola, PepsiCo, and Keurig Dr Pepper, announced their partnership with World Wildlife Fund, The Recycling Partnership, and Closed Loop Partners under the “Every Bottle Back” initiative. This initiative, starting in late 2020, will include investment of US$100 million and will focus on sorting, processing, and collecting discarded plastic bottles in four US regions. The initiative also targets to educate consumers that PET bottles are 100% recyclable, easily remade into new plastic, bottles, shirts, shoes, coats, park benches, and playground equipment, by introducing pack label messaging.

Smaller players are emerging with packaging innovations

The pressure to embrace sustainable packaging is even greater for smaller and mid-size F&B companies, if they want to stay relevant to the customers, grasp their attention, and grow own market share. Smaller players in the industry seem to understand this and have proven to be more agile in introducing new products that focus on organic ingredients with sustainable packaging, while challenging big brands’ prices.

For example, in March 2016, Alter Eco Foods, a San Francisco-based chocolate-centric, healthy indulgence, and sustainability-oriented food brand, launched the first stand-up pouch made from renewable plant-based materials, designed for storing quinoa grain. This innovative pouch named “Gone 4 Good”, is not meant to be recycled but to be thrown in a composting bin where it will disintegrate within three to six months. Made from eucalyptus and breech trees for the exterior and compostable resin called “Matter-Bi” for the interior, the pouch has several green certifications. Apart from this, in early 2019, the company also transitioned its chocolate truffles packaging from non-recyclable plastic pouch to a recyclable paper box and claims to be looking for solutions to replace its current plastic Coconut Cluster pouch, since it is yet not recyclable or compostable. The company is determined to make all its products packed in 100% recyclable or compostable packaging by December 2020.

Another player, B.O.S.S. Food, a Texas-based nutrition bar company, started selling its premium nutrition bars in compostable wrappers made by TIPA (an Israel-based compostable packaging company) in 2017, focusing on ensuring the products’ packaging is environmentally safe. TIPA’s packaging is a bio-based blend with all the properties of normal plastic but is certified for both home and industrial composting through OK Compost mark by the TUV institute. The packaging also complies with food contact regulations in Europe and the USA.

Similarly, a UK-based beverage company named Earlybirds launched a 100% plant-based packaging for its breakfast drinks – bottles and lids made from sustainable sugarcane, over the span of two months of September and October 2019. The launch made the packaging 100% compostable as per EU biodegradability standards. The company’s advertisements claim that, under the right conditions, the bottle will breakdown in twelve weeks and it can be thrown in food waste bin and then composted at an industrial composter, reducing it back to soil. The company is the first in the UK to launch sustainable packaging for beverages.

These are just a few of several smaller F&B companies, which are focusing on bringing new packaging solutions to improve their rating as environment-friendly companies in the eyes of consumers. The initiatives are worth the effort, even though players face quite a few challenges in embracing sustainable packaging over traditional packaging.

Such challenges include higher costs, choosing the right material for packaging that must comply with the standards of environmental safety, as well sustaining the quality of the food product. It is estimated that the companies are required to spend nearly 25% more on the sustainable packaging than on the traditional packaging. This higher cost is attributed to major shifts in supply chain, including (but not limited to) procuring the raw material for packaging to collecting the used packaging for recycling. Another major factor contributing to higher costs of sustainable packaging is the R&D expenses that must be borne by the companies. The solutions still require a lot of research, as there are still very few commonly-used technologies and packaging products, thus a lot of players need to invent them. The companies need to invest considerable sums in developing an environment-friendly packaging material that is viable for their food product to sustain throughout the supply chain as well as shelf life, and (equally importantly) has the aesthetic appeal to grab the consumer’s attention.

But despite being smaller in size and having to deal with challenges, companies such as Alter Eco, B.O.S.S. Food, or Earlybirds have been investing extensively in R&D, a fact that resulted in several of them coming out with better and innovative packaging solutions. In fact, at times, smaller scale of operations works to these players’ advantage, as they do not have the constraint of having to convert the existing large-scale traditional packaging lines to ones suited to deliver new format or feature of packaging. Therefore, many efforts undertaken by smaller players seem to be converted into tangible solutions and launched more quickly and easily, also giving the companies a great marketing advantage over large F&B brands.

EOS Perspective

With the rise in awareness about plastic waste and environment safety among consumers, along with regulations formulated by governments across many countries to curb plastic waste, it has become paramount for F&B companies to enter the path of sustainability. At the same time, sustainability is becoming an important element of many companies’ marketing strategy to get ahead of the competition (or, increasingly, not to stay behind other players). The latter reason alone makes it no longer a matter of choice for F&B companies whether to keep assuring the public about efforts undertaken towards improving own sustainability rating across the supply chain.

Certainly, it is doubtful whether all these F&B companies are capable of actually achieving the claimed sustainability. On the one hand, there is a doubt if the scale of their efforts is relevant enough to bring about an actual change and not remain just a PR tool. On the other hand, the doubts seem to be really justified considering the challenges associated with achieving true sustainability goals.

The challenges range across many aspects. These include the complexity of the required changes in the supply chain, which involve both radical and incremental change, from manufacturers to users, owing to alterations in packaging materials and designs.

Another major challenge is the higher cost associated with changing the packaging materials from plastics to renewable or compostable materials. This starts with the development of the right product’s packaging material to ensure stable and long shelf life, and safe transportation with minimal waste, all of which is particularly challenging when dealing with food products. The costs and complexity of the task is further increased by the responsibility of creating an infrastructure for recycling of the packaging materials and taking the onus of collecting and recycling the packaging of own products, if not directly then through well-planned network of third-party entities.

Considering the complexity of these challenges and the high cost of going up the sustainability ladder, many F&B companies are likely to not be able (or to not want to) work towards full sustainability across their supply chain. In the midst of the growing pressure to meet the sustainability criterion, it is possible that some of the players might quietly opt for less sustainable solutions or stick to only those changes that are most visible to the consumer’s eye.

by EOS Intelligence EOS Intelligence No Comments

Commentary: India’s Automobile Sector Breakdown Causing Economic Distress

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Over the past few months, a lot has been said about the shrinking automobile sales in the Indian market. Touted as one of the key drivers of India’s economic growth, the automobile industry is facing the worst slowdown in two decades as production and sales numbers continue to drop month after month sending the sector in a slump. While the government has made efforts to improve the situation, it will take more than just policies and measures to flip the status quo and bring the industry back on the growth path.

Indian automotive industry witnessed a period of growth during the first term of Modi government – we wrote about it in our article Commentary: Indian Automotive Sector – Reeling under the Budget in February 2018. However, over the past year, the auto sector is in shambles and far from recovery. The sector that contributes 49% of the manufacturing GDP in the country (and more than 7% to the country’s total GDP) has shown decline in growth in the past 18 months as the numbers continue to fall each month. The slowdown is so severe that it has affected all aspects of the business leading to piled up inventory, stalled production lines, decelerating dealership sales, delayed business investments, and job loss.

Quintessential factors that triggered the slowdown

There are various reasons that have plagued the auto industry in the recent months. One of the key factors is the inability of NBFCs (Non-Bank Financial Companies) to lend money. NBFCs, which largely depend on public funds (mainly in the form of bank borrowings, debentures, and commercial paper), have been facing liquidity crunch in the recent past as both public sector and private sector banks have discontinued lending money. This had a double effect on the auto sales – firstly low liquidity has restricted NBFCs ability to finance vehicles, thus having an adverse impact on sales, and secondly, the limited availability of funds bulleted the cost of financing vehicles thereby making them relatively more expensive, further worsening the sales scenario.

In October 2018, the Supreme Court of India announced that no BS-IV cars shall be sold in India with effect from April 1, 2020 (all automobiles should be equipped with BS-VI compliant engines, with an aim to help in reducing pollution in terms of fumes and particulate matter). Owing to this, consumers have delayed their plans to purchase vehicles expecting automobile companies to offer huge discounts in the early months of 2020. And to clear out their existing stock of BS-IV vehicles, it is highly likely that the companies will offer massive concessions before the deadline hits. Delay in purchase of vehicles on consumers’ end has contributed to the overall low sales.

Additional factors that add to the downfall include changes in auto insurance policy (implemented in September 2018) under which buyers have to purchase a three-year and five-year insurance cover for car and two-wheeler, respectively (as against annual renewals), inclusion of additional safety features (including airbags, seat-belt reminders, and audio alarm systems) in all vehicles manufactured after July 1, 2019 adding to the manufacturing cost for the OEMs, and stiff competition from growing organized pre-owned vehicle market which has doubled in size in less than a decade (the share of the organized channel of the pre-owned car market has increased to 18% in 2019 from 10% in 2010). Customers have been passive on buying new vehicles as the total cost of ownership goes up due to an increase in fuel prices, higher interest rates, competition from used cars segment, and a hike in vehicle insurance costs.

Government initiatives to help the auto sector recover

To boost demand for automobiles and offer some respite to the businesses operating in the space, the government announced a number of measures and policies. These include lifting the ban on purchase of vehicles by government departments (the ban was introduced in October 2014), which is hoped to result in loosening of stocked-up inventory and getting sales for automakers, component manufacturers, and dealers. Government also announced additional 15% depreciation on new vehicles for commercial fleet service providers acquired till March 2020 with the aim to clear the high inventory build-up at dealerships.

Other than lifting the ban and price reductions, the government also announced that all BS-IV engine-equipped vehicles purchased until March 2020 will remain operational for the entire period of registration. This will have a two-fold effect – firstly, automakers will be able to push out their stock without having to upgrade existing models and make them BS-VI-complaint (since no more BS-IV-complaint vehicles will be registered post March 2020 and manufacturers will have to upgrade to BS-VI from BS-IV emission standard on the old stocks) thus clearing old inventory, and secondly, consumers can expect much higher discounts. This is expected to provide enough movement within the auto sector, both in terms of sales and revenue generation.

Government has also taken steps to stabilize the NBFC crisis where a separate budget of US$ 14 billion (INR 100,000 crore) has been announced to refinance selected NBFCs. While it is clear that these limited funds will not last long, currently, any step taken to recover from the situation is welcomed.

Though considered temporary, the relief measures offered by the government have gained traction in the industry and players believe that these provisions will have a positive impact on the buyers’ sentiment, even if for a short period of time.

Implications of the auto industry crisis

The slowdown is expected to have a negative impact across all aspects of auto business, especially in the short term. Drop in sales has led manufacturers to decrease production (and even stop production for a certain period of time), cut down overall costs, and reduce headcounts thus weighing down the overall automotive sector.

The months leading to reduced sales did not only impact the production capacities but also resulted in the loss of more than 350,000 jobs. In the coming months, many more risk losing their jobs owing to plant shutdowns, dealership closures, and small component manufacturers going bankrupt.

The cost of vehicle ownership has also increased. Automobiles attracts the highest GST slab of 28%, and this, coupled with the varying road and registration charges imposed by state governments, makes the upfront cost of the vehicle exorbitant for a large segment of consumers (especially the working middle class for whom a two-wheeler or a small segment car is a basic necessity rather than a nice-to-have convenience) making it almost impossible for them to but it.

Given that the automobile sector works in conjunction with other industries, the current slump in auto sales will pull down ancillary industries including parts and components, engines, battery, brakes and suspension, and tire, among others. Considering the fact that the sector contributes nearly half to the country’s manufacturing GDP, if the issue at hand is not addressed immediately, it will further add to the ongoing economic crisis within the country worsening the situation altogether.

EOS Perspective

Policies announced by the Modi government to revive the tumbling automobile sector only seem to mitigate the negative sentiments circling about the future of the industry. However, at this stage, what the industry really needs is a stimulus package in the form of tax incentives or liquidity boost to immediately change things on the ground level.

There is an urgent need of a remedial course of action on the government’s part to stop the vehicle sales from dropping further. As an immediate relief to boost sales and invigorate the auto sector, the government should implement a GST cut on vehicles. This would kick-start vehicle demand almost instantaneously that would work in favor of the automobile industry – manufacturers (to resume halt production), dealers (to clear inventory), and parts makers (to resume small parts and component manufacturing), help resuscitate lost jobs, and contribute, to a small extent, to strengthen country’s slow economic growth.

However, with the government turning a blind eye to industry needs (lowering the GST slab), there is only so much the business owners can do. Under this current scenario, unless the government takes some drastic measures that ensure validation in backing automakers, auto ancillary businesses, and dealers, the sector is unlikely to recover soon. Provisional policies and short-term measures can offer momentary relief but not the survival kick the auto industry is in dire need of.

by EOS Intelligence EOS Intelligence No Comments

Growing Appetite for Plant-Based Foods Disrupts the Meat Market

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Not many years ago, veganism or consumption of only plant-based foods, was considered an extreme form of lifestyle. Food options that were available for vegans were very limited and meat alternatives were based mainly on tofu, tempeh, and nuts. However, this is not the case anymore. Not only has the mindset regarding vegan food changed in the recent times, but also plant-based alternatives have become the fastest growing food category in the USA. This is also driven by a greater number of meat eaters experimenting with plant-based meat alternatives, whether due to health benefits, growing awareness regarding animal cruelty, or environmental reasons. Moreover, tremendous amount of investment and research in this space has resulted in wide range of food options, including vegan cheese and vegan meats that taste similar to animal-based proteins.

Vegan food has been around for quite some time now, but it was largely considered to be a niche market having a separate shelf in the supermarkets or being served in vegan-only restaurants and cafes. Moreover, it was considered an extreme lifestyle by many. However, over recent years, vegan meal options have found their way into the mainstream, with more and more people embracing veganism and meat-eaters adding plant-based food options in their diet. This is clearly evident from the steep growth witnessed by this food category, especially in the western world.

As per a study commissioned by the Good Food Institute (GFI) and the Plant Based Food Association in the USA, the retail market for plant-based foods was valued at about US$4.5 billion in April 2019, registering a year-on-year increase of about 11% and a growth of 31% in the two-year period from April 2017 through April 2019. The largest segment of vegan food market in the year ending April 2019 was the plant-based milk segment, which comprised about 40% of sales (US$1.9 billion). This category witnessed a y-o-y increase of about 6%. To put this in further perspective, animal-derived milk sales for the same period declined by 3%. While plant-based meat alternatives, cheeses, yogurts, eggs, and creamers are relatively new and smaller categories, they are driving growth in the vegan food segment too.

The growing sales across most vegan food segments indicate a momentous shift towards a vegan diet, which is not only propelled by an increasing number of people turning purely vegan but also a rise in meat eaters that prefer plant-based alternatives in some food categories, such as milk and milk-based products. This is due to growing lactose intolerance among consumers, with about 65% of the world’s population estimated to be lactose intolerant. The environmental benefits (i.e. lower carbon footprint) of maintaining a vegan diet and a growing uproar regarding animal cruelty have also driven conscious consumers to adopt a vegan lifestyle.

The environmental benefits (i.e. lower carbon footprint) of maintaining a vegan diet and a growing uproar regarding animal cruelty have also driven conscious consumers to adopt a vegan lifestyle.

The trend is further supported by the launch of vegan meat substitutes that resemble meat products in taste, look, and even texture. US-based players, Impossible Foods and Beyond Meat, are leading this space with the latter having received investments from the likes of Bill Gates, Leonardo DiCaprio, and Twitter co-founders Biz Stone and Evan Williams.

Industry players are diversifying into plant-based foods

Understanding that this trend is more than just a fad, several food companies (including large meat producers) have started entering this space, by either buying or investing in plant-based food start-ups.

Tyson Foods, USA’s leading meat producer, invested in Beyond Meat in 2016 and 2017, by acquiring a 6.52% stake in the company. However, in April 2019, Tyson Foods sold its stake in Beyond Meat with an intention to develop its in-house line of alternative (plant-based) protein products.

Nestle, which is one of the largest food companies globally, has also been expanding its portfolio with a keen focus on plant-based alternatives. In 2017, the company purchased Sweet Earth, a California-based producer of vegan meals and snacks, while in 2018, it purchased majority stake in Terrafertil, a plant-based organic food player that was founded in Ecuador and has presence across the USA, UK, and Latin America.

In January 2019, Nestle expressed its plans to launch its in-house vegan burger patty, called the Incredible Burger under its Garden Gourmet brand. The company is also looking to develop a portfolio of dairy-free beverages, such as purple milk (which is made with walnuts and blueberries) and blue latte containing spirulina algae. It is also adding vegan options to its existing brands, such as Haagen-Dazs (which launched a range of dairy-free ice creams in July 2017) and Nescafe (which introduced vegan protein-based coffee smoothies in December 2018).

Similarly, Marfig, Brazil-based leading meat processor, also entered the plant-based food alternatives market through a partnership with Archer Daniels Midland in August 2019. Under the partnership, Archer Daniels Midland will produce the raw material while Marfig will produce and sell the end product through foodservice and retail channels.

Canada-based Maple Leaf has also made significant investments in plant-based food players to expand its product portfolio and brand positioning. In February 2018, it acquired US-based plant protein manufacturer, Lightlife Foods, for US$140 million. Through this acquisition, it added Lightlife’s refrigerated plant-based products, such as hot dogs, breakfast foods, and burgers, to its portfolio and garnered a strong footprint in the US plant-based food market. To further strengthen its hold in this market, in December 2018, the company entered into an agreement to buy US-based Field Roast Grain Meat Co. for US$120 million. Field Roast Grain Meat supplies grain-based meat alternatives (including sausages, burgers, etc.) and vegan cheese products to the North American market.

Danone, a global food company with large number of dairy products is also bullish on the growing popularity of plant-based foods. In April 2017, it purchased WhiteWave Foods, a US-based leading player in plant-based food and beverage for US$10 billion. It rebranded the company to DanoneWave and in October 2017, further invested US$60 million into its plant-based milk operations. In 2019, the company expressed plans to triple its revenue (to about US$5.6 billion) from its plant-based food line by 2025.

In addition to these, many other large food processors and retailers have entered the plant-based food market either through acquisitions or the launch of in-house products and brands. These include Brazil-based JBS Foods, US-based Smithfield Foods, UK-based Hilton Food Group, Germany-based Wiesenhof, UK-based Heck Food, Canada-based Saputo, and US-based Dean Foods Company, among many others.

In addition to these leading food producers, many other large food processors and retailers have entered the plant-based food market either through acquisitions or the launch of in-house products and brands.

Fast food chains have also joined the vegan bandwagon. In April 2019, Burger King introduced a vegan version of its classic sandwich, called the Impossible Whopper. Similarly, Dunkin introduced a vegan breakfast sausage made by Beyond Meat, while KFC launched vegan fried chicken also made by Beyond Meat. In 2017, McDonald’s launched a vegan burger in Finland and Sweden and has plans to launch the same in Germany. In 2016, UK-based café, Pret a Manger opened a vegan pop-up store in central London and later made it permanent in 2017. Over the years, it opened three more stores (two in London and one in Manchester) under the name Veggie Pret. In April 2019, the company purchased rival food chain, Eat, and aims to convert about 90 of its stores into its vegan chain, Veggie Pret.

Just like the food producers and quick service restaurant chains, supermarkets have also been quick to respond to the vegan trend. In 2018, Tesco, a leading UK-based supermarket chain, launched its own range of vegan foods under the name Wicked Kitchen. Similarly, British department store chain, Marks & Spencer has also introduced a vegan food range in its food department. Vegan options have been introduced and are easily available across a wide range of US-based departmental stores such as Whole Foods, Target, and Kroger.

However, the key shift seen in departmental stores regarding plant-based meals is their placement. Traditionally, vegan food including plant-based meats and dairy were stocked together in a ‘vegetarian’ or ‘vegan’ isle or section. However, recently, these options have begun to be stored alongside their animal-based counterparts. For instance, plant-based dairy has now been moved to the beverage or dairy case. This exposes shoppers to a wider range of options for milk and increases the shopper’s chances of trying plant-based alternatives. This thereby opens the category to shoppers who otherwise would have not explored the separate vegan section in the store.

Similarly, plant-based meat options are also being increasingly stored along with traditional meat items, widening the choice for consumers who are flexitarians (i.e. consumers who are not completely vegan but do also consume vegan food from time to time). UK-based department chain, Sainsbury, was the first supermarket in the UK to place vegan products that are designed to look and taste like meat within the meat section.

Challenges ahead

While the number of vegan consumers is on the rise, it is still very low when compared with people consuming a meat-based diet. Moreover, while a great number of people are exploring vegan options, vegan meals are still largely perceived as offering limited nutritional value when compared with traditional meat-based meals, especially with regards to protein intake. While there is limited truth to this, companies offering vegan options have to invest substantially to educate consumers regarding the nutritional value of vegan meals.

In addition to this, vegan or plant-based meal options face another mindset block. Meat eating has long been associated with masculinity. This by contrary gives vegan meals a perception of being less ‘manly’ and thereby limiting the number of men who are open to embracing this meal option. To counter this, market leaders such as Impossible Foods and Beyond Meat have been avoiding terms such as vegan and vegetarian in their marketing strategy and have been promoting their burgers at male-centric locations such as sports events. Instead of pushing men to eat less meat, they are working towards expanding the definition of meat in the consumer’s mind to include plant-based options. They have also included ingredients (such as beet juice) in their burger to resemble a bleeding beef, making it clone the beef burger in terms of appearance, texture, and experience of consuming.

Other than mindset, price is also currently a considerable barrier for consumers. Plant-based meat substitutes are more expensive when compared with animal meat. While the Beyond Burger sells for about US$12 a pound at Whole Foods (a leading retail chain), its beef counterpart retails for about US$5. Similarly, Beyond Meat’s, Beyond Sausage retails for US$10.30 a pound, charging a premium of about 70% over a comparable pork sausage. Higher price points are off-putting for a big chunk of consumers, who may otherwise be willing to change eating habits owing to health or environmental reasons. While currently, the prices differ greatly, it is expected that the price difference will reduce in the long run (or be wiped off completely). Understanding price to be a big limiting factor, companies such as Beyond Meat are researching and investing into alternative plant protein sources that would lower the cost.

Price is also currently a considerable barrier for consumers. Plant-based meat substitutes are more expensive when compared with animal meat. While the Beyond Burger sells for about US$12 a pound at Whole Foods (a leading retail chain), its beef counterpart retails for about US$5.

However, one of the biggest roadblocks faced by the vegan food producers in making them mainstream is the backlash from the meat industry, which has in some cases resulted in labeling regulations that are damaging for the growth of the plant-based food sector.

In 2017, the EU banned the use of the term ‘milk’ and other dairy products, such as ‘cheese’, ‘yogurt’, etc., for plant-based alternatives (however, traditional versions such as almond or coconut milk and peanut butter are excluded from the ban).

In April 2018, France banned meat names for plant-based alternatives, such as vegetable ‘steak’, soy ‘sausage’, and ‘bacon-flavored strips’. Similarly, in May 2019, the European Parliament’s agriculture committee proposed a ban on the use of meat-related terminology on their labels and product description for vegetarian or vegan products. This includes terms such as ‘steak’, ‘sausage’, and ‘burger’. The proposal will be voted upon by the Members of the European Parliament in autumn 2019 and if passed, will be a big setback to the vegan industry as they would be required to remove the word burger from any product that does not contain meat.

In the USA, a Dairy Pride Act, which requires FDA to stop all plant-based dairy alternatives from being labeled as ‘milk’, was reintroduced in Congress in March 2019 (after being squashed earlier in 2017). While the chances of the bill being passed remain slim, if passed, it could seriously dampen growth in the vegan dairy market in the USA. Most of these legal actions are likely to have stemmed from strong meat and dairy lobbies that are directly impacted by the growth witnessed in the vegan market.

EOS Perspective

There is no doubt that the plant-based food market is growing exponentially and the food industry is taking notice. Meat producers and animal-based dairy companies are currently at a fork, where they may face some level of cannibalization of sales (especially in case of dairy) when they introduce vegan alternatives to their portfolio. The cases of Kodak and Apple are important examples when discussing the prospects of cannibalization of sales. While Kodak failed to innovate at the time of camera digitalization due to a fear of cannibalizing sales of its then popular camera films, Apple has made this one of its strength by innovating and launching new products that have (to an extent) cannibalized its own sales (IPhone for IPods and IPad for Mac).

While most players in the food industry have been quick to understand the potential of plant-based food market and have started to invest in this segment, several others still remain resistant to change. This may cost them dearly. Moreover, evaluating the future prospects of this industry, it may be prudent for meat producers to be focusing more on their plant-based food section than their long existing meat business. In a first of its kind case, in May 2019, Vivera Foodgroup, a leading European meat company sold off its meat business retailed under the brand name, Enkco, to Netherland-based Van Loon Group so that it could solely focus on its vegan food line.

However, while plant-based foods seem to be the future now, things may stir up again when clean meat (also known as lab-grown meat) goes mainstream. Currently, a lot of industry players (such as Tyson Foods) and business tycoons (such as Bill Gates) have begun investing in companies that are researching and developing lab-grown meat. It is expected to become a reality very soon, however, it may still take some years for lab-grown meat to match the prices and volume of farmed animal meat as well as obtain the required regulatory approval. While clean meat will definitely upset sales of farmed meat, it may also have a considerable impact on the plant-based food market as several consumers (who turned to vegan options due to animal cruelty and environmental reasons), may switch to clean meat instead of vegan alternatives. Thus vegan companies must stay ahead of the curve in terms of pricing as well flavors and product range to not only thrive but also survive in the coming times.

plastic waste landfill
by EOS Intelligence EOS Intelligence No Comments

Commentary: How USA Can Deal with Its Waste Crisis

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It is not often that one can hear that a US$100 billion industry is in tatters, however, this is currently the reality in case of the US recycling industry. For years, the USA has been dependent on waste exports, to countries such as China, India, and Korea. However, that dependence has now placed the USA in a very difficult position, as the implementation of National Sword policy by China, the largest export destination for US waste, amidst the China-USA trade disputes, resulted in waste exports coming to a virtual halt since the start of 2018.

With waste generation growing, the USA has been left scrambling to look for alternative destinations for its waste, the largest being India, Malaysia, Thailand, and Vietnam, albeit none of them capable of completely compensating for waste exports to China. Recently, in March 2019, India also banned imports of plastic waste, eliminating another major avenue through which the USA could get rid of its trash.

US dependence on exports for waste recycling meant that the development of domestic recycling facilities has been neglected. The country’s domestic waste recycling sector is now incapable of handling the ever-increasing waste, a major chunk of which ends up in landfills, creating other environment and health-related problems.

However, where there are challenges, there are opportunities as well. We look at what challenges the USA currently faces, and how the recycling industry is trying to adapt and come up with potential solutions to the country’s waste problem.

USA’s linear model left recycling industry unprepared

Traditionally, US municipals have depended on external companies to dispose their waste. Most disposal companies follow a linear model, under which they collect the municipal waste and then segregate it for further processing (with majority of it previously being exported to China). This dependence on waste exports led to limited investments in developing or expanding the domestic recycling infrastructure, which the country has been left to rue in the wake of the waste import ban imposed by China and India.

Limited capacities have put extra burden on the system. Moreover, elimination of revenue from scrap sales to China puts additional economic pressure on waste processors. As a result, many waste collection agencies have either suspended waste pickup or raised prices to dispose of waste. Municipals too have to bear greater economic burden. Cities, which were earlier paid for their waste, are now being charged significant amounts for hauling waste.

Current waste disposal process is not up to the mark

Another key challenge is the lack of sorting at source, i.e. at the household level. Due to consumer’s preference, the USA follows a single-stream recycling system, where all recyclables are collected in the same receptacle. With no segregation happening at this stage of waste collection, the processor is responsible for sorting different type of materials for recycling.

However, the lack of capacity and established infrastructure makes it difficult and expensive to sort these waste materials, resulting in most of the waste being discarded, either ending up at an incineration facility or a landfill, which are much more cost-effective compared with recycling. Currently, only 10% of plastic waste generated in the USA is recycled, while 75% of it is discarded in landfills (remaining 15% being incinerated to form electricity – but that too has its critics due to the pollution caused).

How USA Can Deal with its Waste Crisis

Recycling companies invest to boost processing capabilities

Impacted by the loss of the key buyer and facing own limited capacities, several smaller recycling companies reliant on exports to China have shut down their operations, while several other recyclers have been forced to reassess market strategy from exports to processing.

Several recycling companies have already started investing to develop their domestic waste processing and collection infrastructure. As an example, Waste Management, a US-based waste disposal and recycling services provider, invested more than US$110 million in 2018 alone in developing additional processing capacity, acquiring new technologies, and boosting waste collection infrastructure.

Robotic technology is likely to witness more investment

With limited capacities and waste production growing, there is a need to improve the overall efficiency of waste sorting and recycling process. Companies across Europe and Asia Pacific have been researching and developing trash robots (also called “trashbots”) capable of collecting, sorting, and recycling waste and other scrap materials.

The trend is now catching up in the USA as well. Waste Management has already installed a waste sorting robot at one of its material recycling facilities, and plans to install three more robots in 2019. The company is also planning to install additional screeners and optical sorters at its facilities.

New opportunities are emerging in plastic waste recycling

With a significant focus on promoting sustainability, several other companies also see recycling as a promising business opportunity, thereby driving investment in recycling infrastructure. GDB International, a US-based company selling plastic scrap to international markets, was impacted by the Chinese import ban, and decided to invest in developing its own recycling capabilities. The company plans to recycle plastic scrap domestically, and sell recycled plastic pellets to plastic product manufacturers within the USA and abroad.

EOS Perspective

Chinese and Indian waste import bans have jolted the US recycling industry as a whole, pressing it to search for a solution to its swelling problem. The industry is witnessing problems which question the entire structure of the industry and challenge companies to reconsider their commonly utilized business model – shifting from a linear model to a circular economy.

The most obvious solution for the US recycling industry, in the short term, is to consider alternative waste destinations, such as Vietnam, Malaysia, and Thailand, to share the waste burden. However, since none of these markets are developed enough to sustain over a long term, this solution, at best, can be considered a temporary fix.

The government needs to take several initiatives to lay a strong foundation for a revamped recycling industry, such as banning or restricting the use of hard-to-recycle plastics (including single-use plastics such as straws and disposable spoons), and laying down strict guidelines for sorting of waste already at the household level, which will improve the efficiency and costs associated with the recycling process.

A coalition of plastics players and other industry groups is lobbying for provision of funds by the US government, an investment of US$500 million, to help develop local waste management systems. If disbursed, these investments will enable development of the recycling industry until it becomes self-sufficient in handling domestic waste. Once this happens, the costs of disposing and processing waste are also likely to reduce.

In the long run, significant private investments in building domestic recycling capacities will be required to effectively address the ever-increasing waste. Excess waste, which was earlier exported to China and India, offers a sustainable source of raw materials to justify these investments in developing the recycling infrastructure. Furthermore, increasing focus on sustainability is driving a demand for recycled raw materials. Development of downstream recycling and processing capabilities can also enable recycling companies to tap this lucrative business opportunity. Partnerships with end users are likely to open further revenue stream.

While private investments in recycling infrastructure have started flowing in and the rate is expected to pick up, these investments will take time before the added capacities actually become operational. The success of these investments, however, will depend on how effectively the US government is able to execute initiatives to aid growth of domestic recycling industry.

by EOS Intelligence EOS Intelligence No Comments

EU-Mercosur FTA: Old Negotiations, New Zest

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The EU and Mercosur (a trade bloc comprising Brazil, Argentina, Uruguay, and Paraguay*) free trade agreement (FTA) negotiations date back almost two decades, to 1999. After failing to seal the deal in 1999 and again in 2004, the countries initiated new negotiations in 2010 and though started out slowly, they accelerated the process in 2016 (with hopes to finalize the deal by the end of 2017). A trade deal at this moment will be of significant importance to both sides owing to substantial amount of trade between the two blocs. The EU is Mercosur’s largest trading partner accounting for 21% of the bloc’s trade in 2015, while Brazil alone is the EU’s eleventh largest trading partner. However, despite a positive framework for the agreement to happen, there is still a great deal of resistance from few EU countries regarding the opening up of their agriculture sectors. Now it remains to see whether the two blocs can reach the much needed compromises and end up with an agreement by the end of the year or talks will remain hanging once more.
*Venezuela has been suspended from the trade bloc in 2016 and therefore is out of the negotiations

While this may not be the first time the EU and Mercosur sit to negotiate the terms of an FTA, it definitely seems to be the most promising one. The main reason the earlier efforts have gone in vain was the Argentinian leftist government’s adverse stance on trading outside their own backyard. This changed with the election of president Mauricio Macri in December 2015, who unlike his predecessor (Cristina Fernandez de Kirchner), looks at international trade as a growth opportunity for Argentina. Similarly, the impeachment of the Brazilian president Dilma Rousseff in May 2016 resulted in a new political wave in Brazil. While Brazil’s former president did take small steps towards trade liberalization, her successor, Michel Temer, has accelerated this process and has made the EU-Mercosur deal one of his top priorities.

Another reason this deal has gained immense importance for the Latin American bloc has been a declining bilateral trade among Mercosur’s two largest members, Argentina and Brazil, owing to recession. Trade between the countries declined from US$36 billion to US$22 billion during 2013-2016. This has forced the two nations to soften their stance on global trade.

Considering these developments, as well as the changing political and trade dynamics between several Latin American countries and the USA, following the arrival of Trumps administration at the White House, Mercosur’s openness and renewed interest in strengthening international trade ties is fully understandable. We wrote about it in February 2017 in our article Trump in Action: Triumph or Tremor for Latin America? and again later in June 2017 in Japan Hopes to Get a Slice of Mercosur Opportunity Cake as LATAM Exports to USA Decline.

On the other side of the negotiations table, as the EU has maintained a positive outlook towards foreign trade in general, the lost prospect of a Trans-Atlantic Trade and Investment Partnership with the USA under Donald Trump has also reinvigorated EU’s interest in the Mercosur FTA. Moreover, the EU views the deal with Mercosur as a suitable counter-measure to the growing Chinese influence in Latin America.

Apart from these aspects, the main reason for renewed commitment to the deal by both sides is the significant and increasing level of trade and investment between the two blocs. In 2014, EU’s investments in Mercosur countries reached US$494 billion. The EU’s exports to Mercosur expanded from about US$24.6 billion (€21 billion) in 2005 to about US$54 billion (€46 billion) in 2015. Similarly for Mercosur, its exports to the EU increased from US$37.5 billion (€32 billion) to US$49 billion (€42 billion) during the same period. Agriculture products constituted 48% of Mercosur’s exports to the EU, while machinery (29% of exports) and vehicle and parts (17% of exports) were EU’s largest export categories to the Latin American bloc.

The EU stands to gain a great deal from the FTA. As per current calculations, EU exporters would save about US$5.2 billion (€4.4 billion) annually on trade tariffs and stand to double their exports within five years of reaching a deal.

Despite hefty trade benefits and a lot of political and economic factors being in favor of the deal, agriculture remains a sore point. Several EU countries, led by France, do not want to open up their agriculture sector to Mercosur’s exports as they feel their domestic produce (especially grains and meat) cannot compete with that of Brazil and Argentina in terms of price. In addition, they are concerned that Mercosur’s agricultural produce are not subject to the same health standards as their domestic produce.

A quick glance at the average production costs indicates that the EU farmers have a reason to worry. As per estimates, if the deal comes through, the amount of maize available in Brazil and Argentina for export by 2020 will be between 23 and 26 million tonnes. While the average production cost of cereal in Mercosur is close to US$94/ tonne (€80/tonne), it is about US$141/tonne (€120/tonne) in the EU. This is likely to result in substitution of EU-grown maize with that from Mercosur, which will most likely result in a loss of about US$2.3 billion (€2 billion) by 2020 for EU’s agriculture sector. In addition, it can be expected to result in an indirect loss of about US$1.2-3.5 billion (€1-3 billion) as Mercosur-produced maize is likely to also replace wheat for animal feed during high production and harvest months.

In case of meat products, beef produced in Mercosur is more competitive than EU’s beef in terms of pricing. Moreover, a study of the usual trend of beef quotas suggest that they are first filled with noble cuts exports (including filet, entrecote, and rump steak) followed by other hindquarter cuts (such as topside and silverside). In case the deal takes place, it is expected that Mercosur’s beef will largely substitute local beef produce with Mercosur’s export volume (keeping in mind higher quantities of noble cuts, such as Hilton beef) expecting to reach 1 million tonnes. These would be worth US$18.8 billion (€16 billion) and would directly impact the local production and sales value. To bring this into perspective, the value of Brazil’s beef exports (the largest beef exporter among the Mercosur countries) to the EU was US$485 million in 2016. Moreover, low-priced imports from Mercosur will put pressure on the pricing in the domestic EU market resulting in close to a 30% downward price revision, which in turn is highly likely to result in further losses of about US$10.6 billion (€9 billion). In case the EU agreed to 300,000 tonnes at zero duty, this would expectedly result in US$3.5 billion (€3 billion) in direct costs and US$7.1 billion in indirect costs (€6 billion).

In addition to this, there are several non-tariff related issues with Mercosur’s produce, such as lack of tagging and traceability of livestock to identify and guarantee origin. Also, several drugs, such as hormones and growth promoters, as well as few antibiotics and insecticides that are banned in the EU are legally used in Mercosur. These factors have resulted in countries such as France, Ireland, and Poland opposing the EU-Mercosur FTA.

Another source of disagreement for the EU lies in the trade of sugar and ethanol, which the European producers claim should be excluded from the list of freely-traded items. This stems primarily from the fact that the Brazilian government provides subsidies worth US$1.8 billion annually to its ethanol and sugar producers, a fact providing them with an undue advantage compared to the European counterparts.

On the other hand, Mercosur is discontent with EU’s limited concessions on agricultural imports and its stance to continue quotas on the Mercosur’s food imports. Mercosur also has some concerns regarding providing the EU with access to public tenders, which in Brazil alone are worth about US$176 billion (€150 billion), however, they are positive that they will be able to reach a consensus during negotiations.

While few points of contention remain, negotiators at both ends are keen on resolving these issues and signing the deal by the end of 2017, remaining aware of the significance of this deal for both the sides as well as of the tendency for these talks to remain unresolved if not pushed soon. Moreover, both sides want to exploit the current favorable political scenario in Brazil and Argentina. With Brazil heading for presidential elections in 2018, the chances of a leftist-government coming to power do exist, and this can again put the deal in danger if it is not completed by then. Both sides of the negotiating table want to reach an agreement sought-after for the past 20 years as early as possible, even if it means compromising on some expectations.

EU Mercosur FTA Old Negotiations New Zest

EOS Perspective

A goal of completing the deal by the end of 2017 seems like quite a gun to the heads of both the blocs, as past experience, both in the case of this deal as well as other FTAs, proves that the process is never quick nor simple. Moreover, the EU seems somewhat divided on the deal, with Spain, Portugal, and Germany advocating for it and France, Poland, and Ireland opposing it. That being said, this deal – which has been on and off again and again since 1999 – has never been as close to getting finalized as it is now. This is primarily due to the fact that both Argentina and Brazil (that were the two main factors holding the deal back all these years) are extremely keen on reaching this agreement with EU, to the extent that they may be willing to compromise quite a bit as long as the deal includes provisions that leave room for future improvements and it brings increase in trade and thus growth for local economies. However, it remains to be seen whether they will be willing to stretch their compromises far enough to agree to the EU’s terms on the agriculture produce trade. At the same time, it is not clear how much the EU is going to push for these provisions, so there is a chance that both parties will manage to reach a well-rounded deal for both the sides. The least probable scenario is that the deal will come to a stand-still once more, however till the ink dries on the deal, nothing can be considered as certain.

by EOS Intelligence EOS Intelligence No Comments

China Beefs up Meat Consumption Guidelines, but Chickens out of Action

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Several decades ago, meat consumption was seen as luxury by the Chinese. Fast forward to today, meat (especially pork) has seeped into the diet of the everyday Chinese man to such an extent that today China consumes 28% of world’s total meat, including half of its pork. While this showcases immense income growth, the flip-side are the escalating environmental and health issues attributed to meat consumption. This has prompted China’s National Health and Family Planning Commission (NHFPC) to issue new guidelines which ask the Chinese people to reduce meat consumption from about 60-63kg/year to about 14-27kg/year by 2030. However, without any actionable initiatives from the government (be it in the form of investments or taxes), these recommendations are not likely make a strong dent in the surging meat consumption levels.

China has witnessed a steep growth rate in meat consumption, which soared from a mere 13kg/person in 1982 to about 63kg/person in 2016. If the current trends continue, it is predicted that by 2030, the average Chinese man will eat close to 93kg/person if suitable measures are not taken to halt this growth. Owing to these consumption levels, China is one of the largest contributors to livestock agriculture-created greenhouse gases. The predicted rise in meat intake in China (by 2030) is likely to add another 233million tonnes of greenhouse gases to the atmosphere on a yearly basis. Moreover, China’s growing love for meat has also contributed to an exponential rise in the number diabetes and obesity cases, with more than 100 million Chinese suffering from diabetes at present.

To combat these growing concerns, NHFPC issued new guidelines in 2016, urging the Chinese population to reduce their meat intake to 40-75 grams per day, which translates to about 14-27kg/year from the current rate of 63kg/year, thereby aiming to reduce the meat intake to less than half by 2030. Along with these recommendations, the government has also undertaken some measures to achieve the recommended consumption levels, however, a few of them seem rather shallow to lead to the desired change.

The government, along with few NGOs such as WildAid, are trying to create awareness regarding the new guidelines. International celebrities, such as Arnold Schwarzenegger and James Cameron, have featured in videos hailing this government action and urging Chinese people to adopt vegetarianism. Moreover, the government has introduced health education in school curriculum and is promoting “health as a habit” to push life expectancy from 75 years to 79 years. A part of this campaign is to promote healthy eating and eating less meat and more vegetables.

At the same time, however, the government has been cutting down subsidies for small-scale pig farmers as well as formulating stricter environmental regulations, in order to push backyard pig farmers to either expand and clean their operations or exit the market. However, instead of curbing the industry growth, this may only result in strengthening the operations of larger players and may also lead to market consolidation.

While the government’s latest recommendations seem necessary, albeit ambitious, given the level of current actions, they seem far from sufficient to realistically curb demand for meat in the growing economy. As per local experts, NHFPC’s guidelines have received limited coverage by the media, especially in livestock-heavy regions of Shandong, Liaoning, and Inner Mongolia. China has strong cultural traditions attached to meat-eating (such as the Yulin Dog Meat festival and the Double Ninth festival), which makes it difficult to initiate change in eating habits. Moreover, at the time when the government should initiate import restrictions and taxes to curb supply of meat (which may lead to price rise and in turn probably contract demand and consumption), the government has recently re-allowed beef imports from the USA, which is clearly a counter-productive move.

This is not the first time the Chinese government attempts to deal with the issue of rising meat consumption, and if the authorities follow the same approach as before, those past efforts might be a strong indicator that the new guidelines will have a very limited impact. In 2007, the government issued similar guidelines restricting meat consumption to 50-75g a day (i.e. 18-27kg/year), however, the government failed miserably in achieving these targets, as apart from publishing the guidelines, it took no real action. Unless the government moves away from this passive, and evidently failed, approach, meat consumption is likely to continue to soar.

China Beefs up Meat Consumption Guidelines, but Chickens out of Action by EOS Intelligence

 

EOS Perspective

NHFPC’s guidelines seem to be a step in the right direction, however, in the absence of a larger and more concrete government action, these recommendations do not come across as anything more than a formality undertaken by the country’s government to please global climate campaigners. While the government announced an infusion of US$450 billion into the country’s agriculture system in September 2016, its seriousness towards these guidelines will be determined by how much of this sum will be apportioned (if any) to programs encouraging vegetarianism.

Since meat (pork/beef/poultry/sheep) farming is a large industry in China, providing key dietary ingredients for the population at large, a sudden increase in taxes or a cut down of major subsidies may not be possible. However, the government can work to fuel the desired dietary changes in a phased fashion, e.g. by starting to reduce meat imports by imposing restrictions, while simultaneously working on reducing people’s dependence on meat by promoting vegetarianism as a healthier as of life.

Although these actions may seem far-fetched, few local and large players are strategizing their future plans, mindful of these recommendations and the increased health awareness as a potential outcome of these initiatives. Since pork is the most widely used type of meat, it is likely that the intake of traditional pork dishes would be impacted the most by any actions taken by the government. Keeping this is mind, WH Group (a leading pork processing company) has already started expanding its focus to western-style products such as ham and sausages. The company expects a growing demand for such American-style foods that come with much higher margins, allowing to compensate for the potential loss of sales volume of the unprocessed, traditional cuts. The company is also diversifying into other meats, including leaner beef and lamb in their product mix, in anticipation of the growing health awareness trend.

On a final note, these guidelines alone definitely do not seem enough to stir a change in the Chinese population’s eating habits but the fact of the matter is that a change is required. It may take another decade and much greater initiatives from the government’s end to reduce the local people’s meat intake, but considering the global trend towards meat consumption reduction and the growing environmental and health concerns, it is likely that sooner or later, China will get there too. Now it remains to see if the meat farming and processing companies employ a wait-and-watch approach or proactively start investing and working towards change.

by EOS Intelligence EOS Intelligence No Comments

An Eco-Friendly Product Or Just A Mere Marketing Gimmick? Bio-plastics Are Gaining Momentum.

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The term ‘bio-plastics’ appears fascinating as it seems to revolutionize what plastics have always stood for. Being derived from plants and having the ‘bio-‘ prefix in their name, these plastics are considered to offset the main underlying negatives of conventional plastics, thus seem like ideal products. However, there is more to bio-plastics than meets the eye, as they carry their own fair share of baggage.

We are surrounded by plastics all the time and everywhere – may it be at home, at work, or in transit. The use and abuse of products containing plastics has increased exponentially over the past few decades, fuelled by low oil prices and limited awareness about their ill-effects on the environment. But the tide is turning now, with bio-plastics entering the stage.

Still in their nascent stage of commercialization, bio-plastics are portrayed as able to revolutionize the plastics industry over the next couple of decades. Playing on the key drawbacks posed by traditional plastics, such as limited supply and rising prices of feedstock as well as environmental concerns, the currently insignificant bio-plastic share of about 1% of overall demand for plastics is expected to soar to about 25% over the next 15-20 years. Advanced technical properties, potential for cost reduction (owing to easily available feedstock), biodegradability options, and higher consumer acceptance, are some of the key factors that usher the market to higher growth rate, especially in products such as PET bottles and disposable cutlery used by foodservice industry. While the market stands to grow at about 20% a year, there are also several factors that conspire to withhold the potential of the market.

First and foremost, bio-plastics cannot replace conventional plastics in all applications, and at this stage of development and commercialization are also known to generally offer poorer quality. While they are suitable for disposable products, they cannot yet replace traditional plastics where stability of material properties and durability over time is necessary, therefore, discouraging traditional plastics’ substitution on a mass scale.

At the bio-plastics production end, large land requirement for bio-feedstock (corn, sugarcane, etc.), which leads to conversion of forests into agricultural lands and increases the use of fertilizers and pesticides, may just negate the ecological benefits of bio-plastics to a certain extent.

At the consumption side, the key challenge is the lack of dedicated end-of-life facilities for bio-plastics. There is limited infrastructure for industrial composting and incineration worldwide, which largely limits the benefits reaped from the biodegradable property of these plastics. Moreover, bio-plastics are not uniform and vary greatly, thereby require different end-of-life infrastructure (including segregation, disposal, composting, and incineration). This makes it a much more complicated and expensive process. The recyclability of bio-based plastics is also limited and relatively more expensive. Furthermore, the mixing of conventional plastics and bio-plastics in the recycling stream results in poorer quality of the resultant recycled plastic.

Lastly, the traditional plastics market is much more developed. Bio-plastics on the other hand, are still in the pilot production stage and generally lack economies of scale, thereby costing much more than synthetic plastics. Instead of substituting incumbent plastics, the bio-based plastics market currently caters to a niche audience, which is highly environmentally-conscious and is willing to pay a premium for such products.

Follow the Leaders

Despite the mixed opinions on bio-plastics, several small- and large-scale bio-plastic adoption programs are increasingly undertaken by leading consumer goods producers. It can be expected that these programs and investments will eventually lead to economies of scale for bio-plastics, but as of now it seems that these players have been jumping into the bio-plastics arena mainly for marketing and PR-building purposes, as the group environmentally-conscious consumers expands globally. Here are some examples of investments and innovations by leaders in bio-plastics adoption-

Coca-Cola

  • In 2009, it launched PlantBottle, made of 30% bio-plastics and 70% oil-based plastics

  • The company aims at using the PlantBottle technology for all its bottles globally by 2020, in place of the current distribution network of 20 nations

  • Coca-Cola claims it is also looking into innovation in feedstock for bio-plastics, moving from food crops to waste and agricultural residues

  • It has also entered into agreements with three technology firms, Avatium, Gevo, and Virent, to develop and bring 100% bio-plastics bottle technology to commercial scale
PepsiCo

  • Pepsi developed the world’s first 100% bio-based PET bottle in 2012 and has been working towards its commercialization ever since
Coca-Cola, Ford Motors, H.J Heinz, Nike, and Procter & Gamble

  • In 2012, the companies formed a strategic working group called Plant PET Technology Collaborative (PTC), focused on the development and use of 100% bio-based PET materials in their products
Panasonic Corporation Eco Solutions Company

  • In 2012, the company used bio-based resins to manufacture a range of kitchen countertops and bathroom ceilings for its premium product lines
Gucci

  • Also in 2012, Gucci launched a range of women and men’s shoes called ‘Sustainable Soles’ made from biodegradable bio-plastics

  • In the same year, it also released an eyewear line wherein it manufactures sunglasses made from bio-plastics
Toyota

  • For the past few years, the company has been using bio-plastics (PET and PLA) in the manufacturing of several automobile parts (vehicle liners, interior surfaces, upholstery material on doors, luggage area trims, etc.)

  • It aims to have 20% of all plastic components in its automobiles to be made of bio-plastics by 2015


Notwithstanding the many benefits of using bio-plastics, they are not the perfect eco-friendly products the world would want them to be – at least at the current level of development and commercialization. While the benefits reaped from them at this point are marginal, companies are marketing these new plastics as the revolutionary heroes that will save our environment. However, with a strong momentum towards innovation to improve product quality, huge investments by leading players, drive towards commercialization, and a host of government initiatives, it seems too early to judge the industry as of yet.

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