JURASSIC FOODS?

The food industry in a post-StarLink world

Promar International Strategic Consultant Series Nov00

What follows is a sample of the Promar report. It costs $5,000 for the first copy (plus 4 included copies), $85 for additional binder copies, and $3,000 for a follow-up presentation and discussion session with travel billed separately.

Mindfully note: It would be immeasurably more economic and infinitely safer to use organic farming methods. But then, we wouldn't be accumulating wealth or controlling the world's food supply.           Instead we'd be able to spend that wealth to equitably feed the world and repair the damage that the last "Green Revolution" did by ridding ourselves of toxic chemicals and bringing the dead and dying soils of the world back to homeostasis. By taking the profit motive out of feeding the world we would simply have well-fed, happy people, living in harmony.
                   . . . Just our opinion of course.

Taco Bell and Kraft took the first hits when consumer "watch dogs" found StarLink corn in retail taco shells. The suppliers? Subsidiaries of Pepsico and ADM. Alarming news stories followed repeatedly linking "biotech corn" and "not approved for human consumption." After more than 300 additional voluntary recalls by Safeway, Mission Foods, Food Lion and Wendy's and after ConAgra and Kellogg shut down processing facilities, reports indicate that about 1.5 million bushels of StarLink corn remain unaccounted for, leaving consumers wondering what other food products might be contaminated and food companies struggling to find uncontaminated corn.

With StarLink the immediate issue was potential allergens. Is it a problem for consumers? "Probably not," say EPA and FDA. But do consumers believe the government? Many observers fear that this could be the event the food industry has dreaded: large numbers of consumers have finally focused on GMO ingredients and what they see frightens them.

Although the StarLink case added fuel to the ongoing GM food debate, damage has been minimized so far with a straightforward approach: Not approved/recall the product. But executives in food, beverage and agriculture companies should be thinking about how they will deal with the inevitable next case. What about other GM ingredients? Are supply agreements with other major companies enough to protect brands from being tarnished? Even if public alarm is avoided, can companies afford the internal disruption?

Consumers are uncertain about the potential  benefits and costs of agricultural biotechnology
		Utopia	-Feed a growing world population -Foods that can cure or prevent disease -Reduce pesticide use -Lower encroachment on wilderness
		Jurassic Park	-Transfer of allergens -Development of superweeds -Change in natural ecosystems -Harm to insects and animals -Unknown future costs and problems

JURASSIC FOODS? is a strategic briefing paper from Promar International that addresses these and many other questions and provides companies across the food value chain with concrete recommendations to help them understand consumer attitudes about this issue and manage potential problems in a rapidly changing market.

PROMAR CREDENTIALS

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The Promar perspective

Strategic analysis is one of the vital differences between Promar studies and the many boilerplate, off-the-shelf reports that dot the food landscape. While the latter offer some useful data, they do not provide in-depth market analysis or actionable strategies.

Promar's studies are also focused on the future. Our clients turn to us for more than a simple five-year projection: they want to know how the world is changing and how to position themselves for success. The resulting work equips companies with the real world tools to achieve greater things - or simply make the right decision.

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Promar is a top-tier consulting firm, not a publishing house that exists to churn out an endless series of studies. In fact, 80 percent of Promar's business consists of ongoing consulting and proprietary projects for companies spanning the food, drink and agri-food sectors. The research, analysis, and, most significantly, understanding, that is the product of this work informs our studies in a way that cannot be replicated by views from the 'sidelines.'

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STUDY CONTENTS & SAMPLE PAGES

JURASSIC FOODS?
The food industry in a post-StarLink world

CONTENTS

MANAGEMENT SUMMARY I

SECTION 1: ANATOMY OF A CRISIS: OVERVIEW OF THE STARLINK ISSUE AND THE MAIN PLAYERS INVOLVED 1

1.1 The crisis begins 1
1.2 Where did StarLink come from? 2
1.3 What went wrong? 4
1.4 Supply chain or web? 5
1.5 The cost of recall 7

SECTION 2: THE ROOTS OF CONSUMER CONCERNS 9

2.1 Points of value 9
2.2 Raising the bar: The rise of consumer concerns 11
2.3 Paving the road to anxiety: Drivers of consumer food concern 13
2.4 Me first: Direct and indirect levels of value 17
2.5 Making the link: Consumer concerns and product trends 19

SECTION 3: CONCERN WITH GENETICALLY MODIFIED FOODS 20

3.1 Understanding genetically modified foods 20
3.2 The home front: GM agriculture and food in the United States 21
3.3 Why genetically modified crops? 22
3.4 Sleeping watchdogs? Regulating genetically modified crops 23
3.4.1 Overview of the current regulatory system 23.ii
3.4.2 Tightening regulations 25
3.5 Concern with GM-foods: Fad or lasting trend? 27
3.5.1 Unease in the US 27
3.5.2 Reaction across the value chain 32

SECTION 4: FUELING THE FUROR: MAIN DRIVERS OF CONCERN WITH BIOTECHNOLOGY 34

4.1 Factors influencing concern with agriculture biotechnology 34
4.1.1 Informational factors 36
4.1.2 Social processing factors 41
4.2 Demand for GM-free foods 47
4.2.1 The GM market 47
4.2.2 Demand for individual product categories 48
4.3 Supply-side issues and considerations 51

SECTION 5: IMPLICATIONS FOR THE FOOD INDUSTRY 53

5.1 The lessons of StarLink 53
5.2 Strategic considerations 56
5.2.1 Logistics 56
5.2.2 Marketing and information dissemination 59
5.2.3 Policy initiatives 60

APPENDIX 62.

ANATOMY OF A CRISIS
Supply chain or web?

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(previous text not included) ...elevators. The elevators may have contracts with growers or they may buy on the open market. If a farmer fails to tell the elevator that the identity of the corn needs to be preserved, it doesn't happen.

So, without some kind of confirmation from its suppliers that the corn was not StarLink, Kraft was left to perform its own tests on finished product. The tests took several days to complete and during that time unwanted media attention was the order of the day. In the end the results were positive for StarLink and on September 22 the company announced a voluntary recall of around 2.9 million Taco Bell Home Originals Taco Dinners.

The next week Friends of the Earth was back with another report. Safeway's private label taco shells had also tested positive for StarLink. Recalls began in earnest: two more supermarket chains -- Shaw's and Food Lion. Then Mission Foods, a major miller, taco shell producer and ADM affiliate had to pull taco shells and tortillas. ConAgra announced that it was closing a mill because of possible contamination and Kellogg shut down a cereal plant in Memphis because it could not guarantee that the corn in inventory was free of StarLink. In the most extreme reaction, Tyson Foods announced that it would leave it to suppliers to ensure that the corn the poultry processor purchases is StarLink-free even though all of Tyson's purchases were for animal feed.





CONCERN WITH GENETICALLY MODIFIED FOODS
The home front: GM agriculture and food in the United States

3.3 Why genetically modified crops?

In theory, genetic modification offers significant benefits to both farmers and consumers:

• Crops can be modified to resist pests, which should improve yields, bringing initial cost benefits to the farmer;
• GM crops can be less reliant on pesticides and herbicides, allowing for more efficient and less intense chemical application;
• GM crops can be developed to survive extreme conditions, such as drought, frost and salinity;
• Genetic modification can provide cheaper, better tasting, higher quality and longer-lasting food; and
• Foods can be modified to be more nutritious, healthier, and perhaps even provide functional benefits through innovations like edible vaccines.

In practice, however, agricultural input companies have focused mainly on increasing pest resistance (and hence yields) and decreasing pesticide application (hence costs). The promise of productivity improvement explains the rapid adoption of GM crops by US farmers. The benefits to the non-farm community are less obvious and direct. Although consumers may enjoy slightly lower food costs and (in the longer run) better water quality from reduced chemical run-off, at this stage American food manufacturers and consumers are being asked to accept the risks that come with this technology without receiving significant immediate rewards.

CONCERN WITH GENETICALLY MODIFIED FOODS
Concern with GM-foods: Fad or lasting trend?

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Zogby/Reuters measured consumer attitudes about the long-term effects of GM foods in February 2000. This poll asked respondents to agree with one of the following statements: a) genetically modified foods are a good idea because they provide a bountiful harvest, allow fewer chemicals and are much more resistant to disease and insects; or b) they should be treated with extreme caution because there is know way of knowing the long-term effects on health and the environment.  A total of 71% of those surveyed responded that GM foods should be treated with caution. Only 23% thought that GM foods were unequivocally a good thing. This poll tends to support the results of the Angus Reid Poll: that Americans currently believe that the risks of biotechnology are greater than the potential benefits.

The results of surveys vary, but the signals point to increasingly negative views about agricultural biotechnology. These polls were all conducted prior to the StarLink controversy, which, almost certainly has increased overall concern and confusion about the safety of foods containing transgenic crops (see text box below). What was once only quiet unease

FUELING THE FUROR
Factors influencing concern with agricultural biotechnology

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SECTION 4: FUELING THE FUROR: MAIN DRIVERS OF CONCERN WITH BIOTECHNOLOGY

4.1 Factors influencing concern with agricultural biotechnology

In this section we will develop a model that sets out the main factors influencing the level of concern over genetically modified foods in the United States. This model will:

• evaluate in detail the principal forces that have and are likely to influence the level of concern about genetically modified foods;
• assess the impact of the Starlink controversy and other potential events on the long-term level of concern with agricultural biotechnology;
• determine the implications for companies operating across the food chain. In the process we will revisit many of the key issues mentioned in Section 2 and explore the degree to which they will influence opinions in the future.

Concern with GM foods is multifaceted "Playing God is wrong and no one knows where it will lead"
"Tinkering with Nature could harm the environment"		"This might hurt me or my family"

FUELING THE FUROR
Factors influencing concern with agricultural biotechnology

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(previous text not included) .....dangerous, a much larger percentage of travelers worry about plane travel because they lack control.

Fourth, fear of the unknown raises the sense of risk among many consumers. Americans are increasingly skeptical about the ability of science to understand and foresee all of the possible consequences of new technologies. Negative experience with nuclear and chemical industries has made the public wary of new developments and has eroded trust in the regulatory process.

Consumers are uncertain about the potential benefits and costs of agricultural biotechnology

The table below compares and contrasts the biotech issue with other food safety concerns in terms of different perceived risk-inducing variables. As mentioned earlier, consumers are likely to consider a particular technology to be riskier if they receive limited tangible benefits, if they feel that they have no control over it and if it is new and generates fear of the unknown. (table not included)

IMPLICATIONS FOR THE FOOD INDUSTRY
The lessons of Starlink

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SECTION 5: IMPLICATIONS FOR THE FOOD INDUSTRY

5.1 The lessons of StarLink

The simplest lesson has already been mastered by all concerned: split approvals are a recipe for disaster. Had EPA not restricted the market for StarLink, if Aventis had not made a promise it could not keep, the recalls and plant shut downs could have been avoided. But behind this easy answer lies a more difficult question. How should the risk of allergenicity or more broadly food safety, be dealt with?

For food companies perhaps the most important point to remember is that while the StarLink case was in many respects unique and unlikely to be repeated, something quite similar could occur in the future. Development of the next generation of GMOs - the consumer-friendly products that are supposed to offer tangible benefits like disease treatment, reduction of allergens, food fortification, improved processing characteristics - will hinge on proteins not seen before in the food supply, proteins more exotic than Cry9C. Some may be obviously allergenic or toxic. Others will be harder to evaluate. Appreciation of the long-term risks inherent in creating products from these ingredients is critical for food companies. It cannot be left entirely to the life science companies and a weakened regulatory system.

With the support of the food and feed industries, Aventis is seeking temporary approval for StarLink as a food ingredient. The company has submitted additional research that indicates there is little to fear on the allergen front from Cry9C. Approval would make it possible to move corn with small concentrations of StarLink into food channels and would relieve a very tight yellow corn supply problem.

With all but a small amount of StarLink corn now isolated from the food market, the tiny volume remaining in trade channels is unlikely to trigger allergic reactions in even the most compulsive yellow corn eaters. Nevertheless, the Aventis petition puts EPA in a difficult position. Although much of the blame for the immediate problem clearly lies with the agency, it will still be politically difficult for EPA to grant approval without looking as if it has yielded to industry pressure. The food manufacturers supporting the petition have a clear interest in being able to market products without fear of further recalls due to a compromised ingredient supply. But their faith in the power of the scientific evidence submitted by Aventis leaves them open to a potentially serious public relations problem. What would happen when more tests show that foods containing StarLink are back on the... (end of text included)