Washington Insider -- Monday

"Free-From" Foods Gain

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Food Stamps/SNAP Remain Key in Farm Bill Prospects

Disagreements over food stamp provisions resurfaced as the leaders of the House and Senate Ag Committees met again Thursday, putting the farm bill timeline of getting it wrapped up yet this month potentially in jeopardy.

"We are still working through things," said Senate Ag Committee Ranking Member Debbie Stabenow, D., Mich. However, she basically rejected the proposal from House Agriculture Chairman Mike Conaway, R., Texas, which he described as a "significant compromise." She said the offer did not go far enough, adding, "It wasn't even close to being something the Senate could accept. It was not meaningful enough."

Senate Ag Chairman Pat Roberts, R., Kan., said that the four principals are facing some of the "harsh realities" of what it takes to get a bill done this month. But beyond nutrition, there are issues with cost estimates for changes being considered to the Ag Risk Coverage (ARC) and Price Loss Coverage (PLC) programs.

Conaway said the Congressional Budget Office (CBO) has sent cost estimates for some proposals for a 2018 farm bill conference report, but continues reviewing other changes. Conaway, ranking member Collin Peterson, D., Minn., and their Senate counterparts met Thursday after meeting on Wednesday. Conaway said the four will talk by phone over the short congressional break.


Analysis Shows RFS Waiver Impact

EPA's small refinery waivers under the Renewable Fuel Standard (RFS) could cost the ethanol industry 4.6 billion gallons of domestic demand and close to $20 billion in sales revenue over the next six years, according to an updated analysis by the University of Missouri's Food and Agriculture Policy Research Institute (FAPRI) released recently.

The Renewable Fuels Association noted the analysis in again urging the EPA to reallocate those exemptions to larger refiners.

The oil industry said the data show there's in fact been increased U.S. ethanol production.


Washington Insider: "Free-From" Foods Gain

Bloomberg reported this week that the staid old world of processed food is changing dramatically -- especially since increasing numbers of food products that are sold as "free-from" something and are gaining market share rapidly -- and that some old-line companies are taking "extreme" measures to take advantage of that trend.

For example, General Mills Inc. spent five years and built a special eight-story sorting facility to get rid of an ingredient that wasn't in its cereal. The story involved "Cheerios" -- made from oats and thus naturally gluten-free. To make sure the cereal didn't contain even tiny particles of the protein that may have blown in from neighboring fields, the company dispatched a team of engineers to retool machines to sort 1 billion pounds of oats a year.

"It was not easy," said Mike Siemienas, a spokesman for the Minneapolis-based food company, who declined to say what was spent on the effort. "We knew if we wanted to take our Cheerios gluten-free, we needed to create our own system."

However, the article describes a long list of products that are booming in response to "free from" marketing campaigns. In addition, it suggests that these trends have implications for the industry as a whole. These include items sold as free from gluten, antibiotics, pesticides or genetic modification, among other things, and are changing the way companies procure, process and package food.

Sales of these foods are poised to grow 15%, or $1.4 billion, in the U.S. between 2017 and 2022, according to Euromonitor data. The U.S. is the largest global growth market for the free-from trend, Bloomberg said.

Bloomberg noted that sales growth for North American packaged-food companies has slowed sharply since mid-2011, reflecting the shift in demand toward fresh and organic foods. The S&P 500 Packaged Foods Sub Industry Index fell 9% this year as industry stalwarts struggle to find the right formula for growth.

"We know that we have to continue to evolve," said Kyle Lock, senior director of retail marketing at Garner, North Carolina-based Butterball LLC, the largest U.S. turkey producer. Without changing to meet demands of consumers seeking other options "we risk some obsolescence, or at least some decline."

While the food and beverage sector has grown 1.9% over the past year, "free-from" versions are growing much faster, Bloomberg said. Products labeled antibiotic-free saw growth rates of nearly 20%, followed by soy-free at 19% and hormone and antibiotic-free at 15%.

Some of the largest food companies have taken steps to change their image, Bloomberg said.

The shift is not always easy -- General Mills faced an embarrassing early setback when it was forced recall gluten-free Cheerios because wheat flour got into a facility in California.

Americans are increasingly interested in what's in the products they buy and how they're made, Sergio Fuster, president of the U.S. yogurt division for Danone's North American unit. The company began reaching out to farmers eight years ago to identify ways to source non-genetically modified feed for cows. Since then, more than 65,000 acres of farmland have been converted to source the feed needed by the dairies, including grass and alfalfa, said Fuster. The company's Danimals brand, almost entirely transitioned to non-GMO, is among its best performers. Dannon's market share in the kids' segment grew by a third in the past three years to reach 41% in 2017.

Butterball sells organic and antibiotic-free products and recently expanded its all-natural products including turkey bacon, sausage and burgers to lure customers outside of the holidays, when demand for its poultry usually peaks.

Sales of the company's antibiotic-free ground turkey in the 13-week period ending Aug. 12 were up 71% from the prior year, and now make up 17% of the total. Achieving this is a logistical juggling act -- its plant in Mount Olive, North Carolina, handles organic and antibiotic-free birds first thing in the day to ensure they don't come into contact with the conventional products. There's also different colored bins to store each type of meat to prevent mix-ups, said Jay Jandrain, the company's chief operating officer.

"It's a matter of storing and managing those materials -- that's the tricky part, just as far as keeping them segregated," Jandrain said. "If you've got a raw breast meat, you now have three different types of raw breast meat that you have to manage through the facility."

Farmers who were ahead of the curve, meanwhile, are now finding themselves well positioned to profit from the boom in demand for more specialized products, Bloomberg said. In the late 1980s, John Gilbert started raising pigs on his farm in north central Iowa on pastures, with feed grown on site and without the use of antibiotics.

So, we will see. Clearly, powerful consumer trends can be expected to attract the attention from highly competitive producers even though a number of "free-from" food trends remain controversial and have received push-back from conventional producers who dispute many of the health benefits being claimed. Still, it is likely that preferences for at least some of the free-from products will continue to increase market share in spite of higher costs. The food safety, healthy food fights are extremely important to producers and should be watched closely as they intensify, Washington Insider believes.


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