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The Final Foods Industry and the Changing Face of the Global Agro-Food System

John Wilkinson

or the consumer, the agro-food system is probably most identified with brands closely linked to, if not the personification of, the leading historic food firms, although most of these have now become incorporated into larger global holdings. Nestl, still the worlds largest food firm, would be the pure case here, followed by firm-brands such as Kraft, and Nabisco, now incorporated into Phillip Morris, together with their counterparts in the drinks sector Coca and Pepsi. This article focusses on the challenges which current processes of global restructuring represent for the leading food industry firms, exploring, in addition, the hypothesis that both the new bio(techno)logy paradigm and novel patterns of food demand accentuate the vulnerability of firms organised around this link in the global agro-food chain. At the same time, this reflection will provide an opportunity for revisiting and re-evaluating analyses and concepts which have been developed in earlier work (for example, Wilkinson 1986; Goodman et al. 1987; Goodman and Wilkinson 1990; Sorj and Wilkinson 1990). Characteristics of the food industry within the agro-food chain and its role in the creation of the modern food system From Farming to Biotechnology (Goodman et al. 1987) analyses the industrialization of the agro food system as a historically sui generis process given the limitations imposed by the irreducibility of biological processes to industrial transformation. Its working hypothesis was that the new biotechnology frontier was redefining and perhaps effacing these limitations. The profile of the modern agro-food system, was therefore historically consolidated around a series of partial industrial alternatives to agricultural processes and products in accordance with the advance of scientific and technological knowledge. Different industrial sectors emerged within a broader overarching tendency either to appropriate agricultural processes or to substitute for the agricultural product. The idea was both to give analytical purchase to a previously descriptive upstream/downstream account and to provide a dynamic view in which the advance of the S & T frontier not only permanently redefined the scope of upstream and downstream activities but at the limit might undermine the grounds for the distinction itself. In this account, it was important to recognise
Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK 350 Main Street, Malden, MA02148, USA Sociologia Ruralis, Vol 42, Number 4, October 2002 European Society for Rural Sociology ISSN 00380199

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that appropriationist strategies extended to all actors engaged in the valorisation of a particular agricultural raw material, whereas the notion of substitutionism referred to those sectors or activities committed to adding post farm-gate value, transforming the agricultural product into an input, and reducing its material and economic participation in the value of the final food product, while increasing the latters autonomy from specific supply bases.1 For the emerging food industry sector, the following characteristics and implications were identified. In the first place, the food industry was seen to be largely based on an empirical, experimental up-scaling of artesan processes, maintaining the age-old preservation/separation/transformation techniques of squeezing, drying, blowing, cracking, heating, freezing and fermenting.2 Although distinguished with a number of notable patented innovations, around which the sectors leaders were created and consolidated dried and evaporated milk (Nestl), margarine (Unilever) and in spite of establishing routine university links to place canning on a scientific basis, the food industry was seen as a low tech, learning-by-doing or, in the classic industrial typology according to technological dynamic elaborated by Pavitt (1984), as a technology supply-dependent sector. Secondly, the food industry increasingly adopted a substitutionist strategy, reducing its dependence on specific raw materials through resorting to interchangeability of inputs, the reduction of the inputs material and economic share in the final product and the increasing use of chemical alternatives in the form of ingredients and additives.The organisational expression of this substitutionism was an increasing separation of agricultural and primary processing activities from final food production. Food industry firms divested themselves of plantations and activities linked to the origination of inputs to concentrate on the confection and marketing of final food products. Over time, therefore, the final foods industry increased its distance from its agricultural base, particularly in relation to those products which could be organised through independent commodity markets. Thirdly, even within this substitutionist strategy, industrialisation was partial. In spite of canned soups and biscuits, the food industry remained largely ancillary to the domestic kitchen supplying individual products as cooking ingredients. The attack on the kitchen would be led by fast-food and take-aways, spawning entirely new food industry sectors, whose growth rates would overshadow and whose size would come to rival the traditional food industry leaders (for example, see Goodman and Redclift 1991; Hogan 1997; Jackle and Sculle 1999; Schlosser 2001). The food industrys response involved a shift to ready-to-heat and ready-to-eat meals, as we will see below. Equally importantly, the food industry showed itself unable to compete with agricultural production in a whole range of products, among which we could single out meats and horticulture. In these cases, there remains virtually no distinction between the farm-gate product and the food on the plate. The incompleteness of food industrialisation not only led to the persistence of agriculture as the direct supplier of fundamental final food items, but also led to the agricultural product assuming a normative role in the definition of quality, which was moreover internalised within the industry itself in its publicity. Industrial value, therefore, was justified by its degree of approximation to the original agricultural product. In a similar fashion, the persistence of home cooking reinforced the superior values of artesan food

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production, which are later appropriated by the food as culture industry, ranging from recipe and consumer learning books and media to food and drinks tourism. Our earlier analysis, therefore, singled out three characteristics of the final food industry its low-tech profile, its distancing from agricultural production, and its normative subservience to this latter on the issue of quality , all of which help to understand the current vulnerability of the traditional food giants. During a large part of the last century, however, these same characteristics were responsible for this sectors dynamism and flexibility which allowed it to assume a dominant position within the agro-food system. On the one hand, the low-tech profile of agro-food coincided with an aspect of conservatism in food consumption. Although the shift from rural to urban diets represented a giant upheaval in food consumption patterns in the industrialised world, it was accompanied by an enduring attachment to brand products which seem to have provided a still point in the turning world, offering assurance and familiarity which camouflaged the profound changes in diet and consumption practices. 3 The major product innovations and brands had an enormous and virtually unchanging life cycle (same content, same packaging, same publicity) putting a premium on scale rather than technological change. Food consumption conservatism (more subjective than real) created what has been described as innovation redundancy where firms held back from more radical innovations which were within their technological capabilities, advancing at the margin and promoting new demands on the basis of existing, identified preferences (Wilkinson 1998). Low-tech, on the other hand, is not to be identified with no-tech and the substitutionist dynamic was premissed on the ability for constant adaptation of a dominant process technology to a variety of input sources. This allowed the leading food firms to free themselves from the constraints of a single food product chain and diversify horizontally. For a long time, however, the dominance of a major technological competence would determine the limits to such diversification. Nestl would advance from milk products to chocolates, coffee and biscuits and Unilever or Proctor would span detergents, margarine and frying oil, but all remained anchored around core technological competences, closely tied to specific types of raw material inputs. The dual dynamic of the new demand oriented and increasingly globalised food system and the response of food industry leaders At some point in the 70s this world began to change. A new urban generation not tied to the restraints of a post-war mentality, new levels of economic well-being, and the exhaustion of the extensive consumption frontier spelled an end to this long-life, single-product brand strategy.4 To survive, the food industries had to shift to product innovation combined with a more radical multi-product strategy, which in its turn marked the need to break from strategies based on core product/ process technological competences. Food firms diversified both to capture more volatile and segmented demand trends and to adapt to the logistical demands of large-scale retailing. A sophistication and diversification of processing technology, as more and more ingredients were incorporated, was accompanied by the need to readjust logistics, distribution, marketing, and brand strategies to fast-changing and increasingly segmented markets.

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Two dimensions of this new demand oriented food system, as it affects the final food industry, can be analytically separated out although in practice they overlap and combine and are both redefined in an as yet unclear fashion under the impact of globalisation. The first dimension involves, above all, the transition to multiproduct demand and innovation-oriented firm strategies, to which the leading food industry players have responded well. This reorientation, however, is marked by the challenge of large-scale retail concentration which progressively assumes hegemony over the food industry. For a period it seemed that peaceful co-existence between the giants of each sector would be the norm. Recent evidence, however, would suggest that retail has adopted a far more ambitious programme, which has been reinforced by a second, equally important, dimension of the new agro-food system. This second dimension is not so much focussed on the diversification of demand as on new contents of demand. These either push food further along the substitutionist trajectory up to the frontier with pharmaceuticals, cosmetics, nutriceuticals and functional foods, or radically challenge industrial transformation, harnessing preservation technologies to the reintroduction of the agricultural product as final food. The first trajectory involves competence barriers (regulation, research) which favour other industrial sectors (pharmaceuticals) and/or new entrants (the Finnish functional foods cluster), while the second forcefully strengthens the hand of retail which can now short-circuit the food industry, establishing backward linkages with agriculture in an innovative variant of appropriationism (Heasman and Mellentin 2001) . These strategic options are enormously complicated by the long awaited maturation of advanced biotechnologies currently focused on the struggle to recapture the agro-food system for a globally ologopolised technology push complex, based on old-style appropriationist strategies. The extent to which these latter can reposition this technology in compliance with key components of the new demand profile is still an open question.5 Faced with these challenges, the final food sector would appear to be in danger of being squeezed between the extremes of demand and supply. On the one hand, it is largely passive in relation to the drama of the new biotechnology paradigm, and on the other it lacks the nuanced knowledge of global demand made possible by information technology which provides a decisive advantage to retail. This second dimension of the new agro-food system places the future of the traditional giants of the food industry in considerable doubt. The final foods industrys response to the demands of short cycle, multi-product innovation The competitive challenge of this first dimension of the demand-oriented food system for the final foods industry was that of product differentiation and diversification. Demand needed to be constantly reactivated by new, primarily sensorial, appeals while at the same time more durable new demands were promoted via segmentation (age, life-style etc). As the locus of firm competitiveness shifted to demand in this way, scale came to be reinterpreted in terms of returns on advertising, logistics and brand creation. A wave of mergers and buy-outs radically redefined the frontiers of leading food firms. For these firms a number of distinct lines of action were simultaneously demanded. They needed, in the first place, to expand the range of products

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offered both to optimise distribution, logistics and publicity and increase their bargaining power with the intermediator par excellence of demand, the retail sector. This involved a deepening of individual products lines and expansion towards products with evident synergies either at the level of raw materials, distribution, consumption patterns or publicity. For the leading firms, the multi-product strategy extends to the whole range of industrialised foods and from there into drinks. The extent of this process for any particular firm will depend on the nature of its historical strengths and competences and the spaces already occupied by equally powerful rivals. The final drinks sector is also experiencing the same tendency to horizontal diversification and concentration. The character of distribution channels, consumption incompatibilities (alcohol) and consolidated brands can create formidable barriers to entry, but where these are not present, as in the case of fruit juices and in particular mineral and mineralised water, the drinks market has become a key target for food company expansion. The second major adaptative tendency was the shift from individual products to prepared foods in response to the growing opportunities for appropriating cooking activities. Prepared foods involve an even more pronounced diversification of ingredients, although accumulated advantages in different product chains still represent strong entry barriers, making it easier to associate Nestl with cheesebased pizzas than with meat dishes. Whole fish products became a notable addition to the industrialised final foods sector in this period accelerating the shift to preservation technologies and creating opportunities for the emergence of new actors to be subsequently bought out or engaged in strategic alliances by the traditional leaders. The market created by this hollowing out of cooking activities, however, has to face the challenge of a more radical substitution of the kitchen offered by the burgeoning sector of take-aways or to gos which combines the demands of proximity with brand confidence through the organisational innovation of franchising.6 The third tier of this readjustment was the focus on cold and frozen snacks, rather than foods in the traditional sense. Nestl is perhaps as well known today for its ice-creams as for its powdered and evaporated milk or coffee. Snacks, however, on the basis of consumption affinities provided a point of entry into the food market for the soft drinks sector. Globalisation, has now given the drinks giants a decisive edge and it is the duopoly Coca, Pepsi - who are leading the diversification from soft drinks into snacks. The recent purchase of Quaker by Pepsi is perhaps the most poignant reflection of the fragility of the traditional food industry leaders. Nestls strategic alliance with Coca Cola in Europe also points to a new relation of forces in the global and increasingly combined food and drinks industry. These changes in the agro-food system as from the 1970s have, therefore, led to a profound and dynamic restructuring of the final food products sector. The product innovation trajectory outlined above was accompanied by a radical shift from the predominance of transformation to that of preservation strategies in process technology. As argued elsewhere (Goodman et al. 1987), the transformation of agricultural products was a byproduct of efforts to preserve their nutritional quality over time. While this process gave rise to new products with a life of their own, the original objective of preservation has now re-emerged as a dominant tendency with the perfectioning of factory-to-retail-to home refrigeration systems. This tendency,

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in its turn, reinforces the normative appeal of the original product and prepares the way for a more radical challenge to the industrial foods system. With the shift from single product transformation to prepared meals and ever more sophisticated snacks, the industrial food factory takes on the hybrid quality of an immense kitchen-cum-laboratory. Some authors have gone so far as to see a qualitative shift in the nature and role of the food industry, arguing that it has ceased to be identified with the industrial category defined by Pavitt as dominated by technology suppliers (Rama 1998). Instead, it is now seen not only as a source of great internal innovation but, by virtue of the complexity of its demands on equipment and ingredients suppliers and external services from highly varied scientific and technological trajectories, as a key promoter and diffuser of innovation within industry as a whole, a carrier industry in the neo-schumpeterian sense. While this view of the innovative profile of the food industry is compatible with the product and process shifts indicated above, it is, nonetheless, striking how quickly firms based on local capital in developing countries can access state of the arts prepared food dishes and even exercise oligopoly control over this rapidly growing market.7 Similarly, forms of out-sourcing now being used in food production and the growth in importance of up grade generics point to the low appropriability and easy difusion of this knowledge base. From the 1980s on, many researchers focused on the increasingly hegemonic role of large-scale retailing and identified the negative consequences of this development for the food industry sector.8 Nevertheless, the prevailing view was that, after restructuring around a strategy focussed on the promotion of brand leaders, the major food firms would probably be able to reposition themselves as partners in the consolidation of the large-scale retailing model. The major losers would be medium sized firms unable either to offer the necessary range of products, guarantee suppliers on the scale required, or fund the promotion of brands in the new competitive climate. Globalisation, initially offered differential advantages for the leading food firms. They traditionally had a greater international presence than retail and depended less than this latter on the existence of sophisticated infrastructure. The food and drinks sector has shown itself capable of adapting to pulverised retail structures, even in the case of its more recent line of frozen and chilled products, through the provision of cold storage machines under different contractual arrangements. The advantages of large-scale retailing, on the contrary, depend on the prior, efficient functioning of transport, energy and communication systems, not to mention economic stability. Indeed its success depends on the existence of a modern food industry able to ensure the regularity and quality of supplies. The premium now placed on global brands has lead to a second wave of, increasingly inter-national, mergers among the leaders, complemented by acquisitions of firms in developed, developing and newly industrialised countries alike. The acquisitions of Bestfoods by Unilever, Quaker by Pepsi, and Becks and Bass by Interbrew could be mentioned in this context, as also Parmalats recent takeovers in South Americas milk products sector which are only, perhaps, the most aggressive of a range of purchases affecting all food and drink product categories in this and other developing regions. This has provided enormous scope for horizontal expansion of the leaders via market concentration, now on a global scale. These new competitive pressures

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for scale have, on the other hand, led to a greater portfolio specialization, with the jettisoning of all but brand leaders or projected-to-be leaders. There has, however, been a parallel internationalisation of retail led by the European giants Carrefour, Metro, Ahold but followed closely by Wal-Mart, which has accelerated markedly in the 1990s. Wal-Mart is perhaps a special case given the importance of non-food items but the above leading retail firms are now beginning to outstrip their counterparts in the food industry with the worlds top ten retailers having an average turn-over of US$45b in 2000 as against US$23b for the food and drinks sector (ETC Group 2001). Concentration continues at a hectic pace in retail and predictions point to a further reduction in the number of global players. In the newly industrialised and developing countries the global retail actors must first impose themselves by promoting the dominance of the supermarket model and then confronting national and regional competitors. Once this has occurred, however, a similar squeeze on the food industry leaders to that existing in the industrialised economies begins to be exerted.9 If the profile of the modern agro-food system was limited to the above described tendencies we might conclude that the final food industry sector, although now clearly a subordinate actor, had succeeded in repositioning itself, fundamentally through the power of its, increasingly global, brands and capacity for product innovation. That it is now a subordinate actor is evidenced not only in the growth of generics, but also in the importance of diverse forms of fees which the retail sector is able to impose on the food industry. It has been calculated that some 50-75% of total net profits for large retailers comes from a range of entry and penalty fees regarding access to supermarket gondolas, a clear expression of economic power (Heffernan et al. 2001). Brand based strategies in the context of globalisation and constant product innovation also pose enormous strains on leading final foods firms. Earlier tendencies to internationalisation, in the 1960s and 1970s, generally corresponded to the exploration of new markets for products already mature in the country of origin, offering the attraction of an extended life cycle with low incremental innovation costs. In the current context of constant product innovation, leading global players can still rely on their portfolios developed in the home country, but the demands of adaptation and monitoring of the evolution of the local market become much greater. The result is a permanent global-local dilemma which has led major firms such as Nestl and Unilever to successive reorganisations at all levels - production, management, and marketing - in an effort to establish a workable balance between the respective benefits of centralisation/decentralisation. The challenges of global brand strategies in food, however, go much deeper. The vulnerability of product brands, captured dramatically in the Marlboro Friday phenomenon when Philip Morris cut prices to compete with unbranded rivals (Klein 2001), is much more pronounced in the food and drinks industry where generics, as we have noted, have now a solid share of the market even in up-price segments. For new-age firms, such as Gap, Virgin, Nike, or Apple, the brand is transferred from the product to the firm itself and identified with life-style aspirations. A series of factors make this shift more problematic in food, although, within the limitations imposed by the sector, the leading firms are clearly moving in this direction.

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In the first place, quality in food is, as we have seen, associated more with artesan than industrial production. Nestl may own Baci Perugina chocolates but it prefers not to say so more than is necessary. Secondly, many food products are firmly anchored in utility and convenience (ready-to-heat, ready-to-eat) rather than experiential values. And thirdly, the omnivore factor, combined with the need to eat three or four times everyday makes it difficult (and highly unadvisable) for the consumer to have an exclusive firm/brand allegiance. For these reasons, a Nestl or a Unilever store chain would be an improbable strategy and even large-scale retail stops fall short of exclusively own-products outlets. To the extent that products assume life-style status, they tend to maintain their original brand names and leading firms compete to develop a coherent portfolio of global brands. These tendencies are more developed in drinks, a sector with a much stronger life-style appeal. On the one hand, Coca, Pepsi and Heineken tighten the firm/brand identity, while Guinness/UDV establishes a collection of global brands in wines, beer and spirits. The leading food firms have clearly repositioned themselves towards more life-style sectors snacks, ice-creams, sparkling water but they remain solidly anchored in the middle range of industrial food products and do not extend their brand names too openly to the high value branded products which they purchase. In the food services sector, these firms tend to occupy a key role in inputs supply or in the convenience segment, but a Nestl is unlikely to be able to compete up front with a Starbucks, although Parmalat has moved into ice-cream parlours. The leading food firms, therefore, occupy a heterogeneous middle ground, permanently threatened in the polarization between generics and global brands, Nevertheless, it would seem that, within these constraints, the leading food firms have successfully repositioned themselves to confront the realities of modern retail, product innovation and globalisation. Although increasingly in a subordinate position within the agro-food system as a whole, the rules of this new game have become basically clear and the food firms are adjusting their strategies accordingly. The final food industrys vulnerability in the shift to radical product and process innovation It is not so evident, however, that these same food firms are on such strong terrain when one takes into account the second dimension of the new demand oriented agrofood system. Here the food system, in addition to the earlier characteristics discussed, confronts, on the one hand, the contested introduction of a new technology paradigm genetic engineering, molecular biology and genomics providing a critical opportunity for the recycling of well established upstream players, but with radical implications for the whole agro-food chain. At the other end of the spectrum, food demand is now focussed on the functional content of foods which threatens a double outflanking of the food industry back to agriculture or forward to nutriceuticals. In this scenario, the technological dependence of the final foods industry is once again reasserted and the limitations of its innovative capacity dangerously stretched. It is neither a leading player in biotechnology nor are its technology blending competences, acutely identified by Ruth Rama, so relevant for dealing with these new extremes of dynamic demand.

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The final foods industry has shown itself able to adapt to (and even promote) product differentiation, market segmentation and short cycle product innovation. At the same time, it has embraced globalisation and confronted the retail sector on the basis of a portfolio of increasingly specialised and high profile brands. It has had greater difficulty, however, in dealing with normative views on food quality which emerged from the increasingly autonomous nutritional science community and converged with growing preoccupations over public health. These two bodies of opinion forged a closer identity between food, nutrition and health which was initially resisted equally by the medical professions and the final foods industry. As concerned the food industry, this growing consensus could be summed up in the need for less sugar, saturated fats, carbohydrates and salt and more fibres. Initial opposition, on the model of the tobacco industry, was gradually transformed into acquiescence once it was recognised that the adoption of low sugars, fats, and salts did not threaten the existing product profile of the industry and, indeed, could be incorporated into the now dominant market segmentation strategy. The technologies for ensuring these objectives quickly spread through the whole industry largely eliminating early adopter advantages. A similar process occurred when the importance of vitamin supplements was incorporated into the dominant nutritional model. Milk and other products were now to be had in all degrees of fat content and with a range of fortifying additives. At the same time, the focus on the overall, balanced diet meant that no product was intrinsically bad, and the idea of moderation, which served to protect the expansion and sophistication of the alcoholic drinks sector, also legitimated the expansion of nutritionally dubious products (confectionary, ice-creams) which quickly became brand leaders for the global players. Some writers have shown how this shift of the sugars and fats to accessory products in practice meant that overall intake of these bads continued to rise, accommodating the interests of the major commodity stakeholders (Fine et al. 1996). More subversive, however, was the concomitant emphasis by nutrition and public health spokespersons on the consumption of more non-industrialised foods, and particularly, fruits and vegetables. In part, this accelerated the adoption of vitaminenriched products, but the longer-term effects were twofold. They strengthened the role of retailing, in alliance with new actors (packers), as the principal articulator of fruit and vegetable circuits into the modern food consumption system. Secondly, they promoted the identification of food quality with fresh agricultural products, which would prepare the way for the explosion of organics.10 Opposition to the dominant industrial model also became more coherent as consumer organisations were consolidated on the basis of this critique of industrial food. The food industrys response therefore was initially hostile to the new nutritional criteria (no food product is intrinsically bad, but must be seen as a question of overall diet) and then defensively adaptive. All the industrys leaders incorporated nutritional segmentation in their product lines and competitive advantage was ephemeral as adoption spread throughout the category in question. The speed of adoption, as in the case of prepared foods discussed above, revealed that

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these product innovations did not provide the conditions for durable competitive strategies. The food industry was once again reduced to its restless cycle of minor product innovation dependent on ever more expensive media publicity with profits quickly eroded by imitation, exemplifying the syndrome of low technology competition. A new strategy emerged in the 1980s, based on the inversion of the earlier argument that no individual product is intrinsically bad, involving the development of products with claims to special health quality status. In fact, the impact of adopting low fat products was in part to call in question the notion of the natural goodness of the original product, preparing the consumer for this radical shift in food industry strategy. Functional foods, or nutriceuticals bring food closer to medicine and mark a break with the nutritional revolution described above.11 The addition of new qualities to foods offering a specific health claim implies a more radical concept of product innovation based on R&D, clinical trials, regulatory approval, patent protection. The claim now is that certain attributes of the product in question are responsible for actively lowering cholesterol, improving the functioning of the digestive system, providing rapid energy boosts, strengthening bones, and decreasing the risk of cancer, heart attacks and other diseases. The regulatory framework for functional foods is still in the process of being constructed. In Japan, which has led the functional foods strategy, a Food for Specific Health Uses (FOSHU) legislation was put into place in the early 1990s. In the US, the nutritional labelling legislation has permitted generic health claims and the Dietary Supplement Health and Education Act of 1994 has opened the way for positioning functional foods as dietary supplements. In Europe, national regulations interpret community directives each in their own way leading to widely differing applications, and community legislation itself on novel foods and labelling is undergoing review. The Codex Alimentarius is similarly in the process of elaborating new directives on food health claims. The debates on standards for functional foods provide a privileged terrain for analysing the negotiation between different interests and values, different worlds of production within the food system.12 There are differing views within industry, with traditional food sectors, still based on the appropriation of different commodity chains, identifying their interests with more generic claims while strong innovation-driven firms look to the legitimation of specific health claims. Consumer groups have generally been sharply critical identifying functional foods as a continuation of the additives strategy against which they have been key campaigners. The heterogeneity and uncertainty surrounding the regulatory regime for functional foods has strongly affected the strategies adopted by different firms and has been responsible for major setbacks which have in their turn influenced the development of this sector. While the current situation is, therefore, one of flux, a number of tentative conclusions on the impact of functional foods for the final foods industry can be advanced. In the first place, it has given a decisive stimulus to science-based radical product innovation within the food industry. The innovators may be: i) science start-ups, as in the case of bifidus (incorporated in yoghurts) and lactic acid bacteria (Yakult and fermented milk drinks), ii) new food industry actors (Benecol and the Finnish Raisio); iii) existing food leaders (Unilever in margarines, Danone in lactic acids);

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iv) the food ingredients sector (Hanson); and v) chemicals/pharmaceuticals (Novartis). To the extent that specific health food claims become enforceable, the final foods industry will be reorganised around firms capable of radical product innovation. Dependence on access through licensing agreements will leave food firms vulnerable to the innovators who may opt for exclusive marketing agreements or launch the product themselves (the case of Yakult). While this tendency draws food ever closer to the drugs industry, it would appear that the targeted health claims are open to the action of multiple active ingredients. A whole range of lactic acid bacteria have a similar beneficial effect on the digestive tract and various plant sterols can act to lower cholesterol. The benefits of patenting will, therefore, probably be less decisive than in pharmaceuticals. On the other hand, new knowledge about the health advantages of certain traditional products can lead to entire product categories assuming the status of surrogate functional foods. This would seem to be the strategy currently adopted by leading firms fortunately identified with commodity chains now associated with specific health advantages. Prime examples here would be: Quaker and its oats products for lowering cholesterol, Heinz and lycopene in tomatoes against cancer and General Mills and whole grains against heart disease. Here we are dealing with a generic claim for a whole range of products, which gives competitive advantage to certain firms in their traditional markets. Indeed, the different responses of the food industry leaders can be seen to be related to the impact of nutrition science on the health image of their anchor products. To the extent that new knowledge repositions traditional commodity chains negatively or positively in relation to current nutritional values, the leading firms will adopt marketing and product development strategies based on specific or generic food health claims. Given, however, the drive to continual market segmentation, it is probable that over the medium to long term those firms which have been forced to invest in sciencebased innovation will be better best placed to respond to the continuously moving frontiers between food, health and nutrition. Estimates of the size of the functional food market are quite speculative and depend on definitions (fortified foods are functional foods?) but spokespersons for the industry itself put the market at between US$10-20 billion in the US, which would place it on a par with organics. Like these, it has double figure growth rates and exhibits a seemingly endless capacity for growth as new patterns of segmentation find an echo with the consumer functional foods for women, for the aged, for children. Market and pricing strategy is still in its infancy leading to many product line failures McNeills Benecol margarine launch, Campbells Intelligent Cuisine, Novartis Aviva range. The ability to reposition foods, especially snacks, as dietary supplements has given a decisive edge to drugs and cosmetics firms McNeills, Johnson and Johnson. The success of functional foods depends on the establishment of a more interactive discursive relation with the consumer. Altus, the joint venture between Quaker and Novartis, claims to launch products only after focus group and testing sessions have declared the product equal or superior to anything on the market. The classic example, here, would be Yakults sales strategy for its probiotic fermented milk drink. Sample tasting, face-to-face sales and word of mouth diffusion without any resort to the mass media have made this product a market leader in Europe,

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creating a new market segment and forcing the worlds leaders, Nestl and Danone, into a me to strategy.13 Recently Nestl withdrew its LC1 competitor to Yakult from the British market arguing that its traditional television and mass media oriented publicity strategy had proved inappropriate for this type of product. The traditional food leaders, therefore, are not only technologically vulnerable but have to deal with markets which are not built through their traditional marketing strategies.14 Of the three European food giants, Nestl, Unilever and Danone, the last named would seem to be positioning itself most successfully in the new functional markets. This company has a global streamlined focus on only three product categories milk products, water, and biscuits and is launching functional alternatives with success in mineral water and milk products. Unilever in its turn has been very successful in its core activity of oils, where it has beaten off the challenge of the cholesterol lowering Benecol, created by Raisio, the Finnish food leader and launched in the US on the basis of a joint venture with McNeill. The margarine market, however, is a no growth segment and Unilever has been in a continuous process of acquisitions and sales in an as yet unending search for its new core business. Nestl has suffered a series of setbacks and is similarly trying to reposition itself in the face of the functional food challenge. Recent indications are that it will make a turn to products for the ageing, which is increasingly the profile of the developed world high income market. The functional food products strategy has been developed in a climate of constant opposition from the consumer associations, paralleling the mobilisation against transgenics. It would appear, therefore, that both upstream and downstream the leading agro-food players are committed to imposing strategies which fly in the face of a demand oriented food system. While, however, consumer associations are defending a more holistic approach to food and health, in a continuation of the balanced diet orientation of nutrition policy, targeted groups of consumers appear to be increasingly seduced by the idea of a quick fix road to health via food. This accounts for the apparent paradox of an unwanted development being based on a radically new marketing strategy which depends on the dialogic engagement of the consumer. Here, we should note the centrality of the snacks market, a key growth sector, which straddles the food/nutritional supplements barrier and is tailormade for quick fix solutions. Emblematic of this tendency is the repositioning by McNeill Consumer Nutritional of the Benecol cholesterol lowering ingredient from margarine to snack bars. Functional foods and advanced biotechnologies If the shift to foods with specific health claims puts a premium on science-based innovation, weakening the traditional competitive strategies of the established food firms, the perspective of an increasing convergence between research into functional foods and advances in molecular biology will tend to compound those weaknesses. The current opposition to the application of genetic engineering to food has shown itself to be more persistent than many analysts had expected and it has been increasingly reinforced by the remarkable advance of organics. Organic agriculture is now seen by many to be a realistic alternative to the dominant agrofood system, a view which is reinforced by ecological and social considerations

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favouring an increasing role for local markets and small and medium producers. On the other hand, national and international regulatory regimes, despite wide differences and tensions appear to be moving in the direction of greater liberalisation of transgenics. Consumer responses to genetically engineered food products have now been the subject of much research and different interpretative frameworks have been adopted cognitive, culturalist, institutional (AgBio Forum 1998; Buttel 2000; Demeter 2001; Guivant 2001). Strategic analyses, which focus on the importance of the perceived usefulness of the product in question for issues of acceptability, have received support from recent research carried out in France. Here surveys have shown a consistent positive relation between the perceived usefulness of genetically engineered products and the willingness to accept associated risks. For researchers basing themselves on this approach, the shift from a primarily agronomic to a special quality justification will pave the way for the adoption of advanced biotechnology as central to the provision of functional foods. The increasing diffusion of functional foods would also serve to break down the polarised responses to genetic engineering in pharmaceuticals and in the food industry. Previously, it was argued that genetic engineering was acceptable in drugs because all efforts are valid in the case of illness, whereas quite different rules apply where health is presupposed. If foodstuffs are now valued for added ingredients with specific health-enhancing claims this would seem to provide a climate more favourable to the adoption of advanced biotechnologies also in food. While the negotiations pro and contra genetic engineering are crucial for the design of regulatory systems, neither an outright ban nor a generalised liberalisation seems to be a likely outcome. There is an urgent need therefore to reorganise the food system so that it can ensure the safe provision of genetically engineered, conventional and organic foods. Traceability and identity preservation become the watchwords of a segmented agro-food system based on the supply of increasingly differentiated products. If such an approach is not adopted the most likely mediumterm scenario is for the generalisation of a transgenic agro-food system. The harnassing of biotechnology to functional foods would clearly increase the edge of science-based firms in final foods. More than this, current indications are that biotechnology would focus research on the production of speciality crops in agriculture rather than through subsequent phases of industrial transformation. This is particularly clear for biomass products but is increasingly evident in specialities. Such an orientation would give decisive leverage to firms which also had an upstream presence. This repositioning of value added in agricultural production, in the language of our earlier study, would represent a weakening of substitutionist trajectories in favour of those firm complexes based on appropriating the value added of agricultural products and processes, spanning upstream and primary processing activities (Wilkinson 1986). Significant in this regard are the strategic alliances being established between biotechnology leaders in upstream and downstream activities and the leading food traders and primary processors. In their studies on food chain consolidation, Heffernan and colleagues identify new groupings between agrichemicals/ biotechnology firms and primary processing. Whether these new alliances should be called clusters, as these authors do, is an open question but in these

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agreements we can see the emergence of a new system of economic coordination aimed at securing the value-added accruing to the production of specialities.15 In their study, they note the agreements between Monsanto and Cargill, between Novartis and ADM, and the increasing importance of United Agri-Products within the ConAgra complex. Although these alliances will be subject to many revisions, we can see here the resurgence of appropriationist interests geared to ensuring that the benefits of any decommodification do not flow too readily downstream. A whole series of other alliances could be mentioned. Quaker and Novartis formed the functional foods firm, Altus; 16 ADM is developing a range of agreements for the development of functional properties including joint ventures with Kao Corporation in Japan and Lifeline Technologies. Duponts Protein Technologies International (PTI) is particularly active in the development of soy-based ingredients and has an agreement with General Mills. More significantly, Marks and Spencer, the British food retailers,17 has launched a line of functional foods products using PTI ingredients. Functional foods have become a major strategic orientation of soybean interests, where the leading players in this commodity chain have established an association for the promotion of soy-based ingredients. A similar commercial association for grains is active in the European functional foods market. Functional foods, therefore, are providing a new lease of life for the global commodity traders and primary processors who over a long period had been condemned to low margins, stagnant markets and declining prices. They now see the opportunity for identifying and isolating out new functional properties whose value added can be secured by patents and subsequent royalties from the concession of licensing fees to downstream final food producers. Forward vertical integration provides an alternative strategy for securing the value added created upstream. Advanced biotechnologies not only promise to accelerate the identification of new properties through molecular screening, and now genome mapping, but are engaged in tailor-making genetic material for the enhanced production of these desired properties. This, however, will demand the implantation of identity preservation and traceability systems, leading to radically new patterns of economic coordination. Heffernan et al. (1999), in the study referred to earlier, suggest that one of the motives for the recent purchase of Continental by Cargill was the acquisition of additional facilities for the organisation of identity preserved storing and transport networks. Conclusions The leading final foods firms maintain enormous resources and have also shown themselves to be extremely resourceful in adapting to deep changes in the agrofood system and food demand over the last twenty five years. Nevertheless, the analysis presented here points to a weakening of their structural position within the agro-food system as a whole. The major food firms have been very effective in repositioning themselves to to face market segmentation, short cycle product innovation and globalisation,18 although, even here, they have had to readjust to the hegemonic role now played by large-scale retail. Their position has become less secure, however, as the food system has shifted to a sharper focus on nutrition and health foods and as the biotechnology revolution has increased its grip on the

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driving forces of innovation. Functional foods are providing competitive advantages for new science based entrants and diversification strategies by pharmaceutical and cosmetics companies. These same demand patterns also open up new perspectives for appropriationist actors upstream, the traders and primary processors, who are now transforming their commodity product lines into specialities and health ingredients. As the biotechnology revolution deepens, agrochemical firms become the driving force for the development of these specialities, which are then patented and licensed to downstream actors. The highly contested nature of this industrial revolution of the agro-food system has led to the unexpected explosion of organics which increasingly present themselves to an important segment of consumers as a comprehensive alternative source of food supply. The shift from niche to mainstream in organics has been led by the large-scale retail sector, and new actors have occupied important segments of the industrial components of the organic food chain. At least in this its early phase the retail/organic farmers alliance represents a short circuiting of the industrial foods leaders in an original trajectory of appropriationism based on the value added of the original agricultural product, principally benefiting large-scale retail. The future, therefore, remains highly uncertain for the leading final foods firms and major repositioning will certainly be on the order of the day if they are to maintain their dominant position in food markets. The substitutionist strategy which oriented the final food sector now decisively favours more science-based actors, both new entrants and particularly those already positioned on the frontier between food and health. On the other hand, functional foods and biotechnology have given a new lease of life to economic actors firmly identified with specific commodity chains, based on appropriationist strategies, who are now in a position to claim proprietary rights for the active ingredients which form the basis of the new functional foods, thereby relocating value-added upstream. The food industry leaders must now confront the limitations of the substitutionist strategy which has served them so well from the early days of agro-food modernisation up till the present. Acknowledgement
I would like to thank Julia Guivant for her attentive and critical reading of an earlier version

Notes
1. Both strategies of course could be present within the same firm either at different

moments in its history or in relation to different sectors of its activity.


2. For a very entertaining recent account of early efforts at food preservation see Pickled,

Potted and Canned by Shephard (2000)


3. Klein in No Logo (2001) quotes Lupton and Miller (1996) on the importance of familiar

brand personalities - Uncle Ben and Aunt Jemima reproducing the image of the local shopkeeper in an industrial world. 4. A study in the early 90s in Europe concluded that 50% of food items on supermarket shelves had not existed five years earlier and a recent USDA (2001) report refers to the introduction of 12.000 new food products each year in the US.

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5. Recent search by the originally French but now global consultancy group Taylor, Nelson

& Sofres suggests a strong correlation between perceived utility and risk acceptability for genetic engineering. 6. There is no space here to discuss the complementary phenomenon of the industrialization of eating out where brand expansion has also been typically achieved through franchising. For a number of interesting recent analysis from different standpoints: Warde and Martens (2000) and Nielson (2001). 7. Sadia and Perdigo, both firms based on national capital, dominate this market in Brazil 8. Raul Green, INRA, France, established a strong research programme on this theme in the late 80s (Green 2001); see also the work of Terry Marsden and colleagues in England, especially Marsden et al. (2000). The retail sector, of course, is, like the final food industry, based on the appropriation and not the substitution of the kitchen and suffers a similar erosion of its market at the hands of the fast food and take away sectors. Large-scale retail also has to confront increasing competition in the retail sector itself as segmentation expresses itself in the rise of convenience outlets and delicatessens. In this sense, largescale retail is a typical fordist innovation whose capacity to accompany the current segmentation of the market is also being called into question. 9. The rapid growth of generics in the Argentine retail system (from 6% to over 11% in the last five years), a phenomenon also evident in Brazil, (10-15%) exemplifies this trend. The move to own brands, however, has self-imposed limits if it is not to undermine one of the key bases of legitimacy of large retailing that it is a market and a place where the consumer can exercise his/her choice of product and brand (see also Retail Forward Inc. 2001). 10. Although organics were initially identified with fresh agricultural produce they are now developing along a more ambitious trajectory of industrialization (see Marsden et al. 1999) 11. A recent report Script goes further and suggests that functional foods maybe eating into the prescription drugs markets as the former become a preferred health care option. 12. French convention theory offers perhaps the most useful analytical frame for exploring the negotiation of different interests and values (see Wilkinson 1997; Busch 1995) 13. This is part of a broader tendency in marketing to replace high cost hype with grass-roots buzz (Lewis 2001) 14. Medical authority also becomes crucial in the marketing of functional foods and firms increasingly look to labelling approval by the relevant association of the medical profession. 15. See Heffernan et al (1999). The notion of clusters tends to be used to refer to the advantages of agglomeration promoting specialized inter-dependence among a host of different actors involved at different levels in a complex production and marketing system. Here the term strategic alliance would seem to be more appropriate. 16. This joint venture has now ended with Pepsis purchase of Quaker 17. Tesco, another leading British retailer is also promoting functional foods as also is Sainsburys which, in a joint initiative with Unilever is currently sponsoring Healthy Heart Store Tours. The adaptation of retailing to functional foods depends to an important extent on the degree to which they are regulated as foods or as dietary supplements. 18. We have not, however, explored here the implications of the final foods sectors primary orientation to affluence and the preoccupations of an ageing population in the light of global demographic trends which would point to more commodity-oriented priorities. Nor have we evaluated the specific challenges represented by the central role which China has assumed in global food markets.

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John Wilkinson CPDA/DDAS Federal Rural University Rio de Janeiro, Brazil