To see how global the sourcing of food ingredients has become, look no further than the juice in your child’s lunch box. Apples, an iconic ingredient long the stuff of all-American pies and dunking contests, now come from the orchards of growing regions like Shaanxi province, with China, the world’s largest grower of apples, exporting more apple juice concentrate than any other country.
Americans accept that much of what they buy these days — whether household electronics and appliances, or textiles and clothes — is sourced from low-cost manufacturers in foreign countries, primarily China and other Asian countries. What many don’t realize is the extent to which this has been occurring in their grocery carts.
There’s a good reason for this: marketers are not required to disclose that information.
Because of foreign trade changes brought about by the World Trade Organization and the North American Free Trade Agreement since the late 1980s, global sourcing of food and ingredients has soared as marketers and retailers look for lower-priced suppliers — often in evolving markets with little regulatory oversight.
Imports now account for 15 percent of the U.S. food chain, an increase of about 50 percent in the last six years, according to Bill Hubbard, a former associate commissioner at the Food and Drug Administration, who retired in 2005 after 33 years with the agency.
This went largely unnoticed until last year, when U.S.-branded pet food with contaminated wheat gluten from China killed thousands of household pets. For the first time, consumers got a glimpse of the extent to which American companies outsource ingredients and branded products to contract manufacturers. Food sourcing has now become synonymous with safety concerns.
In a new survey from Deloitte & Touche released last week, Americans expressed great reservations about foods produced outside the U.S. More than half — 56 percent — say they think imported foods are “not at all” or only “somewhat” safe. In contrast, 80 percent of Americans say they believe that domestically produced foods are safe.
“It doesn’t get much more personal than something you’re buying for your children to eat or you’re eating yourself,” says Pat Conroy, leader of Deloitte’s U.S. consumer products practice.
But wary consumers may be getting some help — the kind that could create a new vulnerability for marketers, who spend millions to win the public’s trust and loyalty in their brands. On Sept. 30, mandatory country-of-origin labeling (COOL) will be enforced for beef, lamb, pork, fruit, vegetables and peanuts. The provision was originally approved as part of the Farm Security and Rural Investment Act of 2002, but special interests have lobbied to delay it since then. (Purveyors of wild and farm-raised fish and shellfish, nonetheless, have had to disclose their origin since 2005.) And as the date nears, COOL is gaining momentum in Washington: Last month, the Food, Conservation and Energy Act of 2008 expanded the list of covered commodities to include chicken, goat meat, ginseng, pecans and macadamia nuts.
Of even more concern to marketers: In April, two Democratic congressmen from Michigan, Rep. John Dingell and Rep. Bart Stupak, leaders of the Energy and Commerce Committee, proposed country-of-origin information be extended to include product ingredients, which would be detailed on manufacturers’ Web sites. For the first time, consumers would see the extent to which many venerable American brands outsource ingredients around the world.
A major impetus for the legislation was actually inspired by a pharmaceutical. Con-taminated batches of the blood thinner heparin sold in the U.S. earlier this spring contained a tainted Chinese ingredient that reportedly killed 62 people.
Not surprisingly, in addition to food, the lawmakers want marketers to identify the sources of a medicine’s active ingredients and place of manufacture as well as show the origin for all medical devices.
Dingell and Stupak have put forth a discussion draft and they are working with Republicans to produce a bipartisan bill. There is a similar bill being prepared in the Senate.
Given U.S. consumers’ concerns about foreign sourcing of food and drugs, the disclosure of ingredient origin could have serious consequences for brands.
Representatives of the Grocery Manufacturers Association declined requests for comment. But at a recent industry conference, Craig Henry, COO and svp of scientific and regulatory affairs for the GMA, underscored how integral imports are in the U.S. food chain by showing a picture of chicken cordon bleu. Containing chicken, cheese, ham and bread crumbs, the entree, Henry said, contained ingredients from more than 10 countries.
Deloitte’s Conroy advises marketers to take the initiative in shaping the discussion about product ingredients. “It gets back to the issue of transparency. As a company, if you don’t get out ahead of that, you’re really leaving it up to someone else to shape your brand, validate it or attack your claim, and then you’re completely defensive,” he says.
McDonald’s is using product sourcing as a position of strength. For one, the company’s Web site details its “responsible purchasing” policy and offers information about its “socially responsible” supply chain, and concern for animal welfare, food safety, packaging and use of antibiotics in meat.
This year, McDonald’s launched a “See what we’re made of” initiative that has been implemented in multiple channels including marketing communications, packaging and the company’s Web site. McDonald’s shares information about the sourcing of ingredients like beef, which it says originates in the U.S., Australia and New Zealand. (And yes, the company also showcases tomatoes, which it pulled from its restaurants amid the larger U.S. salmonella outbreak last week.) The idea behind the effort is to tell consumers that eating at McDonald’s is not much different than eating at home.
This “Quality” initiative, as the company describes it, was launched in response to customer misperceptions about the fast-food chain.
Molly Starmann, a marketing director at McDonald’s USA, which claims to source domestically whenever possible, says, “We’re always talking to our guests and taking a pulse on their thinking. Questions about quality and safety have risen to the top of mind.”
Dole Fresh Fruit Company aims to build consumer confidence in its organic bananas through new interactive tools that show consumers the plantations where their fruit was harvested. Customers type in the unique farm code, printed on the banana label, and are taken to the farm page, where they can learn about the country, location and certification, see pictures and read about the grower and Dole’s community projects in the region. They can also access satellite images of the plantation and its surrounding area.
Product recalls are sensitive business at Dole — its spinach was among those contaminated with E. coli in the fall of 2006 — and the produce company leaves nothing to chance with consumers. Its Web site details lettuce-harvesting techniques — “chewing gum and smoking [are] prohibited” — and cleaning, which uses a process developed by no less than NASA to prevent astronauts from contracting food-borne illnesses while in space.
“Everything is becoming more transparent,” says William Goldfield, communications manager at Dole. “This is our way to put a face to the product and to show that we put resources behind the people we work with.”
Some marketers are using origin as a green branding device. Unilever is partnering with the World Wildlife Fund to create a roundtable of traders, producers, retailers and investors to draft a certification standard. For plantations growing the company’s Lipton tea brand, Unilever is working toward Rainforest Alliance Certification, which is validation of social and environmental practices, wildlife protection and fair treatment of workers. The company expects that by 2015 all the tea it sells will be certified. This year it plans to roll out a Rainforest Alliance Certified tea, Kericho Estate.
With greater disclosure of product and ingredient origins, the challenge facing U.S. food marketers goes beyond image and reputation: It could also hit their bottom line. Production costs have already soared as mainstream marketers have shouldered higher prices for fertilizer and oil. Even before that, they went to overseas suppliers as a way to wring costs from the supply chain.
Also, the proposed bill from Dingell and Stupak stipulates that food manufacturers serving the U.S. market pay $2,000 annually for each of the manufacturing, distribution and storage facilities they operate. It’s estimated that the fees would generate about $600 million a year for use by the FDA. Funding for the agency — charged with inspecting shipments coming into the country — hasn’t kept up with the globalization of the food industry, with budget cutbacks coming at a time of unprecedented responsibility.
The Democratic sponsors of the bill say the FDA should inspect all foreign and domestic food plants at least once every four years. If the producers refuse, their imports will be denied entry into the States.
Critics also say the FDA’s authority needs to be strengthened. Former FDA employee Hubbard says the agency now has oversight of 20 million imports each year, but has only 450 inspectors to cover 300 ports. As a result, less than 1 percent of shipments are inspected. Also, he says, some exporters use drugs banned in the U.S.
Hubbard cites imported farm-raised fish, most of which originate in China, to illustrate his point. He contends the fish are farmed in “polluted” coastal lagoons in the South China Sea, alongside chicken farms. The fish are fed feces from the chickens and eat algae blooms that grow from the waste, he says. When they get fungal and bacterial infections, he adds, the Chinese use anti-fungals like melamine (banned in the U.S.) that keep the fish alive long enough to harvest.
Americans may be getting that message: In the Deloitte survey, 33 percent of respondents said they think fresh fish is “not at all” or only “somewhat” safe.
Even when the FDA inspects imports, the agency is frustrated in its efforts to police importers. “The FDA kept finding shipments of apple juice that was watered down” and insisted this be addressed, explains Hubbard. Instead, the company “added inulin, which is a chemical compound that appears to be the same as apples. It fooled the FDA lab test and came back as 100 percent apple juice.” Under the current system that beverage could still be labeled and sold as 100 percent juice, he adds.
Because China has become a low-cost provider, it has cornered the market for certain ingredients. Aside from apple juice, China is the largest producer of garlic and honey, for example, as well as food additives and emulsifiers like ascorbic acid and wheat gluten.
The FDA has reported finding pesticides, carcinogens, bacteria, heavy metals and drugs in imported products worldwide, but because globalization of the world’s food supply chain is a recent development, the long-term health implications are still unknown — and may prove to be legal fodder in the years to come. Equally troubling is the potential for food terrorism. Countries like Somalia and Sudan are the chief producers of gum arabic, a stabilizer in soft-drink syrups and candies.
“The potential for mischief is very high, and the FDA needs greater authority to police things,” Hubbard says.
But if consumers stand to benefit by getting more information to make better choices at the grocery store, there’s still the question of whether they’re prepared to pay for them.
“There’s been enormous push back by food processors,” says Philip Herr, svp at WPP’s Millward Brown research consultancy. “If we go to COOL labeling for processed food as well as fresh foods, it could become extremely expensive. You have a product made in New Jersey with ingredients sourced in China and Chile. Right now there’s no law that requires you to identify that, but if you had to [and food was sourced domestically], food could cost as much in [regular] supermarkets as it now does in Whole Foods.”
The Road Well Traveled
Long before the discussion of global food origins heated up, some Americans were already embracing food provenance and authenticity, seeking out local options instead of imports and U.S. industrial agricultural products. The latter travel, on average, 1,500 miles to consumers and may change hands up to six times from the point of harvest to dinner plates.
Now, a growing number of “locavores” are jumping on the trend. Some are even buying into Community Supported Agriculture (CSA), where they own shares in a farm and receive harvest proceeds in return. The number of U.S. farm markets jumped 250 percent to 4,385 in 2006, up from 1,755 in 1994, according to the U.S. Department of Agriculture, and CSA farm stakes are increasing 15-20 percent annually, per the Center for Food Safety.
The most telling development may be what’s happening at the country’s largest grocery retailer. Wal-Mart has introduced a Food Miles Calculator, which computes an item’s total food miles. The company is also sourcing more produce locally — like potatoes, tomatoes and peaches — and working with state departments of agriculture to develop new growing areas for crops like corn in Mississippi and cilantro in Florida.
Smaller retailers are getting involved as well. Wegmans, a regional chain based in Rochester, N.Y., is working with the Environmental Defense Fund on producing sustainable seafood, in particular farm-raised shrimp, according to Jeanne von Zastrow, senior director, field services at the Food Marketing Institute.
For Portland Maine-based Hannaford, which operates in the Eastern U.S., supporting local farmers pays off in greater customer loyalty to the food chain. “Community is central to anywhere you live, and our research shows shoppers want to support their local farmers,” says Evan Harding, a marketing specialist at Hannaford. “They also feel they are getting a freshness and quality in buying local products.”
Although “local” doesn’t necessarily mean “organic,” those products fit into larger themes of sustainability increasingly important to consumers. As anyone who shops at Whole Foods knows, that’s not a phenomenon limited to the garden. Food makers are also looking to distinguish themselves through the creation of a deeper, more authentic marketing story.
“For brands playing in this space it’s a perfect storm if you look at consumers’ increased interest in health, food-safety fears and desire for authenticity,” says Andrew Bennett, global chief strategy officer at Euro RSCG. “It’s not just a fad that will be here and gone tomorrow because it is so interwoven with broader themes. This has come quickly and will have a major impact.”
Bennett points to a surge in products using geography as a branding tool: Stacy’s Texarkana chips, Mystic Chips, Sahale Snacks, Nantucket Nectar.
He also cites companies like Starbucks as proving masterful in leveraging current consumers’ sentiments.
“Through coffee lore, provenance and its own unique language, the company has turned a basic commodity into a luxury,” he says. “Coffee education and cultural learning is a part of the brand’s mission, in-store and online.”