Friday, March 16, 2007

When food markets collide...

Disposable income is wandering around looking for adventure, I think. Maybe it's because many are still hanging their investment hats on residential real estate to solve their retirement needs. One result is we are not saving money - we're spending it.

Even more interesting is what we are spending it on. To be sure, we've gobbling up luxury goods, but it also seems the high-end food business is doing very well.
What we've seen in the food sector recently is the reversal of the deflation occurring elsewhere, in clothing for example,” said Davies. “There is definitely scope for smaller businesses at the high end, catering for niche markets in wealthier areas - of which there are more and more in the UK.” [More]

This is a change for the entire food chain. We have built our business plan around the cost of food, namely, a constant effort to get more food to the consumer at ever lower prices. Suddenly price seems to be less of a consideration for all but the poorest Americans.

This market divergence has many food producers and processors caught looking both ways. The high-end market promises lucrative profits, but how big will it get? Moreover, this sector is notoriously fad-driven, unlike the old meat and potato business. Are big businesses nimble enough to serve it?

One indicator of this new food marketing arena could be stories like the this:
Richard Hebron, 41, was driving along an anonymous stretch of highway near Ann Arbor, Mich., last October when state cops pulled him over, ordered him to put his hands on the hood of his mud-splattered truck and seized its contents: 453 gal. of milk.

Yes, milk. Raw, unpasteurized milk. To supply a small but growing market among health-conscious city and suburban dwellers for milk taken straight from the udder, Hebron was dealing the stuff on behalf of a farming cooperative he runs in southwestern Michigan. An undercover agricultural investigator had infiltrated the co-op as part of a sting operation that resulted in the seizure of $7,000 worth of fresh-food items, including 35 lbs. of raw butter, 29 qt. of cream and all those gallons of the suspicious white liquid. Although Hebron's home office was searched and his computer seized, no charges have been filed. "When they tested the milk, they couldn't find any problems with it," says Hebron. "It seems like they're just looking for some way to shut us down." [More]

The milk business is far from free market. Not merely subsidized, it is strongly regulated, so efforts like this tiny raw-milk niche can may be more threatening to the milk system than the digestive system.

It will be fun to watch if the stream of food-conscious dollars can erode the food industry bulwarks by end-around schemes like this. Then too, there is also the (small) chance that farm policy might get involved in food instead of grain.


PJ Tucker said...

I heard a comment that the report that said "savings" was the lowest since the depression did not include retirement plans as "savings". Is that true? If it is then that skews the whole picture.

John Phipps said...

pj: fair point - please see subsequent post.