Biology Matters. By Dr. Clive Black

March 3, 2020 2:50 pm
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What a year it has been. On the third day of the new decade, the world was worried about the potential for Iran and the USA to engage in some form of military confrontation. As such oil prices spiked, fears were expressed for what potential conflict could do; everything from regional (Middle Eastern) stability to the knock-on effect of strong oil price inflation.

The first day of March 2020 sees the world engrossed in Coronavirus, a seemingly zoonotic organism that has revealed the true nature of globalisation; oil prices have fallen from over USD70 a barrel to under USD50.

From Wuhan in Central China, Coronavirus has brought epidemiology to the British tea-time news. China has seemingly effectively contained Coronavirus at first base it seems, albeit drastically curtailing activity in one of the world’s powerhouse economies.

However, China is no longer the prime focus of attention for the healthcare profession as the virus has spread from its origin, akin to a scene from a modern day science fiction movie. Iran, Italy and South Korea have been the second base locations for a virus that is now inhabiting every continent where humans naturally live on the planet. Whether the virus can be effectively contained in these countries remains to be seen, not doing so is likely to be very disruptive to global supply chains, potentially materially constraining GDP growth.

Indeed, record high valued stock markets have already discounted GDP growth in H1 CY2020, with a bout of investor irrationality also taking hold, the spread of fear for economic activity and corporate earnings matching the fast spread of the virus itself. With the near close down of China in January and February, Q1 and Q2 economic growth are likely to be notably debilitated. The wider question though is what of the rest of the year and wider waves from Coronavirus?

“…the spread of fear for economic activity and corporate earnings matching the fast spread of the virus itself”

That outcome will be determined by the spread of the virus; we may look back and think much ado about nothing, particularly if a vaccine can be identified promptly; there is a genuine race out there in the healthcare world, where the noises from Israel are most encouraging. However, is third base places likes Essex where epidemiologists are struggling with a case with no seeming links to bases one and two?

Whilst we may, therefore, in a best case scenario, look back at Coronavirus as a notable hiatus, more intense and challenging than SARS, there could yet be notable implications for what has been relentless globalisation. Indeed, we would imagine that following on from SARS, with African Swine Fever, a horrible high mortality disease going through the Chinese pig sector like a dose of salts, and now Coronavirus, global capital allocators may be starting to re-think ‘China’.

Whilst not at the forefront of the UK food industry’s minds, perhaps, businesses like Carrefour, Tesco and Wal-Mart, which procure a lot of general merchandise and apparel from Chinese suppliers will probably be asking the question of future geographic dependency, which could kick favourably into South-East Asia, MENA and maybe the southern and eastern periphery of Europe but hit China. Equally, as we have seen with firms from Apple to Jaguar-Land Rover, supply chain structures and compositions maybe re-visited, supporting the phenomenon of shorter supply chains and maybe even more on-shoring?

For financial markets, Coronavirus exposes a chronic challenge for policymakers. The EU, particularly Germany, was already economically  challenged by the Sino-American trade disruptions, hitting its manufacturers and regional growth. As such policymakers were reflecting on how to support the EU economy, as was the Bank of England at the turn of the year with respect to the UK’s economic momentum after flat data.

The big challenge for central bankers is that their tool kit is pretty bare; interest rates are uber low and quantitative easing (QE) has had a very partial positive impact, benefiting bankers more than voters. As such, it is governments, through budgetary and fiscal policies which can be expected to be more active and effective if changes are necessary; albeit quick fixes tend to be challenging to be effective in their own right. The UK Budget is also likely to be conditioned by current developments.

“….the legacy of this disease maybe its impact upon commercial and economic globalisation, as businesses think about the next phases of supply chain optimisation.”

So, Coronavirus is yet to be thoroughly understood and whilst China has actually shown a strong position in containment, to its credit, it is too early to call the rest of the world. The economic legacy of Coronavirus maybe much greater than its current impact, especially if a vaccine is identified. Rather, the legacy of this disease maybe its impact upon commercial and economic globalisation, as businesses think about the next phases of supply chain optimisation.

Such thoughts could be an existential challenge to the Chinese. Equally, other geographic regions may yet gain the backwash of any new strategic thinking. For UK businesses, particularly in manufacturing and long-time supply chains, so clothing and general merchandise retailers, such thoughts are likely to be current, their outcome relevant to the development of both the domestic and global economies.

Bio-security is so basic and essential, any high risk food business clearly understands this fact. When bio-security breaks down, it is hugely disruptive, again as food companies know. When bio-security breaks down in the world’s largest economy, it is a different scale of issue, a game changer. We are now about to learn if the rules of engagement are about to notably adjust; it is impossible to currently call the economic outcome of what has become known as COVID 19; stock markets, admittedly over-boosted by financial liquidity (interest rates that are too low and the hangover of QE) are fearing the worst.

Stay safe.

 

Dr Clive Black

Advisor to Coriolis Consulting

A brighter future? by Dr. Clive Black

February 5, 2020 7:14 pm
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The UK has formally left the EU.

It has been like drawing teeth reaching this point. A fed up nation arrived at the point that many if not most British just wanted in or out but not the destructive and wasteful Mr. In-Between. The relatively low key commemoration of Brexit, in this respect, is appropriate as it reflects the terrible behaviour of the House of Commons but also respects the fact that 48% of the country’s population voted to Remain.

The paralysis of the House of Commons, particularly in CY2019, was a disgrace. Some may argue that Westminster was reflecting the narrowness of the EU vote and that it was totally appropriate for those against leaving the EU to use all the tools at their disposal to do so.

Whilst so, and they did, those folks, euphemistically calling for the People’s Vote, were also anti-democratic, revisionist and at times, guilty of incredible arrogance; old and poor people voted to Leave because they were too thick to know anything different.

A new politics 

The General Election put paid to The People’s Vote and the revisionists at Change UK and the like. It has also caused an existential debate within a massacred and out-of-touch Labour Party whilst the demonstrably non-democratic and lunatic Liberals fell-over.

Whilst the Tories succeeded in England and Wales, to their glee, it should not be forgotten that the Scottish Nationalists excelled through the first past the post system whilst the Irish Nationalists and Republicans also did well; the DUP somewhat humbled.

“The paralysis of the House of Commons……..was a disgrace”

Time for some grace

The new Parliament is now charged with taking the UK out of the EU. After a period of bitterness, disagreement and rancour, that led to damaging political dysfunctionality, particularly for business and the consumer economy, it is now the time for calm, grace, respect and the art of mutual kindness.

Our future relations with not just the EU but every nation, from a trade perspective, cannot be set within the context of ‘win’ and ‘lose’. The UK needs an appropriate trade agreement with the EU and vice versa. There will be disagreement but proportionate, reasonable and fair outcomes need to prevail to permit economic growth. Will this be the outcome? Time will tell.

Can green shoots grow?

Ahead of the noise to come…, grace was not evident from the Irish Taoiseach’s threat to the City of London if the UK prohibits EU fishing boats from our waters, the British economy is showing some green shoots of increased activity following the December General Election. Data-points include the Services PMI survey, which notably beat forecasts  (the UK is an 85% service economy) and the GfK NOP consumer confidence data that has risen from minus 14 in November to minus 9 in January.

Whilst encouraging, it remains early days in the Johnson regime. The March 11th Budget will be an important event to underscore or otherwise the scope for an improvement in supply side policies to help modernise, grow and rebalance the British economy. There is current hope that the policies announced will help to contribute to a step ahead in both business and consumer confidence, which will make a difference to activity and growth, including the food industry. Again, though, time will tell.

“In a still subdued UK retail grocery market……. cost structures, tight working capital and broader cash management are also likely to remain key priorities”

Coriolis’ relevance

Ahead of all this, I sense that business will be thinking about how their products meet evolving food markets, particularly around the well-being and sustainability agendas. In a still subdued UK retail grocery market, where well-being and sustainability mean less volume, cost structures, tight working capital and broader cash management are also likely to remain key priorities; it feels, in the main, too early for many to be opening the cheque book to major expansion.

In these business management respects, Coriolis has a skill set that focuses upon culture, process and practice that I think is relevant to the current trading environment facing the majority of the British food system. With good policy-making, at home and with the EU in the first instances, and maybe ongoing improvements in confidence, Coriolis can also contribute to more growth strategies to come. We live in hope.

 

Dr Clive Black

Advisor, Coriolis Consulting

February 2020

A Certain Less. by Dr. Clive Black

January 9, 2020 12:03 pm
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“A very Happy Fourth Decade to all those associated with Coriolis!”

Here is hoping for less politics!

That fourth decade commences in the UK with more certainty from a political perspective than may have reasonably been expected as the country approached the final month of the third decade, when most folks became tired and, frankly, worried about a dysfunctional House of Commons.

Regardless of one’s political persuasion, and few would not concede that the UK has become a worrying divided ‘nation’ over its relationship with the European Union (EU), a clear majority Government brings with it some clarity around whether the country will remain in the EU or not.  Also there is consequent scope to make domestic policy decisions that can seek to positively evolve a stuttering economy (whilst not necessarily clever or acceptable, who could blame the vast majority of British who by the Election just wanted in or out but no more Mr. Between).

Indeed, that stutter was heavily conditioned by the political paralysis as public policy decisions were deferred, so were Government expenditure commitments, business delayed and sometimes cancelled investments whilst consumers became worried too. The growing real incomes consumers have been receiving since mid-2018 have been allocated to spending patterns more reminiscent of those that have, or are about to lose their jobs.

With a potentially functioning Government, the UK looks less of a basket case than it has done for some time now. Quite whether or not Prime Minister Johnson can deliver a satisfactory outline trade deal with the EU by the end of CY2020 remains to be seen. However,  with a clear majority he can firstly negotiate with more confidence that whatever he brings back can pass through Westminster, something that will not probably be lost on the EU, which seems to have changed its tone, along with the defeated British establishment, in recent weeks.

Hopefully, this augurs well. Perhaps importantly, Johnson can also spend less time worrying about the lunatics at the fringe of the UK-EU debate; he kicked out the revisionist ‘remoaners’, can he now deal with the purist English nationalists?

“The growing real incomes consumers have been receiving since mid-2018 have been allocated to spending patterns more reminiscent of those that have, or are about to lose their jobs.”

Does political clarity bring benefits?

With less uncertainty, there is perhaps more scope for the UK to be less of a pariah state to international capital than has been the case since mid-2016. Hence, foreign direct investment (FDI), may build again, albeit with the prospect of a firmer sterling if the UK recovers, some British assets are likely to be less bargain basement than was the case for much of CY2019 in particular. Of course, it should be said that if Johnson messes up on UK-EU relations then we could be back to a square one of sorts.

More broadly though, political clarity brings with it greater scope for deferred private domestic investment to also emerge, so boosting the economy.  Additionally, no matter what colour rosette was to be in Westminster after the December 2019 General Election, Government expenditure is also set to rise, both on public services and infrastructure, which also expand the economy.

The consumer wants more of less

So what of the British consumer in all this? Well, real incomes continue to rise and employment levels remain fulsome, which is a good starting point. Whilst certainty should be helpful in general, not everyone is skipping to work full of political joy at the start of the new decade, which needs to be reflected upon; a strong bounce in consumer economic activity, therefore, may be too optimistic. As such, Government policy measures, particularly over the first 100 days, are important in setting the tone of expectations.

Again, if Johnson is on the money, then it is not unreasonable to expect the mix of rising Government expenditure and business investment to feed into improving consumer confidence through to the spring, which should feed into the value of goods and services demanded in time.

“What this … means for mass consumer goods markets is less. It means less in all categories, formats and channels as shoppers buy more precisely, buy to waste less, buy to last longer and buy to reduce conspicuous consumption.”

The point here about the value of goods and services is particularly contemporary and important. It is easy but probably simplistic, to assume that the deflated consumer confidence of CY2019 was all down to political uncertainty. Whilst real, but impossible to precisely measure, it is also very important to re-visit previous underlying themes of well-being and sustainability, which arguably most demonstrably fused in CY2019.

What this fusion means for mass consumer goods markets is less. It means less in all categories, formats and channels as shoppers buy more precisely, buy to waste less, buy to last longer and buy to reduce conspicuous consumption. Shoppers are also buying for evolving functional outcomes, be that dietary, environmental and animal welfare. Where these factors combine, the market output can be particularly potent.

Less from a volume perspective, in general, is more challenging to business. However, in evolving to a society where more and more people seek to be healthier and living in a more sustainable environment, the value of goods and services, the latter being particularly important as more calories are eaten out of the home, comes to the fore of business strategy.

The British food industry will come to terms with whatever the new Government decides domestically, benefiting on the one hand from more clarity but noting an ongoing rise in the National Living Wage to come as Mr Johnson rewards the working voters of ‘the North’, and in its international relations from the EU, to ongoing relations with the USA, will Mr Trump be in power in February 2021(?) and the wider world.

 

A certain less

Hence, the start of the fourth decade has more certainty in some fundamental new senses for the British food scene but the future in aggregate also means less; a certain less.

 

Dr Clive Black

Senior Advisor

Coriolis Consulting

 

January 2020

Is sustainability evolving mass consumer markets? by Dr. Clive Black

November 19, 2019 2:56 pm
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The green agenda is not a new thing. There have been campaigners and campaign groups operating for many years, such as Greenpeace, that have sought to raise the issue of the planet’s environmental and climate health, often through stunts and targeted disruption. More recently there has been the eclectic alliance of young and old seeking to rebel against the earth’s potential  extinction as they see it, with a few high minded celebrities doing their bit to damage their climate change credibility by flying in from LA to London to speak of their deep concern and care.

Whilst the campaigning debate evolves, the science and so learning builds. The corruption of science by evangelist climate change advocates did much to damage the credibility of the more honourable mass of research that is seeking to measure the earth’s climate. That said, Al Gore and the University of East Anglia aside, there is a growing body and arguably a consensus that the planet’s climate is evolving quite rapidly at this time, evidenced by rising global temperatures, changing ice patterns and, whilst more anecdotal, extreme weather conditions. Quite whether or not the dots are all joined up is a debating matter but the common comment, ‘well something seems to be happening’, maybe close to the truth.

For food markets, global warming, a term which has been replaced by climate change, has been a relatively peripheral matter at the shelf-edge, maybe until now. Indeed, the organic food movement in the UK remains a pretty peripheral proportion of the market, suffering quite materially in share participation after the financial crisis. Since then, it has taken much of this decade for the organic movement to ‘get back’ to where it was in 2010. However, is all this in the process of substantial change as the sustainability agenda evolves from a matter for enthusiasts and industry compliance to a more mass market position? I sense so.

Across all product categories the sustainability agenda is now more embedded and growing in importance. The extent and pace of movement is notable from major retailers setting new priorities and agendas through to entrepreneurs in the supply chain bringing new innovations, products and brands where the sustainability agenda is much more centre stage.

Across all product categories the sustainability agenda is now more embedded and growing in importance.

The evolving priorities of the sustainability agenda was very clearly brought into focus and extent by Tesco when it staged a June 2019 investor event that centred upon the environmental and social agenda. The holistic approach that Tesco presented that day is now being reflected in its actions from work on plastics to the labour processes of its suppliers at home and abroad and the sourcing policies of a growing number of products such as palm oil. The sustainability agenda, therefore, is becoming a larger more inter-connected and multi-disciplinary process that embodies wider factors of production than land.

With respect to the land there remain major arguments surrounding how farming practices contribute or otherwise to climate change. Indeed, the debate is evident with one of the fastest growing elements of the food industry being plant based protein. There are major steps by brand and private label suppliers to enter and participate in the plant-based protein market. Innovation rates are high as is acquisition activity; the latter partially stimulated by some crazy valuation multiples for the likes of Beyond Beef.

What the plant-based protein drive shows us is the fusion of well-being and the environment. When these two forces combine the market equation is potentially powerful. Again with Tesco, its ‘Wicked Kitchen’ private label range has been one of the most successful recent launches by the label in the UK whilst Marks & Spencer has similarly commented upon ‘Plant Kitchen’. We also notice a range of manufacturers acquiring in the plant-based/meat-free arena, such as Cranswick in the UK, which bought Katsouris Brothers.

Whilst all this is so, the livestock sector faces challenges as to its contribution and perception as a contributor to carbon emissions and wider pollutants such as ammonia and nitrates. Indeed, the environmental and well-being agendas combined are perhaps the greatest challenge for the red-meat segment in particular.

What the plant-based protein drive shows us is the fusion of well-being and the environment.

As ever, there are myths and realities around meat and the environment, with much emotion too. In terms of real change though, science based change, world leading activity is underway in research institutes and businesses to deliver beneficial change. From Ireland to New Zealand, where there is a definitive vested interest around the beef, dairy and lamb sectors on the environmental and health agendas, inspiring work is underway.

Indeed, in County Meath, Belfast based Devenish is undertaking tremendous work centred on soil and seed, to explore a holistic approach that embraces agronomy and husbandry standards too, that is striving for carbon neutral and even carbon beneficial livestock farming; the latter meaning beef and dairy farming that actually absorbs rather than releases carbon.

Such work shows how thinking is evolving from the field to the fork. We are in the foothills of a new industrial era where the digital revolution is combining with science, entrepreneurs and shoppers to bring sustainability higher up the agenda, to the mainstream. The future for sustainability does not, however, look like it is going to be the environment in isolation, rather a more holistic approach that is meaningfully going to influence and evolve mass consumer markets.

Dr Clive Black

Advisor

Coriolis Consulting

November 2019

Is well-being meeting sustainability? By Dr. Clive Black

August 29, 2019 4:16 pm
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Brexit is not necessarily boring but it is draining and tiresome. It is quite remarkable how a supposedly advanced nation like the UK can find itself in such a ridiculously unsatisfactory position, unless, of course, one is an absolutely rabid Brexiteer, which must be heaven. The ability to propher credible wisdom on the future of the UK’s relations with the EU is virtually nil as summer comes to an end albeit for the British food system, and every orifice of it, the ramifications of a No Deal situation could be considerable.

That said, with an inability to predict or influence Brexit, bar advising that British food businesses absolutely listen, think about and become agile in preparing for a No Deal through calm, considered and common sense steps, it is an opportune moment to raise one’s eyes from the morass of a dysfunctional political class and perhaps reflect on notable developments in the wider food market.

The well-being and sustainability agendas are not new and far from being peripheral to the development of the British food industry. Whilst this is so, recent developments perhaps represent these factors behind shoppers’ food choices moving through the gear box and, perhaps, more definitively combining.

“…it is not unreasonable to contend that health and well-being are the key changing variables behind shelf-space in supermarkets.”

The notion that the more calories one eats and the less energy one burns results in weight gain is not especially complex, but is now pretty much accepted as fact. With that thought in mind, with growing evidence of the health challenges associated with obesity around cancers, coronary heart disease and strokes, means that more and more people are listening, thinking and changing their dietary behaviour.

Indeed, it is not unreasonable to contend that health and well-being are the key changing variables behind shelf-space in supermarkets and the menu items of the food & beverage sector at this time. At its most simple, of course, dietary well-being is simplicity, so fruit & vegetables come to mind, of which all health professionals encourage more consumption, with some scaling back at a population level of salt, harmful saturated fats and sugars.

That said, salt, saturated fats and sugars tend to taste good and give quick fix pleasures; comfort if you like. More to the point, the processed foods revolution of the twentieth century brought with it a reduction in food preparation time, so convenience, a key feature of the food markets in developed, or is that older, nations. Accordingly, health & well-being is now being factored into the convenience agenda across all categories, including pet food. This will continue.

A further feature of food markets has been sustainability of the planet Earth. The meaningfulness of the environment, for the want of the better term, is much less apparent on shelves and menus at this time as me (well-being) is more important than you (the environment), and especially so when pennies become few, as we witnessed in the UK in the last recession (which could be a relevant thought if the UK does drift into recession with undeniable implications for the labour market). Indeed, much food industry change around sustainability has been one of regulatory compliance, rather than aggressively chasing the green pound.

Is this changing though? The noise around climate change is now greater than ever and it does not look like it is going away; not least because more volatile weather systems seem to be with us plus notably warmer facts and figures. As such, the propensity of folks to listen, think and change behaviour around the food they eat with respect to the planet, and most particularly its packaging, is rising. Indeed, the sustainability agenda to the extent it relates to the environment also feels like it has gone through the gears.

“…at a global level, food markets are adjusting as a myriad of processes seemingly converge around well-being, convenience and sustainability”

So, does well-being and sustainability converge? Well, one area where vested interests are seeking to do so is plant-based proteins and, in particular, meat-based substitutes. Indeed, the rocket propelled IPO of Beyond Meat, with its meat look-a-like products made from plant-based proteins, is a story in its own right. More to the point, profile around bovine cattle production and the emission of methane as a contribution to climate change, for example, is becoming more common parlance, which in theory plant-based products, either in their own right or as meat substitutes, seemingly lead shoppers to feel good about themselves and others.

Whilst this is all so, the plant-based products perhaps need more scrutiny, just as animal based proteins correctly face, into their environmental impact – canola, pulses and soy – and their health implications when dosage levels rise. Equally, in facing a real challenge now, the livestock industry has to think about how its farming systems can lower emissions and actually use agronomic methods to sequest carbon, which as progress emerges, will be a positive for the reputation and demand of product from such systems.

So, whatever Boris, Jean-Claude, Jeremy and their cabal of plotters come up with on the political front remains to be seen, who knows and what could possibly go wrong? Whilst so, at a global level, food markets are adjusting as a myriad of processes seemingly converge around well-being, convenience and sustainability. As these processes further develop there will be greater scrutiny, particularly around climate change and plant based production systems and the claims that are made. Whilst, so the challenges to the meat industry are also likely to be met, noting the enormous debate on this front in Ireland for example, where necessity is the mother of invention.

 

Beyond politics, beyond meat there is much to think about, innovate and add value to.

 

Dr Clive Black

Advisor to Coriolis Consulting

August 2019