Drivers of Change
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Drivers of Change David B. Schweikhardt, Michigan State University Judith M. Whipple, Michigan State University the policy agenda and policy alternatives that will be Introduction considered during the upcoming Farm Bill debate. The 2002 Farm Bill will be debated during a time Drivers of Change of dramatic changes in the structure of the agri-food Reshaping the system. Changes in the economic structure of production agriculture and in those industries aligned Agricultural and Food with agriculture throughout the food system (stretching from farm input suppliers to retailers) are System being driven by economic and social changes that are often far beyond the control of farmers or other At least four major forces of change in the food members of the food system. system deserve examination. Each of these drivers is These drivers of change are altering the political affecting the structure of the food system and the and economic characteristics of the agricultural and relationships between food and agribusiness firms and food industries, thereby influencing the alternatives farmers. As a result, the impact of these drivers of available to policy makers and stakeholders in the change on public policy is an important consideration. Farm Bill debate. These characteristics further Changing consumer food demands. The first determine the consequences of each policy driver of change is the changing demands of alternative (i.e., the potential “impact” of each policy American consumers for food products. As U.S. alternative and the probability that a given alternative consumers continue to enjoy rising affluence, their will accomplish its intended objective). These drivers demands for food products continue to change. of change also affect the policy agenda, which selects Along with this affluence comes a reduction in the issues that will be considered during the Farm Bill personal time, with many having more money than debate. This paper will examine some of the drivers time. As such, consumer demand for convenience is of change that are affecting the food and fiber at an all time high, with a larger share of consumers’ system, and the impact of these drivers of change on food expenditures being spent on food prepared away from home (e.g., restaurants and take-out). In some of the labor demands in agriculture). The addition, this rise in personal income has contributed impact of biotechnology and the potential markets for to a continuing decrease in the percentage of incomes segregated GMO and non-GMO products, along with spent on food. the potential impact of biotechnology in creating farm Consumer demand for an expanding variety of products, will remain one of the most important issues food products is also increasing. This is coupled with facing the food system in the coming decade. The an increase in the diversity of the U.S. population, changes that will be required to effectively segregate including growth in Asian and Hispanic communities. such products, along with consumer acceptance of Thus, the demand for food product variety — these products, will almost certainly require a change particularly ethnic foods — is significantly increasing in the traditional marketing and distribution systems the variety of food products offered to consumers. that have dominated agriculture and food industries. As this demand for convenience and variety Further, biotechnology offers the potential for continues to increase, the marketing bill for the creating completely new food markets that may services of food manufacturers, food service satisfy the demand for greater nutritional value in operators, handlers, and retailers continues to foods. Traditionally, nutritional enhancements have increase, and the share of consumers’ dollars occurred in manufacturing — such as vitamin- received by farmers continues to decline. This is enriched breads and cereals, calcium-enriched orange mainly due to the fact that dollars are placed where juice, and the new Fit Milk (which boasts more consumers perceive value is added in the agri-food calcium than regular milk). Biotechnology offers the supply chain. Value is added in the processing and ability to create “designer foods in the field” that preparation end of the chain as consumers want to would offer similar nutritional enhancements while perform fewer of these tasks on their own. reducing less desirable traits (e.g., fat or cholesterol) The forces behind these changes (changes in and/or creating new traits (e.g., longer shelf life). family size and structure, the rise of ethnic The success of such foods hinges on consumer populations in the United States, and the increasing acceptance, but it is clear that biotechnology geared share of dual income couples working outside the only at improving agricultural efficiencies, rather than home, for example) suggest that major social trends providing tangible consumer benefits, is not likely to will continue to re-shape the food system. Such receive strong support. changes will cause further shifts in traditional A second area of technological change that will consumption patterns (more fresh products rather continue to affect the food system will be information than processed products, for example, or more meals technology. Changes in computer, eaten away from home). These trends ultimately telecommunications, and satellite technology are all reach the farm level as changes in the demand for likely to continually reduce the costs of collecting, specific products (such as increased demand for a analyzing, and communicating information. As a larger variety of fresh fruits and vegetables), or for result, relationships between farmers and agribusiness ingredients that may be more suitable for restaurant and food firms will continue to change. Agri-food preparation rather than home preparation. channel members who have information about Changing technology. At least three areas of consumer buying habits — mainly retailers and food technology will continue to re-shape the food system service industries — will play a larger role in dictating and the relationships between farmers and food and production and processing decisions designed to agribusiness firms. Biotechnology, and the debate satisfy end consumer demands. over the use of biotechnology, continues to influence At the other end of the food system, information production practices at the farm level and the about production practices will provide value and a relationship between farmers and other players in the competitive advantage to the party that is able to food-marketing channel. Biotechnology continues to maintain the property rights of such information. change input use at the farm level and also, perhaps, There will be segments of the downstream system farm size and structure (to the extent that it reduces (e.g., manufacturers, retailers, and consumers) that will pay more for the verification and assurance of perhaps beyond the control of any one national product integrity – such as organic or non-GMO government, will begin to affect the food system. certifications, and product traceability. This Additionally, the already complex areas of food policy, technology allows consumers to become more such as food safety standards or environmental knowledgeable than ever about their food product regulatory standards, are further complicated when choices, and it highlights real consumer concerns over national governments struggle to adopt comparable food safety. These concerns, even if they are regulatory systems. unfounded, still impact consumers’ willingness to In some cases, international policy considerations purchase products. Other drivers of change — such may limit the alternatives available to policy makers. as consumers’ demand for food safety — will Policy makers could determine, for example, that combine with new information technologies to permit production controls are less effective in an integrated more detailed identification of the source and global market than in a relatively closed market in destination of products from the farm level to the which a small share of production is traded. In such consumers’ plate. cases, international integration of markets may limit Technological change has the potential to expand the ability of national governments to make unilateral the opportunity for a consumer direct supply chain policy decisions. through the Internet and other mass mailing/local Increasing demand for environmental delivery formats which by-pass the retail end of the quality. The final driver of change affecting the food food system. While Internet grocery providers are system is the increasing demand for environmental struggling lately, consumer demand for convenience quality among the public at large. To understand the will continue to encourage entrepreneurs to find the rise of environmental regulation in the United States, right marketing mix for this type of service. When and the likely future direction in such regulation, it is (and if) that occurs, the location where products are important to consider the role of environmental produced may be of little consequence, since logistical “goods” among the voting public. systems can support extremely short delivery times If voters view environmental quality as a good (one-half to two days) across the world. that is similar to another good in the economy — such Replenishment systems (e.g., weekly deliveries of as food, cars, or housing — then, it is very likely that milk, bread, etc.) as well as social retail buying voters will treat environmental