Is food demand driven or supply driven?
Food startups meet farming realities
Does the way we eat influence the way we farm or the other way around? It depends.
You would naturally think that demand determines supply. Given consistent demand for a good, the volume of that good should rise which drives scale at every step of the supply chain. And we know that scale drives efficiencies which brings costs down.
If you’re a startup food brand, your sustainability story is important because your consumer demands that their food is sustainably grown. Your sustainability story starts with the source of your ingredients. It seems like this demand from consumers would push brands to source from farmers who grow sustainably.
But not all demand forces affect change on the farm
I talk a lot about the conscious consumer as a driving force in this regard. But historically, have consumers been market makers for ag?
The organic movement
Demand for organic inputs continues to rise, and more than half of all consumers would buy organic if they could afford it. But organic is still only 6% of total food sales and the US has an organic trade deficit with other countries (we import more than we export).
If you ask a US farmer why they don’t transition more acres to organic, they’ll tell you it has to do with their definition of sustainability – covering costs and bringing profit back to the farm. So, we can conclude there is not enough of a market for organic at prices that are sustainable to the farm. Organic doesn’t scale. Simple economics.
What’s driving regenerative?
Consumers are just learning about regenerative but the inputs are hard to source because just like organic, it’s expensive to farm this way. (I’ve previously covered what farming regeneratively means here and here).
What is practical will lead to what is possible, and right now big CPGs are paying farmers and extending contracts to make regenerative happen. This is all part of the larger conversation of ag as a contributor to climate change. Big investors and government policy say we have to do something about the way we farm, therefore CPG has adopted these ESG goals which put regenerative at center. So, your Annie’s mac-n-cheese and your Lays potato chips may soon be made from regeneratively farmed wheat and potatoes whether you care or not.
So where organic failed to create a system change and regenerative might, seems more to do with institutional vs consumer demand forces.
But what about new food trends? Novel ingredients can move markets and cause changes in agriculture too.
I’ll be exploring this topic next week.
All my best,
USDA has unveiled a new structure to shift the food system towards the benefit of consumers, producers, and rural communities by providing more options, increasing access, and creating new, more, and better markets for small and mid-sized producers.