promar

digestFebruary 2015 p r o v i d i n g f o o d f o r t h o u g h t

International retailers - here, there and everywhere?

Africa’s four pillars of growth

High welfare milk: a nicheopportunity worth pursuing?

Is a renewable energy plant still a good investment?

Building agricultural entrepreneurs

Russia’s import ban - the last thing we need

R&D investment: how much is enough?

Sophie Hope - a member of theTesco FutureFarmerFoundation

Change for the better

the

A Company

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After 18 months in the roleChristine Tacon - theGroceries Code Adjudicator -writes about the progressshe has already made andcalls for more evidence The New Year marks my first 18 monthsin post as the Groceries CodeAdjudicator (GCA) to enforce, monitorand ensure compliance with theGroceries Supply Code of Practice. It has been a hectic and fascinatingperiod in a complex environment andI am seeing progress already.

A positive startI have set my stall out that I will use acollaborative approach which meansthat I will bring issues to the retailers’Code Compliance Officers (CCOs)before taking any formal action.Retailers will be given time to examineand explain to me their businesspractices and to address anyshortcomings they find. In this periodmy monitoring function is crucial.Once I have exhausted informalmethods and have a reasonablesuspicion that a breach of the Code has occurred, I will weigh upwhether or not to investigate basedon my prioritisation principles –impact, strategic importance, risks and benefits and resources.

Working collaboratively with theretailers’ CCOs ensures that anynecessary action is taken swiftly and ithas already produced significantprogress in one of the top five issues Iidentified in my first year. Eight out ofthe ten retailers made a voluntarycommitment to restrict forensic auditsfrom the legal limit of six years to two.

Change for the betterI do hear from suppliers that thingsare changing for the better and thattheir commercial negotiations improvewhen they mention the Code and theGCA. But to do more depends onaction from suppliers. A key part ofmy evidence base must come fromthem and I am disappointed thatmore suppliers have chosen not toprovide me with hard evidence ofareas where they feel retailers couldbe breaking the Code.

I am encouraged to hear that somesuppliers now feel able to challengethe retailers on certain requests butindividual action does not ensure thatunderlying practices have beenstopped. And so I have made mypoints over again that if suppliers donot give me the evidence of wherethey believe there are breaches of theCode then I will not be able to act tomake a positive change in thebehaviour of retailers.

I am working hard to help suppliersunderstand that I am legally bound toprotect their anonymity and bringinginformation to me will not result inretailers knowing their identities.

Evidence is needed to getreformWithout reliable information I cannotlaunch an investigation or prove aCode breach has taken place. Thelegislation establishing the GCA makesit very clear that I can only deal withissues relating to the 15 specificpractices which are set out in theCode and which affect direct suppliersto the retailers. If suppliers want meto use my powers they have aresponsibility to act. As I travel aroundthe country meeting suppliers I amoffering private meetings to receivetheir evidence. I would encouragesuppliers to sign up to the newsletterfor information on the locations andarrange to meet me when I am intheir area. Full details of the Code andnewsletter sign-up can be found onthe GCA website (www.gov.uk/gca).

A world leading supplychainThe UK has a world-leading groceriessupply chain and my role can helpmaintain that. I believe that the GCAcan help strengthen the supply chainand bring further innovation to thegroceries sector, benefiting suppliers,retailers and customers.

Go to www.gov.uk/gca

Guest comment

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My name is David Cooke and Iam Director of the Agri-Foodand Projects team at PromarInternational. Promar is the UK’slargest, agriculture and agri-foodconsultancy which employs over100 staff in total with specialistsin farm management, businessaccounting and the environment,as well as agri-food. Our clientsrepresent the ‘who’s who’ ofprivate agribusiness, tradesector organisations andgovernment agencies.Our work helps them to identify,prioritise and develop local andglobal market opportunities, betterunderstand and manage agriculturalcommodity costs, set and achieveimproved environmentalsustainability targets and deliverpublic policy goals. We are based inthe UK and operate globally.

We are a division of Genus plc (aFTSE 250 company). We work andsupport our colleagues at Genus inthe UK and internationally onvarious projects to improve livestocksupply chains.It is a tough start to the New Year.Falling milk prices in the second halfof 2014 served as a reminder thatthe UK dairy industry is heavilyinfluenced by the supply and demandbalance on global commoditymarkets and by intense competitionin the domestic grocery retail sector. Inevitably, this adds pressure tosupply chain relationships but, withpositive sustainable pricing initiativessuch as the Tesco Sustainable DairyGroup and the setting up of theGroceries Code Adjudicator, suppliersare in a somewhat better position tomanage troughs in the market thanthey had previously been.

Despite the tough backdrop, it isextremely encouraging to see somuch innovation and positivity inthe many projects we have had theprivilege of being part of throughoutthe year. Whether it’s in the UK, Europe, Asia,Middle East, Australasia or Americas,or in the dairy, livestock, freshproduce and other product sectors,we see a tremendous appetite forchange at all stages of the supplychain. Our role is to be a catalyst forchange, helping your business ororganisation to grow, capture newopportunities, operate moreefficiently and sustainably andachieve its objectives.If you would like to know moreabout how we can help you,please contact me via email atdavid.cooke@genusplc.com

Welcome...David Cooke Director of Agri-Food and Projects team

In the last 30 years, thedevelopment of major internationalretailers has revolutionised thefood and drink supply chain. In Europe, major supermarketsoften account between them fornearly 70% of the overall market,and in some markets such asAustralia and Scandinavia, thefigure can be even higher. Incontrast, in emerging markets -India might be the best example- modern Western stylesupermarkets account for lessthan 5% of food distribution. In China it is around 35%.As population levels, consumerincomes and rural to urban migrationgathers pace in the developing world,significant growth in the retail sector ispredicted not just in India and China,but in Latin America and other Asianmarkets – from Myanmar to Malaysiaand back again.

For many of the established leadingretail groups development ofinternational business will be key fortheir future development, as they oftenapproach reaching saturation point intheir own domestic market. Butgetting it right is not easy and someare more successful than others.

Variable contributionInternational sales, as a share of totalrevenues, vary from retailer to retailer.Some European retailers such asCarrefour, Auchan and Metro alreadygenerate more revenues from foreignmarkets than they do in their respectivedomestic markets. For others such asWalmart, Tesco, Costco, Coles andKroger, the domestic market stillgenerates the most revenues. Whilst maintaining market share in awealthy and competitive domesticmarket is not unattractive, mid to longterm growth can only really come fromdiversification, consolidation orinternationalisation.

Some of the most ambitious growthplans come from the German based

discounters, who have a business modelthat appears to have widespreadappeal. Aldi (who already operate inalmost 20 countries) have stated theirintention to continue their expansion,not just within the EU, but also the US,China, Russia and New Zealand. Lidlare sizing up opportunities in marketssuch as the US, Turkey and Russia too.

What are the implicationsfor suppliers?• There will be “pull through”

opportunities for suppliers to enternew international markets with anexisting customer. Entering newmarkets with the backing of anexisting supplier greatly reduces risk.

• Products that might be phased outby the customer in highly competitiveand fast paced domestic marketscould continue to generate sales in developing markets where demand is sometimesless sophisticated.

• Further consolidation of suppliers asretailers will reduce complexity andrisk in their supply chains. This islikely to favour larger internationalsuppliers that can secure volumesupply across multiple geographies.

• At the same time, we would expectto see retailers also deploying localsourcing strategies, favouring smalland medium sized enterprises in thelocal market.

• Global retail brands will want todrive the standardisation of bestpractice across all the geographicmarkets they operate in (e.g. on ISO,environment, sustainability). This willfavour large international suppliersoperating to best in class standards.

We anticipate the next era of groceryretail will be defined by the expansionof modern grocery retail businessesoutside of their mature domesticmarkets in North America and Europe.Asia - in particular China and India -will be key growth markets. But it is insub-Saharan Africa in countries, suchas Nigeria, Botswana, Angola and IvoryCoast, to name a few, where we alsoexpect to see significant transformationalchange of the grocery retail sector forreasons explained later in our ‘Africa’sfour pillars of growth’ article.

John can be contacted atjohn.giles@genusplc.com

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Figure 1 – Domestic and Foreign Revenues for Selected Leading Retailers, US$ billions

International retailers -

here, there and everywhere John Giles Divisional Director

John Giles reports

For the last 10 - 15 years theBRIC countries (Brazil, Russia,India and China) have havebeen the focus of theinternational agri food sector.Yet Africa is now the fastestgrowing regional market inthe world. What is drivingthese developments? We seewhat we call “four pillars ofgrowth” fundamentallyunderpinning this.

1. Political StabilityAfrican countries have madesubstantial gains in political stabilityover the last decade, resulting in fewerwars and greater political certainty formany countries.

Political stability has often beenaccompanied by economic reformfrom which a ‘consumer class’ hasemerged. These are people withincomes of around US$14 - 20 a day,with regular jobs and have thepurchasing power to afford, forexample, mobile phones, fridges etc.,and packaged food products.

This view is supported by the WorldBank which suggests there is between150 and 180 million middle-classconsumers in Africa. To put these goodnews headlines in perspective, however,the report also suggested that 60% ofthe population of Africa still livesbelow the $2-a-day poverty line.

2. Population Growth andUrbanisationMany people still associate high levelsof population growth with China,when in fact it is Africa that will havethe highest growth rate of any regionto 2040 and beyond.

UN data projections suggest thatAfrica already has more than 500million people of working age (16 -64) and that by 2030, the number willhave grown to 1,100 million (1.1billion) - more than India or China.Africa already has more than 50 citieswith more than one million people.This is more than North America (48)and nearly as many as Europe (52).

3. CommoditiesAfrican countries have been famousfor commodities like Nigerian oil andAngolan diamonds for many years,but the rise in commodity prices overthe last decade has boosted companyand government revenuesconsiderably.

Strong international prices haveincreased the volume and value ofexports for a wide range of Africancommodities from cocoa to palm oil.

Although there are debates abouthow much of these higher prices haveactually ‘trickled down’ to the averagecitizen, there is certainly more wealthin Africa as a result.

4. Agricultural PotentialWith projected demand for food toincrease as the world’s populationbecomes richer and more focussed onWestern diets, access to farmland andincreasing productivity of existingfarmland is very much on the agenda.Organisations such as the World Banknow suggest that Africa may hold thekey to balancing future global fooddemand with production.

One of the other most commonindicators we use to assess the level ofcountry and particularly food marketdevelopment is the number and typeof food retailers present.

Large international food retailers arestarting to take an interest in Africa.Spar already has over 100 stores across6 countries (excluding South Africa).Mass Mart (based in South Africa andpart of the Walmart Chain) has plansfor food stores in Nigeria and Angola.In 2013. The French retailer Carrefourannounced that it planned to openstores in eight African countries,starting with the Ivory Coast in 2015.

We believe that all organisations willbegin to feel the impact of what ishappening in Africa – as a potentialsource of food supply, as a consumermarket and as an investmentopportunity. Even if you do not directlyoperate in Africa the knock-on impactsof what is happening there will beginto be felt around the world and rightacross the global supply chain in thesame way that the BRICs did 10-15years ago.

Andrew can be contacted atandrew.mclay@genusplc.com

Africa’s fourpillars of growth

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Andrew MclaySenior Consultant

Andrew Mclay reports

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Do consumers believe that farmerstake good care of their cows? The result is an overwhelming yes as80% of consumers believe that Britishdairy farmers take either good (60%)or extremely good (20%) care of theircows. So what are the views of theremaining 20% of consumers? Most ofthem (14%) stated that they did notknow whether farmers kept good careof their animals or not. Only a minorityof consumers, just 6%, believed thatfarmers took bad care (5%) or very badcare (1%) of their cows.

These results are good news for anindustry that prides itself on its highwelfare standards and has gone togreat lengths to improvecommunication with the generalpublic. But it also highlights more canbe done to inform the 14% ofconsumers that have no view and toaddress the concerns of the 6% ofconsumers that believe welfarestandards are below par.

Not high priorityWhere does welfare rank in terms ofconsumer priorities? Unsurprisingly, forthe majority of us freshness, pack sizeand price are the highest priorityfactors. Other factors, such as brand,provenance, animal welfare, healthbenefits and organics heavily influencea small percentage of us, typicallyabout 5%.

That freshness, pack size and price arethe most influential factors drivingpurchase behaviour is not a surprise.Milk is a staple item for almost allhouseholds and most purchases aremade automatically; i.e. they are madewithout much conscious thought ordeliberation.

However, this is not to say welfare isnot important. Indeed, many of usassume high welfare standards are ataken-for-granted assumption in theproducts we buy, whether milk, eggs,meat or other types of products ofanimal origin. As consumers, we placetrust in the belief that the products webuy are produced to high welfarestandards and are reassured by thepresence of kite marks such as RedTractor and Freedom Foods, as well asthe faith we place in the brandreputations retailers and manufacturersseek to uphold.

Would consumers pay more?So whilst a mandatory level of animalwelfare is assumed, would milkproduced to an even higher animalwelfare standard be seen as a benefitthat we as consumers would beprepared to pay for?

Our survey concluded that 1 in 5consumers would not pay any morefor higher welfare and most (45%)would only pay a little more, i.e. up to5% more, meaning that (in the currentclimate) a 4 pint bottle of ‘highwelfare’ milk would have a retail salesprice of £1.05. Given the intense pricepressure the dairy supply chain iscurrently facing, to add cost to thechain for this level of return wouldneed serious and careful consideration.

However, a small percentage ofconsumers (6% according to oursurvey) would be prepared to pay a lotmore (i.e. 25% or more) for higherwelfare milk. Whether this is enoughto offset the extra costs of producingto a higher welfare standard remainsto be seen. Getting this equation rightwill be vital to understanding thepotential profitability of thisopportunity. Lisa Williams can be contacted at

lisa.williams@genusplc.com

As consumers, what do we think of animal welfare standards when it comes to milk production?And in the current environment, where the retail sales price of a 4 pint bottle of milk can be£1, are we prepared to pay any more for higher welfare standards? If so, how much? These are questions we sought to answer in a recent on-line survey of 400 consumers. This article highlights some of the results.

What is your perception ofhow British dairy cows are

kept? (n=400)

Would you consider payingmore for your milk if the

welfare of the animals wasimproved? (n=400)

High welfare milk: a niche opportunityworth pursuing?

I don’t know14%

I think farmers take bad care of their cows5%

I think farmers take very bad care

of their cows1%

I think farmerstake extremelygood care oftheir cows

20%

I think farmerstake fairly good

care of their cows60%

No, I wouldn'tpay any more

24%

Yes, I would pay morethan 25% more

6%

Yes, I would payup to 25% more4%

Yes, I would payup to 5% more

46%

Yes, I would payup to 10% more

24%

Lisa WilliamsSenior Consultant

Lisa Williams reports

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Renewable energy continues tobe high on the agenda for manyfarmers and landowners as onemechanism to minimise exposureof farm businesses to externalshocks and price rises in theutilities market. Despite continuing changes inGovernment policy, thecommitment to renewableenergy is still there with theaim to provide cost-effectiveenergy to meet 90% of thecommitment under the 2020Renewable Energy Directive.A range of technologies is still availablefor farmers who are looking to investin renewable energy sources. The mostpopular continue to be solar PV (SPV)which converts sunlight into electricity,and wind.

However, attempts continue to bemade to limit the scale to whichfarmers and land owners can invest inthis technology. For example, reductionsand changes to the Feed-in Tariff (FIT)as well as influencing the planningagenda to make securing permissionsmore difficult.

It is therefore anticipated that othertechnologies such as anaerobicdigestion (AD) or hydro power shouldhave a greater say in the UK’s energymix. However, we continue to see anumber of challenges limiting theextent to which AD is taken seriouslyby farmers.

These challenges include:

• The level of both capital and runningcosts. The key element in investmentappraisals is the FIT as thisdetermines the income that can begenerated.

• Availability of land and/or access toland in order to obtain permissionsto make a scheme viable.

• Costs of the technology. Small-scaleAD (sub 250kW) continues to beimpeded by high capital expenditure.

• Navigating the challenging world ofenvironmental permitting, planningpermission and grid connection.

• Security of feedstocks and the needto limit the diversion of productiveland away from food production.

• Ability to maximise the use of heatgenerated by an AD plant.

It is important that farmers and landmanagers take the opportunity toindependently consider the feasibilityof a planned scheme. Changing theFIT structure means that farmers mustcarefully review investment plans toassess the payback period and thelikely return once capital has beenrepaid. Schemes can still be a soundfinancial and environmental investmentbut will never be for everyone.

Long term planThe vital aspect is not to considerinvestment in renewable energy inisolation. It has to be consideredwithin the context of a 3, 5 or 10 yearbusiness plan. How will renewableenergy fit within the objectives andrequirements of the whole business?At the current levels of FIT, it is vitalan investment in AD can incorporatethe use of heat to maximise theopportunity presented by theRenewable Heat Incentive (RHI). Evensmall scale AD plants come with ahigh capital outlay c.£700,000 andthis can heavily impact the paybackperiod and the ROI of 11%.

In many cases, the acid test will be theeconomics surrounding the amount ofenergy that can be produced and howthis can insulate the business againstrising fuel prices, with any environmentalbenefit being a secondary rather thanprimary benefit. We always advisecompleting an audit of existing energyand resource consumption and demandsas a key component of any businessassessment and investment plan.Vicki can be contacted atvicki.halliwell@genusplc.com

Is a renewable energy plantstill a good investment?

Vicki Halliwell reports

Vicki HalliwellEnvironmental Consultant

Senior ConsultantRebecca Lewis describes amajor initiative to helpdevelop the entrepreneurialfarmers of the future.Increased globalisation, greater use oftechnology, more closely definedsupply chains and increasinglysophisticated management systemsmeans the skill set required by farmersis evolving rapidly.

Launched during 2014, the FutureFarmer Foundation, which is managed onbehalf of Tesco by Promar International,was established to help bright,talented, determined young peoplemake their own start in the world ofagriculture, whether that’s taking overthe family farm, embarking on a newbusiness venture, or entering theindustry for the first time.

So far, two intakes totalling 98 youngpeople from a wide variety of

backgrounds have joinedthe programme with a

third intake plannedfor later in 2015.

It is a 12 monthprogramme opento anyone agedfrom 20-35.

It has already proved popular withpeople from a wide range ofbackgrounds and with hugely differingexperience. While some of theparticipants are farmer’s sons anddaughters, nearly 30% have comefrom outside the industry. It is open toall enthusiastic young people in theindustry, regardless of whether theyare Tesco suppliers, providing theyhave drive and a passion to succeed inUK agriculture.

The programme supports talented,enthusiastic and determined youngpeople who want to take the industryto the next level, by providing a uniqueprogramme of training and insights,helping equip them to be successful ina rapidly evolving industry.

Broad skillsThe programme covers a diverse rangeof subjects, but the emphasis is ondeveloping broader business andmarketing skills. At the end of theprogramme, participants will havedeveloped their business and financialplanning skills, have an in depthunderstanding of the supply chainacross their own and other farmingsectors, and will have gained theconfidence to prepare a robustbusiness plan to take their businessconcepts forward. This will be basedon greater appreciation of whathappens to products beyond the farm

gate and the requirements ofspecific customers and supplychains.

A central part of the programme issupply chain visits which have so farincluded trips to Adams Foods, Müller Wiseman, Noble Foods,

Cranswick Country Foods, Bayer CropScience and Toyota. By exposingparticipants to all parts of the industryand supply chain, the Foundation willhelp develop customer-focussedentrepreneurs able to thrive in a fastermoving and more global industry.

Since joining the Future FarmersFoundation, Sophie Hope isdeveloping a clearer vision for thepig and poultry enterprises on thefamily farm.

“I want to run a farm that demonstratesthat indoor production systems are highwelfare and a commercially viablesustainable option. At the same timedifferentiation from the commoditymarket is important. I joined the FutureFarmer Foundation as I thought it couldhelp me achieve these objectives.“The business planning, decisionmaking, management and leadershipsections are improving my overallunderstanding. The Foundation hasclarified the importance ofunderstanding my supply chains andmeeting their requirements. I want toincrease productivity but need to ensurethat there is a secure market. There isno point planning and investing withoutfirst making sure the extra produce willhave a market.”“My horizons are now much broaderand I have a better feel for what I needto do to move the business forward.”

Rebecca can be contacted atrebecca.lewis@genusplc.com

www.tescofuturefarmerfoundation.com

Building agriculturalentrepreneurs

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Rebecca LewisSenior Consultant

Sophie Hope

Rebecca Lewis reports

For the EU, the impact of theban on the import of all fruit,meat, vegetables, fish, milk anddairy products from the US, EU,Canada, Australia and Norway,has serious consequences. In2012/3, the EU supplied Russiawith 60% of its apples (some700,000 tonnes in all), 30% of itscapsicums (around 40,000 tonnes),25% of its carrots (some 48,000tonnes) and 20% of its tomatoes(some 150,000 tonnes) as well asaround 30,000 tonnes of oranges.The ban created an oversupplysituation, depressing prices.Of course, many suppliers to Russia areleft unaffected by the ban. For example,Russia imports about 1 million tonnesof bananas per annum from Ecuador,Colombia and the Philippines. Tradebetween these countries has carried onas normal.

Moreover, for a limited period, Turkeybecame an unintended beneficiary ofthe import ban acting as a regionalhub for EU suppliers wishing to side-step the Russian authorities.

The cruel irony is that whilst Russiaimplemented the ban to hurt itspolitical opponents, it has come atsubstantial cost to Russian consumerstoo. Short supply of foodstuffs has ledto a sharp increase in food prices,particularly for items such as freshproduce, meat, fish and dairy.

Initial plans to source foodstuffs fromregions of the world unaffected by theban (e.g. South America and NewZealand) have taken longer to implementthan first thought, so Russian consumersmust bear the pain a while longer.

A major risk to incumbent EU suppliersis that, during the ban, new tradingrelationships are being formed and/orstrengthened and when the ban islifted it may not be back to “businessas usual”.

Prudent suppliers will no doubt investin managing the customer relationshipwhilst the ban is in place; but whenthe ban is lifted (whenever that is)suppliers may need to battle against

new found competitors and loyalties toregain the business they once had.

At government policy level, Russia maylook to other parts of the world withwhich it is more politically aligned, inorder to secure future food supplies(for example through trade enhancingpolicies, such as Free Trade Agreements).

Countries that are politically aligned toRussia (or at least neutral), such asTurkey and China may benefit, whilstcountries that are increasingly viewedas political enemies such as the US andEU countries, may lose out.

Russia’s politics are a major risk toits economy which, accordingto the World Bank, isstagnating; but it alsocomes at a time whenthere are many political and economicvulnerabilities in otherparts of the world.

The economy in Europe is struggling to recover from recessionand with it exposing cracksin political relationshipsbetween key MemberStates.

Africa is struggling with Ebola, whichalthough present only in three countries,creates an image problem for all otherAfrican countries. Political conflict in theMiddle East places enormous strain onother countries in the region and China,which has been the powerhouse of theglobal economy for the last decade, isslowing.

With so much going on in the world,it seems that the Russian import ban isthe last thing we need.

Elizabeth Bonsall can be contactedat elizabeth.bonsall@genusplc.com

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Elizabeth BonsallConsultant

Elizabeth Bonsall reports

Russia’s import ban

- the last thing we need

r&dTop 10 pharmaceutical companies

0%

Source: EU Industrial R&D Scoreboard, 2013

2% 4% 6% 8% 10% 12% 14%

Top 10 software & computer companies

Top 10 aerospace companies

Top 10 automobiles & parts

“Global 2000” average

Top 10 food & drink companies

Figure 1: R&D Intensity, by industry sector

Every year approximately US$20 billion isinvested in research and development (R&D) by private agri-food companies1. It is a lot of money, but is it enough? Is it meaningless to assign an absolute number to how much the agri-food sectorshould spend on R&D? After all, spending money on R&D is a means to an end,not an end in itself. A better way to look at R&D spend is as a percentage ofbusiness turnover.

Figure 1 highlights the significant variations in R&D intensity (R&D expenditure asa percentage of sales) across different industries. The data is from an R&DInvestment Scoreboard carried out by the European Commission, which surveysthe world’s top 2,000 companies by their investments in R&D.

On average, the companies surveyed spend 3.2% of sales turnover on R&D.Many industry sectors rank above this average, such as pharmaceuticalscompanies (13.8% of turnover), software and computer companies (7.0%),aerospace (4.6%) and automobiles and parts (4%).

By contrast, food and drink invests just 1.1% of business turnover in R&D. Not only is this a long way behind ‘high-tech’ industry sectors such aspharmaceuticals, but it is also below average.

Needless to say there can be significant differences on a business-by-businesscase. For example, our corporate parent, Genus plc, spends approx. 7.5% of itsrevenues on R&D activities (source: FY2014 Annual Report), reflecting theimportance of genetic improvement to sustainable competitive advantage.

In some respects, it is not fair to makecomparisons to other industry sectors.After all, different industries competein different ways and therefore havedifferent R&D requirements.

That said, comparisons to otherindustry sectors is what is needed. The agriculture, food and drinkindustry is increasingly expected tooperate in the same way as othercompanies in other industries. For example:• The development of new functional

health products demands skills andresources akin to that of thepharmaceuticals industry.

• The innovation cycle is shorteningand agriculture, food and drinkcompanies must respond at a pacethat is comparable to software andcomputer companies.

• Lean management and wastereduction is as relevant to the agri-food industry as it is to carmanufacturing.

Whilst agri-food faces similarchallenges to other industries it isoperating on a fraction of the R&Dbudget typically allocated bycompanies in these other industries.This is not realistic or sustainable.

To answer the question “how much isenough?” At company level, theamount of money invested in R&Dactivities should be proportionate tothe expected return on that investment.To invest less than is necessary risksnot achieving business objectives, andto invest more than is necessary risksprofits. However, taken at an aggregatelevel, it seems hard to think that R&Dinvestment by private companiesshould do anything other thanincrease, particularly if we are to beserious about meeting the long-termchallenges facing global foodproduction.

Matt can be contacted atmatthew.incles@genusplc.com

R&D investment: how much is enough?

1 Source: USDA (excludes R&D investment made by farmers)

Published by: Promar International • Tel 01270 616800 • www.promar-international.com

Farming • Food & Drink • Environment • Public sector • Trade associations and levy boards • Private agri business

Matt InclesSenior Consultant

Matthew Incles reports