What is driving food industry cost-cutting – Summary
- Rising commodity prices and energy inflation are increasing food costs
- Labour shortages and environmental regulations add complexity and higher expenses
- Precision fermentation can lower ingredient costs when scaled effectively
- Hybrid meat blends and reformulation strategies help manufacturers reduce spending
- Customer acceptance depends on added value like sustainability and product purity
Cost-cutting is one of the main priorities of any food business. With sky-high commodity prices, energy price inflation and the impact of US tariffs further pushing up costs, businesses need to save where they can.
As it often does, technology provides one of the answers. Many food tech innovations, such as precision fermentation, have the potential to produce ingredients, at scale, for a lower price.
What’s pushing up prices in food and beverage?
“There’s inflation on every step of the value chain”, says Clément Santander, partner at management consultant Arthur D Little.
One of the biggest stories of the past few years is the ballooning of commodity prices due to poor yields. This has affected cocoa, coffee and numerous other commodities besides.
But inflation is hitting the food supply chain far beyond the commodity level.
Processing is also getting more expensive, due to the cost of energy and labour shortages. Inflation on energy prices is also affecting the cost of transportation.
Finally, regulation is squeezing food manufacturers, “putting another layer of complexity on food”. Santander singles out environmental regulation as a particular culprit.
What can drive down costs?
So what can the food industry do about it? A range of techniques and technologies can help bring down the costs of ingredients, explains Santander.
Adding new ingredients can help manufacturers, he suggests. For the meat industry, blending plant-based protein with meat (often described as ‘hybrid meat’) can help cut costs.
Precision fermentation can also help reduce costs for a growing range of ingredients. While we are currently “at the beginning” of its prominence, it holds a lot of potential.It has already been used to cut costs for the production of simple molecules, such as citric acid.
In the future, if gene editing technology and the performance of bacteria strains are improved, precision fermentation could also potential to be used for more complex molecules. For example, it may be used for some types of dairy molecules.
Finally, cultivated meat could provide cost-reduction in the future, although currently it has not even reached price parity with meat, largely due to costly components such as cell culture media.
“All in all, it’s about finding the right ingredients, being smart about reformulating, and adding the right customer acceptance,” says Santander.
How to stop customers from turning away
Could cost-cutting measures turn away customers, who may associate lower prices with lower quality?
“The thing that will turn off the customer is price”, says Santander. Thus, price needs to be addressed before anything else.
Nevertheless, cost-cutting measures must also bring additional value for the customer. For precision fermentation, for example, claims can be added on a product’s purity, its sustainability credentials, and the lack of animal mistreatment.
Despite the current difficulties that beset food and drink manufacturers, cost-cutting measures can help mitigate problems – and attract new consumers.
