Processed foods are once again a hot topic. Between catastrophic externalized costs, new diet drugs, rampant price gouging and a growing wave of regulations, processed foods are attracting all the wrong attention. But processing may also be key to reinvigorating the best and brightest trends in the food industry.
People have processed food since the dawn of time. Nixtamalizing corn, stomping grapes into wine, smoking fish. Processing food makes us human. But in recent decades, as food processing has become more industrialized and consolidated among ever fewer manufacturers and retailers, things have gotten out of control.
Much of our food processing infrastructure was originally underwritten by federal contracts for provisions needed to feed the troops during WW2. The grocery industry is to this day a permanent wartime economy. The agribusiness sector solidified during the post-war period to ensure cheap, calorie-dense, convenient and abundant food for all. Decades later, this stunning success has led to widespread consumption of ultra-processed food (UPF’s). It has also wrought enormous damage to human health and the environment.
In order to understand these impacts, scientists developed the NOVA classification system. NOVA classifies foods at 4 different levels of processing, from unprocessed all the way up to UPF. The system is not perfect, but it has helped scientists understand and articulate how processed foods have warped health and wellness indicators across the world.
In industrialized countries, over 50% of calories come from ultra-processed foods. Study after study links overconsumption of UPF’s like breakfast cereals, soft drinks, hot dogs, French fries, frozen pizza and snack chips to non-communicable diseases, including type 2 diabetes, heart disease, colorectal and breast cancer, obesity, depression and all-cause mortality. UPF’s are often high in salt, sugar and fat and are quite likely addictive. They are priced cheaper per serving than minimally processed and whole foods. They make up at least $485 billion of the $1 trillion U.S. grocery industry, or close to 50 cents of every dollar spent at checkout. About 70% of products across dozens of categories made by CPG giants, including Kellogg, General Mills
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The shelf prices of cheap processed foods rarely reflect their true costs of production. (Photo by … [+]
The retail prices of UPF’s do not include their externalized costs to health and the environment. Cost externalities are up to $11 trillion a year globally, with over $9 trillion, or 73%, related to health costs. In the U.S., these externalities are around $1 trillion annually, roughly equal to the value of the entire grocery industry. Over 40% of U.S. adults are obese and 70% are overweight. Type 2 diabetes affects over 35 million Americans. The cost of diabetes is over $413 billion, or 25% of all health care spending. This is also equal to 40% of all money spent on groceries in the U.S. Environmental and biodiversity externalities are close to $1 trillion, worker exploitation over $100 billion and farm subsidies well over $20 billion. UPF’s are not as cheap as they seem.
But late capitalism invents new problems to manage old ones. GLP-1 agonists, including Ozempic, Wegovy and Mounjaro, enable people to resist cravings and reduce the amount they eat, kind of like anti-Viagras for food. Up to 7% of U.S. consumers, or 25 million people, could take these drugs. Drug maker Novo Nordisk is now among the most valuable companies in Europe. Wall Street analysts are fretting that demand for UPF’s may get curbed by increased use, despite unsavory side effects. Meanwhile, the CPG industry has been riding high on price over volume strategies, passing costs onto consumers and raking in record profits while selling less actual products.
The processed food industry seems to be taking the growth of GLP-1 agonists in stride. Leading retailer Walmart
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“Better for you” brands such as Saffron Road are found nearly everywhere, including at HEB in Texas.
These “BFY” segments of processed food categories have been growth engines for retailers. According to data provided by NIQ to Forbes, “BFY” products have outperformed the rest of the market by almost 10 percentage points in the last 3 years. They are close to $80 billion in annual sales, or nearly 8% of the total grocery industry. Their price gaps to incumbent products are rapidly shrinking. Trade shows like Natural Products Expo are dedicated to creating a more sustainable and less terrible processed food sector. Emerging CPG brands like Siete Foods, Simple Mills, Saffron Road, Once Upon A Farm and Partake Foods have “de-junkified” familiar products. Store brands like 365, Simple Truth and Open Nature have made less processed packaged foods more accessible. Popular consumer trends such as paleo, Whole30 and keto emphasize minimally processed foods. Study after study shows that consumers, especially the younger folks grabbing ever greater market share, strongly prefer “better for you” products.
But this slow evolution of the processed food sector is not inevitable. Most categories are heavily monopolized by brands owned by the same handful of CPG companies. Legalized bribery schemes such as slotting fees as well as the unrestricted use of trade and advertising budgets enable incumbent brands to claim prime retail shelf space, monopolize consumer attention and dominate wallet share. Why would grocers with historically slim profit margins turn away free money? Most new and emerging brands barely stand a chance. Around 50-60% of new items get discontinued by national grocery chains every year. The growth may be in “BFY” but that is not yet the center of gravity.
In the meantime, some governments are taking action. A number of U.S. states, including California and Illinois, are starting to regulate certain ingredients. Mexico is labeling unhealthy foods to prevent the epidemic health issues that it sees happening to its northern neighbor. Colombia is labeling and taxing UPFs for similar reasons while also curbing the growth and influence of the CPG sector.
Policy makers may be onto something, but restrictions are just one step. People also need and want better options. There is a huge market gap for food processing geared towards nutrient dense, whole food, minimally processed products. While there is plenty of processing capacity, much of it is captured by grocers or CPGs with the largest market shares. And globalization has incentivized grocers to contract for processed foods packed in Europe, China or South America.
I.Q.F., or individually quick frozen, is a food processing technique that preserves the taste and … [+]
This middle ground for processing is key to food system change, especially with a chaotically changing climate. The “farm to table” sector is great for providing healthy and nutrient dense food, but limited in what it can solve. Farmers markets and direct farm sales represent less than .3% of grocery industry sales volumes. Farmers markets are wonderful, but relative to the food industry, they are more or less a rounding error. Maybe that is because peoples’ lives are hectic. Commuting 3 hours a day, working 8, 9, 10 hour shifts, taking the kids to school and activities. Cheapness, convenience and ubiquity are often necessities. And the foodie idea of wholesome, home cooked meals is based on a pastoral mythology disguising the role that Black servants and slaves played in U.S. food culture. Such domestic duties now almost always fall on the shoulders of wives and mothers. Does processed food imply social progress? By plugging into, replicating and scaling up farm-direct, ethical and sustainable supply chains, we can have good food and eat it too, so to speak.
But industry wide changes are necessary because of the scale and centralization of the food processing industry. Enforcing the Sherman, Clayton and Robinson Patman Acts can start to disaggregate some of the largest food and beverage companies in the world. What next? Maybe selling divisions back to employees a la Bob’s Red Mill. Or transitioning them into consumer cooperatives. Perhaps even nationalizing some tasty, calorie dense, low-priced categories that are heavily dependent on publicly funded SNAP/WIC subsidies, like mac ‘n cheese. SNAP as it is barely covers a couple weeks of decent groceries. The USDA-administered program should be expanded to be universal, at the very least to ensure that nutrient-dense, fresh foods are free at point of sale to those in need.
The USDA should be funded to expand investment into regionalized multi-ingredient processing. Meat processing gets disproportionate attention, but meat is less than 10% of grocery sales. Because of meat industry consolidation, much of the vaunted new meat processing infrastructure will one day just get bought up by the bigger players. But the processed food industry needs more regionalized production lines that utilize aseptic, recart, retort, I.Q.F., and extrusion technologies for ingredients other than just meat. Bringing back more local packing and food storage could shift grocers away from relying on long distance imports and create well paying, skilled jobs. A cannery in every community, maybe even a food wholesaler in every zip code. Just like the post office.
Next, marketing and retail trading practices, such as advertising to kids and leveraging slotting fees for shelf dominance, need regulatory guardrails. Retail merchants and CPG brand managers have financial performance targets to meet. Unless they are given better guidelines on how to buy and sell, they will do what they can get away with within the confines of a lax regulatory apparatus.
Good Food Purchasing Program criteria require vendors to ensure fair pay and treatment of … [+]
And then, require a 10 year “just transition” to Good Food Purchasing Program (GFPP) standards for the grocery industry. GFPPs are becoming the de facto framework for how many public institutions buy food. Dozens of cities have adopted them and campaigners are pushing for federal agencies to also utilize the standards. GFPP gives special attention to animal welfare, organic and regenerative production, labor rights, the environment and other ethical considerations vastly preferred by consumers. They reflect a “true cost” of food that is also favored by more and more sustainability (i.e., “ESG”) focused investors. GFPP standards are heavily influenced by private sector retailers like Thrive Market, Natural Grocers and Whole Foods, so requiring broader adoption is just bringing it full circle.
And lastly, in order to operationalize the right to good food, the grocery industry needs its own Hippocratic oath. “First, do no harm” should be the operating mantra for all food and beverage professionals. It’s the least we can do.
These aren’t far flung ideas for the industry. Some forward thinking brands are already pushing for them. Matriark Foods wants to serve as a prototype for a system of food processing that can scale through “replication, not domination”. Founder Anna Hammond has built an upcycled, regionalized supply chain and product assortment that features nutrient-dense packaged soups and sauces. Anna says, “The real challenge is making the big food industry produce food that’s better for people, that has more regional sourcing, but at a scale that can help create things that are more affordable.”
Eve Cohen is a longtime grocery operator and the CEO of Marcellus Foods, a startup focused on fresh processing for regionally-sourced ingredients. Cohen thinks food processing plays a central role in food system repair. “A more equitable food system is possible and the right kind of food processing infrastructure is the key to making it happen. Building the next generation of food processing has the potential to alleviate so many of the challenges caused by the industrialization of our food system.”