As a leading global supplier of cashew nuts and other food ingredients, Red River Foods Group sits on the cutting edge of the major trends affecting the food industry, including traceability, food safety and social impact. These changes are driven both by evolving consumer preferences and increasing regulation.
Although Red River Foods began as a pure importer and logistics provider in 1991, it has since grown into a vertically integrated global processing company with operations worldwide. The company believes the seismic changes affecting the value chain represent a challenge as well as an opportunity. While the changes may disrupt traditional supplier/consumer business models, CEO Dan Phipps believes companies in the space will need to make investments to adapt to the evolving landscape. We sat down with Phipps to discuss the transformative changes occurring in the supply chain for food and food ingredients and take a closer look at trends in the cashew industry.
Brown Brothers Harriman: As the CEO of Red River Foods, one of the leading food ingredients suppliers in the U.S., you are on the cutting edge of trends affecting the global food industry. What are the biggest changes you have witnessed over the past 10 years?
Dan Phipps: One of the biggest trends affecting the global food industry is the rise of food transparency. Consumers now want to know how and where their food is made. People are increasingly demanding “clean labeling” with simple, non-GMO ingredients that can be traced back to origin, and single-origin products are on the rise. Ethical sourcing is also of great concern; consumers want to know that those at the beginning of the supply chain are being treated fairly.
This consumer push toward food traceability – for various economic, health and environmental reasons – has led to the explosion of the “eat local” movement. The modern consumer is moving away from old-school brands toward industry disruptors that not only provide high-quality food items, but operate triple-bottom-line – financial, social and environmental – businesses that appeal to millennials and the ever-growing foodie generation.
BBH: What have been the main steps to prepare to ensure compliance with the new Food Safety Modernization Act, or FSMA, regulations?1
DP: Red River Foods has worked hard to ensure high-quality, safe imported food for decades. This commitment to and investment in supplying safe food has allowed us to meet the FSMA regulations that require specific action. Our main initiatives to achieve and maintain compliance with these regulations have centered on identifying and controlling food safety hazards. Our food safety director has trained and certified 15 employees across the globe as preventive control qualified individuals (PCQIs). These PCQIs are in place throughout our global supply chain to write our food safety standard operating procedures and evaluate and monitor each supplier’s food safety processes.
BBH: Turning to cashews, the industry is a truly global supply chain. Raw seed is produced in West Africa. Next, it is shipped to Southeast Asia and deshelled. Kernels are then cleaned at facilities and ultimately exported to places like the U.S. and Western Europe. Over the next few decades, will the supply chain remain this long? How will it become more efficient?
DP: Although cashews have been produced for global consumption for decades, the supply chain remains underdeveloped compared with mature agricultural products such as almonds, cocoa and coffee. Traceability is a necessity for all participants in the food business.
Regardless of the motivation behind demands for transparency, FSMA compliance will essentially require full supply chain traceability. With the act, the FDA2 will require HACCP – or hazard analysis and critical control points – plans for companies that wish to sell into the United States. This means businesses will have to evaluate their supply chain for biological, chemical, physical and radiological hazards as well as toxins, allergens and intentionally introduced hazards, including acts of terrorism. The new regulations will continue to push the industry in the right direction, as HACCP plans are unattainable without full traceability.
The trend toward traceability in the cashew industry is pressuring suppliers to move closer to the source. As a supplier who has always believed in the importance of having teams on the ground in sourcing areas, we are thrilled that more of the industry is starting to do the same. Unfortunately, there are levels in the supply chain that add little value and drive up cost. By cutting out the middlemen and buying closer to the farmer level, everyone benefits – from the farmers, who receive better prices for their cashews, to consumers, who are able to know where and from whom their food is sourced.
We will continue working toward our goal of full traceability, as we believe key stakeholders in the supply chain will reap the benefits. Two main methods allow us to achieve traceability: one, the purchasing of raw cashew nuts in order to dictate exactly who and where our product is coming from, and two, partnering closely with trusted processors that have deep community connections, allowing us to buy the kernels of specific documented communities. Each method of obtaining traceability presents myriad challenges that we must mitigate, but we believe it is the answer to a sustainable supply chain.
BBH: How are large processors and retailers in the developed world responding to changing supply and demand trends?
DP: Several emerging markets are affecting cashew nut consumption. Within the United States and Western Europe, we see a continual creation of supermarkets emerging in new markets. One such example is the international expansion of German supermarket chains Aldi and Lidl into the U.S. market. Chains like Publix and Harris Teeter are expanding their geographic profile, while Amazon recently acquired Whole Foods. All of these companies feature cashews as a premium item.
The cashew market in the United States and Western Europe is well-established, and consumer demand continues rising. In fact, U.S. imports are at record highs despite high prices prevailing in the marketplace. Even in mature markets, it is evident that there is room for further sales growth of the world’s favorite nut.
BBH: Cashews have traditionally been viewed as a high-end nut. How are emerging markets affecting consumption patterns?
DP: Cashew demand continues to increase across all consuming markets. In new emerging markets, we see ever-expanding demand as a result of a growing middle class. India is a great example of both a producer and mature consumer market. While historically, India was a major kernel exporter, volumes have decreased significantly. The country’s domestic crop along with large volumes of imported raw cashew nuts are instead consumed by a quickly growing middle class that loves and enjoys cashews in many forms – from fancy whole cashews to a myriad of confectionery and chocolate candy forms. We also see a large and increasing consumption potential in all oil-producing countries. In addition, consumption is rising throughout the Pacific Rim as well as Eastern Europe. We believe consumption will continue to expand alongside increased population and the rise of the growing middle class.
BBH: Do you foresee more consolidation in the industry?
DP: Absolutely. Two main factors will continue to push consolidation in the nut industry. First, compliance with the FSMA will continue to drive out small suppliers, as associated costs are very high. Second, we are seeing the large, well-established companies in the industry continue to buy successful new market disruptors.
BBH: Dan, thank you for your time and insights.
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1 For more details on the FSMA, read our May 2017 Commodity Markets Update article, “The Food Safety Modernization Act’s Impact on Imports.”
2 Food and Drug Administration.