Food Business News - July 31, 2012 - 9

Editorial
EDITORIAL STAFF Editor-in-chief Morton I. Sosland Executive editor, markets Neil N. Sosland Editor L. Joshua Sosland Executive editor Keith Nunes Senior editor, markets Jay S. Sjerven Managing editor Eric J. Schroeder Associate editor Jeff Gelski Associate editor Ron Sterk Assistant editor, markets Laura Lloyd Internet editors Allison Gibeson Erica Shaffer Graphic designer, market graphics, data Christina Sullivan

MORTON SOSLAND

editor@sosland.com

Global food parallels oil reﬁning

PUBLISHING STAFF Chairman Charles S. Sosland Vice-chairman L. Joshua Sosland President and publisher Mark Sabo Director of publishing G. Michael Gude Associate publisher David DePaul Bruce Webster Vice-president, chief ﬁnancial ofﬁcer Melanie Hepperly Audience development director Don Keating Advertising manager Nora Wages Director of design services Sadowna Conarroe Circulation manager Judith Arnone Digital systems analyst Marj Potts Manager of advertising design Becky White Director of e-Business Jon Hall Director of on-line advertising and promotions Carrie Fluegge Promotions manager Taré Torres WE’RE EAGER TO RECEIVE YOUR FEEDBACK: E-mail editor@sosland.com or write to us at Food Business News, 4800 Main Street, Suite 100, Kansas City, Mo, 64112

he temptation may be great in some than is the case for gasoline, and this has quarters to compare the current situ- been a safeguard against a comparable setation ruling in the food industry with back in food. Yet, that undergirding is being what is happening in the global energy busi- challenged by the broad attacks on foods ness. Before delving into the forces explain- considered unhealthy or sources of excess ing this analysis, it is important to appreci- calories that lead to obesity. ate the fundamental differences between How the oil and refining industry is reactthese two behemoths. While developments ing to the current environment has parallels in both are affected by the exceptional vola- that thus far apply in a limited fashion to the tility of their basic raw material, like grains food business. Just as refining capacity has in the case of grain-based foods, and oil, for closed in response to reduced gasoline deenergy, great gaps also rule. Nothing under- mand in North America and Europe, it has scores this better than oil being a natural raw material The essential standing of food is more fundamental than is with a limited supply while wheat and other grains have a the case for gasoline, and this has been a safeguard against supply that is determined by farmers’ planting decisions a comparable setback in food. and weather conditions that are unlike anything affecting energy. Yet, even after recognizing these distinc- expanded in the emerging economies. The tions on the supply side, which are equaled International Energy Agency, analyzing the if not exceeded in how demand is different, impact of the financial crisis beginning in the relevance for comparing refining with 2008, estimated that 3 million barrels of daily food still stands. In energy, especially in mak- refinery capacity have closed in developed ing oil into gasoline, the shifts under way are nations, while emerging nations have added striking. Most telling is the closing of oil re- 4.2 million barrels. So far as the food industry is concerned, fineries in parts of the developed world, notably along the East coast of the United States. it is difficult to identify any instance where Estimates that half of the East coast U.S. reaction to market difficulties has prompted refining capacity is about to be shut down anything like what has happened in energy. reflects poor returns due to crude oil prices The best safeguard the food industry has to and stagnation in consumption of gasoline. counter the forces that have decimated oil Governmental emphasis on development of refiners is introducing plant and product inalternative energy sources to oil and gasoline novations that not only reverse pressure on has speeded up decisions initially prompted margins when sales are not growing, but also by recognizing that the uncertain state of the allow pricing flexibility. Nothing is more imwestern economy caps gasoline use if not portant than maintaining modern plants as well as assuring that food facilities are straputting a crimp into consumption. Finding parallels to energy in the food in- tegically located to benefit from good locadustry is easy. Rising prices of wheat and oth- tions for obtaining raw materials as well as to er grains caused advances in retail food pric- serve market potential. Much of the refining es that are seen as producing much greater industry that is under pressure and may be caution in purchases than seen before or even closed if present conditions continue comenvisioned as possible. This created the situ- prise plants that are not judged to have the ation pressuring margins of food manufactur- latest technology, and their locations, while ers. Unit sales of branded food that at one near to East coast population centers, have time might have been viewed as highly resis- costly corridors for taking in oil. As massive, tant to such forces have declined. Compared as financially strong and as nimble as the reto refinery shutdowns, the food industry has fining industry is credited with being, on balnot experienced anything similar. The es- ance the food industry has done a superior sential standing of food is more fundamental job of reacting to quite similar difficulties. FBN

July 31, 2012

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Food Business News - July 31, 2012

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