Glacier FarmMedia – Earlier this year, McCain Foods quietly purchased a little-known firm called Resson.
Ten years ago, the news that a food company had bought a predictive crop technology company might have raised a few eyebrows. In McCain’s case, many may have wondered why a company known for its frozen french fries would want one that develops digital technology for farmers.
But in recent years, such purchases are part of a trend that’s taking root in the food industry.
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There’s been a paradigm shift in how food and beverage companies secure their financial futures and it is shaping innovation in the agri-food space.
For decades, big food companies purchased raw ingredients and manufactured products for mass distribution to consumers via grocery stores. They hired food scientists to develop new products and tweak existing offerings.
Not much attention was paid to how the raw ingredients were produced, just how much they cost. Increasing shelf space and beating the competition in marketing products with the latest flavour or trendy ingredient, with the lowest cost of production, were keys to the bottom line.
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This is an oversimplified view of the food and beverage industry, but the basic business model for any company that sells a product is to acquire greater market share year-over-year to increase profits.
If a smaller company with an innovative product disrupts market share or is perceived to be a potential threat, it is often purchased by a bigger company. That’s why we have conglomerates such as Nestle, Kellogg, Danone, McCain and Molson Coors, to name a few.
The food and beverage space is highly competitive, and developing and launching a new product often requires an investment of millions. Smaller companies often sell to the big guys to recoup their investment in R&D or because they don’t grow quickly enough to earn the money required for aggressive marketing.
This is where the paradigm shift is taking place.
Within the last five to six years, many large food and beverage corporations have formed their own venture capital units. In addition to buying other companies, they are providing venture capital funds to small companies and start-ups.
That’s what happened with Resson and McCain Foods.
McCain originally invested in Resson nine years ago, long before the food company announced its sustainability vision that includes regenerative farming and its Farms of the Future locations. Resson’s predictive crop technology fits McCain’s “innovation agenda and our ambition to use digital technology to transform agriculture,” Jillian Moffatt, McCain’s chief technology officer said in a release.
The benefit for McCain is that it didn’t have to develop a new business unit from scratch, which would have added years and dollars to the process of creating the technology.
According to a recent article on in-house venture capital funds by large food and beverage companies in Just Food, many companies claim the reason for backing “innovative young companies” with “bags of potential” is to help them grow.
The author writes, “This is not altruism of course but such investments should, in theory, benefit both parties, enabling so-called Big Food to tap into evolving consumer trends and learn more about how to innovate and do business in a more agile manner.”
I’m sure this is true for some big food-start-up relationships, but the cynic in me thinks it’s a cost-effective way for big food to fund innovation and essentially buy it back more cheaply than if it didn’t already have stakes in the game.
Is it a good thing for farmers? I think we need to keep an eye on it.
One positive outcome is the acceleration of innovation in the plant-based food space, which will benefit growers of crops such as oats, lentils and peas by increasing demand. This is likely true for many other commodity crops and livestock products.
But ‘Big Food’ could gain too much control over growers in the future if it takes over the little guys instead of helping them grow.
– Kristy Nudds is the editor of Farmtario. Her article was published in the July 11, 2022 issue.
