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CORPORATE ECONOMICS

OF NUTRITION

Remember  Food is huge business- over 6 billion customers worldwide and something that people cannot go without-in short a very good business to be in Much of the food market is controlled by very large corporations whose main interest is making profits and keeping shareholders interested in the firm

To keep maintain or increase market share (penetration) of the market a firm needs: a)      the products people need and want b)  to get the message out to consumers about:

a) product price

     b) product benefits to the consumer

    c) why their product is better than competitors

 

To keep maintain or increase market share (penetration) of the market a firm needs:

to get message out about why the firm is a good investment:

a) good sustainable growth (double digit annually)

b) profits increase (double digit annually)

How is all this accomplished ?

 Products people need and wantdifference between need and want

People need simple food that will meet their nutrient requirements obtained by following Canada’s Food guide- However, the corporate world has convinced us that we need much more than the simplistic approach which in any case would not satisfy the needs of the corporation for sustainable growth and profits. So the corporate world spends billions on:

Research and Development-product development  

-GMO’S -now genetically modified foods

-disease, insect, herbicide and drought resistance -advantages? For who?

 

- future-new foods for marketing

-Easy prep foods-e.g.- t.v. dinners 

-No prep foods-just open and munch

Research and Development

-marketing  -finding out what customers need,want or

what they will accept if they are told they want it.

  -finding out how to best let customers know

a firm has what the customer needs, wants or to accept something if they are told they want it (how to convince them they need

something-suggestions?).

Getting the message out to consumers

a)      price advertising- methods-television, radio, print, internet, stores

-demonstrating good value for the dollar

Getting the message out to consumers: b) product advertising  -product benefits-methods as

with price advertising 

-benefits-health, taste, flavour, texture, smell, appearance

 -product advertising in store

includes food labelling

-food labelling is often proposed with the aims of:  

achieving a social goal such as improving human health and safety,  

mitigating environmental hazards (tuna),  

averting international trade disputes, or supporting domestic, agricultural and food manufacturing industries (corporations can affect this- how?).

economic theory suggests, however, that mandatory food-labelling requirements are best suited to alleviating problems of: asymmetric information and are rarely effective in redressing environmental or other spill-overs associated with food production and consumption.  economic theory also suggests that the appropriate role for government in labelling depends on the type of information involved and the level and distribution of the costs and benefits of providing that information.

The government may decide that some information must be provided on labels.Such a situation is most likely to occur either when the market does not supplyenough information to allow consumers to make consumption choices mirroringtheir preferences (asymmetric information), or when individual consumption decisionsaffect social welfare in a way that is not reflected in the market (externalities).The costs and benefits relevant to the government’s decision to intervene in

labeling are broader than those of relevance to private firms. Benefits may includeimproved health or environmental quality. Costs may include the government’s administrative costs, higher consumer prices, and industry compliance costs. The distribution of these costs and benefits may be as important in determining the desirability of the policy as the level of net benefits. Policymakers must weigh the benefits and costs of labeling as well.

Getting the message out to consumers:

c) why their product is better than competitors   -science-determination of nutrient content and health benefits (indeed the risks of their competitors’ products) 

-surveys- asking people what they like (and advertising that) or don’t like about a product and then using science in an attempt to fix the problem.

Getting the message out to shareholders or potential shareholders: Money from shareholders needed to run the operation – Otherwise have to borrow from banks and that costs the company in terms of interest whether things go badly or well

Therefore shareholders are a better way to go:

No interest to pay if things go badly If things go well, the dividends paid to shareholders and increased share price payouts are less than interest payments

Get shareholders by showing them that the company has: •Good sustainable growth(double digit) •Profits (double digit) after inflation

Consequences of the almighty dollar (corporations) running the food show:

World hunger-even during the Ethiopian famine of the 1980’s they were exporting beans to Europe Some individuals decry the decline of the small family farm and its replacement with the huge corporate megafarm. Is this is a consequence of economies of scale? 

If the minimum efficient scale for agricultural production is sufficiently high, small, family farms simply cannot produce enough to be competitive with large, corporate farms.  To the extent that the replacement of family farms with corporate farms is a response to issues of scale economies, then, economically speaking, it is a good (read “efficient”) thing. 

Efficiency means profitability and sustainable growth- things the shareholder needs and wants and remember the company needs and wants shareholders

Thus large firms are capable of largely controlling production, and hence processing and hence shipping and hence sale of food and their job is get people to eat more not less (consequences). Private farmers are sometimes barely making it-squeezed by the corporate main players

Devastation of ecology, social and economic structures:

Corporate farming takes economic control away from local people (social structures also suffer as they are tied to and affected by poverty) and by its very nature does not respect the environment (efficiency is the name of the game here)

Control of prices- for example demand surging ahead of supply-prices soar –consequences?  Nutritionally- people are getting fatter through advertising and fast food (including vending machines)-current suggestions of lawsuit in USA -issue of physical activity