How might a recession affect the players in the Food Safety Industry? Although there are overriding decisions made from the likes of governments, consumer demand drives most markets. Here we refer to testing, inspection, certification and compliance as the Food Safety Industry.
You are a consumer. How do you make your decisions when you need to buy something? I suspect trust, convenience and budget are factors effecting how you purchase food. Do you trust the makers of that box of cereal have included safe and healthy ingredients for your children and the environment? Do you trust them to the same extent you trust yourself when you’ve grown and crushed the wheat, gathered and dried the grapes and made the cereal yourself? Likely not. Although you might have more trust if you made it yourself, it certainly wouldn’t be very convenient. There is your budget to consider and store-bought cereal can be very expensive. Trust, convenience and budget are all inter-related. Oh, and by the time your wheat berries have ripened in the fall, your spouse may have gotten a big raise, effecting your discretionary budget. But then again, you’ve already planted the wheat and it’s growing nicely from the spring rains. Should you consider them a sunk cost or a diversified investment?
Businesses make these same types of decisions.
The food supply chain is made up of growers, consolidators, processors, co-packers, manufacturers, retailers, and transportation companies, each of which may wear multiple hats. The food safety industry serves those businesses in the food supply chain and is made up of companies providing testing, certification, verification and software products and services to companies in the food supply chain.
A finished food manufacturer, for example, may have already invested in getting their 20 products verified for the USDA organic or the Non-GMO Project labels when a recession hits. They have products with labels already on grocery shelves and they are often contractually committed to the next season’s worth of verified/certified ingredients from suppliers. Specialized ingredients like organic or Non-GMO often cost more of course. Businesses could decide to bear the costs of breaking those contracts. Should they plan on changing the cereal’s formulation for next season to use conventional ingredients? Making such changes to a complex product’s supply chain and production plans could be quite expensive. It may only make sense if they expect a recession, and their consumers’ buying habits to change significantly, over a long cycle.
What is the minimum length of a recession required for a food manufacturer’s core customers to change the budget part of their trust, convenience, budget function enough to choose less expensive conventional brands? One might assume that the longer the recession lingers, the more likely they will consider conventional. That’s likely true. Other parameters play into this function as well. Price point is an example. Many low price point products are available with specialty labels (organic, Non-GMO, gluten-free, Hillel, kosher…) so a recession “tipping point” may be different for different food manufacturers. I’m sure there’s a spreadsheet some clever analyst is building. Given how many moving parts it would have I’m not sure I would bet on it. And, how predictable is the start or end recession anyway? And, it affects different people differently.
We can say that a supporting industry like food safety isn't going to be greatly affected immediately. It takes time for consumers to change and then the buyers to change. It's complex. Let's not try to guess the market.