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Production systems evolve to meet increasing demand for 'free from' food

Chicago

GENERAL Mills spent five years and built a special eight-storey sorting facility to get rid of an ingredient that wasn't in its cereal. The company also dispatched a team of engineers to retool machines to sort 450 million kg of oats a year.

"It was not easy," said spokesman Mike Siemienas. "We knew if we wanted to take our Cheerios gluten-free, we needed to create our own system."

The increasing demand for food "free from" certain items - including gluten, antibiotics, pesticides or genetic modification - is changing the way companies procure, process and package food. Sales of such foods are poised to grow 15 per cent, or US$1.4 billion, in the US between 2017 and 2022, according to Euromonitor data. The US is the largest global growth market for the free-from trend as consumers seek to curb certain ingredients or additives from their diets.

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Sales growth for North American packaged-food companies has slowed sharply since mid-2011, reflecting the shift in demand toward fresh and organic foods, Bloomberg Intelligence's Kenneth Shea said in a July report. The S&P 500 Packaged Foods Sub Industry Index has tumbled 9 per cent this year as industry stalwarts struggle to find the right formula for growth.

"We know that we have to continue to evolve," said Kyle Lock, senior director of retail marketing at Butterball LLC, the largest US turkey producer. Without changing for consumers seeking other options, "we risk some obsolescence, or at least some decline".

While the food and beverage sector has grown 1.9 per cent over the past year, "free from" versions are growing faster, according to data from Nielsen. Products labelled antibiotic-free saw growth rates of nearly 20 per cent, followed by soy-free at 19 per cent, and hormone and antibiotic-free at 15 per cent.

"The health trend has been going for a while, but the challenge big packaged food companies have is how to make money out of it," said Mr Shea. "A lot of companies are facing that identity crisis right now."

Butterball sells organic and antibiotic-free products, and recently expanded its all-natural products including turkey bacon, sausage and burgers to lure customers outside of the holidays, when demand for its poultry usually peaks.

Sales of the company's antibiotic-free ground turkey in the 13-week period ending Aug 12 were up 71 per cent from the prior year, and now make up 17 per cent of the total. Achieving this is a logistical juggling act - its plant in North Carolina handles organic and antibiotic-free birds first thing in the day to ensure they don't come into contact with the conventional products. There're also different colored bins to store each type of meat to prevent mix-ups, said Jay Jandrain, the company's COO.

"It's a matter of storing and managing those materials - that's the tricky part, just as far as keeping them segregated," he said. "If you've got a raw breast meat, you now have three different types of raw breast meat that you have to manage through the facility."

Farmers who were ahead of the curve, meanwhile, are now finding themselves well positioned to profit from the boom in demand for more specialised products.

In the late 1980s, John Gilbert started raising pigs on his farm in north-central Iowa on pastures, with feed grown on site and without the use of antibiotics. Ten years later, Niman Ranch, a supplier of sustainably-raised meats for Chipotle Mexican Grill, came looking for his product.

Mr Gilbert now sends about 200 pigs a year to market, about 30 per cent more than 30 years ago, and hopes to increase by 50 per cent in the next five years. BLOOMBERG