Europeans shouldn’t laugh at that $29 New York sandwich

Eoin McDonald is managing director of GreenAgCapital, an investor in food and agriculture.

It’s not often that the combined net effect of decades of monetary policy, globalization, and private capital is seemingly summed up in a photo of a tweet.

Behold, a crustless New York sandwich on “Health Bread”(?) for $29. Plus tip and tax, that’s probably closer to $38? (NB below is a screenshot because Elon seems to be screwing up Twitter again, but the tweet can be found here).

Europeans cannot comprehend such madness, wondering if it comes with a diamond side order. My WhatsApp finance groups got a laugh too, and were quick to draw comparisons to my personal favourite, Pret’s Chicken Salad & Avocado Sandwich, which is a more reasonable £8.79. But what’s really in the price of a sandwich?

Anyone who has braved the aisles of American supermarkets and delis knows the stark difference in grocery prices between the two continents. A single loaf of bread (which never seems to get old) can cost you a small fortune in the US Meanwhile, even on the indulgent coast of Portofino, Italy, high-quality pastries only cost a few euros.

Ignoring the incredulous responses on social media, which blamed the price hike on what was once “transient” and now “stubborn” inflation, it’s worth pondering whether the “Health Bread” sandwich is warning European consumers .

Because Europeans could soon be exposed to the same exorbitant prices for fresh food, as the continent’s agri-food sector slowly shifts towards the established American model.

food for thought

For the past three decades, European consumers have enjoyed an unprecedented abundance of affordable products, available year-round on supermarket shelves.

Have you ever bought Spanish strawberries and wondered why they are so cheap? That’s because the European market, one of the most lucrative and competitive in the world, has been dominated by major retailers such as Aldi, Tesco and Auchan. Over the last decade, they have exercised increasingly significant control over the landscape and have benefited from highly fragmented and subsidized European farmers who rely on support from the European Common Agricultural Policy (CAP).

This asymmetrical power dynamic has overwhelmingly benefited the supermarchés and their associated consolidators, as they dictated the prices of fresh produce.

However, the future of the global food supply chain will be very different from the past. Two central trends, market consolidation and climate change, are poised to bring irreversible change to the European food industry.

Industry Consolidation

True to the US, one of the main drivers of change is industry consolidation, driven by the need for extreme efficiencies and economies of scale to offset higher input costs, capital investment, and regulatory compliance.

As a result, farm operations are forced to consolidate and integrate throughout the value chain. Therefore, the old simple agricultural model we grew up with must now give way to more complex corporate family businesses; larger farms with better access to technology, equipment, and non-family labor. (And yes, for the British, this means that Brexit has screwed them.)

Consolidation not only allows for greater bargaining power with suppliers and buyers, but also improves access to credit and capital. The result is a leaner, more efficient food production process that can better cope with the challenges posed by a changing climate and supply chain disruptions.

But consolidation also means a higher chance of $29 sandwiches.

Climate change

Nelly put it well when she said it’s hot in here. Increased climate volatility, in the form of increased periods of prolonged dryness, severe flooding, unseasonal heat spikes, and frost, is likely to have a significant impact on food production. The result will be more frequent crashes in the system.

While technological advances within the agricultural industry continue to mitigate the impact, they may not be enough to eliminate extremes. Remember the Napa Valley fires and the late-off-season Bordeaux frost that horribly destroyed the wine grapes we need to get us through the week? Those kinds of extremes.

Agricultural technology that could help include new, patent-protected crop varieties that are more resilient to extreme weather events. But will this technology be enough? Maybe, but science says probably not.

And these technologies are capital intensive. That means farmers who can’t afford them will drop out of farming altogether. In turn, that leads to even more consolidation and ultimately higher prices.

The more we need these technologies, the more our Pret lunches will cost us.

I’m America (and you can too!)

They say those who laugh last, laugh loudest; and I suspect we’re laughing too soon at the crazy Manhattanites. Continued consolidation of the food supply chain will create a winner-take-all phenomenon, with fewer suppliers controlling the broader food industry.

Indeed, the periodic disruption of global food chains is also likely to persist, if not increase. I would almost bet that fresh produce will soon be marketed as a luxury good. The future of Europe is written on the wall of the US: near monopolistic integration of the food supply chain and significantly more expensive food.

The question is, who in Europe is willing to pay $29 for a sandwich? And will at least the scabs remain?

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