Milling & Baking News - March 16, 2004 - 9

E D I T O R I A L

Possible reverberations in food security moves

onsidering the huge sums budgeted by the federal
government to protect the food supply from terrorist attack, grain-based foods ought to look on this
vast undertaking with comfort that the industry is not
going to find itself unprepared. And while "comfort" that
government is watching - not just over the food supply
but in providing safeguards for almost every phase of life
- is the primary aim of the Bush administration, the temptation arises to wonder where this massive investment in
defense and security may eventually head. Just like a hugely expanded military may have multiple repercussions in
how it affects the economy and lifestyles, the apparatus
that has been put in place to secure the nation's food supply cannot help but have unexpected outcomes.
The Bioterrorism Act of 2002, passed by Congress at the
request of the White House to put in place protections considered essential, includes four enabling regulations now
being implemented by the Food and Drug Administration. The one that has drawn the most attention requires
registration of all food facilities that manufacture, process,
pack or hold food or feed for the American market. More
than 400,000 registrations are expected from both domestic
and foreign companies. That the total registered at this
point approaches 200,000 affirms the massive size of this
database. The other mandated actions include prior notice
of food shipments, authority for administrative detention,
and establishment and maintenance of records.
Besides these actions mandated by the Bioterrorism
Act, the F.D.A. has launched a comprehensive food
security effort, in cooperation with the Departments
of Agriculture and Homeland Security, as well as with
other parts of the Department of Health and Human Services. It has taken the lead to work with industry to assure awareness of potential threats as well as to improve
prevention. It has assessed vulnerabilities of the food
system, utilizing outside experts to determine priorities
based on where the greatest risks exist.
Within the framework of Operation Liberty Shield,
which is the name the White House has given to the
overall anti-terrorist program, the F.D.A. has been collaborating with the Food Safety and Inspection Service of
U.S.D.A., the Centers for Disease Control and Prevention

and the individual states. At those times when heightened
security alerts have been ordered by Homeland Security,
particular attention has been given by inspection and laboratory staff to possible attacks on the food supply.
Thus far, relatively small amounts have been spent on
research aimed at refining approaches to assuring food
security as well as developing prevention and mitigation
technologies and strategies. That paucity is being corrected by the fiscal 2005 budget, which has $35 million to
enhance the Food Emergency Response Network, known
by the acronym, FERN. In words appropriately graphic,
the budget cites the need for expanded "analytic surge capacity," which means responding quickly, through a network of federal and state laboratories, to any threat to the
food supply. The network is meant to have the capacity to
assess the safety of thousands of food samples by testing
for biological, chemical or radiological "threat agents."
And while much of this work aims to assure the safety
of packaged and finished foods, President Bush has issued an executive order asking these same collaborating agencies to develop new procedures that will help
protect the nation's crops and livestock. The focus is on
evolving systems that would contain outbreaks of plant
or animal diseases, and it is here that immediate attention has been given to animal diseases like "mad cow."
Of importance for grain-based foods is the directive
to the Department of Agriculture to create a National
Plant Disease Recovery System "that could respond
within a single growing season to a high-consequence
plant disease." Wheat smut is among the potential problems cited, and knowing the years and years that have
gone into research aimed at eliminating this disease, the
directive asking for a one-year solution hints of a size
and direction in research unlike anything in the past. It
may be suspected that U.S.D.A.'s attention to achieving
this goal is heightened by the decision to give Homeland Security the authority to take charge in the event
of a disease outbreak that threatens widespread risk to
human health or the economy. The likelihood of such a
significant shift in federal authority is not just sobering,
but also symbolizes the tremendous reach of what is being done to provide security safeguards.

Surprising performance turn in cookie business

or an industry accustomed to fairly frequent and
quite large movements up and down in the relative success of its publicly-listed companies, grainbased foods regards with a measure of awe the recent
transformations in the position of Kraft Foods Inc. and
Kellogg Co. Kraft, with Nabisco as a significant part of
its business, and Kellogg, with Keebler playing a similar
role, have often vied for favor with the investment community, where comparisons reflect returns, growth rates
and prospects. For most of the time that Kraft has been
a publicly traded company, beginning with the share
offering by Altria Corp. in June 2001, it held the upper
hand, while Kellogg was seen to be struggling with its
cookie business and breakfast cereals.
All of that dramatically changed as results unfolded
during the 2003 fiscal year. The food analyst for Goldman Sachs, for instance, observed that Kraft, which once
called itself a premier consumer products company, has
now been forced "to wake up to reality," as reflected in
the admission "that it is a mature food company compet-

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ing in mature categories in mature markets with industry
average growth prospects." That starkly contrasts with
Kellogg being called "the new bellwether for the food
group," a company where underlying fundamentals are
robust. These words are backed up by other analyst recommendations that show a shift in favor for Kellogg.
While both of these companies are prominent members of grain-based foods, the analyses that differentiate
the two give little or no heed to issues like the impact of
low carbohydrate diets. Instead, the focus is on Kraft's
declining margins as the result of higher commodity
costs and increased promotional spending. Kellogg is
credited with taking steps to deal with commodity cost
upturns and increased competition. Its gross margins
improved as the result of gains in the price/mix, operating savings and Keebler synergies. While the race between these two companies is far from finished, at least
in the past year Kellogg shares outperformed Kraft by
nearly 30 percentage points in one of the most dramatic
shifts of relative position seen in years. MBN
Milling & Baking News, March 16, 2004 / 9

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Milling & Baking News - March 16, 2004

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