AGRI-BUSINESS
Nuts & bolts
MARKET TRENDS
Kellogg's competitive crunch
Kellogg Co.'s wish for the best to you each morning reflects the breakfast cereal giant's founding and ongoing belief in the dietary goodness of grain-based food.Since its beginnings over a century ago in Battle Creek, Mich., as one of 42 other cereal companies in that city, Kellogg has become a market leader with almost US$7 billion in annual sales.
Kellogg makes 12 of the world's top 15 cereal brands such as Kellogg's Corn Flakes (No. 1 worldwide), Frosted Flakes (No. 1 in the U.S.), Rice Krispies, Raisin Bran and Froot Loops. These ready-to-eat cereals and grain-based convenience foods, including Eggo waffles, Lender's Bagels, Nutri-Grain cereal bars and Pop-Tarts, are core businesses and the centre of the company's global strategic plan.
In his latest annual report, CEO Arnold G. Langbo states the corporate goal: To become a value-focused global growth company of the future. Success will be achieved through innovation in new cereal-based food products, low-cost production and building greater global capabilities to take advantage of worldwide resources and knowledge.
When it comes to the growth goal, however, Kellogg has a tough row to hoe. The cold cereal market is a stagnant and competitive category. In the latest quarter (first), operating profits grew eight per cent due to price increases and lower spending. Sales and volumes fell 2.7 and 5.9 per cent respectively, however, under the weight of competition. The stock is down 20 per cent since December as investors anticipate a future of flat sales and profitability. (See Froot Loops.)
Kellogg's profitability is not in question, however, and its strong cash flow finances a share repurchase program, debt reduction, capital investment and a healthy dividend, which has increased for the last 41 years.
Kellogg has created a global supply chain to cut production costs. Using new information technology, it has streamlined its purchasing, manufacturing and distribution processes. Kellogg's London, Ont., production facility, which produces virtually all of Kellogg's ready-to-eat cereal for Canada, is now supplied with corn out of the U.S. Midwest, instead of locally grown corn. Each facility competes with other Kellogg plants to produce more efficiently. The most profitable plants get the business, while the inefficient ones get shut down. Sales per employee have more than doubled in the last decade.
Kellogg's future hinges on a substantial expansion into the global marketplace. About one-quarter of Kellogg's sales are in Europe, and one-sixth in other countries in Latin America and the Pacific Rim, including Australia. Building on brand awareness and successful marketing techniques should give Kellogg a huge advantage as it expands. The company has used marketing and advertising for almost a century, creating a market leadership position that pays investors handsomely today.
Using marketing skills, maintaining leadership in cost cutting
and
advances in information technology will propel Kellogg into the
more
affluent, health-conscious global marketplace of the future.
Kevin Simpson CFA is an investment adviser with Midland Walwyn,
Stratford
(1-888-417-4459). This information was obtained from sources
believed to be
reliable; accuracy or completeness cannot be vouched for. Views
expressed
are the author's and not necessarily those of Midland Walwyn
Capital Inc.
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Time we faced up to climate change
I don't get it!I received a letter last month from someone suggesting that I had the science all wrong. The idea that more carbon dioxide in the air could cause a significant change in our climate was simply a hoax! After all, that's what a recent article by a respected American nuclear scientist said!
I get letters like this every once in a while. What I don't get is why such individuals readily accept the opinions of a few skeptical "armchair experts," yet ignore the concerns of hundreds of scientists around the world directly involved in related research who claim otherwise. Would these individuals go to a skin specialist about a brain tumour?
There are, of course, many questions remaining about future climate change. How fast will change occur? How exactly will it affect one region compared to another? What will happen to weather as we know it today?
However, let's not lose sight of the forest for the trees. A weather forecaster, for example, while unable to provide an accurate prediction for weather two weeks from now, can suggest with confidence that next December will be much colder than today, with a greater probability of snow. And we would believe him! After all, we have confidence in the global processes that cause such seasonal changes. Likewise, lack of details on the regional nature of climate change does not invalidate the evidence that big changes in what drives global climate patterns are likely to cause large, rapid and potentially dangerous alterations to our weather.
There are four key reasons why atmospheric research scientists agree that climate change is for real - and worrisome.
First, scientists have known for more than a century that the earth's atmosphere acts as a natural insulating blanket around the planet. Without this greenhouse effect, the earth would be more than 30C colder - a frozen planet and quite unlivable.
Second, humans are directly increasing the amount of atmospheric greenhouse gases that cause this effect. For example, by burning coal, oil and gas for energy, by clearing forests for agriculture, and by degrading agricultural soils, people around the world now release more than 25-billion tonnes of carbon dioxide into the atmosphere each year. After thousands of years of stable concentrations, the volume of carbon dioxide in the air has increased by 30 per cent in little more than 100 years. Methane's volume has more than doubled, while other lesser gases are increasing even more dramatically.
Third, increasing the amount of greenhouse gases causes the world to heat up, just like adding another blanket on a bed can cause us to sweat during the night. Even the most conservative estimates indicate that the rate of change will exceed anything experienced by humans during the past 10,000 years. Some studies suggest it could be more than three times that rate. Such warming doesn't just change temperature. It also changes wind patterns, alters where, when and how much rain falls, and can bring with it unforeseen surprises (extreme weather, you say?).
Finally, this global change, while slow, is largely irreversible. Additional carbon dioxide, once released into the atmosphere, remains there for decades - even centuries - until it gradually makes its way back into soils and the deep ocean. Some greenhouse gases, although as yet released in small quantities, can remain there for thousands of years.
The above, all based on sound, well-accepted scientific results,
is the
fundamental basis for the international research community's
concern about
the risks of climate change. Normally, when we are faced with
serious risks
in our daily lives, we regard those who ignore them as foolish
gamblers.
Most of us seek out ways of protecting ourselves or reducing
those risks.
An insurance policy, for example, is one such precaution. Should
we do any
less if the entire planet is at risk?
Henry Hengeveld is a science adviser on climate change,
Environment Canada.
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BIZ BRIEFS
AGGIE ASSISTANCE
With an eye to the future, the Ontario Federation of Agriculture is co-sponsoring bursaries for students at Guelph's Ontario Agricultural College. The OFA's $30,000 endowment will be matched by the OAC Alumni Foundation for $500 bursaries for students enrolled in various agriculture programs at OAC beginning this fall. Qualifying students are eligible for up to three bursaries per year, available through the ACCESS fund. Selection will be based on the financial needs of students, and preference given to 4Hers and other rural community volunteers. (416) 485-3333; www.ofa.on.ca
TIME FOR TRADE
There's a lot of stuff held together with baler twine out there, as a drive down any concession will attest to. But farmers using aging equipment are also compromising safety, according to a report in Terre de Chez Nous by Quebec safety experts. Compiling results from telephone surveys, safety statistics, and other sources, they found that more than half of the province's estimated 95,000 tractors are at least 17 years old, dating back, on average, to 1977. The researchers estimate that about 50,000 tractors in use in Quebec lack a cab or ROPS and pto guard, and 65,000 lack a seatbelt. In a telephone survey, Quebec farmers put more value on a tractor's utility than its safety, and said they never wear seatbelts because they are too cumbersome. No tractors involved in rollover accidents between 1986 and 1993 had cabs or ROPS, and 90 per cent dated back to before 1980. Of 35 new tractor models selected, all had basic safety equipment.
JOBS, JOBS, JOBS
Looking for summer help? Look no further than your OMAFRA office,
which
has application forms for the Summer Jobs Plan. More than 800
rural youth
between 15 and 24 (disabled up to 29) have already found jobs
under the
program, which offers up to $1,100 per student up to Sept. 30.
The target
is 3,000.
(519) 826-3711; www.gov.on.ca/omafra
QUEBEC STATUS QUO
Ontario agricultural spending rose slightly in the early-May
budget, and
in Quebec also the worst cuts seem to be over. MAPAQ, the
equivalent of
OMAFRA, slashed 230 positions last year, and lost 16 per cent of
its
budget. The 1998-99 budget revealed late March is down a further
two per
cent to $525 million, still more than the $300 million ag budget
for
Ontario, which has 30,000 more farmers.
Quebec's direct farm support will drop by $8 million to $335
million,
according to Terre de Chez Nous farm weekly. In his budget,
Quebec Finance
Minister Bernard Landry also announced $81 million for an
"agro-environmental" program, and $4 million for agri-food
exports.
PLOWING 2001
Mark your daybooks for plowing matches for the next millennium: Ottawa-Carleton for 2001. This year's International Plowing Match takes place in Sunbury, 10 miles northeast of Kingston, Sept. 15-19. The 1999 match is in Huron county, and 2000 in Wellington county. Roger Thorne from Bruce county was elected 1998 Ontario Plowmens Association president.
PARTY PACK
Good things come in pairs, so DuPont is now marketing grass
herbicide
Ultim and broadleaf killer Striker (from Dow AgroSciences) in a
"co-pack"
called "Ultimax." Product manager Kerry Teskey says the
"toss-'n-go"
postemergent will cost $28.90 an acre.
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