The AI gap: Rabobank expects F&B giants to stretch dominance amid affordability barriers

30 Nov 2023 --- Artificial intelligence (AI) holds the potential to transform the consumer food sector by refining operation processes, forging deeper connections with consumers and developing innovative solutions for sustainability and nutrition, a new Rabobank report has detailed. But, AI also poses significant risks to the industry, including affordability issues, “AI washing” and the dangers of irresponsible use. 

“AI may be the most fundamental enabler of change in the food industry,” the report states. The bank cites data suggesting that AI in the global F&B industry could reach a market size of US$7 billion this year and US$35 billion by 2028.

“As AI continues to advance, its impact on the food sector is likely to be transformative on multiple levels. What we are witnessing, beyond the hype, is a profound change. AI is set to play a key role in the shift toward a more sustainable approach to food production,” says Julia Buech, senior analyst for consumer foods at Rabo Research Food & Agribusiness.

However, Buech tells us that the high cost of implementing AI can be a daunting reality for food companies, especially in the early stages of exploration when the return on investment has yet to fully unfold.

“The costs of AI implementation vary significantly depending on factors such as the size of the organization, the scope and complexity of the AI solution and specific use cases. Large companies often have more resources and capital to invest in AI infrastructure, making them the likely initial winners in the looming AI era,” she explains.

“Regardless of whether companies are large and powerful or small and specialized, we expect to see a deepening gap between technological leaders and laggards, which can lead to a widening imbalance of power.”

Generative AI gains and pitfalls
In manufacturing, companies use AI to forecast demand, optimize production planning and enhance quality control. Similarly, retailers are embedding AI into their tools and technology to improve existing operations, particularly regarding inventory management, but also demand forecasting and shelf and checkout optimization.Chatbots sound reliable, but brand authenticity is at risk from regurgitated content.

Meanwhile, generative AI offers new routes for automating negotiations with suppliers, such as chatbots that help with delivery requests and handling orders. Companies are also using generative AI to create personalized services tailored to individual customer interests. Chatbots have changed the face of customer service and are gaining traction because of their ability to automate interactions with customers using natural language.

“Carrefour is a stand-out example of a company that has started using generative AI in multiple key business areas, from operations to customer experience. It uses chatbots, based on Open AI tech, for internal procurement purposes and order handling, content generation for its private label product sheets and helping customers with their daily shopping, based on customers’ budgets, diets and cuisine preferences,” Buech tells Food Ingredients First.

However, a major barrier to AI’s proliferation in the consumer foods sector is concerns about data ownership.

“We hear from some companies that they are currently refraining from implementing AI in operations and innovation as they first want to ensure that their data does not go beyond company walls,” says Buech.

“If AI — particularly generative AI — is not used responsibly, it poses significant ethical and reputational risks. There are concerns around accuracy and the need for robust data security. For example, chatbots like Chat GPT sound confident, and conversations start out sensibly. But the boundaries between fact and fiction can quickly become blurred, as numerous experiments have shown.”

“Moreover, there is also an authenticity risk for brands due to the distribution of continually recycled AI content from the internet. Currently, the technologies are far from perfect. That said, the pace of development is quick, and we can expect to see improvements over time.”

Product innovation and “AI washing”
AI has the potential to push boundaries in product development. Machine learning algorithms can analyze vast amounts of data, including consumer preferences, market trends and ingredient profiles, generating insights that inform the formulation of new or improved food and drink products. Companies are exploring the use of generative AI to accelerate the process and add a “fun factor” to their offerings, such as “AI-created” flavors and recipes.Some companies are cautious about adopting AI due to concerns about data ownership.

The alternative protein sector has been a big focus in the food industry over the past decade. Rabobank says that while struggling recently with taste and quality barriers, the sector remains central in the transition to a more sustainable food system. Leading consumer packaged goods companies are looking to AI to conduct research in this area, often partnering with specialized startups in the field.

“Kraft Heinz’s partnership with Chilean food tech company Not Co, which focuses on plant-based alternatives using AI technology to replicate the flavor and sensorial attributes of real dairy milk, is among the most noteworthy examples in the market currently,” Buech tells us.

“Not Co’s planned foray into non-animal-based foods is also interesting in itself, with the company recently announcing a new partnership with Mars Wrigley. AI may soon play a role in tweaking the nutritional profile of indulgent categories, such as sweets and snacks.”

But in product innovation, in particular, so-called “AI washing” is another industry risk Buech has pinpointed.

“‘AI washing’ — akin to greenwashing before it — occurs when companies claim that their offerings involve AI technology, but in reality, they either don’t or their connection to AI is minimal and not core to the product’s functionality. The purpose of ‘AI washing’ is to make products or services appear more cutting-edge than they actually are, with the goal of drawing investors’ and customers’ attention,” she says.

Functional food boosts
Another area where AI-driven innovation may accelerate change is the growing segment of functional foods — the intersection of food and medicine. Gut health is a key focus of scientific research and innovation due to its purported links to general health and well-being. Every person’s microbiome is unique, like a fingerprint, and there is hope that AI can help uncover some of its secrets.

Corporations like Cargill are leveraging AI to combat deforestation and support transparency.There are also signs that food companies are looking to AI to tweak the nutritional profile of mainstream categories, including indulgent products such as sweets and snacks.

“But beyond the hype and some attention-grabbing initiatives, AI holds promise to become a critical accelerator in transforming a global food system that is under pressure to change,” says Buech.

Environmental protection
AI can play a crucial role in helping food companies achieve their environmental, social and governance objectives by allowing them to reduce energy consumption and harmful emissions proactively.

We have seen how Cargill, for example, has bolstered its efforts to protect forests by leveraging satellite-powered risk monitoring capabilities across its soy, palm oil and cocoa supply chains. The food corporation utilizes Satelligence’s AI technology to progress toward deforestation-free supply chains by 2030.

By Joshua Poole