8 Ways 2020 Will Affect 2021 in Global Agribusiness
5 December 2020 Most of us would like to forget 2020 as the pandemic continues to sow uncertainty into labor, supply chains, local economies, and global trade. As intermittent lockdowns continue to be a reality in major cities — disrupting the flow of people, goods, and services — it’s easy to spend each day managing crisis. But it’s important to force some perspective on a changing world to understand what parts of business will normalize in 2021 and which parts might be changed forever. Here’s our take:
Supply/Demand Dynamics
Supply and capacity is out of balance with demand for crop protection products, further commoditizing key AIs and eroding prices and margins for manufacturers, trading companies, and distributors. This oversupply has been prevalent for several years, and it has been exacerbated by the pandemic as countries incentive the restarting of manufacturing infrastructure to revive sputtering economies and export GDP. Supply channels are stocked to the brim, and uncertainties surrounding labor availability and logistics has encouraged additional stockpiling of products around the world. The result is less opportunistic buying and selling. Many manufacturers report a positive 2020, but loaded inventories combined with uncertain production shifts to home-based consumption will upset seasonal buying patterns in 2021. Companies will need to work on longer lead times with less predictability in demand cycles.
Backward Integration and Strategic Sourcing
An ongoing issue to bring more predictability in supply chains, companies have been seeking business relationships that prioritize transparency, reliability, shared risk, and ease of doing business over price-based transactional relationships. This new paradigm encourages companies to share strategic growth plans and operational details to ensure companies are working with partners who share goals and culture. Some supply chains must still do business with low-cost providers where no other options exists, especially for raw materials needed to originate AIs, but companies are examining logistics, labor, licensing, import/export regulations, and rules of origin to help create more predictability in the make-to-market paradigm. This decentralization of business partners will continue as companies try to insulate their supply chains from over-reliance on any one company, country, or continent.
Trade and Tariffs
The biggest barrier to free trade is tariffs. The trade conflict with the US and China has manifested with surcharges on various chemistries, further encouraging the stockpiling of products to avoid price increases that are passed along in the channel. China’s border tensions with India have impacted trade and logistics between two prominent manufacturing countries, exposing supply chain fragility of raw materials that constitute molecule origination. These notable disputes are the tip of the iceberg: 32 ongoing complaints are being considered by the WTO for agricultural products, and these grievances could escalate as nations work to bolster their national economies. A total of 19 formal complaints were filed with the WTO in 2019. So far in 2020 there have been 3, indicating a pause in the formal complaint structure as countries deal with coronavirus and reassess priorities. A possible backlog could further disrupt trade transparency.
Biological Products, Fertilizers, and Soil Health
Specialty segments continue to grow at a double-digit CAGR as production systems evolve to use fewer chemistries, retain access to key export markets (EU), and earn certifications that consumers increasingly prioritize. Use of biological pesticides, biological stimulants, and biological fertilizers are experiencing a wider scale growth and adoption as more research focuses on soil health, the plant microbiome, and ways to reduce abiotic and biotic stressors. Consolidation in these segments will continue as traditional chemical companies supplement their portfolios with softer options. Consumer demand, regulatory changes, worker safety, and environmental stewardship are all driving heightened understanding and adoption of these products at the farm level. Notable acquisitions have legitimized these product categories, most recently in biostimulant segment with Syngenta buying Valagro and AMVAC purchasing Agrinos.
Sustainability
The ongoing balance of people, planet, and profit has become a key issue for companies as consumers continue to demand socially responsible products and more transparency in production so they can evaluate options. Initiatives include improvements in soil health, on-farm productivity, food security, farmer prosperity, climate action including carbon sequestration, water stewardship, biodiversity, supply chain transparency, worker safety, gender equality, nutrition, and food safety. This is an important initiative as companies market directly to consumers, who have increasingly become more engaged with how their food is produced and the social implications of the companies they support. Many multinational companies have embraced the UN Sustainability Goals, many of which have definitive benchmarks to reach by 2030.
Precision Application
Imagery, automation, and robotics are finally merging into useful applications that will significantly change application frequency and volumes. A couple notable examples are AMVAC’s SIMPAS system, Rantizo, and Poladrone’s precision palm spraying initiative, all of which are commercialized. Other technologies still in development — Blue River/Deere, Bilbery, WeedIt — represent additional technological evolutions at scale. Labor uncertainty as a result of quarantines, border closures, and sick workers will accelerate adoption of automation in factories and fields as companies insulate operations from labor disruptions.
Regulatory Challenges
Many active substances are being scrutinized on a global level as hazard-based regulatory system led by the EU tighten restrictions on agronomic tools. The EU had been the largest pesticide market in the world until 2009, when it was surpassed by Asia, and then LATAM in 2013. The market is expected to be flat in value terms, but volumes are down and will continue to decline under its new Farm to Fork Initiative, which outlines sustainability goals aimed to reduce pesticide use by 50% by 2030 and curb the use of mineral fertilizers by 20%. Currently about 72 pesticides are banned in Europe that are approved in the US. Other countries are following suit. Brazil has banned 17 chemistries that are legal in the US, and China has restricted 11. Most immediately: organophosphates (chorpyrifos), neonicotinoids, glyphosate, and paraquat are in various forms of restrictions in key agriculture markets around the world. Mexico is currently banning the import of glyphosate and its precursors, and other countries (Thailand, Vietnam) have put a framework in place to phase out the world’s most widely used pesticide.
Consolidation
Every recession brings bankruptcies. More than 225,000 businesses failed in the US alone between 2008-2010, led by notable financial and insurance institutions. Publishers, utilities, chemical companies and farmers large and small were also forced to close because they were over-leveraged. The same scenario is playing out today as liquidity becomes paramount to longevity. The first notable casualty hit headlines in September when TerrAvion, a market leader in imagery and data management, filed for Chapter 11 bankruptcy protection and ceased all operations. This will usher in a flurry of M&A activity a cash-strapped companies unload assets to continue operation or pay off financiers. This will happen at every level from manufacturers to farmers. Farmers, specifically, are facing a reckoning as the cost of production has been rising steadily while deflated commodity prices and shifting demand put extreme pressure on profitability. This will go far beyond the retail apocalypse and casual dining shakeout that is currently playing out as consumers reset spending priorities. We will continue to see consolidation in the Chinese supplier community.
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