7 Key Forces Driving the Global Crop Inputs Industry in 2022
Last year at this time we made a number of what have turned out to be accurate predictions for 2021 – including the unfortunate continuation of COVID-19, unreliability in global shipping, labor shortages, and a rebalancing of food distribution between at-home and away-from-home.
Looking ahead now to 2022, here are what we see as the seven key forces that will drive the crop inputs industry.
1. COVID. Let’s get the elephant in the room out of the way first. We’ve got probably the better part of one more year of the pandemic ahead of us, at least, with a continuation of all the struggles this suggests. At times like these it’s helpful to note that some sources place the end of the so-called Spanish Flu Pandemic at 1920 rather than 1918 or 1919 – so, a three-year pandemic rather than just one. With coronavirus going on its third year we may not be quite out of the woods just yet, but when the CEO of Pfizer says he foresees a “return to normal life” sometime in the Northern Hemisphere spring, it gives us our first glimpse of a possible clearing ahead.
2. Product supply remains at risk. Rarely have we gotten a more brutal reminder of how global and interconnected the crop inputs business is than over the past six months. Nitrogen fertilizer, key herbicides, machinery – all these and more remain in spotty supply and prices are going up as a result. Energy costs remain high, especially in Europe, with a ripple effect all the way through raw materials, the cost of running factories, logistics, and application in the field. All of this is not an unmitigated bad. In the field, for instance, many farmers are taking a fresh look at possible replacement products like older herbicides, biostimulants, and biologicals. And technology – especially precision ag technology – continues to offer hope for more efficient distribution and application of farm inputs.
3. The supply chain also remains at risk. This factor is intrinsically tied to one factor above, and it is likely to continue for at least the next several months. Ongoing risks in moving products around the world, taken for granted not so long ago, include ocean freight bottlenecks and surging costs – and, yes, a continuously changing workplace . . .
4. Staff shortages and the war for talent. These interrelated factors reverberate all the way through agriculture from manufacturers through to retailers and distributors and on to farmers. As has been widely reported, a record 4.5 million workers left their jobs in November in the U.S. Surveys have found three in four workers in the UK could be looking for new jobs this year. At a minimum, younger workers in a range of nations including China, Japan, Germany, and the U.S. are rethinking their relationship to work. Managers pressed to hire workers are finding they must pay more and be more flexible to retain the ones they already have. The race will go to those who are quick, agile, and flexible in their hiring practices and truly – not just verbally – value and cultivate their workforce.
5. Global geopolitics casts a pall over just about everything. China and Taiwan. Russia and Ukraine. Changes in the Middle East as that region adjusts to shifting political competition among the U.S., China, Russia, and Europe. Political upheaval in traditionally stable countries like the U.S., the UK, and the big-three EU economies of Germany, France, and Italy. The pandemic alone would have been a major disruptor of how nations interact to buy, sell, and transport raw materials and finished products around the world. Add in increasing nationalism – along with what some have characterized as deglobalization – and trade of products, agricultural products included and perhaps especially, becomes both an important factor and a major bargaining chip in how nations fortify themselves in a changing world order. No matter what happens around the world, we as suppliers will be forced to adapt and change.
6. Environmental policies and sustainability grow. The shutdown and consolidation of Chinese pesticide factories in recent years for environmental reasons leaves a dent in supply (see #2 above) – which India, though lacking raw materials, is ramping up to replace – is a prime example of the challenging side of increasing global environmentalism. Yet there are upsides as well. Last year we talked about the ongoing increase in sales of organic produce – a trajectory that continued in 2021 just as we had anticipated. This trend is real, and commercial agriculture is embracing and indeed capitalizing on this trend at last. We also see huge opportunity for agriculture on the production side. Soil health offers a huge opportunity for agriculture in two key areas: by reducing the use (and cost) of nitrogen through increased use of biostimulants and other naturally derived compounds capable of fixing nitrogen; and through participation in the emerging global market for carbon credits. Whether the latter comes to pass remains to be seen, but agriculture certainly needs to advocate strongly on its behalf.
7. Agriculture remains in a relatively strong position. Even with ongoing inflation in food prices – FAO’s food price index was at a 10-year high in 2021 – there is robust demand globally for ag products due in no small part to a low stocks-to-use ratio for the major commodity crops of corn, soybeans, and wheat. The gulf that emerged in food spending between consumption at home and consumption away from home at the beginning of the pandemic has returned to some semblance of normalcy, smoothing the supply chain for fresh and processed produce.
Brighter Days Ahead
Even with the challenges that continue to face us, on the whole we remain optimistic for the crop inputs industry. The pandemic has brought into sharp relief persistent problems – vulnerabilities in the global supply chain and growing discontent in the workforce among the more prominent – that otherwise might have been swept under the rug. With the painful clarity of the pandemic upon us, and hopefully soon past us, we all will be able to move on to rebuilding and refortifying our businesses by (among other things):
- Keeping an eye on major drivers of change and leading teams to adapt to the shifting global situation as quickly as possible. This is no time to stand on ceremony; “tradition” will have to take a back seat to exigency in many instances.
- Regularly communicating with – and rewarding – top performers will be important. Here a stitch in time saves nine. Top talent is usually the first to leave, and they’re not likely to provide a heads up before the letter of resignation slides across your desk.
- Adopting new technology – automating where possible to achieve productivity, hedging against a dependency on labor, and cutting costs.
- Embracing flexibility and ambiguity. These are uncertain times. Acknowledge it – to yourself, your customers, and your employees. It’s not likely to last forever.
The thing about cloudy skies is that there is always a developing weather system that will push them away. It’s been a difficult two years, but we see days beginning to brighten in 2022.
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