Keep an Eye on These Global Ag Supply Trends in 2021 and Beyond
Just a little over a year ago, in a very different world, we shared a stage at Meister Media’s PrecisionAg VISION Conference unaware that just miles from us in Seattle, WA, the very first case of COVID-19 in the U.S. was about to erupt. Soon to be upended were most if not all predictions for the global crop inputs industry in 2020, so marked was the entire year by the black-swan event of the coronavirus.
What is in store for the months just ahead — year two of the pandemic? There is a saying that anyone can predict the future, just not always accurately. Still, we feel with confidence the agricultural supply chain will be shaped by the following events. Ask us a year from now if this all came true!
But first, there is simply no way of getting around it: COVID-19, with its uneven vaccination rollout and evolving mutations, will continue to cast a pall over much of global agribusiness in 2021. At least until the middle of this year and maybe longer, face-to-face dealmaking and salesmanship — so critical to all businesses but especially in a “belly to belly” industry such as ours — will be hindered at least somewhat by starkly reduced travel. The poor service and reliability in global shipping lamented in 2020 could extend into 2021, continuing to dampen the global economy. The outlook for ag labor is likely to remain mixed, especially with occupations in agriculture and food remaining those more at risk for COVID-19 (most notably in California). And political instability and violence — even in otherwise stable nations such as the U.S., the U.K., and France — seem to be the most severe since possibly the late 1960s.
Many Upsides for Agribusiness
Yet for businesses with a strong hand, there is distinct opportunity both near and longer term.
Consolidation continues as sellers look to exit the market after two consecutive weak ag years and a seven-year down cycle for commodities. For prospective buyers seeking cash to make acquisitions, the current low-interest environment globally means the “cost of money” is low. Also likely benefiting many businesses will be the continuing softness of the U.S. dollar (as of this writing the dollar index is at 91, down 9% from last May).
After we all watched the food supply chain get profoundly rocked in 2020 — leading to empty grocery shelves, diversion of produce and foodstuffs from foodservice to home use, and wholesale dumping of farm products that could not be repurposed quickly — will the food-consumer-at-home phenomenon of 2020 continue into 2021? Early signs are promising for at least a return to more predictability. In December 2020, both restaurant purchases and grocery store/supermarket purchases in the U.S. showed identical year-over-year increases of 3.9%, suggesting a restabilizing of the distribution system.
Meanwhile, a food system may be emerging that fully embraces a consumer-focused mandate that already was in the making, especially as the Millennium generation comes of age as the single largest generational cohort of adults in the world comprising 23% of the global population. Non-GMO and organic foods, for instance, are likely to be further rewarded in the marketplace after another year of sales growth (e.g., sales of organic produce rose more than 14% in 2020). Interest in locally grown, “farm-to-fork” food continues unabated, leading to more decentralization of agricultural production. Other factors such as traceability, food waste, carbon footprint, recycling, and a commitment to vegan diets are top of mind for a greater share of consumers as they make their food-buying choices.
Food prices are expected to continue going up, certainly — in the U.S., for instance, 1%-2% for food-at-home and 2-3% for food-away-from-home; however, across all food categories these increases will be at or near 20-year historical averages. Also consider that the wealthiest and fully employed among us not only have weathered the economic impacts of the pandemic but actually benefited from it somewhat financially, simply by working from home and saving money otherwise spent on vacations, dining out, etc. Combined with progressively improving economies even amid stubbornly heightened unemployment, beginning in late 2021 or 2022 there could be a jump in disposable income in many parts of the world. In the U.S., for instance, per capita disposable income is anticipated to increase at an annualized rate of 1.2% over the five years to 2025. After pent-up demand for the good things in life, food may be among the primary beneficiaries.
At the same time, interest in fighting climate change — eased momentarily by the grounding of planes and the garaging of cars during the pandemic, but fretted over by many stay-at-home workers who “doom scrolled” through news of Australian wildfires and melting glaciers during the annus horribilis of 2020 — will pick up speed. General Motors’ commitment to go all-electric by 2035 is likely to lead to more such earthshaking announcements. The movement to fight climate change is anticipated to have dramatic effects in agriculture, where carbon sequestration and nitrogen fixation technology holds great potential. Look for much more discussion in these areas, especially as the U.S. rejoins the Paris Accord, the environmentally minded Democratic Party takes power in Washington, DC, and the idea of a global “Green Deal” continues to take root. Agriculture increasingly will be seen as part of the solution rather than a problem!
Perhaps the best story of all is that technology continues to drive important areas like productivity, e-commerce, and new business models. If there is one thing we have learned through the pandemic and the astonishingly fast development of successful coronavirus vaccines, it is that technology, well focused and quickly mobilized, can move mountains.
Keeping an Eye on Global Change — Especially in China
Of course, the picture is not all rosy, especially in the shorter term. Global government debt is at an all-time high as nations around the world attempt to stimulate their pandemic-stricken economies. Oil prices have rebounded and stabilized between $40-$50+ per barrel, with the potential to cut into already razor-thin margins at the farmer level. The stock market is volatile, leading many to believe the bubble may burst, at least mildly. Businesses weakened by the pandemic will look to reduce cost or gain economies of scale. And then, of course, geopolitical uncertainty continues — rarely a positive thing in a sector as global as agribusiness.
As ever, many eyes in 2021 will be on China. Having stared down the now-departed U.S. President Donald Trump’s trade war and emerged even stronger, China has renewed confidence in its race with the U.S. to global domination. The nation’s insatiable appetite for corn and soy continues unabated, which is almost always good news for international agribusiness.
At the same time the agrochemical sector within China continues to strengthen. An estimated 30% of ag-chem manufacturing companies have vanished there in the wake of higher environmental and safety standards. More consolidation has occurred, and many companies have built multi-manufacturing sites to mitigate risk, usually doubling or even tripling their original capacities. New process technology is driving cost reductions, and new manufacturing sites located mostly in national or provincial chemical industry parks receive cost-competitive waste-treatment facilities and utilities including electricity and steam.
Will India, which of late has been able to close the gap with China, continue to keep apace? The safe bet is probably on China.
How will the new administration in the U.S. along with the rest of the West react to an increasingly powerful China? Odds are good they will not be as confrontational as Trump was, which will at least bring some calm and a bit more certainty to the global economy.
What about Russia? Will the recent protests against Vladimir Putin be fleeting or part of a longer-term trend? We saw under Mikhail Gorbachev how quickly that nation and region can change.
Add it all up and one message seems clear for 2021: This will be a year of continuing challenges and changes that we will need to master. In order to compete as both technology and customer needs evolve, all of us, based on our own individual business models, will need to adapt both for the short term and the long term — and change even more rapidly than most of us likely expected (or perhaps even wanted).
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