Five Trends and their Implications on a Agricultural Business

“As markets shift, technology develops, and tastes changed, the agricultural sector must adapt. Co-ops need to find their place in the new world.” – Andrew Grant

The agricultural sector is changing as quickly as the world around it. Emerging markets are growing rapidly and have become major drivers of demand for food. Meanwhile, resource constraints are putting pressure on already fragile supply-demand equilibrium, new technologies are emerging, and consumers in developed markets are taking a more active role in deciding what the industry produces. A more fundamental shift is redefining the industry to, and propelling it into a new era: commodity prices, which had long been dormant, have soared over the past several years. This is generating new interest in agriculture from a wider range of stakeholders and is moving food production higher on the agenda for governments regardless of their stage of development. To remain relevant to their members, agricultural cooperatives will need to quickly grasp and respond to these emerging trends. This article provides our perspective on five major forces shaping the future of agriculture and presents five key questions cooperatives should ask as they plan.

Five major forces will shape the agriculture sector over the next decade.

Feeding The Planet: The Productivity Imperative

Over the past ten years, food prices, which had been decreasing for several decades, began to increase. By all indications, this trend will not abate over the coming decade. As demand continues to grow and supply tightens, emerging markets will exert the greatest influence on global food demand. These countries will drive 90% of the world's population growth. With China and India, contributing 35% of it. As economic growth in emerging markets pulls an increasing proportion of their populations up in to the middle class, per capita consumption will increase at a rate more than three times that of the developed world. These new consumers' entry in to the middle class will increase demand for more resource intensive foods, especially meat. Meanwhile, agricultural land productivity is decreasing - a problem that will be exacerbated by resource scarcity and climate-related issues. If the industry is to ease pressure on the supply demand curve and capture the opportunities presented by higher food prices, it will have to find new ways to address the productivity imperative.

The Rising Priority: Governments' Food Agenda

Food is increasingly part of the government agenda, especially in emerging markets, where two major food crises in the past four years have exposed the fragility of the food supply demand equilibrium. The factors that led to these crises including slowing food production, increased population growth, rising oil prices and adverse weather are still relevant today. Government leaders in these markets have elevated concerns about food security to the national level, pledging to increase agricultural production and allocating a fixed percentage of their national budgets to agriculture. Already, Tanzania has committed to a target of 9%, Ghana to 10%, and Ethiopia to 13%. Anxious to avoid the social upheaval wrought by previous crises, emerging nations are securing additional agricultural land outside their home countries. Over the past decade, governments and corporations from emerging countries represented six of the top ten land acquirers. Their targets, often-uncultivated lands, are in sub-Saharan Africa, East Asia, South Asia, and Latin America. Countries whose land are being acquired will likely seek to negotiate more stringent terms with land acquirers, guaranteeing right of first access to land output during leaner times. In addition, land acquirers, for their part, may discover that their foreign-acquisition strategies do not always translate in to improved food security. In developed countries, food is on the political agenda as well, but in a different way. Westerners increasingly want not only to select the ingredients and additives they consume but also to understand how their food is sourced. Consequently, governments will be asked to increase their focus on ensuring food quality, whether through regulations or supervising bodies. Corporations, in response, will defend their interests and lobby for lower regulatory costs. However, companies might also find that new regulations present new opportunities. For example, food-safety requirements may lead to profitable ventures that help satisfy consumers' interest in end-to-end traceability.

Farming: New Technologies, New Markets

As in many other industries, new technologies are transforming agriculture from a labour-intensive industry to a capital-intensive one. Advanced robotics has helped automate labour-intensive tasks (such as milking cows and driving farm equipment) so that farmers are now able to monitor the technology that executes those tasks and intervene only when problems occur. Sensors and analytics are also increasingly common. Sensors capture key data (for example, nutrients in the soil or crop temperatures during storage and transportation), and dedicated software platforms process and analyse the information. Better data equips the farmer for better decision-making. Moreover, these new analytical capabilities have further enabled the agricultural sector to adopt micro segmenting, a concept that can help farmers maximize performance. Micro segmenting breaks the land into smaller parcels for which a detailed analysis and corresponding course of action are then developed. Farmers are also operating in a business environment that is increasingly sophisticated and globalized. High volatility in commodity prices, often triggered by a variety of factors - including weather-related events and arise in protection its policies - have been especially challenging. We believe that not only will  commodity prices remain volatile for the foreseeable future, but also that this volatility will be amplified by speculative capital as commodities trading moves from futures markets in to products (such as exchange-traded funds) that encourage non-traditional participation, extending even to retail investors. To minimize operational impact and stabilize financial performance, farmers will need to develop gain access to new financial-risk management capabilities.

From Push To Pull: The Upheaval Of The Agriculture Value Chain

Until recently, producers were largely in control of what landed on consumers' plates. There was limited public information about products, food was sourced locally, and quality was important but not a primary concern. However, consumers, particularly in developed nations, have an increasingly strong say about the industry's production, and producers compete for their business. Consumers now have access to a seemingly unlimited amount of information about food and they are assertive about food quality and attributes, food's value for money, and food sourcing practices. The image of farmers peddling their products is no longer an accurate one. Increasingly, consumers ask for specific products and expect producers to adapt. In response, stakeholders throughout the food value chain will soon need to become much more consumer practical understanding. They will need to learn to distinguish between passing fads and permanent changes in consumer expectations.

Organic food may be still illustrating this point; the organic and natural segment has been the epicentre of the revolt in consumer tastes. Becoming more consumer savvy also suggests the ability to quickly deploy marketing and public relations capabilities to address consumer concerns (being able to react to food scares related to animal diseases in a timely manner, for example).

Big Agri: Getting Bigger

Farming is undergoing an important shift in ownership. More than 60% of people who own a farm are 60 or older; past the age when most people retire. With younger people increasingly reluctant to follow their parents’ example, the farming sector will see an acceleration of consolidation, further increasing the proportion of large farms. This shift will also enable the entry of two new classes of owners. The first new class of owners will be individual strategic investors and countries (primarily those that are emerging) looking to acquire foreign land to secure their national food supply. This second class of owners will be institutional investors and investment firms lured by the potential returns to be gained from increasingly scarce agricultural land and rising food prices. These new owners will likely have different priorities and requirements from those of traditional farmers. They will also have hard core negotiation power based on their economic strength.