Overcoming the Challenges, Maximising the Opportunities
The paradigm is shifting once again for global agribusiness. After almost a decade of euphoric growth, with soaring prices and buoyant demand for agri-food commodities, the last couple of years have seen economic conditions more reminiscent of the period before the mid-2000s – a return to more heavily supplied markets, more cautious consumption forecasts, and hence typically lower prices.
An atypical run of favourable weather conditions in successive years in the majority of the world’s main growing areas has brought crop prices down from the record highs of the recent past, while two vital engines of agri-food demand growth – in China and Russia – have been muted by a slowing economy and geo-political tension respectively.
But the agribusiness sector retains plenty of potential for profitable growth and development. The new economic conditions have placed a renewed premium on efficiency, innovation and creativity.
Moreover, the underlying fundamentals remain unchanged – an expanding global population and an increasingly Westernised diet in emerging economies, and growing public interest in healthy food, produced in a resource-efficient way, in developed countries. All of these factors offer plenty of opportunities for those savvy enough to recognise and seize them.
The sub-title of this year’s review – Overcoming the Challenges, Maximising the Opportunities – sums up the ambiguity of the situation for global agribusiness.
Certainly in the short-term, the challenges are rather more obvious than the opportunities. The correlation between oil prices and agricultural commodity prices has been well documented by agricultural economists, and the low fuel prices prevalent through most of 2015, and forecast to remain into 2016, are having a range of impacts on agriculture.
In particular, lower oil prices tend to dampen demand for biofuels, and hence for their main agricultural feedstocks, corn (maize) and sugar. This is weighing on global crop prices across the board, although a downturn in sugar production in 2015-16 has actually lifted prices for that commodity after several seasons in the doldrums.
One of the key driving forces behind the boom years of the late 2000s was super-charged demand from China for all manner of commodities, including agricultural and food goods. China will continue to be a major importer of many agricultural commodities (and a significant exporter of others), and its economy continues to grow at a rate which would be the envy of most developed economies – but the rate of growth has slowed significantly in the last year or so, and this has taken much of the heat out of international markets for key agricultural products, dairy being a notable example.
The slowdown in the agricultural economy, and the accompanying lower crop prices, have inevitably had a knock-on effect in the agricultural inputs sector. The major producers of seed and crop protection products, who had recorded several straight years of impressive profit growth, are looking at rather more sober figures for 2015, and this is fueling speculation that a renewed round of takeovers, mergers and similar restructuring initiatives might be on the cards in 2016.
The same reduced buying power among farmer clients is also affecting the fertilizer business, although significantly lower gas prices are also tending to make fertilizer more affordable, especially in the United States.
Meanwhile, agriculture and food continues to be one of the most heavily regulated economic sectors, at all stages of the food value chain. Governments’ attitudes to food production have a significant impact, whether it be decisions on whether or not to permit certain types of production system, or discussions over how much money to channel into supporting farmers’ incomes. According to the Organisation for Economic Cooperation and Development (OECD), the world’s 49 main developed and emerging economy countries spent an combined annual average of US$601 billion on agricultural support in the years 2012-14 – and in 2015 the corresponding amount is likely to be rather above that average figure.
But at least in the area of trade policy there are liberalizing initiatives afoot, albeit in the form of bilateral and regional agreements between groups of countries rather than at multilateral level. A key development in 2015 was the conclusion of the Trans-Pacific Partnership (TPP) trade deal between 12 Pacific Rim nations, a deal which may yet be eclipsed in terms of its size and economic importance by the Transatlantic Trade and Investment Partnership (TTIP) which the EU and US are hoping to conclude in 2016.
In the meantime, every part of the agrifood chain is facing its own specific challenges – and in many cases, the opportunities lie in finding solutions to these challenges.
That age-old adversary of farmers worldwide, the weather, appears to be becoming increasingly capricious as the global climate changes. In 2015/16, for example, the El Niño phenomenon is affecting the Pacific Rim countries and looks set to impact supplies of commodities as diverse as sugar cane and pineapple juice.
Responses to the climate challenge are many and varied; from research on drought-resistant strains of staple crops, to the cultivation of biomass as a lower-carbon source of energy, to the slow but steady development of hydroponic agriculture, which offers a nutrient-controlled soil-free environment in which to grow (primarily) fruits and vegetables.
The food industry faces growing societal demands to be a provider of nutrition and public health as much as a supplier of consumer goods. With obesity becoming an increasing acute public health issue in wealthier countries, the finger is being pointed not just at ‘indulgence’ foods, but also at commodities like sugar and orange juice. Some dairy and meat products also stand accused of being ‘unhealthy’.
But the biggest longer-term challenge remains an arithmetically simple one; by 2050 there will be nearly 2 billion more humans on earth than there are at present, and they will all need to be fed in a world which has very limited reserves of additional farmland, and where weather patterns are becoming less predictable.
Perhaps just in time, the world’s governments are rediscovering the critical importance of agricultural research and development in addressing these problems. Investments need to be made in improving soil fertility, in combating crop disease, and in increasing yields, whether through conventional means or through manipulation of crops’ genetic material. The latter technology is now commonplace throughout North and South America but still treated with great suspicion, or banned outright, in many parts of Europe, Asia and Africa – a state of affairs which ably illustrates the problems which still have to be overcome before a genuinely global food market can be created.
All of these issues, and many others, are addressed in this Annual – a (possibly) unique overview of the state of global agribusiness at the end of 2015 and running into 2016.
Drawing on the expertise of Informa’s multinational and multi-disciplinary Agribusiness Intelligence division, it offers an informed perspective on the different parts of the agrifood chain, from agricultural inputs to the finished products, taking in agricultural policies and an assessment of farmland prices en route.
Informa Agribusiness Intelligence