Insights | Blog
What’s in Store for US Agribusiness in 2013?
The 2013 US agribusiness outlook was turned upside down two weeks ago, when the Cinderella story of the past year, “2012 Draught Recovery,” turned into a tale encompassing too much of a good thing with excessive precipitation and cold weather. Farmers are now in a holding pattern as rain and cold temperatures continue, and will have to move fast to get their crops in the ground if they want a chance at growing a successful 2013 crop.
The US economy in general seems to be sputtering as concerns rise over Eurozone economic in-stability, North Korea threatens the world with nuclear bomb testing, and China’s economic growth stalls. Yet, for Agribusiness, it is another dynamic that is continuing to fuel the greatest cause for concern: industry growth; with such growth over the past decade now posing new risks for US agribusiness. Indeed, industry leaders are facing emergent risks due to globalization, a shift in retailer purchasing power, immigration reform, foreign government policies, and environmental pressures.
Challenges and Realities
Over the past 10 years, US agribusiness has grown due to globalization and the growth of emerging markets. Standards of living have increased and consumer preferences are changing daily as populations across the world aspire to live the lifestyle and consume the diet of western culture. As a result, fast food chains, supermarkets, and food producers are all focused on fulfilling new global demand. The million dollar question this then begs? Can US agribusiness keep up with the pace of change in global tastes while mitigating the risks associated with skyrocketing obesity and coronary disease in countries that have adopted the high fat-high sugar western diet.
Another challenge for US agribusiness is that the table has turned on who has the power in the retail market. For years, agribusiness has been able to dictate what products appeared on retail shelves, sell price, and other key business terms. Now the power resides with retailers due to the growth of mega retailers like Wal-Mart, and market consolidation. Retailers have used their power to drive down prices, enforce long term fixed price contracts, extended payment terms, increase discounts and vendor charge backs, and implement consignment/scan based/vendor managed inventory stocking plans. Many producers have already landed up in financial ruin due to this extreme shift in power, and there is a risk that there will be more producer failures in the future if the pendulum of power doesn’t swing back to center soon.
Moreover, changes in the federal immigration law could have a significant impact on US agribusiness, with approximately twenty-five percent of employees working in agriculture estimated to be illegal immigrants. Agribusiness leaders and the general population should pay close attention to the proposed immigration reform and potential enforcement of e-verification at the federal level. If immigration reform does not carve out a solution for the existing illegal immigrants working in the industry prior to a federal e-verification mandate, then crops will rot in the fields, meat will spoil prior to being butchered and food service companies will fall into financial hardship due to what would be a labor shortage of epic proportions.
Finally, overseas governmental policies and environmental pressures are impacting US agribusiness. Numerous governments are enforcing price caps in order to be competitive in export markets with locally produced food products. These price caps are artificially dragging down global food prices, and reducing the un-subsidized growers ability to turn a profit as production costs continue to increase. Environmental pressures are rising in countries like China and Africa, where desertification is occurring at a brisk pace due to poor agricultural management, deforestation, and overgrazing. Similar environmental pressures are rising in the US as forests and farmlands are being disrupted due to shale fracking for crude oil, and natural gas exploration. US agribusiness needs to pay close attention to export markets price fixing, production costs, and the preservation of our precious land.
As 2013 continues there is much to keep an eye including how the industry adapts and responds to far-ranging and worldwide market pressures and realities and, as always, Mother Nature.