Key survey findings at a glance:
- Agriculture business leaders rank consequences of COVID-19 as the top risk to business growth, followed by economic uncertainty
- Confidence in global growth is significantly lower for business leaders in this sector. 60% of business leaders believe that global growth will decline in 2021, and only 12% are confident in their own organisation's ability to grow revenue.
- Digital capabilities are a weakness of agriculture leaders and an area they are considering strengthening in the next 12 months
- 72% of agriculture leaders plan to improve operational efficiency, with 72% re-assessing their supply chain to source closer to home.
There’s no doubt that the agriculture, food, and beverage industries felt the impact of COVID-19. Nor that the effects continue to weigh heavily on the minds of leaders across the globe. From reports of dairy farmers dumping milk to a volatile commodity market, the uncertainty left many in and outside of the industry alarmed. However, the pandemic also exposed the public to these issues. When supermarket shelves ran bare, and restaurants closed, consumers started asking where their food comes from. Moreover, as agriculture leaders look towards diversifying income streams or adding new products, the direct to consumer (D2C) market can provide opportunities. To learn how the pandemic affected producers and processors in 2020, along with their outlook for 2021, we surveyed global business leaders as part of HLB's Survey of Business Leaders. We asked questions relating to overall confidence levels and the concerns they had moving forward. Furthermore, we looked for insights to learn how innovation and increased digital capabilities could affect agriculturalists in the coming year, not only on finances and the labour pool but also on trade relations and climate concerns. We found that although agricultural business leaders are less confident in growth prospects over the next twelve months, the majority aim to get new products to the market while improving operational efficiencies to make up the gap.
Top concerns for agriculture industry leaders
60% of survey respondents expect a decline in the rate of global economic growth over the next twelve months, suggesting that a downturn for the agricultural industry is expected. However, the pessimism is understandable when looking at the severity and reach of the impact. For example, early in the pandemic, many industries were hit hard by closures to hospitality businesses and schools while also suffering from closures at the borders. Although business leaders had a supply of products, their typical buyers were not purchasing. Schools no longer required large shipments of milk for children. Restaurants didn’t need bulk-packaged products. Unfortunately, factories were not equipped to transform bulk food products for sale into consumer-sized goods. The time and resources required to reimagine food production and delivery were not there. This problem only got worse as shutdowns continued because, especially in the hospitality industry, a lack of customers buying food products outside of their homes means fewer orders from suppliers, and those vendors didn’t need as much produce from farmers. Moreover, as trade commodities turned volatile and prices dropped, producers who already face low margins felt the pinch. The agriculture industry took hit after hit with bottlenecks at ports due to COVID-restrictions and increasing concerns about imported products. Even the cost of biofuel prices fell, leaving little left for farmers to put in their pockets. Overall, agricultural leaders express more concern about 2021's prospects. 33% say they're not confident in their company’s ability to grow revenue over the next twelve months compared to 24% of global business leaders.
The challenge of international trade and exchange rates
The effects of 2020 show up clearly in survey responses, with 58% reporting concerns about international trade flow disruption, which is higher than the global average of 49%. Another 54% cite concerns over exchange rate volatility versus 40% in the global sector. With the agricultural industry covering such a wide swath of niche sectors, what impacts a ginseng grower selling to its biggest market in China may not affect a grain producer exporting to multiple locations. Yet, the concern over international trade flow disruption is vital to note. Both the US and UK recently saw significant changes that could affect global trade. Many experts don’t expect an immediate impact from the new administration for the US, and it’s unclear if trade relations with China will remain unstable. While it’s possible a reduction in tariffs could help the American agriculture industry, it’s simply too early to tell how policy changes will directly affect producers. In the UK, Brexit is a source of concern for European business leaders. Cross-border transactions are not as seamless as they once were, and things haven’t been ironed yet, leaving much uncertainty about the future impact. For agriculture leaders in other parts of the world, the concern is over a shift to local products, resulting in fewer export buyers. Since the pandemic highlighted supply chain problems, many countries have made a push to produce and manufacture more products closer to home. Still, this solution is not immediate and will take some time to fund and ramp up operations. Until then, countries will continue to import much-needed supplies and products. In the meantime, the question is if consumers will continue to shop globally or if they also will seek out local products to replace those that they couldn’t get during the pandemic. As to exchange rate volatility, in nearly all countries, agricultural producers, such as farmers, are older than the population at large. Although traditionally, agriculture leaders are more fiscally conservative, they haven’t worked within the global trade market as long as leaders in other fields. This unfamiliarity with the technology and a lack of desire to hedge bets against future contracts means they’re less likely to go online to manage their exchange rate risk. Click here to learn more.