AGRIFOOD

Agrifood is a highly integrated value chain, ranging from farming to food processing, including both alcoholic and non-alcoholic beverages. The industry's worldwide sales amounted to USD6.6trn, up +0.5% in 2020 vs. 2019, with emerging countries' exports on the rise and accounting for over one third of the world's total. Agrifood manufacturing is set to occupy an important position in the agenda for the decades ahead as the challenge remains to meet global demand, together with the powerful downstream (food) retail sector. Historically, agrifood has hardly suffered from any sudden jump in uncertainty because of steady consumption, driven by the rise in the global population as well as disposable income. Moreover, after two lean years, agriculture has started benefiting from the recovery in food commodity prices, especially cereals with a +19% rise m/m at end-December 2020. However, new trends are shifting how the agrifood sector functions, and where the strategic priorities lay. Across the agriculture segment, digital technology applications help address market failures and facilitate the integration of farmers in value chains by driving down information and transaction costs. Consumer preferences are also moving towards more local products, putting a strain on food makers, as they need to invest in new product lines. Furthermore, downstream packaged-food companies keep on struggling with limited pricing power and the surge in transport costs that retailing outlets adamantly refuse to take as their charge, while the online distribution channel is gaining popularity among final consumers at the same time. In addition, the sector also has to consider how climate change may weigh on crop yields as pressures on land and water are not fading away.  

The Covid-19 outbreak  has disrupted the steady growth of global trade and put agrifood supply chains under strain, notably across the beverage segment. Nevertheless, the fallout on the agrifood sector as a whole should remain measured, reaffirmed by the sound financial performances lately published by large agrifood manufacturers such as Nestlé and Danone. The sanitary crisis has had a dual impact on the industry: Online food deliveries are skyrocketing whereas the sector is grappling with the shutdown of restaurants and cafes. Yet agrifood players are eventually confident in the upcoming fallout of pent-up demand, especially for beverages. The US market size, estimated at around USD1trn last year, could enjoy a compound annual growth rate of more than +3% as of next year. From another standpoint, the agriculture subsector has presented unique challenges for preventing and controlling the spread of Covid-19 due to the nature of its activities. Sales of soft drinks have increased during this period, along with groceries that remain a government priority to secure food safety at national levels. Notably, the emerging patterns seem to reinforce existing trends, such as a rise in demand for local food, shorter supply chains and online food sales. As agrifood players keep addressing the trade-off between efficiency and resilience to the economic slowdown, they may pursue a process of reshoring food-processing activities for food and beverage products that allow it.