Agrifood

High farming prices and labor shortages hurt food-makers’ profitability

Medium RISK for entreprises

Fragmentation
Internationalization
Capital Intensity
Profitability

Fragmentation
Internationalization
Capital Intensity
Profitability

Farming upstream segment enjoys high selling prices
Strategic sector usually supported by state aid in any case of social uprising risk
Agrifood demand fueled by Asia’s new middle class and larger disposable incomes
Resilience to periods of supply-chain disruptions as the global vaccination campaign expands
Rising demand in the market niche of organic food and responsible farming principles

Fierce price competition among food-makers in mass retailing
Environmental concerns related to the heavy use of pesticides and water, on top of the necessity to reduce upstream greenhouse gas emissions.
Labor shortages in the beverage segment, especially across Western Europe.
Food processing companies’ limited pricing power against wholesalers and retailers.
Food safety related to changing food supply/demand dynamics locally and globally.

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What to watch ?

Recovery in beverage sales following the reopening of restaurants and pubs where vaccination campaigns are well underway.
Likelihood of social unrest in major wheat-importing countries should its price soar again.
Harsh negotiations between manufacturers and mass food retailers in regards to the current campaign of agrifood product referencing.
Resumption of trade feuds between Europe, the Americas and Asia over agrifood tariffs.
Climate change fallout on crop harvests in the long term.

Agrifood is a highly integrated value chain, ranging from upstream farming to food processing downstream, including both alcoholic and non-alcoholic beverages. Agrifood manufacturing is set to occupy an important position in the agenda for the decades ahead as the challenge remains to meet global demand amid supply-chain bottlenecks, as well as content 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. After three poor years, agriculture has been benefiting from the recovery in food commodity prices, notably in cereals and oilseeds. However, new trends are shifting how the agrifood sector functions, and where the strategic priorities lay. Consumer preferences are moving towards more local products, putting a strain on food-makers as they need to address labor shortages, especially across Europe. 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.

Ongoing lockdowns implemented to stop the spread of omicron have put agrifood supply chains under strain, notably across the (alcoholic) beverage segment. Nevertheless, the fallout on the agrifood sector as a whole should remain under control. Neither high (food) input prices nor labor shortages should add to inflationary pressures downstream until the end of 2022 as the largest food retailers will not let that happen.

The Covid-19 crisis has actually had a dual impact on the industry: Online food delivery has been skyrocketing whereas the sector is grappling with the hardship of out-of-home food services. Yet, agrifood players remain confident in the positive effects of released pent-up demand. As agrifood players continue to address the trade-off between efficiency and resilience to economic ebbs, they seek to reshore food-processing activities for food and beverage products that allow it.

Upstream: High global commodity food prices benefit players in the farming segment but raise risks of social unrest across major food commodity-importing countries.

Downstream: Pressures on the uptrend for food processors to address labor shortages and comply with tighter rules for food safety.

Beverages: Market segment enjoying strong financial results due to the concentration of its players and its market positioning as a luxury product.