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Beyond Carbon: Taking a Systems Approach to Sustainability

CONVERSATIONS IN CONTEXT

As agriculture and food industries strive to address climate change by reducing greenhouse gas emissions, organizations across food, fuel, and fiber supply chains are increasingly focused on carbon reductions as a key metric of success. Net-zero commitments supported by carbon-smart agriculture initiatives are gaining momentum in hopes of unlocking new value for farmers and corporations alike.

 

This collective energy galvanized around sustainability also creates a huge opportunity for agricultural players to now look beyond carbon by establishing goals that encompass a broader range of factors, including water, soil health, biodiversity, animal health and welfare, forest management, food security, human rights, and more.

 

Recently The Context Network Partners Matt Sutton-Vermeulen, Amanda Bushell, and Jason Nickerson met to discuss what it looks like when organizations widen the lens on sustainability by taking a systems approach. This article captures highlights of their conversation.

Sutton-Vermeulen: One of the reasons for the current focus on carbon is that it’s a quantifiable way to measure progress toward reducing emissions—and that’s vital for tackling the climate challenge. But as stewards of responsible supply chains, we can’t be so focused on carbon that we lose sight of the larger sustainability picture. That’s why a holistic systems approach can be powerful for organizations. It allows them to make decisions about carbon not just in the context of broader environmental, social, and economic impacts but also in accordance with how those decisions touch the lives and livelihoods of the people in those systems.

Bushell: Well, going back to the question of why everyone is focused on carbon, I’d argue that a big reason is because it’s a global issue with global  implications. Other impacts like water, soil health, biodiversity, or labor can be managed on a smaller scale—at the watershed or even farm level.  But you’re absolutely right that net zero doesn’t have to be a zero-sum game. Focusing on practices that are good for carbon can also be good for interrelated factors. For example, a recent report1 about crop insurance claims is eye-opening. In 2019, wet weather in the Midwest prevented planting on millions of acres and resulted in significant insurance claims. But researchers found that conservation practices like cover crops and no-till/reduced-till were linked to a 24% reduction in prevented-planting losses. This speaks to the fact that multiple factors—from carbon to water to soil health—are interrelated and have quantifiable impact on business, people, and the entire food system.

Sutton-Vermeulen:  That’s a great example because it shows a systems approach doesn’t necessarily mean adding more goals or overwhelming organizations that already feel the pressure of sustainability targets and commitments.  It’s about progress over perfection and understanding how progress in one area impacts other areas.

Nickerson: And how do you show progress? You’ve got to have quality data. It’s foundational for establishing credible baselines and measuring progress. Organizations need to have confidence in their data and operational systems that help them identify where they can have the biggest impact and how to do it most efficiently. Data also empowers people within an organization. If you’re asking someone to play a role in reducing your impacts, they need to understand—and, be part of—how the baseline was calculated and how progress is being measured, reported, and verified.

Bushell: I think the other piece of this is that some data and some interventions can and should be a competitive advantage for companies. But other interventions aimed at sustainability will require a collaborative, pre-competitive effort across supply chains, government, and NGOs. When we get to these nexus points, we’ll know because it will be impossible to answer certain questions on a company basis. They’ll need to be answered and addressed as an industry.

Sutton-Vermeulen: Right—and that’s where companies will need to bridge primary data from their own system with secondary data to fully understand how to engage with the larger community in the most impactful way possible. This is challenging many organizations as they shift from a project focus to a systems approach because significant gaps in the data require them to view progress over perfection. 

Bushell: That’s a key point, Matt. It’s not a theoretical exercise. It’s about real people on the ground using regenerative practices and seeing outcomes that enable them to support their families.

Sutton-Vermeulen: And we’re just scratching the surface. In North America, around two percent of farmers have experience in carbon programs. That’s how nascent this still is and how narrowly focused it’s been on one area of sustainability.

Nickerson: When we open up transparent discussions about the bottom line of multiple impacts—from economic to environmental to social—more people are involved, and there can be more value shared across the value chain. And while impacts around topics like water efficiency, biodiversity, and human rights may be hard to measure and attribute precisely, that shouldn’t stop food and ag companies—who are working from a sense of responsibility—from trying to improve them.

Bushell: Yes, transparency is important, and the market needs to be consistent too. For instance, the official federal estimate for the social cost of carbon is $51 a ton, and there’s talk of raising that to $190 a ton. When signals shift too drastically, it takes some time for the market to mature and respond to it.

Sutton-Vermeulen: I agree that part of the issue right now is that the market signals are weak. We don’t yet have a mature market where price discovery takes place and where downstream players can signal, for example, that they’re interested in carbon but also interested in biodiversity and water—and upstream players can respond. But that’s changing fast as government and investor organizations drive for higher accountability around multiple aspects of sustainability. The industry’s focus on carbon targets and commitments is absolutely part of this evolution toward a mature market. As we get there, we need a systems approach that keep our eyes on other impacts to people, economics, and other critical indicators. That’s what it takes to build confidence and pride in supply chains that are responsible and truly sustainable.

How do you weigh the benefits, costs, and responsibilities of pursuing ambitious sustainability targets on topics beyond carbon, such as water, biodiversity, and human rights? 

 

 

The Context Network Partners Matt Sutton-Vermeulen, Amanda Bushell, and Jason Nickerson bring decades of experience in driving continuous improvement in responsible food, fuel, and fiber supply chains, adding financial, environmental, and social value.  They help clients advance agriculture through a well-honed systems approach rooted in experience, tapping the breadth of Context’s dynamic network to consistently deliver actionable solutions tailored to each organization, its culture, its priorities and intended outcomes. To learn more, reach out to Matt, Amanda, or Jason.

1 Conservation and Crop Insurance Research Pilot – AGree: Transforming Food and Ag Policy

Market Sectors, Region, Services, Uncategorized

Business model innovation: Shared risk can lead to reward

Market dynamics are driving players across the agriculture value chain to explore new pathways for innovation. With an increasingly challenging environment for novel product development, companies are considering other innovative ways to differentiate their offering and garner loyalty, including new business models. In this environment, a business model built around risk-sharing warrants a closer look. Christian Guffy, Partner with The Context Network, shares his point of view.

Many of the product innovations that shaped modern row crop production as we know it—such as traited seed and mechanization—are widely adopted and have largely become table stakes. Product-driven companies are also finding that it’s no longer realistic to solely rely on a new product pipeline to outpace the commoditization of legacy products or to work around go-to-market challenges. While there are pockets of tremendous innovation to the industry, many pipelines are generally not as robust as they once were. Rising regulatory costs and timelines have played a role in slowing the pace at which new products are approved for the market. The average cost to commercialize a new synthetic chemistry product now exceeds $350M, based on historical growth of development costs documented in one study.[i] Another study in 2022 showed that the average time to bring a new GM trait to commercialization increased 26% between 2012 and 2022.[ii]  As a result, legacy crop input providers find themselves vying in an increasingly crowded marketplace, making it challenging to maximize the value of their products.

With this confluence of factors challenging and shifting product innovation in long-standing product categories such as chemistry and traits, the concept of engaging differently with customers has elevated in importance. While business model innovation can come in many forms, one of the most compelling approaches today is one in which companies participate in the the upside (returns) and downside (risks) with their customers.

In this article—the first in a series on risk mitigation—I will discuss the historic compartmentalization of risk and the potential benefits of relationships which seek to engage in risk sharing. In January, I’ll share strategies and considerations for risk sharing specific to the upstream market, including product-driven/input companies, retailers, and cooperatives. In subsequent articles, I’ll collaborate with Context colleagues to explore the possibilities and benefits of risk sharing throughout other segments of the value chain, including processing, distribution, and food production.

From segmented risk to integrated risk

Risk management isn’t new to agriculture and food production. Elements of risk have always permeated the sector—from the continuous risk of inclement weather that growers face, to the risk of ingredient scarcity that food companies aim to address when they negotiate supply contracts.

Yet, while every player in each component of the value chain bears business risks (and some of those risks, such as capital risk, are universal), these risks have historically been highly compartmentalized. Equipment, crop protection, crop nutrition, and seed companies, for example, shoulder the risk of inventing new products and pricing them right for profitability and ROI with growers. Retailers and distributors bear the risk of building infrastructure and hiring the labor needed to be the boots-on-the-ground with growers. They also have to manage the right level of inventory to deliver product just in time. Growers assume the risk of choosing which products to use for the season, coupled with heaps of execution risk centered on in-season production factors. Processors and traders carry their own set of significant fixed asset risks, along with market and trading risks which largely hinge on macro-demand factors. The list of relatively siloed risks goes on throughout the value chain.

Historically, risk is siloed across the value chain:

A traditional value capture model reinforces fragmented risk, as it is predicated on companies setting a price that is passed along to the next value chain participant, and the price is based on expected return on investment (ROI), not actual ROI. Once a product is purchased, all risk and potential reward shifts to the buyer. Said differently, if a product performs well, the buyer enjoys great outcomes. If a product doesn’t perform as expected, the buyer bears the consequences of the poor outcome. Likewise, if a product performs extremely well, the seller doesn’t financially benefit from the upside of that performance, as the price (and risk) was already passed along.

In the traditional value capture model we’re all familiar with, the market naturally adjusts product pricing over the long term. Growers won’t keep using consistently poor performing inputs, food brands won’t keep purchasing subpar ingredients, etc. However, in the short term, players in different segments of the value chain bear the swings in “fortune” of a historically volatile system, as weather events decimate crops or global conflict hobbles the commodity supply chain, for instance.

What if this paradigm changed? What would it mean to adopt an innovative business model in which companies choose to engage in certain risks with their customers and/or other downstream value chain participants? What would it mean if you choose not to engage?

In a risk sharing model, players purposefully assume some of the risk they would traditionally pass on to another segment of the value chain—with the goal of also sharing profit or savings in the event of success. It’s worth noting that the practice of risk sharing already exists within certain segments of the value chain. The grower cooperative system, for example, is functionally designed to ensure that individual growers will be somewhat insulated in scenarios where they might otherwise be at risk due to their negotiation power. Warranties are a form of risk mitigation as well. Risk sharing models are also familiar in other industries, like performance-based programs in healthcare, in which doctors receive a portion of their payment based on quality of care.

In addition to the market forces described earlier, another key factor enabling business innovation through risk sharing is the increasing abundance of agricultural data. The ongoing proliferation of data collection and analysis tools make it more feasible to accurately capture and more accurately attribute the value of product performance, though significant progress is still needed to bring this fully to life. Value attribution will ultimately be the key to linking specific product or practices to intended outcomes. This means pricing can be assessed based on actual ROI, a win for both parties over the long term.

Business model innovation based around risk sharing will have an increasingly profound impact in the food and agriculture industry. Several companies are actively engaged in piloting risk participation programs. Consider how a risk sharing strategy (or not pursuing one) aligns with your business goals and how it might impact your customer and supplier relationships.

Ask yourself:
    1. Which risks and which value chain partners will be most meaningful to engage with? For example, a product company may choose to engage in and growers in their execution risk.
    2. What band(s) of risk are you willing to engage in, and how will it affect your own credit position and cash flows? For example, reconciling product performance at harvest could push cash flows three to six (or more) months later for many input companies.
    3. What kind of value exchange mechanisms need to be crafted or leveraged? There are many mechanisms, such as performance guarantees, value-based contracts, cash-back programs, contract production, bonus triggers, etc.

At The Context Network, we’re helping organizations explore new business models and other innovation pathways to help them succeed. Through our deep business knowledge and broad network of experts, we can help you evaluate opportunities and craft strategies. To discuss what risk sharing could look like for your business, reach out to me at christian.guffy@contextnet.com.

 

Christian Guffy, Partner, brings experience in consulting, strategy development, and financial analysis in a variety of industries including agribusiness, investment finance, and retail. He has helped clients develop long term strategic plans as well as annual go to market strategies rooted in fundamental market analysis and research. He has also advised companies on corporate financial planning including capital expenditures, business unit divestitures, and strategic acquisitions. As a result of these client engagements and his prior experiences, Christian is well suited to engage clients in pursuit of their overarching business objectives.

[i] Progressive Farmer. “The Price of New Chemistry.” April 14, 2016. https://www.dtnpf.com/agriculture/web/ag/crops/article/2016/04/14/cost-time-commercialize-rise
[ii] AgbioInvestor 2022/CropLife International Members. “Delayed Innovation. Why are overall timelines moving in the wrong direction?” AgbioInvestor 2022/CropLife International Members
Market Sectors, Region, Services

The next 10 years in food and agriculture: Multiple technology breakthroughs herald an exciting future.

Mike J. Borel, Partner at The Context Network, spoke at the February 2022 Alliance of Chief Executives Roundtable, an online event that brought industry leaders together to share their insights on the future of food and agriculture. Borel summarized his point of view here:

Technology breakthroughs have a long history of changing and improving agriculture. From the advent of mechanization to the introduction of hybridization and chemical pest management to more recent developments in biologicals, biotech transformation and traits, precision ag, and data analytics, each significant shift has captivated the industry’s focus and, in effect, defined an era in agriculture.

What’s unique now is the remarkable number, convergence and pace of technology breakthroughs—any one of which could stand alone as a decade-defining innovation. Collectively, these simultaneous breakthroughs are ushering in an unprecedented, exciting time in agriculture.

When I think about the next five to ten years in our industry, there are five technology shifts I believe will have major, positive impacts. I’ll outline what’s currently happening with each of these breakthroughs—and why it matters for the future.

1. Data Integration, Data Analytics and Digitization

WHAT’S HAPPENING: Just look at the wealth of data generated on farms. It’s coming from tractors, planters, combines, soil testing, yield monitors, remote sensing, variable rate applications, and more. Then look at the vast amounts of data generated through marketing or operations or other business functions. The breakthrough that’s underway now is that all of this data—which has been in separate siloes—is coming together.

In the past, for instance, there was equipment data, chemical data, seed data, lending data and so on, but never the twain shall meet. With new technology platforms, multiple layers of data from different sources can be integrated and used to fuel analytics that produce valuable (often surprising) recommendations. These data-driven insights are helping producers and companies be better in countless ways—more productive, more profitable, more socially resonant and more environmentally beneficial.

WHY IT MATTERS:  Clearly, there’s a great deal of interdependence between data integration and data analytics. The next big leap will be true digitization across every facet of the agricultural sector. Digitization is when we tap data to provide personalized choices and recommendations. Think about the consumer experiences we have in our personal lives, whether shopping in our favorite stores or online. Our past and real-time behavior and interests drive which items we’re presented with, how they’re delivered and so forth. Right now, agriculture is behind on the curve on digitization, but there’s no reason the industry can’t catch up. Rural access to broadband has been a limiting factor that’s slowed digitization in agriculture, but that’s changing with satellite and 5G.

2. Electrification, Machine Learning and Artificial Intelligence (AI)

WHAT’S HAPPENING: Autoguidance/autosteering is widely adopted.  Enabled by this, robotics and smaller types of electric-powered equipment are expected to become increasingly important in production agriculture. This is possible because of seismic advances in the capacity and capability of computer chips that can perform computations on huge volumes of information in a matter of milliseconds. And with machine learning and AI, autonomous farm equipment gets better—smarter—with each use, based on the information it collects along the way. So, for instance, with each field pass, a small, unmanned robot tasked with selectively applying herbicides gets more intelligent, drawing not only from field data but from external data too.

WHY IT MATTERS:  Many aspects of agriculture are labor intensive, and the shortage (and limitations) of human labor is helping drive these breakthroughs. It’s not about robots displacing people. Producers are having a difficult time finding and hiring the people needed for thinning and weeding and for harvesting fruit and vegetable crops. Thinning and weeding are activities that robots are exceptionally good at doing, and robotic harvesting is advancing rapidly, with increasingly sophisticated ability to not only detect, reach and pluck the crop, but to determine if it’s ripe and ready for harvest. Small and mid-sized equipment has other advantage: it’s lighter than conventional equipment, reducing soil compaction, can be deployed in multiples and is suited to diverse soil conditions.

In addition to practical labor and environmental implications, these breakthroughs empower producers in more profound ways. Insights can now be gleaned—and acted upon—in fields, in the moment. Producers today are managing complex operations, but they’re often doing this from the seat of a tractor or combine. As these technologies take hold, producers will be managers of operations, not operators of machinery.

 3. Genetic Modification

WHAT’S HAPPENING: Genetic modification is already underway—and it’s poised to vault to new levels because of recent advancements in gene editing, trans genes, RNA interference (RNAi), and messenger RNA (mRNA).

In the early years of genetic modification, the industry tended to emphasize production benefits—which left consumers cold. That’s changed. Now, a number of gene-edited breakthroughs on the market have demonstrable benefits for consumers and producers alike: heart-healthy oils (high oleic soybeans), more nutrition-rich produce (high GABA tomatoes), animals with less need for antibiotics (pigs protected from PRRS), and weed-resistant crops that need fewer chemicals (SU canola). Within the U.S., gene editing still has a long runway because the USDA views it the same as conventional breeding techniques and therefore doesn’t impose additional regulations on it. That’s not the case in Europe, and regulations are still being decided in other key agricultural regions of the world.

Breakthroughs in trans genes are equally promising. One of the first FDA-approved food applications was a transgenic Atlantic salmon with one gene from the wild chinook salmon that enables the transformed Atlantic salmon to grow much faster. This advancement can help meet the rising demand for fish protein without diminishing stocks in the wild—and signals promise for future transgenic products. And I for one, love salmon—and potentially buying salmon nearer the price of chicken appeals to me!

Developments in RNA interference (RNAi) and messenger RNA (mRNA) are a whole new arena. There’s no better, more visible example of mRNA than the coronavirus vaccines that were developed in record time. Within food and agriculture, the potential applications are immense.

WHY IT MATTERS:  Today’s consumers are sophisticated, informed, and vocal about their preferences. Genetic modifications can deliver exactly the kind of food products they desire, with safety and qualitative benefits that matter to them: healthiness, taste, and texture.  Further educating consumers on the intensity of our regulatory systems that assure food safety is needed in order to overcome unfounded negative perceptions about gene editing and genetic modification.

4. Alternate Proteins

WHAT’S HAPPENING: The alternate protein market is just getting started. Right now, most people are familiar with plant-based burger replacements. What’s coming is a swell of interesting, new products like veggie-meat hybrid foods, plant-based egg substitutes, innovative and surprising plant milks (hello potato milk), tissue-cultured meat and fish products, and more.

WHY IT MATTERS:  There’s no question that demand for protein is on the rise as the global population increases, and particularly, as the middle class expands in countries like China and India. Everyone agrees the population is expanding; the only question is whether it will reach 9.5 billion or 10 billion by 2050. It will be challenging, if not impossible, to meet that demand with animal agriculture alone. Beyond the driver of population growth, there is a growing body of “flexitarians” who are interested in plant-based and tissue-cultured options to animal protein. Will these alternate proteins displace or replace animal protein? No, I believe they’ll take a share of a growing market for protein. Fundamentally, there is more than enough demand for both animal protein and alternate proteins.

Right now, the cost of meat alternatives is still too high for many consumers. I’m confident going forward that technological developments and increased scale will help reduce cost. We’ll also see improvement in the taste, texture, and amino acid completeness of alternate proteins.

5. Next-generation Biologicals

WHAT’S HAPPENING: Biologicals for crop protection and crop enhancement have been around for a long time and are the only products accepted for organic production. Historically, however, they’ve been somewhat less effective than synthetic products. Therefore, while biologicals have been useful, they’ve posed certain limitations and challenges.

Next-gen biologicals refer to newly developed biocontrols for pest management and newly developed biostimulants for plant and soil health, fertilizer and water use efficiency, and more. New discovery and optimization techniques are dramatically improving the performance of biologicals, which I believe will put the efficacy of newer products on par with synthetics.

WHY IT MATTERS:  Biocontrols and biostimulants are already prevalent in production agriculture–biocontrols particularly in horticultural crops and biostimulants in row crops. In the very near future, I believe next-gen biologicals will garner a much higher share of market in production agriculture. Within the U.S., the regulatory approval path for biologicals is much shorter and less onerous than for synthetics. As biologicals increasingly improve in efficacy, this will markedly alter the landscape for both crop protection and crop enhancement.

These five technology breakthroughs are already reshaping food and agriculture, and I expect continued, significant impacts across the value chain. I’d encourage you to consider how each of these shifts might align with or impact your business goals. It will also be important to consider these innovations through a consumer lens, as today’s consumers expect transparency and are vocal about their preferences. Now is the time to consider your own capabilities, investments and strategies. However advanced, these shifts are generally still in their formative stages, and there’s tremendous opportunity for stakeholders to secure leadership or to carve out a strong niche.

A message from Mike

At The Context Network, we’ve helped organizations identify trends and develop strategies for succeeding in changing environments for more than three decades. Through our deep business knowledge and broad network of agriculture experts, we can help you anticipate and plan for opportunities. To discuss or learn more about any of the breakthroughs I’ve touched on in this article, reach out to me at mike.borel@contextnet.com.  My Context partners and I stand ready to help.

Mike J. Borel  has revitalized, streamlined and turned around organizations to generate positive cash flow, increase market share, improve productivity and reduce costs. Mike has applied common sense and business skills to lead teams in outperforming competitors in sales and profits in every position he has held. He helps clients outperform competitors and achieve remarkable results. 

AG Development, AG Innovation, AG Inputs, AG Investment, AG Outputs Distribution, AG Production, AG Sustainability, Asia/Pacific, EEMEA, Food Distribution/Retail, Food Processing/Manufacturing, Insights, Latin America, Management Consulting, Strategy Consulting, Uncategorized

The Unintended Consequences: Enhancing Resiliency in the Egg Supply Chain, Part 1

While other protein production sectors may be making headlines during COVID-19, those along the egg supply chain are not immune to disruption. Members throughout egg’s supply chain are working through challenges presented to their triple bottom lines during this unprecedented time.

Eggs, you see, are not just produced for supermarket shelves. No. They serve a purpose for those in the foodservice and hospitality industry, often in their liquid form.  A role left in the void as demand from those food sectors all but dried up, while consumers shifted their attention to in-home dining.

The unintended consequences of a shortage of shell eggs and a surplus of liquid eggs have led many in the egg sector wondering if there is an opportunity for changes in risk mitigation strategies moving into the future. This situation also shines a light on several lessons to be learned by the agriculture industry at-large.

At The Context Network, we wanted to dive a little deeper into this industry, exploring the known and the unknown in various sectors along this chain and areas that need to be explored further. This article is part of a 4-part series that takes a big-picture look into the impacts of COVID-19 on the industry and identifies a growing need for something more.

For those not intimately familiar with the egg industry: shell eggs and eggs produced for egg products serve distinct purposes. Due to modern production efficiencies and streamlined on-site market preparations, those systems do not overlap. While a surplus of shell eggs could end up in liquid egg or dried egg form, the inverse is not easily attained. Eggs used in liquid products are not required to follow the same FDA standards and thus, when a colossal shift happens in demand, the industry is not as flexible as many would hope.

It’s important to examine each shift in the egg sector through the lens of various players to have a more robust dialogue moving forward. When you examine the biggest impacts in the sector over the last several months, several key themes rise to the top. One area that remained flat and therefore was not discussed here is the dry egg market. Unfortunately, the others have not been this lucky.

Increased Demand for Shell Eggs

As consumers shifted from eating in foodservice and hospitality settings to eating at home, grocery stores saw an increased demand for shell eggs. This sudden increase in demand was followed by a short-term shortage on the back end. As a result of these supply and demand shifts, egg prices rose sharply causing push back from many states with price manipulation accusations.

Decreased Demand for Liquid Eggs

While shell eggs saw sky-rocketing growth, liquid eggs plummeted in demand and price. In fact, between March 25 and April 22 prices fell from 55 cents to 8 cents, a price that has rebounded somewhat over the last month.

Liquid eggs depend primarily on the foodservice, hospitality and baking industries for demand. The unfamiliarity of cooking with liquid eggs combined with the standard packaging sizes made liquid eggs’ transition to the retail market difficult.  While some operations were able to meet standards for shell eggs or donate products to local food pantries, others were left dumping valuable nutrition and euthanizing animals prematurely.

Euthanasia, Waste

As demand dwindled, egg producers serving the liquid egg market were met with a flurry of economic, social and environmental implications. Price was the first shoe to fall, adding even more stress to an already financially challenged industry. But, finances weren’t the only trade-off here. As excess liquid egg was on the market, producers were left with the responsibility of its removal, with a significant volume of product ending up in landfills. With no timetable on the demand’s turnaround, many farmers made the difficult decision to begin euthanizing flocks, a decision that has long-term implications for their operations and the supply chain as a whole.

Throughout this series Context will continue to dive deeper into perspectives found on these issues throughout the supply chain. As we build the story, we continue to identify additional needs from the industry[1] as a whole. If you’re interested in working with Context to work through those issues, please contact me at matt.sv@contextnet.com

[1]United Egg Producers, Egg Industry Center and Oskaloosa Foods contributed to the development of this series.

 

Photo credit:
(Top Left) AndreaGantz, WATT AG

 

AG Development, AG Innovation, AG Inputs, AG Investment, AG Outputs Distribution, AG Production, AG Sustainability, Asia/Pacific, EEMEA, Food Distribution/Retail, Food Processing/Manufacturing, Insights, Latin America, Management Consulting, North America, Strategy Consulting, Uncategorized

A Holistic Approach to Strategy Implementation

Many food and agribusiness companies across the value chain are reassessing their strategies in light of significant ongoing industry shifts. Among these shifts, changing consumer preferences now require the food distribution chain to deliver healthier and more environmentally friendly products; advances in technology provide stakeholders with access to unprecedented volumes of information; consolidation at multiple levels is changing the competitive landscape as well as supplier-customer relationships; production innovations allow food to be grown in new ways; and capital from new investors is enabling a startup scene in the industry. However, simply adjusting a strategy to address the evolving environment will not be enough to succeed. Success also requires effectively implementing that new strategy.

Most leaders realize that good results call for both a good strategy AND good strategy implementation. Unfortunately, all too often implementation planning is too narrow in focus, targeted at just one or two of a large set of decisions that must be made. Without proper attention paid to a holistic set of organizational elements, a good strategy may still fail.

Peter Johnson, executive in residence at the Fuqua School of Business at Duke University, describes successful strategy implementation as involving both effective coordination and cooperation.

Coordination is the process of aligning activities across an organization. Leaders must decide what degree of coordination between individuals, teams, and businesses will be optimal for the company and its strategy. They must decide how work will flow, what will be shared between businesses, how sharing will occur, who is responsible for resources, where will decision rights reside, etc. The following elements are the levers that can be used to manipulate coordination:

Structure – The way in which the work done by the company is arranged. Will activity be organized by function, by product line, or by geography? Will work be centralized or decentralized? What does the reporting hierarchy look like? How is the senior team composed? An aligned structure ensures the proper teams will be in place to adequately execute the strategy. For example, Airbnb organizes into small geographic teams with high levels of collaboration with global functions to enable local responsiveness while maintaining efficiency.

Processes – The way in which activities are integrated. This element includes how decisions are made, what interfaces are in place between business units or functions, how information flows, how resources are shared, and how work progresses from one stage to another. Without well thought-out processes, strategic objectives may stall. For example, UPS manages all its businesses (air, ground, domestic, international, commercial, residential) through a single pickup and delivery network. The single network process allows UPS to maximize network efficiency and asset utilization.

Cooperation is the process of aligning individuals to behave in the organization’s best interest. In other words, this is how companies influence team members to work according to the new strategy. The following elements are the levers that can be used to increase cooperation:

Controls – Metrics that appropriately measure performance and enable leaders to ascertain how effectively the strategy is being applied and, if necessary, what changes need to be made. Choosing the correct metrics requires clearly understanding the objectives. Metrics can be highly varied, based on individual vs. group achievement, outcomes vs. behaviors, numbers vs. ratings vs. observations. Effective controls allow leaders to determine how to support, reinforce, or improve the strategy. For example, the Oakland Athletics (of Moneyball fame) discarded the common practice of measuring baseball players’ abilities to run, throw, field, and hit and instead used on-base percentage metrics to recruit winning players more economically.

Incentives – Tools used to motivate cooperative behavior, including both extrinsic motivators (pay and bonuses) and intrinsic motivators (recognition, autonomy, purpose).  With proper incentives, team members can effectively help drive a strategy forward. For example, employees at Southwest Airlines can give gratitude points to each other. This practice supports a community culture among employees, which encourages them to contribute to the strategy of making flying a fun, positive experience for customers.

Finally, one critical organizational element impacts both coordination and cooperation:

People – The talent in an organization’s workforce. Leaders must decide what knowledge, skills, and experiences are needed in which positions to successfully integrate the strategy. This may involve hiring new people, moving people to new jobs, ensuring the right mix of attributes on a team, and creating a plan for people development. Having the right people in place can make or break a strategy. For example, in order to meet the economic imperatives it faced in 2014, TheNew York Times took the unusual step of appointing a business executive, rather than someone in its news organization, to an assistant managing editor role.

Kristina Rose, a consultant with The Context Network, notes that the appropriate approach to strategy implementation will depend on a company’s current organization, resources, and portfolio. “But in all cases,” she says, “it is critical to consider the holistic set of elements that will impact the results of the strategy.” Too many leaders focus most of their attention exclusively on structural or incentive levers, when the reality is that successful implementation involves a complex, interwoven web of decisions. The complete architecture created from those decisions must be “clear (understandable across the organization), coherent (all elements fit together in a supportive and reinforcing manner), and relevant (aligned with the strategic objective)” (Johnson). If the levers are aligned correctly, an organization will get the performance desired from its strategy.

Successfully launching a strategy depends on an array of interwoven elements and decisions, just as launching a plane depends on a whole system of maintenance engineers, fuel availability, national and sometimes international airspace regulations, a customer reservation system, a maintained airstrip, and many more factors.

Of course, any shift in strategy requires a simultaneous updating of this system of levers to ensure it services the new strategy appropriately. This holds true during times of planned strategy revamps, growth of the firm over time, expansion of strategy to new geographies, expansion of business portfolio, strategic transformation, etc.

The Context Network, with its broad array of consulting, business, and subject-matter experts, has deep experience with helping clients plan their strategy implementation in a systematic, impactful way. For more information about Context’s implementation support, contact Principal Tray Thomas at tray.thomas@contextnet.com.

 

Sources:
Engineering Culture at Airbnb, nerds.airbnb.com
UPS vs. FedEx: Comparing Business Models and Strategies, Investopedia
The True Measures of Success, Harvard Business Review    
Southwestaircommunity.com
An Unusual Hire, for Uncommon Times, nytimes.com

 

AG Development, AG Innovation, AG Inputs, AG Investment, AG Outputs Distribution, AG Production, Asia/Pacific, EEMEA, Latin America, Market Sectors, North America, Uncategorized

Building The Business Case For Custom Planting

Embracing technology does not come easily to all farmers, and Ed Kasper sees a business opportunity in that reality. Kasper, a farmer and precision ag equipment dealer in northern Illinois, is preparing to offer custom planting services in his area. He figures he can share the benefits of new planter technology with farmers who aren’t ready or able to purchase the technology themselves.

Those benefits? With planting technologies improving by leaps and bounds in recent years, the discussion revolves primarily around higher yields.

  • The latest variable-rate seed meters put seed in the ground at different rates depending on field conditions. This allows a farmer to use just the right amount of seed – not planting too little in fertile ground or too much in soil that doesn’t produce as well. The result? Higher yields and less waste.
  • Down-pressure technologies use electronic sensors and hydraulic cylinders to keep the planter in constant contact with the ground so that seeds are planted at an optimal depth. Planting seeds too close to the surface or too deep can dramatically reduce yields.
  • Another technology controls seed movement from the planter to the ground so that seeds are planted one at a time with equal spacing. Rather than planting at a traditional 4 or 5 mph, a farmer can plant at up to 10 mph while maintaining proper spacing of seed, which can significantly boost yields.

Another important benefit of new planter technologies is that farmers can plant more acres during the all-important planting window. Farms are becoming larger, and that means producers feel more pressure than ever to plant when it’s exactly the right time to get seed in the ground.

Farmers are adopting new planter technology in two ways. Some – particularly those with larger operations – are buying new planters, which can cost hundreds of thousands of dollars. Others are retrofitting existing planters with new technology, which can mean investing $50,000 to $100,000.

Doug Griffin, Principal at The Context Network, notes that operators of large farms can easily see the payoff when they spend that amount of money. Those with smaller operations must look much more carefully at potential expenditures, particularly with today’s lower commodity prices. They may be cash-constrained or nervous about using new technology. In addition, they might be stretching out the life of their equipment so they can invest available cash in more land.

“Any capital investment a farmer makes is always carefully scrutinized,” Griffin says. “And as long as commodity prices stay low, farmers are reluctant to make big investments in technology – but by not using new planter technologies, they’re giving up yield.”

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The ever-present tension between investment and yield creates the niche for custom planting. A custom planter could serve farmers who won’t use the technology, can’t afford the technology, or don’t know how to use the technology. The business model would not be new; other custom for-hire services are common in agriculture. “If you hire someone else to spray, why not hire someone else to plant?” Griffin asks.

He notes that any move into custom planting would need to start with building the business case around the concept, considering the risks, benefits, and payback of such an operation. Risks and rewards will vary from location to location.

Brett Peelen, a farmer and precision agriculture technician in northwest Iowa, agrees. The biggest question, he says, is “Does it pencil out?”

He says custom planting rates in his area would make such a venture dicey. “The math doesn’t work out here yet,” he says. “The challenge will be finding that good operator … and finding the acres … I see it more as a way for a farmer to get extra income and bring a kid back home to the farm.”

Across the border in Illinois, Kasper has meticulously counted the acres he would need to make a go of it in his area. He’s also looked carefully at how many acres he can fit into a shrinking planting window. In his area, near Lake Michigan, the planting window in the past was two weeks; today, because of changing weather patterns, it’s closer to nine days. To make a custom planting operation work, he would focus first on farmers to his south, where the planting window opens earlier, and then “follow Mother Nature” north.

Griffin says all farmers are from Missouri – the Show Me State – when it comes to changes in farming operations. He suggests they test custom planting – for example, for one year or on 100 acres – to see the improved technology results for themselves.  “Let the customers experience the difference for themselves,” says Griffin.

Kasper says he understands farmers’ caution. Planting is the foundation for a farmer’s operations that year; everything else is built upon it. “Your corn planter is the lead engine of your train of consequences,” he says. “If your planter screws it up, your train goes off the track.”

Education is key to growing the market. Griffin says: “If I were an equipment dealer, I would be talking to my coop or ag retailer about the concept. If I were a coop, or retailer, I would be talking to my customers about improving yields with new planter technology. Equipment dealers must help educate retailers and coops that could use this, and coops must educate their customers.”

“This is an opportunity for equipment dealers and retailers to add value,” he says. They can offer a service that no one else offers and provides an opportunity to solve a pain point for a customer that otherwise would not have accessed the technology.

Kasper says that once you educate growers about the benefits of new technology, they’ll want it. Peelen agrees. “It’s an exciting time to be in precision ag. If you can get a guy in the cab to see what the planter does, it will win him over. That’s going to make this market explode.”

Kasper is betting his Iowa counterpart is right. “We’re going to start the ball rolling,” he says. “My philosophy is to always say yes if there’s an opportunity.”

Context has many years of experience in helping organizations in the equipment industry identify and execute go-to-market strategies that address customer needs in changing economic environments. Through deep business knowledge and a broad network of growers, dealers, and experts, Context can glean current market information to gain an understanding of what expectations exist in the particular market cycle.

For more information, contact Doug Griffin at doug.griffin@contextnet.com.

AG Development, AG Innovation, AG Inputs, AG Investment, AG Outputs Distribution, AG Production, AG Sustainability, Asia/Pacific, EEMEA, Food Distribution/Retail, Food Processing/Manufacturing, Insights, Latin America, Management Consulting, Market Sectors, North America, Region, Services, Strategy Consulting, Uncategorized

The Context Network Invests in Women in Agribusiness

The Context Network made a strong commitment as a diamond sponsor of the Women in Agribusiness Summit on September 24-26, 2018 in Denver, Colorado.

Sometimes three minutes is all you need.

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Priyamvadha “Priya” Sivakumar made the most of her three minutes when she met Context Principal Asha Lundal in passing at the Women in Agribusiness (WIA) Summit two years ago. Sivakumar was working toward her master’s degree in agribusiness when she was invited to work as a student volunteer at the summit, where she met a number of female agribusiness professionals.

While brief, her conversation with Lundal stood out. “I hadn’t realized an organization like Context existed. It seemed too good to be true, a place where I could merge my consulting experience with my passion for food and agriculture,” Sivakumar says.

Returning to the WIA Summit the following year on a coveted student scholarship, Sivakumar had already done her homework. Throughout the year, she had reached out to others at Context; at the summit, she reconnected with Lundal. That led to interviews with Context executives and an offer to join the firm as a senior business analyst. “It worked out perfectly,” Sivakumar says. “Before I even finished my graduate work, I had the perfect job.”

Sivakumar’s passion for food and agriculture has deep roots. As a child in India, she would sneak into her mother’s “forbidden” kitchen to concoct snacks, experimenting with spices. While studying food process engineering as an undergraduate, she developed a commercial product (now under patent) that shaved hours off the preparation of a traditional gravy, while preserving its taste and nutritional value.

But it wasn’t until she worked for several years as a project management analyst in telecommunications for one of the world’s largest consulting firms that she realized she wouldn’t be satisfied until she merged her professional expertise with her interest in food and agriculture. This led her to move to the United States and enroll in Texas A&M University’s graduate program in agribusiness.

Sivakumar credits the WIA Summit with providing a collegial forum where women in the industry can connect and learn from one another. “Walking into a room filled with 500 executives could feel intimidating, but it doesn’t. Everyone is friendly and wants to see you advance in the industry,” she says.

She was thrilled to learn that Context, a WIA sponsor for three years, stepped up to diamond-level sponsorship of this year’s event, which was held September 24-26, 2018 in Denver, Colorado.

Lundal also cheered Context’s increased investment. She notes that the firm has long recognized the power of assembling project teams with diverse perspectives to solve clients’ toughest problems — whether that diversity stems from gender, ethnicity, age, education, or geography. “What WIA stands for is consistent with Context’s values,” Lundal says. “It is meaningful to me personally – and it also makes good business sense.”

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The sponsorship is a natural fit, says Lauren Chupp, Associate Principal at The Context Network. The WIA Summit highlights networking, the foundation of Context’s business model. “It’s something we’re really good at – relationships and focusing on people,” she says. “I have seen, and experienced myself, that core strength we have as a company.”

Chupp says she has benefitted from strong mentors within Context, including a principal who has provided professional help and advice for more than a decade. She calls that generosity of spirit a “critical piece” of Context’s business success.

Photo: Gloria Basse, Lauren Chupp and Jessica Langley of The Context Network

Strength in numbers

The need for women in agribusiness is widely acknowledged but hard to quantify accurately, notes Joy O’Shaughnessy, managing director of HighQuest Partners, which initiated WIA. While nearly equal numbers of men and women in the United States earn agribusiness-related college degrees, [1] they do not equally share employment in agribusiness companies.

Recognition of this gap, however, can help close it. O’Shaughnessy says the WIA was born after her colleagues noticed “a distinct lack of women” at a major industry conference in 2011. She says women were being overlooked when companies chose someone to send to industry conferences – leaving them a step behind their male colleagues in continuing professional education.

“We want women to be informed and educated… If you were to take the word women out of our title, WIA would be a fantastic industry conference,” O’Shaughnessy says. “But putting women in the title helps companies recognize that they can’t just send the same person to this conference they send to all the others.”

In 2012, 212 people attended the WIA Summit. That number grew to 450 in 2013. Now in its seventh year, the conference sold out in August; more than 765 women were registered to attend.

Leadership training

In addition to providing professional development opportunities, the WIA Summit helps attendees build leadership skills and increase their presence in the business community. This year Marianne Smith Edge, Context senior associate, helped provide training in a session titled “Landing a Board Position.” A former senior vice president for the International Food Information Council and former president of the Academy of Nutrition and Dietetics, Smith Edge draws on her many years of board engagement, including her current role on the Board of Editors for Nutrition Today and previous terms on the USDA National Research, Extension, Education, & Economics Advisory Board, among other boards.

Gloria Basse, Context senior associate and WIA board member, calls such training critical. “We need to develop and grow women leaders,” she says.

Basse stepped into WIA leadership after attending one of the early conferences. She noticed that no presentations dealt specifically with livestock, her specialty. “The question for me was, how do I find, in a sea of people, the people with whom I really want to network?”

Her answer was to initiate a dinner the next year for women in protein, an event that has become increasingly popular each year, drawing together women with similar professional interests. She also joined the WIA board four years ago. “It has given me a terrific opportunity to meet other senior women leaders,” she says. “If I would have had exposure to WIA early in my career, I would have had a much different experience.”

It’s important, Basse says, for every professional woman to build a strategic network of women and men, inside and outside her company, who can help her advance her career. The connections a woman can make through WIA enhance that network, she says.

Networking toward an evolving future

As agribusiness has evolved, Lundal and Chupp note, Context has grown from its origins into a global strategy and management consulting firm working for clients across the entire food system and across geographies. “We’re playing in a much broader space,” Lundal says. “It’s business-critical for us to have and leverage a variety of perspectives in unique and valued ways for our clients. There are legitimate drivers for thinking about the makeup of our team.”

Chupp notes that the changing nature of Context’s work has attracted increasingly diverse individuals, with more women and people of varied backgrounds making important contributions. “We’re in an evolution, right alongside our clients who are experiencing parallel changes to their workforces and their customers. Ultimately, we’re taking steps to ensure our teams reflect the world we live in and do business in,” she says.

Among those steps, Lundal says, are progressive approaches to employment that attract today’s agribusiness and food industry professionals, including millennials and Generation Zs. For instance, Context was an early adopter of virtual teams. Such teams enable the company to leverage key talent around the globe regardless of physical location and encourage its team members to live where they wish and to engage in projects about which they are passionate. She admits such flexibility is key to her own relationship with Context.

She also notes that, in the changing environment, some of the strongest contributors are women.

“I personally want everyone to understand Context’s commitment to diversity and the value we see in it,” she says, calling the WIA venue “very aligned … to what we think it takes for us and our clients to be successful.”

Sivakumar spread the word early about the upcoming conference. “I am interested in making sure other women get the benefit of this,” she says.

Lundal sees a payoff in the future. “Today I am the only female principal among 12 at Context,” she says. “But with the talented women in our organization, it’s clear I won’t be alone for long.”

The Women in Agribusiness Summit brings together women who are passionate about agribusiness and the need to recruit, retain, and advance women in the industry. It provides an opportunity to network, learn about industry outlooks and trends, and develop valuable professional skills.

 

[1]https://nces.ed.gov/fastfacts/display.asp?id=37

AG Development, AG Innovation, AG Inputs, AG Outputs Distribution, AG Production, Asia/Pacific, EEMEA, Insights, Latin America, Management Consulting, North America, Strategy Consulting, Uncategorized

The Future Face of Service

Farmers have long relied on trusted service providers to advise them on equipment, crop inputs, accounting, and more. The concept of “great service” is intertwined with the familiar face of an agronomist or local tractor dealer, a warm handshake, and a conversation in the field or across a desk. While the need for trustworthy service isn’t going anywhere, The Context Network predicts a ground-shifting change in the character of service that farmers will expect in the future.

During the next 10-25 years, technological advancements in precision agriculture, coupled with disruptive entrants in the market, will dramatically redefine the service-based ag economy. While relationships will remain a critical aspect of service, they won’t hinge upon any particular individual. Rather, service will center on precision ag platforms that help deliver insights. The Context Network Principal Doug Griffin says, “The most valued service providers will be those who can interpret a grower’s data and make smart recommendations with the profitability of a farmer’s entire enterprise in mind.”

Based on recent conversations with industry experts, Griffin recognizes big opportunities—and potential blind spots—for the ag equipment sector in this future service landscape. He observes, “Equipment dealers and manufacturers have a head start with precision ag tools that collect valuable data, so the equipment channel is well positioned to deepen advisory relationships by helping farmers understand their data and creating complete solutions that boost farmers’ efficiency and profitability.”    

However, dealers and manufacturers who rest on their laurels could find themselves displaced by new entrants with a price-first/service-second offer. As ag equipment become smaller, autonomous, and more interoperable, web-based equipment sales are truly viable, which opens the door for new purchasing venues. Griffin says, “The equipment market isn’t immune to direct retailer or virtual retailer concepts we’ve seen gain traction in the crop input and ag retail market. To remain relevant, equipment dealers and OEMs need to develop differentiated services that are less about selling equipment and more about creating equipment-based solutions to growers’ problems.”

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For example, instead of the traditional model in which a farmer owns his own equipment, the farmer of the future might prefer to pay an annual fee that ensures timely access to adequate horsepower to farm “x” number of acres and perform “y” operations. In the model of the future, equipment services providers will “prescribe” equipment fleets that are seasonally timely and impeccably matched to the needs of a farmer’s operation.

Griffin says this change is already underway as farmers seek to minimize the uncertainty and risk of owning and maintaining increasingly expensive and technologically complex equipment. He says, “Farmers absolutely want the capabilities the latest equipment provides, but they don’t necessarily want that asset on their balance sheet. They’re already shifting the financial risk of owning equipment up the channel to dealers and manufacturers through leasing models and maintenance agreements.” In the future, complete equipment solutions are likely to emerge that supplant traditional leasing, financing and ownership models. This will have a significant impact on equipment manufacturers and dealers as capital requirements change and profit realization shifts.

With these changes in the marketplace, the equipment channel has an opportunity to secure its place as “trusted advisor” role by delivering complete solutions and services, rather than merely products. The Context Network has many years of experience in helping agriculture equipment organizations identify future trends and develop strategies for succeeding in changing environments. Through our deep business knowledge and broad network of growers, dealers, manufacturers and other experts, we can help anticipate and plan for long-term market opportunities.

For more information, contact Doug Griffin at doug.griffin@contextnet.com.