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The Unintended Consequences: Enhancing Resiliency in the Egg Supply Chain: Consumers, Part 4

COVID-19 has challenged numerous global and U.S. supply chains, shedding light on weaknesses in the systems.  The food supply chain certainly was not immune. While bare shelves and empty coolers are eye-opening and may seem temporary to consumers, the impacts on the disruption will have long-lasting implications from an economic, environmental, and social standpoint.

In this fourth and final installment of our Unintended Consequences series, we explore the implications and future outlooks for consumers as it relates to the egg supply chain.

Consumers have seen several scenarios play out due to COVID-19. With the egg industry, first came the shortage on retail shelves and a temporary increase in cost. As dominoes fell around them, consumers got a sneak peek into how their food system operates, but few were able to completely grasp the complexities of getting food from farms to new end-users, in this case, the grocery store.

As we mentioned previously, two-thirds of the egg industry grows eggs for shell eggs or retail use. The other one-third of the industry grows eggs for egg products. Unfortunately, there is little overlap between the production systems and therefore transitions from egg product to shell eggs for retail use were not as easily attained, causing a shortage on one end while the other side had a surplus. While the shortage of eggs in a retail market was temporary, there have been some long-term economic, environmental, and social impacts that will benefit bottom lines moving forward.

 Long-Term Economic Impacts:

Product Availability at Restaurants, Cafeterias, Schools: As restrictions of shelter-in-place orders lift, and consumers return to a new “normal”, there may be an impending shortage of eggs available at food service entities. While there are supplies to meet demands now, we must be cognizant of the volume of birds temporarily taken out of production through molting and permanently through euthanasia, a number that is still not readily available, but it is likely to be significant. Building up production to pre-COVID-19 levels will take time. Between rebuilding flocks, there are only so many chicks available annually, and while growing them to egg-producing maturity, a 16-20 week process, supplies will be limited within the egg product sector. The length of time and financial impact are areas that need to be examined further.

Production Losses: Rural communities may also be impacted economically from these shifts in consumer spending. The Midwest is the epicenter of egg product production and thus will see scenarios play across the Heartland. There will be some farms with significant debt loads that cannot weather this storm. Losses of jobs, local tax revenue, and more will add up for these individuals and communities at-large, adding more burden on already financially strapped rural America.

Environmental Impacts:

Resources– Food waste is an environmental concern. Dumping liquid egg products and hen carcasses can be viewed as just that – food waste. While we’ve explored the reasons whythis happened, we still cannot ignore the implications of throwing away food. There is more to dumping than just the economic impacts to the producers. There are also wasted resources: those needed to produce the feed and also grow the flocks. What is the environmental cost of having those resources wasted? What sort of resources will it take for the industry to get back to “normal”?         

Landfill Waste – Another thing to consider is the additional landfill waste brought from these changes. Rotting, wasted food produces methane gas – something climate scientists are already watching closely. What is the overall egg industry environmental impact when a percentage of products goes to landfills?

Social Impacts 

Food Shortages/Security– The U.S. prides itself as an efficient, modern food system. For consumers, are their impacts on perception of our food security with shortages that will span for months to years? Are there impacts or movements to push for more ease in food pantry donations or local points of sale? What can the industry do to proactively manage changes or needs of the consumer?

Visuals of Euthanasia – While the egg industry has done a good job to date of managing the crisis of having to depopulate flocks, other parts of the food production industry have not faired so well – with visuals of mass euthanization and dead animals. What are the repercussions to workforce members whose day-to-day responsibility and self-actualization are centered on being caregivers when having to end the life of the flock prematurely? And the impacts on consumer’s from these visuals? Granted, we are leveraging experiences from depopulations due to diseases like high pathogenic avian influenza (HPAI), but depopulations triggered by economics may be different. And, are there lessons the egg industry can be learned from this experience to prepare for future crises?

This series has certainly laid out a broad range of perspectives for the egg industry and identified gaps for the industry consider further. At this point, there is still a lot of unknowns. But, that is the significance of bringing the industry together, sharing perspectives, borrowing from adjacent industries, and developing a plan of action moving forward.


Throughout this series, The Context Network has performed a deep dive into the intricacies of the egg industry by including perspectives spanning the supply chain. We’d like to thank United Egg Producers, Egg Industry Center, and Oskaloosa Foods for their contributions to this series.

If you’re interested in working with Context to work through these or any other issues, please contact me at matt.sv@contextnet.com 

The Unintended Consequences: Enhancing Resiliency in the Egg Supply Chain: Food Service, Part 3

Consumer eating habits have changed in the past 10 weeks. Technomic projected in late March that the foodservice industry – those charged with preparing meals outside the home – could be facing as much as a 27 percent revenue decrease for 2020 compared year over year to 2019. These changes in consumer eating led those in the foodservice industry to reduce and cancel purchases of egg products resulting in significant social, economic and environmental (triple-bottom-line) impacts on our local communities and around the country.

Canceled events and conferences led to fewer meals being served by the Food & Beverage part of the hospitality industry. Less dining guests led to menu adjustments across the board from your everyday fast food to sit down dining. School closures led to breakfast no longer being served in districts across the country. While McDonald’s dropping all-day breakfast or a local restaurant not offering a favorite dish during this period may be a minor inconvenience to many, it has created significant triple-bottom-line impacts on the egg industry.

Recipe Searches Increase with Home Food Consumption

As we’ve mentioned in the first two articles in this four-part series, the egg industry is divided into two sectors: shell eggs and egg products. Shell eggs have had their share of challenges, with home consumption growing 220 percent. However, this article will focus more on the foodservice and egg product challenges in the marketplace today.

The wholesale market for egg products looks considerably different than shell eggs. Egg products are pasteurized and sold in a variety of refrigerated, frozen and dried forms to meet the needs of quick-service restaurants, institutions, hospitality services and food manufacturing. To understand the scope, we must recognize that eggs aren’t just used by these customers as “eggs” for breakfast or salads, but rather they are also regular ingredients in sauces, dressings, pasta, baked goods and more.

Some in egg product production serve only one or two of these segments, while others offer a variety of products, helping to insulate their business when unforeseen circumstances arise.

For many in the egg product sector, the market may not have evaporated over the last several months, but rather shifted end-use purpose. For example: where restaurant-style individual servings of sauces, dressings and mayonnaises once drove production, retail demand has found a way to fill some of the voids with many consumers stocking their pantries with sauces, salad dressings and mayonnaises. A temporary market shift but one welcomed by those filling those needs.

Those who serve both the liquid and dried egg markets were also able to shift some product to meet changing demands. Spring and Summer are normally a transition period for dried eggs, as food manufacturing demand traditionally falls during these months. The dried egg product, which is used in products such as pasta, soups and cake mixes, has remained steady in demand during COVID-19 as manufacturers attempt to meet the new consumer grocery demands of products in the middle of the store.

Those unable to shift production into differing segments or products were faced with tough decisions, keep feeding birds with no end market, or … the alternative? One choice was continuing to feed the hens and deliver truckloads of liquid egg products to landfills. Another choice was molting.  A process that takes the birds out of production for 8 weeks. This option allows producers to “wait and see” how the market plays out over two months and then choose to re-enter production or depopulate the flock. For others, the financial implications of feeding birds with no market delivered severe economic impacts to their balance sheet and led to early euthanasia and mass depopulation for millions of hens.

How many birds have been taken out of production? At this point, we do not know. USDA reports can provide a clearer picture, but still not a crystal ball.

What we do know is this: the recovery time frame will not be a flip of a switch. As restaurants come back online, egg product producers are seeing an uptick in demand from their loyal customer base. However, the requests are much less than pre-COVID-19 numbers. At this point, the market demands can be met. But, that can only last so long. Delays from bringing a bird back from molting, as well as the delays in replenishing flocks – shortage of pullets (immature hens), plus 16-20 weeks until egg production, will impact the foodservice industry in months to years ahead.

Throughout this series, The Context Network will continue to dive deeper into perspectives found on these issues throughout the supply chain[1]. As we build the story, we continue to identify additional needs from the industry 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 this series.

The Unintended Consequences: Finding Resiliency in the Egg Supply Chain: Egg Production, Part 2

Supply chain integration and scaled production have afforded the U.S. egg industry many efficiencies. When everything works as designed, the industry runs smoothly, anticipating and addressing known threats and supplying market demands consistently with little to no disruption. However, the impacts of COVID-19 on the egg industry have been nothing less than catastrophic to many players within the system.

To understand the impacts on the industry, you must first understand the industry as it functions today. We mapped out the two different production systems, shell egg and egg products, in the first article in this series. You can find that here. As things played out in mid-March, these sectors found themselves in verydifferent, yet stressful situations:


Shell Eggs

Shelter-in-place guidance caused a skyrocket for demand in retail locations with unavoidable shortages driving temporary price increases as retailers competed for the precious commodity. Today, prices are back to similar levels seen before COVID-19’s shift in consumer spending.


Egg Products

Many in the egg product market serve only foodservice customers. A blessing when the major restaurant chains, schools and institutional cafeterias are running normally, a hindrance when their customers took a significant hit as consumers, students and office workers sheltered at home. The demand slump caused prices for the liquid egg to plummet, dropping roughly 80 percent in a matter of days. While the price has rebounded slightly as some states and regions begin slowly reopening, the future remains very much up in the air.


These situations led to some serious implications for the egg industry. Egg producers leaned on the Food and Drug Administration to grant temporary changes to protocols required to sell into the shell egg market, hoping to alleviate the shortages on one end of the supply chain and the over-production on the other.

FDA granted these waivers on April 6, 2020, with some restrictions. While appreciated, the delay in the decision caused significant economic, social and environmental implications.

Because eggs are a relatively small market, they do not see futures traded on platforms like other raw materials. Rather, they rely on independent market reporting through Urner-Barry, an industry-leading market specialist in egg, meat, seafood and other related food industry segments.

As the dust settled in March and April, shell egg market producers found themselves as the target of price-gouging accusations and lawsuits from several state attorney generals. Liquid egg producers began seeing the impacts, which ultimately have only just begun. They’ve seen contracts ended through force majeure, causing them to dump inventory into landfills, and halt production through either molting or pre-mature euthanasia and depopulation of millions of hens.

For those in production, this left many asking for changes and flexibility in the system. Could this have been avoided? Possibly. Are there things that can be done to prevent it from happening again in the future? Quite likely.

Like with any challenge, there are often insights industries can pull from other’s experiences. The egg industry doesn’t need to look hard to find these insights within their history and other adjacent agriculture sectors.

National Poultry Improvement Plan

First, we must look at the National Poultry Improvement Program (NPIP), which dates back to the Great Depression. The voluntary program has set a precedence in public/private programs for the poultry industry and has helped curb threats to the industry in the past, including expanding to assist in managing more recent disease outbreaks. With an elevated need for innovation due to COVID-19, could the NPIP once again evolve and continue bringing the industry together with state and national regulators to find common ground? Could such innovations have an opportunity to improve resiliency in the poultry industry and further food security in the United States?

Federal Crop Insurance Program

As we talk about food security, another area to garner insights from is the Federal Crop Insurance Program. A public-private partnership that allows each private, authorized company control in writing and reinsuring policies, marketing the products, adjusting and processing claims, training, and record-keeping. The program is a means to keep crop insurance affordable to producers, providing the efficiencies of the private industry and the regulatory and financial support of the federal government. The program certainly has evolved over the years, including additions like the Dairy Revenue Protection program in 2019. In this example, dairy producers are protected against unexpected declines in the quarterly revenue for milk sales. Could the egg sector benefit from a public/private insurance program that provides risk mitigation and disaster relief?

Risk Mitigation

Risk mitigation can also come in the form of financial decision-making. For many in agriculture and raw material sectors, price transparency from the futures market provides an expectation-setting experience for everyone involved. The producers rely on the futures market to make production decisions, end-use customers rely on it to make purchasing decisions. Could market transparency lead to more informed decision making across the entire supply chain? Could it assist all parties including consumers in the long-term?

There are certainly more avenues to explore and questions to answer in a post-COVID-19 egg sector. What does the new industry look like? How do we protect against major disruptions in the value chain again? If the flexibility to meet consumer demand for a safe, wholesome, nutritious product is the ultimate goal, how do we get there in a way that makes economic, social and environmental sense?

Throughout this series The Context Network will continue to dive deeper into perspectives found on these issues throughout the supply chain[1]. As we build the story, we continue to identify additional needs from the industry 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 this series.

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

 

Context joins Ag Industry’s Role in Youth Career Development

As the agriculture industry continues to expand, so does the growing demand for a diverse and well-prepared workforce. The National FFA Organization is playing an active role addressing modern agriculture industry challenges in several ways. With an ever-growing, diverse membership, FFA develops tomorrow’s workforce through skill-building career development events (CDE) centered in agriculture education for high school students across the United States.

These CDEs provide those in the ag industry a glimpse at the promise of what’s next from up and coming, talented young business people. One example of the active, modern workforce development FFA brings to the table can be found in the Marketing Plan CDE, sponsored by The Context Network.

“FFA challenges teams to market an actual product, supply or service in their community and solve a problem for a real, operating business,” says Josh St. Peters, executive vice president for Context. “These students are learning everything from market research to data analysis and strategic planning – all things that are incredibly relevant to the projects we deliver for our clients.”

Regardless of the industry, customer engagement is essential to a successful business. For those in agriculture, having a marketer that understands your business and your customer’s business can be critical.  That’s where FFA’s Marketing Plan CDE comes into play and why Context supports the national competition each year.

Teams of three students each compete by preparing a complete marketing plan and presenting it. While preparing the plan, they take into considering current market status, industry trends, competitors, targeted audience and audience behavior. These insights drive their development of budgets, as well as goals and the strategies to reach them. Measurement is also essential to the development of the plan and students identify key performance indicators that signal whether their marketing plan, once implemented, is successful.

“The quality of our students and their marketing plans is pretty incredible,” says Donn Randall, who leads up the competition for National FFA. “It is truly a very realistic process of working with a business to identify opportunities and shape a strategic plan for growing business.”

By teaching the essentials required to reach success in marketing and providing students a platform for learning to do and doing to learn, the Marketing Plan CDE prepares students for careers in business, marketing, advertising, association management and more. This year’s competition features 34 teams from across the country, and takes place during the National FFA Convention in Indianapolis.

Christian Guffy Named Principal

An accomplished ag industry leader, Christian Guffy’s experience in consulting, strategy development and financial analysis led to his recent promotion as Principal for The Context Network. Guffy’s promotion makes him the 10th Context principal, joining a leadership team continually focused on advancing the food and agribusiness industries across an ever-changing global value chain.

Guffy joined the Context team in 2014 and quickly put his experience to work while helping clients achieve their overarching business objectives. In his role as principal, Guffy will spearhead business development and project delivery across accounts throughout the ag value chain, while also providing strategic direction to the firm and developing the broad network of individuals within The Context Network.

“It’s important to recognize the important contributions Christian has made to our clients and business,” said Context Principal Mike Borel. “His talent and commitment will make our team even stronger, and his leadership will support the firm’s strategic growth, as well as and the advancement of agriculture.”

Guffy brings a wide-range of ag sector experience to his role as Principal and covers markets ranging from ag development, innovation and inputs to sustainability, food distribution and food processing. Geographically, he is focused in North America and Latin America.

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

 

New Investments Redefining LATAM Ag & Food Landscape

A confluence of trends has sparked sizeable investment in agriculture and food sectors in Brazil, Argentina, and other Latin American countries. The investments are historically unique, not only because of their scale, but because of who is making them and where they’re coming from. The flow of funds and entrance of new market players has significant implications across the value chain, creating both risks and opportunities for established players.

Sovereign wealth funds gain influence

The first trend revolves around an influx of foreign sovereign wealth fund (SWFs) investments in the region. José Gobbée, senior associate with The Context Network, says, “In recent years, sovereign wealth funds from China and the Middle East have actively acquired assets and invested throughout the agricultural supply chain, from ag inputs to farmland to distribution networks to food manufacturing.”

Gobbee, who is based in Buenos Aires, Argentina, ties the activities of SWFs in South America to strategic policies emphasizing food security in countries like Saudi Arabia and China. He notes, “Sovereign wealth funds are acting to ensure their countries have access to the resources they’ll need in the future. Recognizing their dependence on food imports, they’re seeking to gain more control of food value chain.”

A USDA report[i] released in April 2018 concurs that China’s investments and acquisition in South American agriculture are closely tied to food security concerns. According to the report, China’s five-year “go global” plan spurred “large-scale, competitive food conglomerates to produce grains, oilseeds, and sugar crops on rented lands … and then to transport these crops back to China to balance supply and demand.” The report also observes that China’s recent investments in pork, ag trading, and farm input companies suggest that acquisition of foreign technology to improve agricultural productivity has become another important objective.

Other SWF activities include the Saudi Agricultural and Livestock Investment Company’s (SALIC) 28% acquisition of Minerva, the third-largest meat company in Brazil, just one month after Brazilian beef imports to Saudi Arabia were approved. Further SALIC acquisitions in Uruguay, Argentina, Paraguay, and Colombia are expected in coming years. Additionally, an agricultural fund linked to the Qatar Investment Authority has invested in Adecoagro, one of South America’s largest agribusinesses.

Institutional investors seek alternatives in ag

The second trend driving increased investment in South American agriculture reflects a global shift among institutional investors toward alternate asset categories. Pension funds, hedge funds, and private equity firms are looking beyond traditional asset classes with waning returns toward alternative assets like agriculture that may offer more profitable returns.

Cassandra Oliveira, Context consultant based in Sao Paulo, Brazil, describes a superabundance of new financial resources in the agricultural industry, noting, “Investors are eyeing alternative investments that can achieve higher returns. Ag and food supply chains, as well as farmland, are promising targets.” In addition, she says, agricultural investments are seen by some investors as more stable and less risky than other categories.

Globally, investment in agriculture as an alternate asset category has multiplied fourfold in just 12 years (see Figure 1), with investments in South America second only to North America. And this appears to be just the beginning. Agriculture is still a 3% of the 6.6 trillion that the alternative assets category accounts for. Global ag investments are projected to triple by 2030 according to research conducted by investment analyst GOAGRO in coordination with the Centro de Agronegocios y Alimentos of Austral University.

Venture capital funds are also actively investing in agricultural technology startups in the region, seizing on support from regional governments as well as corporate venture funds. New agtech accelerators in the region include Glocal Managers, SP Ventures, and The Yield Lab LATAM, all established with matching funds from Brazilian and Argentina governments.

Robust potential for expanded footprint, higher productivity

The third driver of agricultural investment in the region reflects a heightened recognition that South America is well positioned to satisfy rising global demand for food, which of course ties into the other two drivers.

Many experts believe South America will supply as much as 50 to 60 percent of the increased food demand from Asia. This belief stems from the region’s inherent potential for yield improvement and land expansion. “While Brazil is already a leading global producer of crops like soybean, the country lags in productivity compared to other leading producers. With technological innovations and infrastructure improvements in the region, yields will certainly improve,” Oliveira says. According to 2016 Food and Agriculture Organization data (FAOSTAT), Brazil’s corn yield averages 39% of U.S. yield, and its soy yield also trails at 83% of the U.S. In addition, Brazil could increase corn and soy area by 10 million hectares in the next five to 10 years, while Argentina could add six to nine million hectares in the same timeframe.

Given the flow of investments in the region, established players and new startups alike are wise to prepare for impacts by asking critical questions, such as:

  • With more foreign ownership of input companies and large farming groups, how should they communicate or market differently?
  • How will closed-loop systems affect competition in the region? For example, South America’s grain handling sector is increasingly facing competition from Asian-owned grain handling companies.
  • Are there opportunities for new partnerships, financial instruments, or distribution agreements with investment groups?
  • How can existing companies make their offering more attractive to outside investors? For instance, many pension funds from European countries will not invest in companies without certifications (i.e., environmental, social, traceability, antibiotic-free, etc.)

Context’s South American team delivers valuable perspective on the changes coming to the industry. With our unique combination of strategy competence, food/ag industry knowledge, and unrivaled experts, we are equipped to provide objective perspective to help companies make informed and rational decisions.


For more information, contact Context Principal Christian Guffy at christian.guffy@contextnet.com 

[i]https://www.ers.usda.gov/publications/pub-details/?pubid=88571

Gene Editing: How Will European Ruling Impact This Potent Game Changer in the U.S.?

Gaining Consumer Support Remains Key

A July ruling in European Union courts signals a setback to proponents of gene-edited crops. While most scientists argued that crops using new gene-editing technologies should be exempt from restrictions previously imposed on trans gene genetically modified crops, this argument did not prevail in the EU.

Regulatory freedom to operate is key. While regulatory support for gene-edited crops has occurred in the U.S., the European ruling makes it clear that securing regulatory and consumer support continues to be crucial and not assured.

Gene editing gripped the imagination of all facets of the agriculture industry, from seed companies to food companies to livestock breeders to ag tech investors. Earlier gene editing tools like zinc finger nucleases (ZFNs) and TALENS paved the way for newer, faster, less expensive, and more reliable tools, of which CRISPR-Cas9 is currently the most widely embraced.

Used in plant breeding, CRISPR-Cas9 can selectively snip a gene that carries a negative trait and replace it with one carrying a desirable trait from the same plant species. Genetic changes that would take years or decades with the trial-and-error process of traditional breeding can now be achieved in a matter of months. Accordingly, agricultural possibilities are seemingly limitless, with scientists already producing mushrooms that don’t brown or bruise from handling, waxy corn with disease resistance and drought tolerance, and soybeans that produce healthier oil, to name a few.

Agricultural technology and investor conferences around the world have been showcasing gene editing and spurring lively debates about the technology’s potential and challenges. There’s no question that gene editing technology could have immense impact, paralleling or even eclipsing previous industry innovations such as crop protection discoveries in the 1970s and 1980s and genetically modified organisms (GMOs) in the mid-1990s to current time.

However, regulatory and consumer acceptance will be paramount, as we have learned (and continue to learn) from the introduction of GMO crops and products. With 6.8 million people added to the planet every month, it’s clear that both genetic modification AND gene editing can play a crucial role in increasing productivity and improving the sustainability of our food production.

Development is progressing fast, but seed and food companies in our industry still have an opportunity to engage consumers by thoughtfully prioritizing which genetically edited crops are brought to market. You never have a second chance to make a first impression.

While it may be tempting to focus on first on genetically edited products that are farmer centric (i.e., tackle farmer concerns such as weed and insect resistance and yield enhancement), these benefits don’t speak to consumers nor do they stimulate consumers’ support or acceptance of the technology. We need to talk to consumers right from the start to find out what benefits they value and what changes they fear.

It will be valuable to introduce “consumer-centric” products that offer attributes valued in today’s marketplace: healthier, more flavorful, longer lasting foods. Furthermore, to support consumer adoption, new products must set the gold standard for consumer transparency, going beyond mandatory disclosures.

The Context Network is uniquely positioned to help companies across the value chain by prioritizing opportunities in gene editing. In many instances, the products that can be on the market most quickly (i.e., Bt resistance, yield enhancement) are not necessarily those with consumer-facing benefits. We can help facilitate discussions and connections with all levels of the value chain, starting with grocers and retailers to understand their wants and needs. Furthermore, gene editing opportunities exist for everything from multinationals to mid-stage companies to boutiques, and Context can assist in identifying strategic partners and licensees.


For more information, contact Mike Borel mike.borel@contextnet.com or James Mann james.mann@contextnetwork.com.

*Council for Agricultural Science and Technology (CAST). 2018. Genome Editing in Agriculture: Methods, Applications, and Governance—A paper in the series on The Need for Agricultural Innovation to Sustainably Feed the World by 2050. IssuePaper60. CAST, Ames, Iowa.

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.