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.

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.

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.

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 10^th 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 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

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.